Document ID: SEC-2022-0775-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2022-06-07T04:00Z

[Federal Register Volume 87, Number 109 (Tuesday, June 7, 2022)]
[Notices]
[Pages 34737-34740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12171]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95021; File No. SR-NSCC-2022-007]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Revise the Voluntary Termination Provisions of the NSCC 
Rules for Limited Members

June 1, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 27, 2022, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. NSCC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) \3\ of the Act and 
subparagraph (f)(6) \4\ of Rule 19b-4 thereunder. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change of NSCC consists of modifications to 
NSCC's Rules & Procedures (the ``Rules'') \5\ to revise the voluntary 
termination provisions of the Rules in order to provide that a Limited 
Member may be deemed to have voluntarily terminated its membership if 
NSCC is unable to contact the Limited Member's authorized 
representatives, and the Limited Member has not used NSCC's services 
for at least 6 months. The proposed changes are described in greater 
detail below.
---------------------------------------------------------------------------

    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at https://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change consists of modifications to the voluntary 
termination provisions of the Rules in order to provide that a Limited 
Member may be deemed to have voluntarily terminated its membership if 
NSCC is unable to contact an authorized representative of the Limited 
Member, as designated by the participant pursuant to Rule 5,\6\ and 
there has been no activity in the account by the participant for at 
least 6 months. The proposed changes are described in greater detail 
below.
---------------------------------------------------------------------------

    \6\ See Rule 5, Section 2, supra note 5, which requires that a 
Limited Member appoint a representative that is duly authorized in 
the name and on behalf of the Limited Member to sign all 
instruments, correct errors and to perform such other duties as may 
be required under the Rules and the Procedures and to transact all 
business requisite in connection with the operations of NSCC.
---------------------------------------------------------------------------

(i) NSCC Membership Types/Limited Members
    NSCC has several types of membership with different access levels 
to services.\7\ Generally, such membership types can be categorized 
into ``Members'' which are full-service participants that have access 
to NSCC's central counterparty services and ``Limited Members'' whose 
access to services is limited to certain services by membership type 
specified by NSCC.\8\ The services available for Limited Members are 
``non-guaranteed'' services--meaning that NSCC does not act as a 
central counterparty or guarantee payments for transactions conducted 
through these services.\9\ If a Limited Member using non-guaranteed 
services fails to pay for a transaction at settlement, NSCC does not 
guarantee the payment and may reverse in whole or in part any credit 
previously given to the contra side.\10\ As a result, NSCC bears less 
risk for payments relating to non-guaranteed services than it does for 
payments relating to its guaranteed services.
---------------------------------------------------------------------------

    \7\ See Rule 2, supra note 5, which describes various NSCC 
membership types.
    \8\ Id.
    \9\ See Addendum D of the Rules, supra note 5.
    \10\ See Addendum D of the Rules, supra note 5.
---------------------------------------------------------------------------

(ii) NSCC Termination Provisions
    NSCC has several Rules relating to the termination of a Limited 
Member's membership. Those Rules include

[[Page 34738]]

provisions that allow NSCC to terminate the membership of a Limited 
Member involuntarily (i.e., ``cease to act'') if the Limited Member 
violates the Rules or in certain other circumstances listed in the 
Rules (``Involuntary Termination Provisions'') \11\ and provisions that 
provide that Limited Members can voluntarily terminate their membership 
with NSCC. Section 5 of Rule 2B \12\ contains provisions relating to 
the voluntary termination of a Limited Member's membership 
(collectively, the ``Voluntary Termination Provisions'').\13\ The 
Voluntary Termination Provisions generally state that a Limited Member 
may terminate its membership by providing NSCC a voluntary termination 
notice, and such termination will not be effective until NSCC has 
accepted the termination notice. The Voluntary Termination Provisions 
provide that NSCC's acceptance shall be evidenced by a notice to NSCC's 
participants announcing the Limited Member's termination and the 
effective date of the termination.
---------------------------------------------------------------------------

    \11\ See Rules 18 and 46, supra note 5.
    \12\ Section 5 of Rule 2B, supra note 5. Note that although 
Settling Bank Only Members are listed as Limited Members (See Rule 
2, Section 2(ii), supra note 5), Section 5 of Rule 2B does not apply 
to Settling Bank Only Members. See also Rule 2, Section 2, supra 
note 5 which states that when the Rules refer to ``Members and 
Limited Members'', the reference includes all member types; when 
reference is made to ``participants'' in the Rules (as in the 
Voluntary Termination Provisions), the reference generally means all 
participants other than Settling Bank Only Members, unless the 
context makes clear it refers to one or more specific member types. 
Section 5 of Rule 2B refers to all Limited Members except for 
Settling Bank Only Members. Section 5 of Rule 2B, supra note 5.
    \13\ The Rules also contain voluntary termination provisions 
related to a loss allocation withdrawal in Section 6 of Rule 4 that 
would not be affected by this proposed rule change. See Section 6 of 
Rule 4, supra note 5.
---------------------------------------------------------------------------

(iii) Abandoned/Dormant Accounts
    Neither the Involuntary Termination Provisions nor the Voluntary 
Termination Provisions explicitly provide for a situation where a 
Limited Member does not provide a voluntary termination notice, stops 
using its account, and NSCC is unable to establish communications with 
the Limited Member. This could occur for instance if the Limited Member 
has gone out of business, merged into another entity and/or liquidated 
without notifying NSCC. Although Limited Members are required to notify 
NSCC of any material organizational changes and if they no longer meet 
continuing membership standards,\14\ NSCC may not know if a Limited 
Member has undergone such a change until NSCC has been notified, NSCC 
discovers the circumstances due to its ongoing monitoring of its 
Limited Members,\15\ or the Limited Member fails to deliver financial 
statements or other reports required to be delivered to NSCC 
periodically.\16\
---------------------------------------------------------------------------

    \14\ See Section 2.B of Rule 2B, supra note 5.
    \15\ See Section 4 of Rule 2B, supra note 5, which provides that 
certain members will be monitored and reviewed on an ongoing and 
periodic basis.
    \16\ For instance, Section 2.A of Rule 2B, supra note 5, 
requires that a Limited Member provide a Cybersecurity Confirmation 
to NSCC every two years. If a Limited Member has gone out of 
business and/or liquidated, it would eventually fail to provide its 
Cybersecurity Confirmation.
---------------------------------------------------------------------------

    It is likely in such a situation, that the Limited Member would 
eventually violate a Rule, such as failing to provide a Cybersecurity 
Confirmation \17\ or another ongoing membership requirement, and NSCC 
would eventually become aware that the Limited Member has effectively 
abandoned the account. For instance, as a result of following up with 
Limited Members on the Cybersecurity Confirmation requirement, NSCC has 
recently discovered that there are currently Limited Members that have 
not used NSCC's services for over 6 months. In addition, NSCC has been 
unable to contact the designated authorized representatives of such 
Limited Members.
---------------------------------------------------------------------------

    \17\ See Section 2.A of Rule 2B, supra note 5.
---------------------------------------------------------------------------

    NSCC could formally cease to act for such a Limited Member pursuant 
to the Involuntary Termination Provisions. If NSCC is unable to reach 
the Limited Member, or if NSCC knows that the Limited Member is 
unreachable because, for instance, it has gone out of business, NSCC 
does not believe that going through the steps of a cease to act, such 
as formally notifying the Limited Member with the grounds under 
consideration and its right to request a hearing, would be necessary or 
appropriate when NSCC has been unable to contact the Limited 
Member.\18\ In addition, NSCC uses resources to maintain accounts, such 
as monitoring for compliance of the Rules, conducting risk assessments 
of Limited Members and updating account documentation. If a Limited 
Member has ceased using an account, and NSCC cannot contact the Limited 
Member, NSCC would like to avoid continuing to use resources to 
maintain the account.
---------------------------------------------------------------------------

    \18\ See Rules 37, 45 and 46, which set forth certain steps to 
be taken by the Limited Member and NSCC in a cease to act including 
notification and hearing requirements. Rules 37, 45 and 46, supra 
note 5.
---------------------------------------------------------------------------

    NSCC is proposing to expand the Voluntary Termination Provisions to 
provide that a Limited Member would be deemed to have voluntarily 
terminated its membership if NSCC is unable to contact an authorized 
representative of the Limited Member, as designated by the Limited 
Member pursuant to Rule 5, and there has been no activity in the 
account by the Limited Member for at least 6 months. NSCC believes that 
in such situations, the Limited Member is effectively abandoning the 
account, which is equivalent to affirmatively taking action to close 
the account.
(iv) Proposed Rule Changes
    NSCC is proposing to amend each of the Voluntary Termination 
Provisions to provide that a Limited Member may be deemed to have 
voluntarily terminated its membership if NSCC is unable to contact an 
authorized representative of the Limited Member, as designated by the 
Limited Member pursuant to Rule 5, and there has been no activity in 
the account by the Limited Member for at least 6 months. In addition, 
NSCC is proposing to add that any such deemed voluntary termination 
shall be effective when NSCC determines that the criteria for a deemed 
voluntary termination have been met (i.e., NSCC is unable to contact 
the Limited Member and the Limited Member hasn't used its account for 
at least 6 months) and that NSCC's determination shall be evidenced by 
a notice to NSCC's participants announcing the Limited Member's 
termination and the effective date of termination.
(v) Implementation Timeframe
    NSCC would implement the proposed changes no earlier than thirty 
(30) days after the date of filing, or such shorter time as the 
Commission may designate. As proposed, a legend would be added to Rule 
2B stating there are changes that were effective upon filing but have 
not yet been implemented. The legend would also state that NSCC would 
implement the proposed changes no earlier than thirty (30) days after 
the date of filing, or such shorter time as the Commission may 
designate. The legend would state that the legend would automatically 
be removed upon the implementation of the proposed changes. NSCC would 
announce the implementation date of the proposed changes by Important 
Notice posted to its website.
2. Statutory Basis
    NSCC believes that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
registered clearing agency. In particular, NSCC believes that the 
proposed rule changes are consistent with Section 17A(b)(3)(F)

[[Page 34739]]

of the Act \19\ and Rules 17Ad-22(e)(18) and (e)(23)(i),\20\ each as 
promulgated under the Act, for the reasons described below.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(e)(18), (e)(23)(i).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be 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 NSCC or for which it 
is responsible and to remove impediments to and perfect the mechanism 
of a national system for the prompt and accurate clearance and 
settlement of securities transactions.\21\ The proposed revisions to 
the Voluntary Termination Provisions are consistent with Section 
17A(b)(3)(F) of the Act because they would provide a clear and 
consistent standard relating to how NSCC would treat a Limited Member 
that is no longer using the account and that NSCC is unable to contact. 
Providing a clear and consistent standard would allow Limited Members 
to better understand NSCC's and the Limited Members' rights and 
obligations with respect to their membership. NSCC believes that when 
Limited Members better understand their rights and obligations 
regarding NSCC's clearance and settlement services, they can better act 
in accordance with the Rules. NSCC believes that better enabling 
Limited Members to comply with the Rules would promote the prompt and 
accurate clearance and settlement of securities transactions by NSCC 
consistent with Section 17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

    \21\ Id.
    \22\ Id.
---------------------------------------------------------------------------

    In addition, NSCC believes that treating such a Limited Member as 
having voluntarily terminated would make the membership maintenance 
process more efficient by allowing NSCC to avoid wasting resources on 
maintaining accounts that are no longer used and avoid having to cease 
to act in cases where attempting to provide notice to the Limited 
Member is pointless and unnecessary. Allowing NSCC to deem such a 
Limited Member as having voluntarily terminated would increase 
efficiency of the account maintenance process and would free up 
resources at NSCC which would leave more resources to ensure the prompt 
and accurate clearance and settlement of securities transactions. As 
such, NSCC believes the proposed rule changes are consistent with 
Section 17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(18) under the Act requires that NSCC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to establish objective, risk based, and publicly 
disclosed criteria for participation, which permit fair and open access 
by direct and, where relevant, indirect participants and other 
financial market utilities, require participants to have sufficient 
financial resources and robust operational capacity to meet obligations 
arising from participation in the clearing agency, and monitor 
compliance with such participation requirements on an ongoing 
basis.\24\ NSCC believes that the proposed rule changes have been 
designed to meet the applicable provisions of Rule 17Ad-22(e)(18) 
because the proposed changes would provide publicly disclosed criteria 
relating to how NSCC would treat a Limited Member that is no longer 
using the account and that NSCC is unable to contact as having 
voluntarily terminated its participation. The proposed rule change 
would not adversely affect fair and open access because the deemed 
voluntary termination provisions would only be applied to those Limited 
Members that have not been using the service and that NSCC has been 
unable to contact. Moreover, the deemed voluntary termination 
provisions would constitute publicly disclosed requirements for 
maintaining participation at NSCC. Therefore, NSCC believes that its 
proposal to provide for a deemed voluntary termination is consistent 
with Rule 17Ad-22(e)(18) under the Act.\25\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(e)(18).
    \25\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(i) under the Act requires that NSCC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to publicly disclose all relevant rules and 
material procedures, including key aspects of its default rules and 
procedures.\26\ NSCC believes that the proposed rule changes have been 
designed to meet the applicable provisions of Rule 17Ad-22(e)(23)(i) 
because the proposed changes would provide publicly disclosed criteria 
relating to how NSCC would remove a Limited Member that is no longer 
using the account and that NSCC is unable to contact as if such Limited 
Member had voluntarily terminated its participation. Therefore, NSCC 
believes that its proposal to provide for a deemed voluntary 
termination is consistent with Rule 17Ad-22(e)(23)(i) under the 
Act.\27\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(23)(i).
    \27\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed changes relating to the 
Voluntary Termination Provisions would have any impact on competition. 
These changes would provide a clear and consistent standard for how 
NSCC could treat all Limited Members that are no longer using an 
account and that NSCC is unable to contact. The proposed changes would 
not be adding any obligations on Limited Members that are using NSCC's 
services. As such, NSCC believes the proposed rule changes would not 
have any impact on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received by NSCC, they will 
be publicly filed as an Exhibit 2 to this filing, as required by Form 
19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    NSCC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) significantly affect the protection of investors or the public 
interest;

[[Page 34740]]

    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) \28\ of the Act and 
paragraph (f) of Rule 19b-4(f)(6) thereunder.\29\
---------------------------------------------------------------------------

    \28\ 15 U.S.C 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2022-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-NSCC-2022-007. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of NSCC and on DTCC's website 
(https://dtcc.com/legal/sec-rule-filings.aspx). 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-NSCC-2022-007 and should be submitted on 
or before June 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12171 Filed 6-6-22; 8:45 am]
BILLING CODE 8011-01-P