Document ID: SEC-2017-1567-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.; National Securities Clearing Corp.; Fixed Income Clearing Corp.
Posted Date: 2017-09-21T04:00Z

[Federal Register Volume 82, Number 182 (Thursday, September 21, 2017)]
[Notices]
[Pages 44224-44229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20089]

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

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities 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'').
---------------------------------------------------------------------------

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)

[[Page 44225]]

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\
---------------------------------------------------------------------------

    \4\ FICC 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.
    \5\ Notice, 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.
    \7\ Notice, 82 FR at 36050.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \15\ Id.
    \16\ Id.
    \17\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \18\ Id.
    \19\ Id.
    \20\ Notice, 82 FR at 36050-51.
    \21\ Notice, 82 FR at 36051.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \22\ Id.
    \23\ Id.
---------------------------------------------------------------------------

    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

[[Page 44226]]

Document Standards require annual approval by the Boards.\27\
---------------------------------------------------------------------------

    \24\ Id.; 15 U.S.C. 78s(b)(1).
    \25\ Notice, 82 FR at 36051; 12 U.S.C. 5465(e)(1).
    \26\ Notice, 82 FR at 36051.
    \27\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \28\ Id.
    \29\ Id.
    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \32\ Id.
    \33\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \34\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \35\ Id.
    \36\ Id.
    \37\ Id.
    \38\ Id.
    \39\ Id.
    \40\ Notice, 82 FR at 36051-52.
---------------------------------------------------------------------------

    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 risk-based approach is employed to assess the need and 
level of due diligence activities associated with the evaluation of 
potential vendors and with the re-evaluation 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\
---------------------------------------------------------------------------

    \41\ Notice, 82 FR at 36051.
    \42\ Id.
    \43\ Id.
    \44\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \45\ Notice, 82 FR at 36052.
    \46\ Id.
    \47\ Id.
---------------------------------------------------------------------------

    The Framework would also describe the Clearing Agencies' role in 
industry-wide 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\
---------------------------------------------------------------------------

    \48\ Id.
    \49\ Id.
    \50\ Id.
    \51\ Id.
---------------------------------------------------------------------------

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

[[Page 44227]]

units in the development and documentation of the plans and would 
outline the general content of the plans.\53\
---------------------------------------------------------------------------

    \52\ Id.
    \53\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \59\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \60\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \61\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    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

[[Page 44228]]

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\
---------------------------------------------------------------------------

    \62\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \63\ 17 CFR 240.17Ad-22(e)(3)(iii).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \65\ 17 CFR 240.17Ad-22(e)(3)(iv).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \67\ 17 CFR 240.17Ad-22(e)(20).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \68\ Id.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \69\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \70\ Id.
---------------------------------------------------------------------------

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

[[Page 44229]]

Section 17A of the Act \71\ and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\73\
---------------------------------------------------------------------------

    \73\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20089 Filed 9-20-17; 8:45 am]
 BILLING CODE 8011-01-P