Document ID: SEC-2022-1083-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2022-08-11T04:00Z

[Federal Register Volume 87, Number 154 (Thursday, August 11, 2022)]
[Notices]
[Pages 49628-49631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17224]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95437; File No. SR-NSCC-2022-011]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Enhance National Securities Clearing Corporation 
Automated Customer Account Transfer Service

August 5, 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 July 26, 2022, National Securities Clearing Corporation (``NSCC'' or 
``Corporation'') 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) of 
the Act \3\ and Rule 19b-4(f)(4) thereunder.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \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)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to NSCC's Rules & 
Procedures (``Rules'') in order to enhance NSCC's Automated Customer 
Account Transfer Service (``ACATS''), as described in greater detail 
below.\5\
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    \5\ Terms not defined herein are defined in the Rules, available 
at http://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
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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 NSCC's Rules 
to expand the ``receiver delete'' functionality in ACATS to additional 
products.
(i) Background
    ACATS is a non-guaranteed service provided by NSCC that enables 
Members to effect transfers of customer accounts among themselves. 
ACATS complements Financial Industry Regulatory Authority (``FINRA'') 
Rule 11870 (``FINRA Rule 11870'') regarding customer account transfers, 
which requires FINRA members to use automated clearing agency customer 
account transfer services and to effect customer account transfers 
within specified time frames.\6\ ACATS automates and standardizes 
procedures for the transfer of assets in a customer account, allowing 
Members to efficiently and automatically enter, review, and generate 
instructions to settle customer account transfers. The timing and 
procedures with respect to customer account transfers are intended to 
be consistent with the timing and processes set forth in FINRA Rule 
11870.
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    \6\ See FINRA Rule 11870, available at https://www.finra.org/rules-guidance/rulebooks/finra-rules/11870. NSCC also permits 
Qualified Securities Depositories (i.e., The Depository Trust 
Company (``DTC'')) to utilize ACATS on behalf of their participants 
(e.g., DTC member banks) on a voluntary basis. See Section 1 of Rule 
50, id.
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    Pursuant to NSCC Rule 50, an NSCC Member to whom a customer's 
account will be transferred (the ``Receiving Member'') initiates the 
transfer by submitting a transfer initiation request to NSCC, which 
contains the customer detail information that the NSCC Member who 
currently has the account (the ``Delivering Member'') requires to 
transfer the account.\7\ The Delivering Member must either reject the 
customer account transfer request or submit detailed customer account 
asset data to NSCC. NSCC then provides a report detailing the customer 
account asset data to the Receiving Member,\8\ who has one Business Day 
after receipt of the report to review the account and: (i) accept all 
assets; (ii) reject (or ``delete'') one or more assets, to the extent 
such a rejection is permitted by the Receiving Member's Designated 
Examining Authority (``DEA'') (i.e., FINRA),\9\ and allow the transfer 
of the remaining assets; (iii) request the Delivering Member to make 
adjustments to the customer account asset list; or (iv) reject the 
account, to extent such a rejection is permitted by NSCC or the 
Receiving Member's DEA.\10\ Once a customer account has been accepted 
by the Receiving Member, ACATS facilitates the settlements associated 
with the account transfer at the appropriate asset settling location 
(e.g., through the Continuous Net Settlement system (``CNS'') for CNS-
eligible securities, DTC for securities otherwise eligible for DTC 
settlement services, Fund/SERV for eligible mutual fund products, the 
Insurance Processing Service (``IPS'') for annuities, or The Options 
Clearing Corporation for listed options).\11\
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    \7\ See Section 2 of Rule 50, supra note 5.
    \8\ See Section 7 of Rule 50, supra note 5.
    \9\ As discussed in further detail below, NSCC Rule 50 currently 
limits the type of assets that a Receiving Member may delete from 
the customer account asset data list in ACATS to MF/I&RS Products. 
NSCC proposes to expand this functionality to other assets that may 
be deemed ``nontransferable assets'' under FINRA Rule 11870.
    \10\ See Section 8 of Rule 50, supra note 5. Pursuant to FINRA 
Rule 11870(d)(8), a Receiving Member may reject a transfer of 
account assets in whole if the account is not in compliance with the 
Receiving Member's credit policies or minimum asset requirements. 
See supra note 6.
    \11\ See Section 14 of Rule 50, supra note 5.
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    FINRA Rule 11870 acknowledges that some customer assets may not be 
transferred within the specified time frames to the extent that those 
assets are not readily transferable (a ``nontransferable asset''). For 
purposes

[[Page 49629]]

of FINRA Rule 11870, a nontransferable asset is any asset that is 
incapable of being transferred because it is: (i) an asset that is a 
proprietary product of the carrying member; \12\ (ii) an asset that is 
a product of a third party (e.g., mutual fund/money market fund) with 
which the receiving \13\ member does not maintain the relationship or 
arrangement necessary to receive/carry the asset for the customer's 
account; (iii) an asset that may not be received due to regulatory 
limitations on the scope of the receiving member's business; (iv) an 
asset that is a bankrupt issue for which the carrying member does not 
possess (which shall be deemed to include possession at a securities 
depository for the carrying member's account) the proper denominations 
or quantity of shares necessary to effect delivery and no transfer 
agent is available to re-register the shares; (v) an asset that is an 
issue for which the proper denominations cannot be obtained pursuant to 
governmental regulation or the issuance terms of the product (e.g., 
foreign securities, baby bonds, etc.); or (vi) limited partnership 
interests in retail accounts.\14\
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    \12\ For purposes of Rule 50, a carrying member would be the 
Delivering Member.
    \13\ See Section 5 of Rule 50, supra note 5.
    \14\ See supra note 6.
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    NSCC Rule 50 currently limits the type of assets that a Receiving 
Member may delete from the customer account asset data list in ACATS 
(the ``receiver delete functionality'') to ``MF/I&RS Products,'' \15\ 
which are comprised of Fund/SERV Eligible Fund assets \16\ and/or I&RS 
Eligible Products.\17\ As a result, certain customer assets that may 
also be deemed ``nontransferable assets'' under FINRA Rule 11870 are 
not currently included in the receiver delete functionality in ACATS 
and must be handled by a manual process outside of the automated ACATS 
system. For example, nontransferable alternative investment products 
that are the product of a third party, such as hedge funds, fund of 
funds, private equity, non-traded real estate investment trusts, and 
business development companies, may be submitted by the Delivering 
Member in the customer account asset list but cannot be removed using 
the receiver delete functionality in ACATS even though those products 
cannot be settled on an automated basis at one of the asset settling 
locations due to a lack of arrangements between the issuer of the 
product and the Receiving Member, which prevents such products from 
being held by at the Receiving Member. Instead, nontransferable 
alternative investment products included in an ACATS transfer generate 
a Receive and Deliver (``R&D'') ticket instructing firms to complete 
the transfer outside of the ACATS process. This generally involves the 
Delivering Member generating physical transfer paperwork and sending it 
to the Receiving Member, often via the Envelope Settlement Service 
(``ESS''),\18\ to deliver the asset. Some of these assets end up 
getting rejected by the Receiving Member because, for example, the 
necessary contracts are not in place with the issuer, or the asset is 
otherwise ineligible to be held in the receiving account. Depending on 
the operational structure of the firm, the manual process to return 
paperwork to the Delivering Member may involve multiple touchpoints and 
paperwork handoffs, resulting in processing delays.
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    \15\ See Section 8 of Rule 50, supra note 5.
    \16\ Rule 1 defines the term ``Fund/SERV Eligible Fund'' to mean 
a fund or other pooled investment entity included in the list for 
which provision is made in Section 1.(c) of Rule 3, supra note 5.
    \17\ Rule 1 defines the term ``I&RS Eligible Product'' to mean 
an insurance product or a retirement or other benefit plan or 
program included in the list for which provision is made in Section 
1.(d) of Rule 3, supra note 5.
    \18\ ESS is a non-guaranteed service of NSCC that facilitates 
the processing and settlement of physical security deliveries and 
associated charges through the use of envelope deliveries. Under 
this service, physical certificates may be processed for delivery at 
specified NSCC locations through the use of sealed envelopes 
accompanied by appropriate documentation (which, among other items, 
identifies the security, the receiving Member and the money value 
(if any) associated with the delivery). See Rule 9, supra note 5.
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(ii) Proposed Rule Change
    NSCC proposes to modify Rule 50 to allow ACATS to process deletions 
for any customer assets that are (i) deemed to be nontransferable 
assets under FINRA Rule 11870 and (ii) permitted by NSCC. Specifically, 
NSCC would effectuate the proposed change by revising two statements in 
Section 8 of Rule 50 concerning the deletion process to replace 
references to ``MF/I&RS Products'' with the phrase ``nontransferable 
assets as defined by the Receiving Member's DEA and as permitted by the 
Corporation.'' NSCC would also make non-substantive revisions to 
improve the clarity of Section 8 of Rule 50. Section 8 of Rule 50 
currently provides, in part, that ``[d]uring the one (1) Business Day 
time period, only the Delivering Member will be able to add, delete or 
change an item, provided that the Receiving Member did not accelerate 
the transfer . . . other than with respect to MF/I&RS Products, which 
can also be deleted by the Receiving Member'' (emphasis added). NSCC 
proposes to delete the word ``only'' because, as noted in the current 
and proposed rule, the Receiving Member may also utilize the receiver 
delete functionality for certain products within this one Business Day 
time period. NSCC would also replace the phrase ``other than with 
respect to MF/I&RS Products, which can also be deleted by the Receiving 
Member'' with ``however, the Receiving Member may delete 
nontransferable assets as defined by the Receiving Member's DEA and as 
permitted by the Corporation during the one (1) Business Day time 
period.'' NSCC believes these proposed changes would improve the 
clarity and readability of the Rule.
    NSCC would initially extend the receiver delete functionality to 
certain nontransferable alternative investment products that are the 
product of a third party, as discussed above. The proposed change would 
immediately address the need to delete alternative investment products 
directly within ACATS and provide necessary flexibility within NSCC's 
Rules to apply the receiver delete functionality to other 
nontransferable assets beyond MF/I&RS Products in the future.\19\ NSCC 
would maintain a list of nontransferable assets for which the receiver 
delete functionality is permitted and make the list available to its 
Members.\20\
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    \19\ NSCC would issue an Important Notice to inform Members of 
any new products eligible for the receiver delete functionality in 
ACATS.
    \20\ NSCC would initially maintain this list in the ACATS User 
Guide, which is available through the DTCC Learning Center. See 
https://dtcclearning.com/products-and-services/equities-clearing/acats/acats-users.html.
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    As discussed above, the ACATS service is intended to compliment 
FINRA Rule 11870 and provide timing and procedures for customer account 
transfers that are consistent with the timing and processes set forth 
in FINRA Rule 11870. NSCC Rule 50 currently limits the scope of assets 
that may be deleted from the customer account asset data list in ACATS 
to MF/I&RS Products, which prevents Members from processing the 
deletion of other nontransferable assets within the automated system. 
In the case of alternative investment products, this results in the 
need for manual and more lengthy processing of such assets through the 
R&D ticket process, which often involves generating physical transfer 
paperwork, the physical transmission of assets through ESS, and the 
ultimate rejection of nontransferable assets. Expanding the receiver 
delete functionality to additional nontransferable assets would reduce 
the cases in which transfer paperwork is mailed unnecessarily and 
enable the account owner to more immediately

[[Page 49630]]

ascertain the transfer status of such assets. The proposed rule change 
would therefore eliminate the manual burdens and delays associated with 
transfers and rejections under the current R&D ticket process and would 
generally result in the same outcome (i.e., rejection) for those 
assets. Moreover, the proposed rule change would allow NSCC to apply 
the receiver delete functionality to any future assets determined by 
FINRA to be nontransferable under FINRA Rule 11870. NSCC therefore 
believes that the proposed rule change is designed to further the goals 
of standardizing customer account transfer procedures, reducing 
operating costs, and accelerating the timing for transaction 
settlements in the customer account transfer process.
2. Statutory Basis
    NSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Section 17A(b)(3)(F) of the 
Act \21\ requires, in part, that the rules of a clearing agency be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions. The proposed rule change would provide 
necessary flexibility within NSCC's Rules to expand the receiver delete 
functionality in ACATS to nontransferable assets beyond MF/I&RS 
Products. The proposed change would reduce the burdens and delays 
associated with nontransferable assets that fall within the current 
manual R&D ticket process and bring greater efficiency and expediency 
to the account transfer process for those products as set forth above. 
NSCC therefore believes the proposed rule change would promote the 
prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of the Act, in 
particular Section 17A(b)(3)(F) of the Act.\22\
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition. The proposed changes 
would bring greater efficiency to the account transfer process by 
allowing ACATS participants to process deletions of additional 
nontransferable assets in an automated and expedited fashion. Allowing 
ACATS participants to process account transfers in a more efficient 
manner would result in client assets being transferred to the 
appropriate Members and DTC participants more quickly. NSCC does not 
believe that the proposed rule change would have any impact on 
competition or materially affect the rights or obligations of NSCC 
Members because they would apply to all ACATS participants equally and 
effectively result in the same outcome as under the current manual 
process performed today.

(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, 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \23\ of the Act and paragraph (f) \24\ of Rule 19b-4 
thereunder. 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.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
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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-2022-011 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-2022-011. 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 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSCC-2022-011 and should be submitted on 
or before September 1, 2022.

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17224 Filed 8-10-22; 8:45 am]
BILLING CODE 8011-01-P