Document ID: SEC-2017-0029-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2017-01-10T05:00Z

[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3030-3032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00218]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79734; File No. SR-NSCC-2016-007]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Approval of Proposed Rule Change To 
Accommodate Shorter Standard Settlement Cycle and Make Other Changes

January 4, 2017.
    On November 7, 2016, National Securities Clearing Corporation NSCC 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-NSCC-2016-007, 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 for comment in 
the Federal Register on November 25, 2016.\3\ The Commission did not 
receive any comment letters on the proposed rule change. For the 
reasons discussed below, the Commission is granting approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79356 (November 18, 
2016), 81 FR 85299 (November 25, 2016) (SR-NSCC-2016-007); 
(``Notice'').
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I. Description of the Proposed Rule Change

    The proposed rule change consists of amendments to NSCC's Rules & 
Procedures (``Rules'') \4\ in order to ensure, according to NSCC, that 
the Rules are consistent with the anticipated industry-wide move to a 
shorter standard settlement cycle for certain securities \5\ from the 
third business day after the trade date (``T+3'') to the second 
business day after the trade date (``T+2''), as described below. 
However, NSCC would not implement

[[Page 3031]]

the proposed rule change until NSCC files with the Commission a 
subsequent proposed rule change, under Rule 19b-4,\6\ to establish an 
effective date for the proposed change.
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    \4\ Capitalized terms not defined herein are defined in the 
Rules, available at http://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
    \5\ The financial services industry, in coordination with its 
regulators, is planning to shorten the standard settlement cycle for 
equities, corporate and municipal bonds, unit investment trusts and 
financial instruments comprised of the foregoing products traded on 
the secondary market from T+3 to T+2 (``Shortened Settlement 
Cycle''). See Securities Exchange Act Release No. 78962 (September 
28, 2016), 81 FR 69240 (October 5, 2016) (S7-22-16) (Amendment to 
Securities Transaction Settlement Cycle).
    \6\ 17 CFR 240.19b-4.
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    While the core functions of NSCC would continue to operate in the 
same way in the Shortened Settlement Cycle, NSCC has determined that 
the move to T+2 would necessitate certain amendments to the Rules 
because currently the Rules are designed to accommodate a T+3 
settlement cycle. In particular, NSCC has identified and proposes to 
change (i) rules that have timeframes and/or cutoff times that are tied 
to the current T+3 standard settlement cycle, and (ii) rules affected 
by process changes relating to the Shortened Settlement Cycle. In 
addition, NSCC also proposes to make a number of technical changes and 
corrections to the Rules.

A. Rules Tied to the Current T+3 Standard Settlement Cycle

    NSCC proposes changes to the following Rules because they contain 
provisions that are tied to the current T+3 standard settlement cycle 
and would need to be changed to facilitate the move to Shortened 
Settlement Cycle:
1. Rule 4A (Supplemental Liquidity Deposits)
    In Section 2, delete references to the ``third Settlement Day'' and 
replace them with references to the ``second Settlement Day'' in the 
definition of ``Options Expiration Activity Period.''
2. Procedure II (Trade Comparison and Recording Service)
    In Section C.1.(p), with regards to trade input and comparison of 
debt securities transactions submitted for non-standard settlement, 
delete the reference to ``T+2 and T+1 settlement'' and replace it with 
``T+1 settlement.''
    In Section D.2.(A)(1)(b), with regards to municipal and corporate 
debt securities, delete the reference to ``two days'' and replace it 
with ``one day.''
    In Section F.2, with regards to the Settlement Date for the Index 
Receipts, delete the reference to ``T+1, T+2 or T+3'' and replace it 
with ``T+1 or T+2.''
    In Section G, with regards to the eligibility of trades to be 
settled in the normal settlement cycle and the cutoff time for updating 
the totals reported for such trades, delete references to ``T+3'' and 
replace them with ``T+2.''
3. Procedure III (Trade Recording Service (Interface With Qualified 
Clearing Agencies))
    In Section B, with regards to the Settlement Date for the exercise 
or assignment of options at The Options Clearing Corporation, delete 
the reference to ``three days'' and replace it with ``two days.''
4. Procedure V (Balance Order Accounting Operation)
    In Section C, (i) with regards to the timing for the netting of 
trades in Balance Order Securities, delete references to ``T and T+1'' 
and replace them with ``T'' and (ii) with regards to the listing of the 
Clearance Cash Adjustment amount for all Balance Orders on the 
Consolidated Trade Summary, delete the reference to the Consolidated 
Trade Summary being available on T+2.
5. Procedure VII (CNS Accounting Operation)
    In Section B, (i) with regards to the timing of the comparison or 
recording of trades in CNS Securities for inclusion on the Consolidated 
Trade Summary, delete the words ``T+1 up to'' and (ii) with regards to 
the timing of as-of trades in CNS Securities that are reported on the 
Consolidated Trade Summary, delete references to ``T+2'' and ``T+3'' 
and replace them with ``T+1'' and ``T+2,'' respectively.
    In Section G.3, with regards to the time period for determining the 
rate of the split for adjustments to Current Market Price in the case 
of stock splits, delete the reference to ``last two days'' and replace 
it with ``one day.''
    In Section H.4(b), (i) with regards to timing related to securities 
subject to voluntary reorganizations, delete references to protect 
periods of ``two days,'' ``three days,'' and ``greater than three 
days'' and replace them with ``one day,'' ``two days,'' and ``greater 
than two days,'' respectively, and delete references to ``E+2,'' 
``E+3,'' and ``E+4'' and replace them with ``E+1,'' ``E+2,'' and 
``E+3,'' respectively; (ii) in the table listing the time frames for 
the processing of securities subject to voluntary reorganizations with 
a protect period, delete the reference to ``two days or less'' and 
replace it with ``one day or less'' as well as delete the entries for 
the two-day protect period; and (iii) with regards to the timing for 
the recording of ID Net Service eligible transactions on the 
Miscellaneous Activity Report, delete the words ``on the night of 
T+2.''
    In Section K, with regards to the timing for advising a Member 
about its potential liability with respect to a short position or a 
short Settling Trade position in a security to which an exercise 
privilege attaches, delete the reference to ``T+2'' and replace it with 
``T+1.''
6. Procedure XIII (Definitions)
    In the definition for ``T,'' delete the reference to ``T+3'' and 
replace it with ``T+2.''
7. Procedure XVI (ID Net Service)
    In Procedure XVI, with regards to the timing for processing by NSCC 
of ID Net Service transactions, delete references to ``the evening of 
T+2'' and ``the night of T+2'' and replace them with ``the evening 
prior to Settlement Date'' and ``the night prior to Settlement Date,'' 
respectively.
8. Addendum A (Fee Structure)
    In Section E.1, with regards to the fee for Index Creation and 
Redemption instructions submitted for regular way settlement, delete 
the explanatory parenthetical ``(T+3)'' and replace it with ``(T+2).''
9. Addendum K (Interpretation of the Board of Directors Application of 
Clearing Fund
    In Section I.2, with regards to the endpoint of NSCC's guaranty for 
balance order transactions, delete the reference to ``T+3'' and replace 
it with ``T+2.''

B. Rules Covering Processes Affected by a Shortened Settlement Cycle

    According to NSCC, it conducted an in-depth review of its internal 
operational processes to identify those processes that would require 
changes in order to accommodate the Shortened Settlement Cycle. In 
connection with that review, NSCC has identified the following 
provisions in the Rules that would need to be updated in connection 
with such process changes:
1. Procedure V (Balance Order Accounting Operation)
    In Section B, with regards to trades that are to be processed on a 
trade-for-trade basis, clarify that such processing occurs for trades 
that are compared or otherwise entered into the Balance Order 
Accounting Operation on SD-1, ``after the cutoff time established by 
the Corporation.'' This is because under the Shortened Settlement 
Cycle, trades that are compared or otherwise entered into the Balance 
Order Accounting Operation on SD-1 would be processed as multilaterally 
netted balance orders when reported on the Consolidated Trade Summary 
issued at approximately 12:00 p.m. ET on SD-1. Trades compared and 
reported thereafter would

[[Page 3032]]

continue to be processed on a trade-for-trade basis.
    Similarly, in Section B, with regards to trades that are to be 
processed on a trade-for-trade basis, clarify that such process occurs 
for securities that are subject to a voluntary corporate reorganization 
which have a trade date on or before the expiration of the voluntary 
corporate reorganization and which are compared or received ``on SD-1, 
after the cutoff time established by the Corporation'' and not ``after 
SD-1.'' This shift in cutoff time is because ``as of'' regular way 
trades compared and received prior to 11:30 a.m. on SD-1 would be 
processed as multilaterally netted balance orders when reported on the 
Consolidated Trade Summary issued at approximately 12:00 p.m. ET on SD-
1. ``As of'' regular way trades compared and reported thereafter would 
continue to be processed on a trade-for-trade basis.
2. Procedure VII (CNS Accounting Operation)
    In Section D.1, with regards to the timing of the distribution of 
Projection Reports, delete the reference to ``[e]ach morning'' and 
replace it with ``[t]wice a day'' because currently NSCC distributes 
the Projection Report only once a day; however, after the 
implementation of the Shortened Settlement Cycle, NSCC would be 
distributing the Projection Reports twice a day to enable Members to 
view their updated positions on a more timely basis.
C. Other Technical Changes and Corrections
    During its review of the Rules in connection with the Shortened 
Settlement Cycle, NSCC has identified the following technical changes 
and/or corrections that it proposes to make to the Rules in order to 
ensure that the Rules remain consistent and accurate:
     In Rule 3, Section 1(c), add a footnote that identifies 
the term ``CUSIP'' as a registered trademark of the American Bankers 
Association.
     In Procedure II, Section G, correct a grammatical error.
     In Procedure VII, Sections B and D, correct grammatical 
errors.
     In Procedure X, Section B, delete the reference to the 
timeframe for the delivery of Liability Notices to the contra party by 
Members holding the receive balance orders for warrants, rights, 
convertible securities or certain other securities so the Members would 
remain solely subject to the schedules of the relevant exchanges.
     In Procedure XIII, delete the incorrect reference to 
``Settlement Day'' and replace it with ``Settlement Date'' in the 
definition for ``T'' to clarify that T+2 would normally be the 
Settlement Date after the implementation of the Shortened Settlement 
Cycle.
     In Procedure XVI, correct a grammatical error.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \7\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission believes the proposal is 
consistent with Section 17A(b)(3)(F) of the Act.
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    \7\ 15 U.S.C. 78s(b)(2)(C).
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    Section 17A(b)(3)(F) of the Act requires, in part, that NSCC's 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\8\ The Commission believes that 
the proposed changes are consistent with the requirements of Section 
17A(b)(3)(F) because by conforming NSCC's timeframes and/or cutoff 
times to accommodate the Shortened Settlement Cycle, the proposal would 
help ensure that securities transactions would be promptly and 
accurately cleared and settled within the Shortened Settlement Cycle. 
Similarly, the related process changes proposed are designed to update 
NSCC's operations in order to facilitate the move to the Shortened 
Settlement Cycle and, by extension, facilitate the prompt and accurate 
clearance and settlement of securities transactions submitted to NSCC 
for clearing and settlement. Therefore, the proposed rule change would 
help promote the prompt and accurate clearance and settlement of 
securities transactions, consistent with Section 17A(b)(3)(F) of the 
Act.\9\
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ Id.
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    As the proposed rule change pertains to technical changes to the 
Rules, the Commission finds the technical changes also consistent with 
Section 17A(b)(3)(F) of the Act \10\ because the technical updates are 
designed to make the Rules more clear, consistent, and current for 
Members that rely on them. Therefore, the proposed technical changes 
would help support NSCC's prompt and accurate clearance and settlement 
of securities transactions made by Members.
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    \10\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposals are consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \11\ and the 
rules and regulations thereunder.
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    \11\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-NSCC-2016-007 be, and hereby is, 
approved.\12\
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    \12\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00218 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P