Document ID: SEC-2021-0884-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2021-06-24T04:00Z

[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33414-33420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13413]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92213; File No. SR-NSCC-2021-002]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Partial Amendment No. 1 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified by 
Partial Amendment No. 1, To Amend the Supplemental Liquidity Deposit 
Requirements

June 21, 2021.

I. Introduction

    On March 5, 2021, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2021-002 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder \2\ to amend its supplemental liquidity

[[Page 33415]]

deposit requirements.\3\ The proposed rule change was published for 
comment in the Federal Register on March 24, 2021,\4\ and the 
Commission has received comments in support of the changes proposed 
therein.\5\ On May 7, 2021, pursuant to Section 19(b)(2) of the Act,\6\ 
the Commission designated a longer period within which to approve, 
disapprove, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change.\7\ On June 17, 2021, NSCC filed 
Partial Amendment No. 1 to the proposed rule change, which provided 
additional description of the proposed rule change and did not change 
the substance of the proposed rule change, as discussed in more detail 
in Section II.D below. The Commission is publishing this notice to 
solicit comments on Partial Amendment No. 1 from interested persons 
and, for the reasons discussed below, is approving the proposed rule 
change, as modified by Partial Amendment No. 1 (hereinafter, ``Proposed 
Rule Change''), on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing, infra note 4, at 86 FR 15738. On March 
5, 2021, NSCC also filed the proposals contained in the proposed 
rule change as advance notice SR-NSCC-2021-801 (the ``Advance 
Notice'') with the Commission pursuant to Section 806(e)(1) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act entitled 
the Payment, Clearing, and Settlement Supervision Act of 2010 
(``Clearing Supervision Act''), 12 U.S.C. 5465(e)(1), and Rule 19b-
4(n)(1)(i) of the Act, 17 CFR 240.19b-4(n)(1)(i). Notice of filing 
of the Advance Notice was published in the Federal Register on March 
24, 2021. Securities Exchange Act Release No. 91347 (March 18, 
2021), 86 FR 15750 (March 24, 2021) (File No. SR-NSCC-2021-801).
    \4\ Securities Exchange Act Release No. 91350 (March 18, 2021), 
86 FR 15738 (March 24, 2021) (File No. SR-NSCC-2021-002) (``Notice 
of Filing'').
    \5\ Comments are available at https://www.sec.gov/comments/sr-nscc-2021-002/srnscc2021002.htm. To date, the comments received 
generally support the proposal.
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ Securities Exchange Act Release No. 91788 (May 7, 2021), 86 
FR 26112 (May 12, 2021) (File No. SR-NSCC-2021-002).
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II. Description of the Proposed Rule Change

A. Background

    As a central counterparty (``CCP''),\8\ NSCC occupies an important 
role in the securities settlement system by interposing itself between 
counterparties to financial transactions, becoming the buyer to each 
seller and seller to each buyer to ensure the performance of the 
contract, thereby reducing the risk faced by its Members \9\ and 
contributing to global financial stability. NSCC's liquidity risk 
management plays an integral part in NSCC's ability to perform its role 
as a CCP. If a Member defaults, NSCC, as a CCP, would need to complete 
settlement of guaranteed transactions on the failing Member's behalf 
from the date of default through the remainder of the settlement cycle 
(currently two days for securities that settle on a regular way basis 
in the U.S. markets). To do so, and to meet its related regulatory 
requirements, NSCC seeks to maintain sufficient liquid resources in 
order to meet the potential funding required to settle outstanding 
transactions of a defaulting Member in a timely manner, as well as to 
hold qualifying liquid resources sufficient to meet its minimum 
liquidity resource requirement in each relevant currency for which it 
has payment obligations owed to its Members.\10\
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    \8\ 17 CFR 240.17Ad-22(a)(1).
    \9\ Capitalized terms not defined herein are defined in NSCC's 
Rules and Procedures (``Rules''), available at http://dtcc.com/~/
media/Files/Downloads/legal/rules/nscc_rules.pdf.
    \10\ See Securities Exchange Act Release No. 82377 (December 21, 
2017), 82 FR 61617 (December 28, 2017) (File Nos. SR-DTC-2017-004; 
SR-FICC-2017-008; SR-NSCC-2017-005) (approving NSCC's Liquidity Risk 
Management Framework).
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    NSCC has a number of default liquidity resources that it considers 
to be qualifying liquid resources for the purposes of Rule 17Ad-
22(a)(14).\11\ These resources include: (1) Cash deposits to the NSCC 
Clearing Fund; \12\ (2) the proceeds of the issuance and private 
placement of (a) short-term, unsecured notes in the form of commercial 
paper and extendable notes (``Commercial Paper Program''),\13\ and (b) 
term debt (``Term Debt Issuance''); \14\ (3) cash that would be 
obtained by drawing on NSCC's committed 364-day credit facility with a 
consortium of banks (``Line of Credit''); \15\ and (4) supplemental 
liquidity deposits, collected pursuant to NSCC Rule 4(A), as discussed 
further below.\16\
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    \11\ See Notice of Filing, supra note 4, at 15738-39. Qualifying 
liquid resources include, among other things: Cash held either at 
the central bank of issue or at creditworthy commercial banks, and 
assets that are readily available and convertible into cash through 
prearranged funding arrangements, such as committed arrangements 
without material adverse change provisions, including lines of 
credit, foreign exchange swaps, and repurchase agreements. 17 CFR 
240.17Ad-22(a)(14).
    \12\ See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund 
Formula and Other Matters) of the Rules, supra note 9.
    \13\ See Securities Exchange Act Release Nos. 75730 (August 19, 
2015), 80 FR 51638 (August 25, 2015) (File No. SR-NSCC-2015-802); 
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (File No. 
SR-NSCC-2017-807).
    \14\ See Securities Exchange Act Release No. 88146 (February 7, 
2020), 85 FR 8046 (February 12, 2020) (File No. SR-NSCC-2019-802).
    \15\ See Securities Exchange Act Release No. 80605 (May 5, 
2017), 82 FR 21850 (May 10, 2017) (File Nos. SR-DTC-2017-802; SR-
NSCC-2017-802).
    \16\ See Rule 4(A) (Supplemental Liquidity Deposits) of the 
Rules, supra note 9. See also Securities Exchange Act Release Nos. 
70999 (December 5, 2013), 78 FR 75413 (December 11, 2013) (File No. 
SR-NSCC-2013-02); 71000 (December 5, 2013), 78 FR 75400 (December 
11, 2013) (File No. SR-NSCC-2013-802).
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B. Current Rules Relating to Supplemental Liquidity Deposits

    Currently, NSCC only collects supplemental liquidity deposits 
during monthly options expiry periods in order to cover the heightened 
liquidity exposure resulting from increased trading activity around 
options expiration.\17\ NSCC only collects supplemental liquidity 
deposits from its 30 largest Members or group of affiliated Members 
(hereinafter, ``Providers'').\18\ NSCC calculates each Provider's 
supplemental liquidity obligation for an upcoming options expiry period 
using an estimate based on NSCC's highest liquidity need and the 
Provider's settlement activity during the prior 24-months.\19\ 
Providers, in turn, must fund their supplemental liquidity obligations 
two business days prior to the start of the options expiry period, 
which NSCC will return seven business days after the end of that 
period.\20\
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    \17\ See Rule 4(A), supra note 9. NSCC defines the duration of 
the options expiry periods in its Rules, which typically runs from 
the third Friday of the month to the following Tuesday. See id.
    \18\ See Section 2 of Rule 4(A), supra note 9. NSCC may use a 
Provider's supplemental liquidity deposit to satisfy a loss or 
liability arising only from that Provider's default on its 
obligations to NSCC. Supplemental liquidity deposits are not 
otherwise subject to NSCC's Loss Allocation Waterfall. See Section 
13(c) of Rule 4(A), supra note 9.
    \19\ See Section 2 of Rule 4(A), supra note 9. Typically, NSCC 
performs this calculation, at the latest, one week prior to the 
start of the options expiry period.
    \20\ See Sections 4 and 9 of Rule 4(A), supra note 9.
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    In order to ensure NSCC maintains adequate liquidity resources 
throughout the options expiry period, Providers may voluntarily prefund 
additional supplemental liquidity deposits at the start of the period, 
if it anticipates increases in its trading activity, compared to its 
historical activity, will create a liquidity shortfall at NSCC.\21\ In 
the event a Provider fails to provide adequate voluntary prefunded 
deposits, NSCC may require the Provider to fund additional supplemental 
liquidity deposits if NSCC experiences a resulting liquidity 
shortfall,\22\ which NSCC may hold for up to 90 days.\23\ The 90-day 
lock-up incentivizes Providers to voluntarily prefund their 
supplemental liquidity deposits in order to ensure NSCC maintains 
adequate liquidity resources throughout the options expiry period.
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    \21\ See Section 2 of Rule 4(A), supra note 9. See also, Notice 
of Filing, supra note 4, at 15739.
    \22\ See Section 7 of Rule 4(A), supra note 9.
    \23\ See Section 10 of Rule 4(A), supra note 9.

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[[Page 33416]]

C. Proposed Changes to the Rules Relating to Supplemental Liquidity 
Deposits

    As discussed above, NSCC may only collect supplemental liquidity 
deposits during monthly options expiry periods under its current 
Rules.\24\ However, NSCC can face sudden liquidity shortfalls on any 
business day, not just those business days that fall within monthly 
options expiry periods, particularly during volatile market conditions 
unrelated to options expiration.\25\ To address this issue, NSCC 
proposes to change the frequency at which it may collect supplemental 
liquidity deposits to each business day, based on a daily calculation. 
This proposed approach to collecting supplemental liquidity deposits 
should allow NSCC to respond quickly to any sudden liquidity shortfalls 
arising from a Provider's activity, regardless of when those shortfalls 
occur.
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    \24\ The description that follows is excerpted from the Notice 
of Filing, supra note 4.
    \25\ See Notice of Filing, supra note 4, at 15740.
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    NSCC also proposes the ability to collect supplemental liquidity 
deposits on an intraday basis in certain instances where sudden 
intraday increases in liquidity risk justify shortening the amount of 
time NSCC is exposed to that risk, including a mandatory intraday 
collection in connection with monthly options expiry periods. Moreover, 
NSCC proposes to eliminate the up to 90 day lock-up period of certain 
supplemental liquidity deposits. Additionally, NSCC proposes an 
alternative pro rata daily calculation in the rare event its regular 
daily calculation would inadvertently result in collecting supplement 
liquidity deposits from multiple Providers that, taken together, would 
significantly exceed NSCC's liquidity needs on that day.
1. Proposed Daily Calculation of Supplemental Liquidity Deposits
    A Provider \26\ will be obligated to provide a supplemental 
liquidity deposit on each business day in which its settlement activity 
causes a liquidity shortfall at NSCC.\27\ NSCC will provide a notice to 
each Provider of the amount of its supplemental liquidity deposit, 
which the Provider will be required to fund within one hour of such 
notice.\28\ NSCC proposes to return supplemental liquidity deposits on 
the next business day,\29\ except in certain circumstances as described 
in greater detail in Section II.C.4. below.
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    \26\ Under the proposal, Providers will continue to be the 30 
largest Members or group of affiliated Members, but NSCC proposes to 
simplify how it determines the 30 Providers in order to provide 
greater transparency and predictability in its determination. The 30 
Providers will be determined daily and will be based on the 
Provider's settlement activity during the prior 24-months. NSCC's 
determination will no longer require a calculation of liquidity 
exposures the Providers presented to NSCC based on NSCC's qualifying 
liquid resources throughout a 24 month lookback period. NSCC will 
continue to make available to each Member daily information on 
NSCC's liquidity need based on that Member's settlement activity on 
the previous business day.
    \27\ A liquidity shortfall will arise if NSCC's daily liquidity 
need exceeds its qualifying liquid resources, assuming stressed 
market conditions. NSCC will continue to apply stress scenarios in 
determining its total qualifying liquid resources in order to 
anticipate market conditions that could cause those resources to be 
unavailable on that day. Because the daily calculation will be done 
at the start of each business day, it will be based on the 
qualifying liquid resources available to NSCC as of the end of the 
prior business day.
    \28\ NSCC's proposed timing would mirror the current requirement 
that is applied to its Members' Required Fund Deposits (i.e., 
margin), which is also calculated and collected daily, and must be 
funded within one hour of demand. NSCC expects to deliver 
notification of Provider obligations by around 8:30 a.m. ET each 
business day, with deposits required by no later than 9:30 a.m. ET. 
See Notice of Filing, supra note 4, at 15741.
    \29\ Because NSCC would recalculate supplemental liquidity 
deposits daily, NSCC will no longer need to hold deposits for the 
extended periods under its current Rules. See Notice of Filing, 
supra note 4, at 15742.
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    NSCC states that, under its proposed calculation, it will no longer 
need to estimate its liquidity need for a Provider's expected 
settlement activity based on the Provider's historical settlement 
activity.\30\ Instead, each Provider's deposit will be calculated based 
on NSCC's actual liquidity need based on the Provider's daily 
settlement activity in the event the Provider defaulted on that day, 
which NSCC believes will provide both NSCC and Providers with a more 
reliable measure of the liquidity risks posed to NSCC.\31\
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    \30\ See Notice of Filing, supra note 4, at 15740.
    \31\ See id. at 15740-41.
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    NSCC provided the Commission with the results of an impact study 
comparing the proposal against the observed regulatory liquidity needs 
and NSCC's qualifying liquid resources available during the period from 
2016 through 2020. The study assessed both pro-forma and hypothetical 
impacts of the proposal under various liquidity scenarios. The study 
also analyzed historical trends including the average composition and 
rankings of the top 30 Providers at NSCC during the 2016 to 2020 
period. Based on the pro-forma/hypothetical impact as well analysis of 
the top Providers, the study's results generally indicate that the 
proposal would continue to allow NSCC to meet its regulatory liquidity 
obligations, and the largest Members would continue to be the ones 
affected by supplemental liquidity obligations.\32\
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    \32\ See id. at 15744. NSCC further states that if its other 
qualifying liquid resources materially decrease, it would expect to 
see an increase in both number and amount of supplemental liquidity 
obligations that Providers would have been required to fund under 
the proposed rule. See id. at 15744.
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2. Proposed Intraday Supplemental Liquidity Calls
    NSCC also proposes to establish intraday supplemental liquidity 
calls, which are intended to allow NSCC to calculate and collect 
additional supplemental liquidity deposits on an intraday basis if a 
Provider's increased daily activity levels or projected settlement 
activity causes a NSCC liquidity shortfall during a given day.\33\ NSCC 
believes the proposed intraday supplemental liquidity calls will help 
to mitigate increased liquidity exposures presented to NSCC on an 
intraday basis in specified circumstances, as discussed further 
below.\34\
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    \33\ The alternative pro rata calculation described in Section 
II.C.3 below would not apply to an intraday supplemental liquidity 
call.
    \34\ See Notice of Filing, supra note 4, at 15741.
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i. Proposed Mandatory Intraday Supplemental Liquidity Call During 
Options Expiry Periods
    First, NSCC proposes to establish a mandatory monthly intraday 
supplemental liquidity call that is calculated and collected, when 
applicable, on the first business day (typically a Friday) of an 
options expiry period.\35\ A Provider's mandatory intraday supplemental 
liquidity call will be the difference between, on the one hand, NSCC's 
qualifying liquid resources and, on the other hand, NSCC's daily 
liquidity need based on the Provider's settlement activity at the start 
of the business day, recalculated to account for both the Provider's 
actual settlement activity submitted to NSCC over the course of the 
day, and the Provider's projected settlement activity in stock options 
expected to be submitted to NSCC.\36\ Because NSCC's recalculated daily 
liquidity need will not factor in late day trades or other off-

[[Page 33417]]

setting settlement activity,\37\ NSCC proposes to adjust its 
recalculated daily liquidity need using an estimated netting percentage 
based on each Provider's average percentage of netting from its off-
setting settlement activity observed over the prior 24 months. NSCC 
states that the actual settlement activity flowing into NSCC for cash 
settlement of stocks underlying expiring options is typically lower 
than the projected settlement activity NSCC receives from OCC on the 
Thursday before the start of the options expiry period due to late day 
offsetting trades in stock options on that Friday; therefore, applying 
this netting percentage should more accurately reflect the actual 
liquidity exposures that will be presented to NSCC from the 
Providers.\38\
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    \35\ NSCC will retain how it defines the duration of the options 
expiry periods in its Rules. See supra note 17.
    \36\ Each business day, NSCC receives information regarding 
projected settlement activity from The Options Clearing Corporation 
(``OCC'') pursuant to a Stock and Futures Settlement Agreement. That 
agreement provides for the clearance and settlement of exercises and 
assignments of options on eligible securities or the maturity of 
eligible stock futures contracts through NSCC. See Securities 
Exchange Act Release No. 81260 (July 31, 2017), 82 FR 36484 (August 
4, 2017) (File Nos. SR-NSCC-2017-803; SR-OCC-2017-804). In this 
case, the recalculation will be based on the data NSCC receives from 
OCC late Thursday.
    \37\ See Notice of Filing, supra note 4, at 15741. For example, 
an affiliated Member may be entitled, under NSCC Rules, to liquidity 
credits based the trading activity of its affiliates, who are also 
Members, in order to determine NSCC's net liquidity exposure from 
the affiliated family of Members.
    \38\ See Notice of Filing, supra note 4, at 15741.
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    Moreover, NSCC proposes to eliminate the up to 90 day lock-up 
period of certain supplemental liquidity deposits. NSCC will no longer 
need to hold these deposits for longer periods because NSCC proposes to 
use the daily calculation and collection of supplemental liquidity 
deposits to help ensure NSCC maintains adequate liquidity resources 
each day, including throughout options expiry periods.\39\
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    \39\ See id. at 15740.
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ii. Proposed Discretionary Intraday Supplemental Liquidity Call Other 
Than During Options Expiry Periods
    Second, NSCC proposes to establish a discretionary intraday 
supplemental liquidity call on any business day other than the first 
business day during options expiry periods. Under this provision, NSCC 
will have the discretion to call for additional supplemental liquidity 
deposits on an intraday basis on any such business day if a Provider's 
increased activity levels during that day would cause a liquidity 
shortfall at NSCC. The amount of a Provider's intraday supplemental 
liquidity call, pursuant to NSCC's discretion, would be the difference 
between NSCC's daily liquidity need, recalculated to take into account 
the increase in the Provider's settlement activity during the day, and 
NSCC's qualifying liquid resources.
    NSCC states that it would collect a discretionary intraday call in 
circumstances where NSCC believes it should accelerate the collection 
of a Provider's supplemental liquidity obligation because that 
Provider's intraday settlement activity would cause NSCC's liquidity 
needs to exceed its liquidity resources.\40\ For example, NSCC may 
impose an intraday supplemental liquidity call on a Provider if NSCC 
determines that Provider is unlikely to meet its projected settlement 
obligations through the settlement cycle due to rapidly escalating 
financial stress.\41\ NSCC will make this determination based on a 
variety of factors, including NSCC's assessment of the Provider's 
ability to meet its obligations to NSCC (i.e., an assessment of the 
Provider's creditworthiness on a particular business day) or estimates 
of settlement activity that could offset settlement exposures and are 
not reflected in NSCC's liquidity estimates.\42\
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    \40\ See id. at 15741-42.
    \41\ See id. at 15742.
    \42\ See id.
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3. Proposed Pro Rata Calculation of Supplemental Liquidity Deposits
    As a potential alternative to the calculation described above, NSCC 
proposes a discretionary pro rata calculation that could apply in the 
event two or more Providers each would be obligated to provide a 
supplemental liquidity deposit of more than $2 billion on a business 
day pursuant to the calculation described above.\43\ Under the proposed 
alternative, NSCC will have the option to allocate, on a pro rata 
basis, its largest liquidity need on a business day to all Providers 
that are required to make a supplemental liquidity deposit on that day, 
thereby reducing all such Providers' obligations to NSCC on that day. 
NSCC's determination will be based on the market conditions at that 
time. For example, NSCC may determine that, in certain market 
conditions, this alternative approach would be appropriate to alleviate 
liquidity pressures on all Providers required to make a supplemental 
liquidity deposit on that day.\44\ NSCC states this alternative would 
allow NSCC to use this pro rata calculation to sufficiently cover its 
liquidity exposure on that day, without requiring that all Providers 
fund the total amount of its calculated supplemental liquidity deposit 
on that day.
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    \43\ NSCC represents that it has never had two or more Providers 
owe more than $2 billion on a calculation date since its adoption of 
the supplemental liquidity deposit Rules in 2013. Therefore, NSCC 
believes this alternative calculation would only be available in 
very limited circumstances. See Notice of Filing, supra note 4, at 
15741.
    \44\ See Notice of Filing, supra note 4, at 15741.
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4. Proposed Clarifying Changes to the Treatment of Supplemental 
Liquidity Deposits
    As described in Section II.C.1 above, NSCC proposes to return 
supplemental liquidity deposits, including any amount funded pursuant 
to an intraday supplemental liquidity call, on the next business day. 
However, NSCC proposes to clarify that, consistent with its current 
Rules regarding excess Clearing Fund deposits, it will have the right 
to withhold all or any part of any Member's excess Clearing Fund 
deposits, including supplemental liquidity deposits, if that Member has 
been placed on the Watch List pursuant to the Rules or if NSCC 
determines that the Member's anticipated activities in the near future 
may reasonably be expected to be materially different than its 
activities of the recent past.\45\ NSCC states that, while the proposed 
provision would not change NSCC's rights with respect to these funds, 
it would provide Members with greater transparency into how 
supplemental liquidity deposits will be treated under Rule 4.\46\
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    \45\ See Section 9 of Rule 4, supra note 9. Proposed Section 
12(a) of Rule 4(A) cross-references to Section 9 of Rule 4.
    \46\ See Notice of Filing, supra note 4, at 15742.
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    NSCC further proposes that it will hold a retired Provider's 
supplemental liquidity deposits for 30 calendar days after any of the 
Provider's open transactions have settled and obligations have been 
satisfied,\47\ rather than return such deposits on the next business 
day. NSCC states that the proposed provision will help protect NSCC 
from liquidity risks presented by open transactions in the days 
following a firm's retirement and would align the treatment of these 
funds with the treatment of a retired Member's Required Fund 
Deposits.\48\
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    \47\ See Section 7 of Rule 4, supra note 9. Proposed Section 10 
of Rule 4(A) cross-references to Section 7 of Rule 4.
    \48\ See Notice of Filing, supra note 4, at 15742.
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    Additionally, NSCC proposes to simplify and clarify NSCC's right to 
debit Providers' accounts at NSCC if a Provider fails to meet its 
supplemental liquidity obligations, and NSCC's obligation to make 
available to Providers the amount of the Daily Liquidity Need that NSCC 
would have had in the event the Provider defaulted on the previous 
business day. NSCC states that, while the proposed miscellaneous 
changes will not significantly alter the structure of these provisions, 
they will provide transparency to Providers regarding

[[Page 33418]]

their rights and obligations under the Rules.\49\
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    \49\ See id.
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D. Partial Amendment No. 1

    On June 17, 2021, NSCC filed Partial Amendment No. 1 to revise its 
disclosure, pursuant to Item 3(a) of Form 19b-4, relating to the 
purpose of the Proposed Rule Change by including the following language 
at the beginning of its Item 3(a) disclosure:

    As described in greater detail below, NSCC adopted the SLD 
requirements in 2013 to establish supplemental liquidity deposits to 
the Clearing Fund designed to ensure that NSCC has adequate 
liquidity resources to meet its liquidity needs during monthly 
options expiry settlement periods when NSCC observes significant 
increases in its liquidity exposures. Since that time, NSCC has 
continued to strengthen its liquidity risk management by 
diversifying its sources of qualifying liquid resources. These 
efforts are aimed at, for example, managing the risk that any one of 
those sources is reduced.
    In connection with these ongoing efforts, NSCC is proposing 
changes to the SLD requirements. As described in greater detail in 
this filing, the proposed changes include:
    (1) Calculating and collecting, when applicable, SLD on each 
Business Day, rather than only during the monthly options settlement 
periods.
    (2) calculating SLD based on observed Member activity, rather 
than based on historical and forecasted settlement activity.
    (3) adopting an intraday SLD calculation and collection, when 
applicable, on the first Business Day of the monthly options 
settlement periods based on additional exposures that are presented 
by options activity submitted after the start of day.
    (4) eliminating the 90-day holding period for certain SLD.
    (5) adopting a discretionary, alternative pro rata calculation 
of Members' SLD requirements that would apply in certain 
circumstances and allow NSCC to allocate its largest liquidity need 
on a Business Day among Members that are required to pay SLD, rather 
than collect separate SLD from each of those Members.

    In Partial Amendment No. 1, NSCC clarifies its disclosure 
describing the purpose of the proposal, pursuant to Item 3(a) of Form 
19b-4. NSCC does not, however, make changes to the proposal itself, 
including the proposed text of the Rules that was provided as Exhibit 5 
to the Proposed Rule Change. Therefore, Partial Amendment No. 1, NSCC 
does not alter the manner in which the Proposed Rule Change would nor 
does it alter the manner in which the Proposed Rule Change will affect 
its Members or other interested persons.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \50\ 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 the rules and regulations thereunder 
applicable to such organization. After careful consideration, the 
Commission finds that the Proposed Rule Change is consistent with the 
requirements of the Act and the rules and regulations applicable to 
NSCC. In particular, the Commission finds that the Proposed Rule Change 
is consistent with Section 17A(b)(3)(F) \51\ of the Act and Rule 17Ad-
22(e)(7) \52\ thereunder.
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    \50\ 15 U.S.C. 78s(b)(2)(C).
    \51\ 15 U.S.C. 78q-1(b)(3)(F).
    \52\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) \53\ of the Act requires, in part, that the 
rules of a clearing agency, such as NSCC, be designed to, among other 
things, promote the prompt and accurate clearance and settlement of 
securities transactions and assure the safeguarding of securities and 
funds which are in the custody or control of the clearing agency or for 
which it is responsible. The Commission finds that the Proposed Rule 
Change is consistent with Section 17A(b)(3)(F) of the Act for the 
reasons stated below.
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    \53\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above in Section II.B, NSCC can face sudden liquidity 
shortfalls on any business day, particularly during volatile market 
conditions, which can be unrelated to options expiration. As a CCP, it 
is imperative that NSCC maintains adequate resources to satisfy 
liquidity needs arising from its settlement obligations, including in 
the event of a Member default. However, NSCC currently may only collect 
supplemental liquidity deposits during monthly options expiry periods. 
As described above in Section II.C.1, the Proposed Rule Change is 
designed to allow NSCC to respond quickly to sudden liquidity 
shortfalls that may arise, regardless of timing, by collecting 
supplemental liquidity deposits based on a daily calculation, instead 
of being limited to only the monthly options expiration period. The 
ability to calculate and collect supplemental liquidity deposits, as 
applicable, on a daily basis should help NSCC more accurately manage 
its daily liquidity exposures based on Members' actual activity. 
Moreover, the proposal would allow NSCC to determine the amount of 
supplemental liquidity deposits based on Members' actual activity, 
providing more precise and, potentially, lower charges for Members than 
provided under the current methodology, which uses estimates based on a 
look-back period and can, on occasion, result in NSCC collecting more 
resources than needed to cover its exposure.
    Further, as described above in Section II.C.3, the proposal will 
provide NSCC with additional flexibility over the timing and amount of 
collections. First, establishing the mandatory intraday supplemental 
liquidity calls on the first business day of the monthly options expiry 
periods should help NSCC continue to manage the potential increased 
liquidity exposures that may arise from options settlement-related 
activity by allowing it to accelerate the collection of supplemental 
liquidity deposits on that day, as opposed to waiting for the proposed 
daily collection that would occur on the morning of the following 
business day. Second, the proposed discretionary intraday supplemental 
liquidity calls should collect additional supplemental liquidity 
deposits from Members whose activity outside of the monthly options 
expiry periods may cause a sudden increase in NSCC's liquidity needs on 
an overnight basis. Moreover, as described above in Section II.C.3, the 
proposed alternative pro rata calculation that NSCC may apply in 
certain circumstances will provide NSCC the flexibility to determine 
the total amount collected on a business day, while continuing to 
collect sufficient liquidity to complete end-of-day settlement in the 
event the Provider with the largest payment obligation defaults.
    Additionally, as described above in Section II.C.4, the proposed 
clarifying changes would make the rights and obligations of both NSCC 
and its Members under the Rules more transparent and easier to 
understand. A clearer rule supports the ability of Members to meet 
their supplemental liquidity deposit requirements and understand how 
NSCC will treat such deposits, and the liquidity provided to NSCC 
through supplemental liquidity deposits would allow it to complete end-
of-day settlement in the event the Provider with the largest payment 
obligation defaults.
    For the reasons stated above, the Commission finds the Proposed 
Rule Change is designed to allow NSCC to address potential sudden 
liquidity exposures that may arise on a daily basis. The daily 
calculation and collection of supplemental liquidity

[[Page 33419]]

deposits should allow NSCC to effectively cover those liquidity 
exposures and, should help NSCC ensure it can complete settlement for 
all its Members in the event one Member defaults, which the Commission 
believes should promote the prompt and accurate clearance and 
settlement of securities transactions. Moreover, the Commission 
believes that enhancing NSCC's ability to complete settlement in the 
event of a Member default should help avoid the potential for loss 
mutualization among the non-defaulting members and potential impacts on 
the broader financial system, which is consistent with assuring the 
safeguarding of securities and funds which are in its custody or 
control. Accordingly, the Commission finds the changes proposed in the 
Proposed Rule Change are consistent with Section 17A(b)(3)(F) of the 
Act.\54\
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    \54\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(7)(i) and (ii)

    The Commission finds the changes proposed in the Proposed Rule 
Change are consistent with Rules 17Ad-22(e)(7)(i) and (ii), each 
promulgated under the Act,\55\ for the reasons described below.
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    \55\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
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    Rule 17Ad-22(e)(7)(i) under the Act requires that a covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to maintain sufficient 
liquid resources at the minimum in all relevant currencies to effect 
same-day and, where appropriate, intraday and multiday settlement of 
payment obligations with a high degree of confidence under a wide range 
of foreseeable stress scenarios that includes, but is not limited to, 
the default of the participant family that would generate the largest 
aggregate payment obligation for the covered clearing agency in extreme 
but plausible market conditions.\56\ Rule 17Ad-22(e)(7)(ii) under the 
Act requires that a cover clearing agency establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to hold qualifying liquid resources sufficient to meet the 
minimum liquidity resource requirement under Rule 17Ad-22(e)(7)(i) in 
each relevant currency for which the covered clearing agency has 
payment obligations owed to its clearing members.\57\
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    \56\ 17 CFR 240.17Ad-22(e)(7)(i).
    \57\ 17 CFR 240.17Ad-22(e)(7)(ii). For purposes of Rule 17Ad-
22(e)(7)(ii), ``qualifying liquid resources'' are defined in Rule 
17Ad-22(a)(14) as including, in part, cash held either at the 
central bank of issue or at creditworthy commercial banks. 17 CFR 
240.17Ad-22(a)(14).
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    As described above in Sections II.C.1 and 2, the Proposed Rule 
Change would help strengthen NSCC's ability to maintain sufficient 
liquid resources to complete end-of-day settlement in the event of the 
Member default by allowing NSCC to calculate and collect, when 
applicable, supplemental liquidity deposits every business day, or on 
an intraday basis, from those Members that pose the largest liquidity 
exposures to NSCC on that day. These resources would be available to 
NSCC to complete end-of-day settlement in the event of the default of a 
Member. Moreover, the Commission has reviewed and considered the impact 
study results provided by NSCC comparing the proposal against the 
observed regulatory liquidity needs and NSCC's qualifying liquid 
resources available during the period from 2016 through 2020, to assess 
both pro-forma and hypothetical impacts of the proposal under various 
liquidity scenarios,\58\ and finds that these results generally 
indicated that the proposal would continue allow NSCC to meet its 
regulatory liquidity obligations.
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    \58\ See supra note 32 and accompanying text.
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    In addition, deposits made to satisfy supplemental liquidity 
deposit obligations are currently and will continue to be required to 
be made as cash deposits, which will continue to be held by NSCC at 
either its cash deposit account at the Federal Reserve Bank of New 
York, at a creditworthy commercial bank, or in other investments 
pursuant to NSCC's Clearing Agency Investment Policy.\59\ Therefore, 
supplemental liquidity deposits would continue to be considered a 
qualifying liquid resource, as defined by Rule 17Ad-22(a)(14),\60\ and 
would support NSCC's ability to hold qualifying liquid resources 
sufficient to meet the minimum liquidity resource requirement under 
Rule 17Ad-22(e)(7)(i),\61\ as required by Rule 17Ad-22(e)(7)(ii).\62\
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    \59\ See Securities Exchange Act Release Nos. 79528 (December 
12, 2016), 81 FR 91232 (December 16, 2016) (File Nos. SR-DTC-2016-
007, SR-FICC-2016-005, SR-NSCC-2016-003); 84949 (December 21, 2018), 
83 FR 67779 (December 31, 2018) (File Nos. SR-DTC-2018-012, SR-FICC-
2018-014, SR-NSCC-2018-013).
    \60\ 17 CFR 240.17Ad-22(a)(14).
    \61\ 17 CFR 240.17Ad-22(e)(7)(i).
    \62\ 17 CFR 240.17Ad-22(e)(7)(ii).
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    Accordingly, the Commission finds that implementation of the 
proposed amendments to NSCC's supplemental liquidity deposit 
requirements would be consistent with Rule 17Ad-22(e)(7)(i) and (ii) 
under the Act.\63\
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    \63\ 17 CFR 240.17Ad-22(e)(7).
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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, as modified by Partial Amendment No. 1, 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 rule-comments@sec.gov. Please include 
File Number SR-NSCC-2021-002 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-2021-002. 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-2021-002 and should be submitted on 
or before July 15, 2021.

[[Page 33420]]

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Partial Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\64\ to approve the proposed rule change prior to the 30th day 
after the date of publication of Partial Amendment No. 1 in the Federal 
Register. As discussed in Section II.D above, in Partial Amendment No. 
1, NSCC amends its Form 19b-4, Item 3(a) disclosure to provide 
additional description of the purpose of the Proposed Rule Change, and 
Partial Amendment No. 1 does change the substance of the proposal, the 
proposed text of the Rules that was provided as Exhibit 5 to the 
Proposed Rule Change, the manner in which the Proposed Rule Change will 
operate, or the manner in which the Proposed Rule Change will affect 
its Members or other interested persons.
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    \64\ 15 U.S.C. 78s(b)(2).
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    Furthermore, as discussed in Section III.A above, the Commission 
believes that the Proposed Rule Change, as modified by Partial 
Amendment No. 1, should help NSCC ensure it can complete settlement for 
all its Members in the event one Member defaults, which the Commission 
believes should promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with Section 
17A(b)(3)(F).\65\ Therefore, the Commission believes the nature of the 
changes in Partial Amendment No. 1 and NSCC's intended enhancements to 
its daily liquidity risk management warrants accelerated approval of 
the Proposed Rule Change. Accordingly, the Commission finds good cause 
for approving the Proposed Rule Change, as modified by Partial 
Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2) 
of the Act.\66\
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    \65\ 15 U.S.C. 78q-1(b)(3)(F)
    \66\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act and 
in particular with the requirements of Section 17A of the Act \67\ and 
the rules and regulations promulgated thereunder.
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    \67\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\68\ that Proposed Rule Change, as modified by Partial Amendment No. 1, 
SR-NSCC-2021-002, be, and hereby is, Approved on an accelerated 
basis.69 70
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    \68\ 15 U.S.C. 78s(b)(2).
    \69\ In approving the Proposed Rule Change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \70\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\70\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13413 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P