Document ID: SEC-2021-1077-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2021-08-11T04:00Z

[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44100-44105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17074]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92566; File No. SR-NSCC-2021-011]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change To Remove ID 
Net Transactions From the Required Fund Deposit Calculations and Make 
Other Changes to the Rules

August 5, 2021.
    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 27, 2021, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. 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.
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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 modifications to NSCC's Rules 
& Procedures (``Rules'') to (1) remove transactions processed through 
the ID Net Service from the calculation of Members' Required Fund 
Deposits to the Clearing Fund; (2) provide greater transparency 
regarding the status of the ID Net Service as a non-guaranteed service 
and how transactions processed through the ID Net Service are handled 
following a Member default; and (3) make other changes to the Rules to 
implement these proposed changes, as described in greater detail 
below.\3\
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    \3\ Capitalized 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
    NSCC is proposing to revise its margining methodology to remove 
institutional delivery (``ID'') transactions that are processed through 
the ID Net Service from the calculation of Members' Required Deposits 
to the Clearing Fund, as described in greater detail below.\4\ While ID 
transactions processed through the ID Net Service (``ID Net 
Transactions'') are netted with transactions that have been processed 
through NSCC's continuous net

[[Page 44101]]

settlement (``CNS'') system, these transactions are not subject to 
NSCC's trade guarantee.\5\ Therefore, the proposed change would improve 
NSCC's ability to collect Required Fund Deposits from its Members that 
more accurately reflect the positions that it may be required to 
complete in the event of a Member default.
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    \4\ See Rule 65 (ID Net Service) and Procedure XVI (ID Net 
Service) of the Rules, supra note 3.
    \5\ Transactions processed through the ID Net Service have never 
been subject to NSCC's trade guarantee. This service was implemented 
only to provide Members with the operational benefit of netting 
these transactions with their CNS obligations, as described in 
greater detail below.
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    NSCC is also proposing to amend the Rules to provide greater 
transparency regarding the status of the ID Net Service as a non-
guaranteed service and how ID Net Transactions are handled following a 
Member default. Finally, NSCC is proposing to make other changes to the 
Rules to implement these proposed changes.
Overview of ID Transactions and the ID Net Service
    The parties involved in an ID transaction include the institutional 
investor (such as mutual funds, insurance companies, hedge funds, bank 
trust departments and pension funds), the investment manager (who 
enters trade orders on behalf of institutional investors), the buying 
broker and the selling broker, and custodian banks. After execution, 
the trade allocation details of ID transactions are matched between the 
executing broker and the investment manager or institutional investor's 
custodian bank. After an executing broker has provided a final notice 
of execution, most investment managers will provide client trade 
allocation details to the executing broker using a service provided by 
NSCC's affiliate, Institutional Trade Processing (``ITP'').
    When the executing broker accepts and processes the trade 
allocations, an electronic confirmation is provided through ITP's 
TradeSuite IDTM service to the investment manager or the 
institutional investor's custodian bank for affirmation.\6\ ITP links 
with the various parties to institutional trades to provide real-time 
central matching electronically comparing trade details and notifying 
parties of any exceptions.\7\ After the trade allocation details are 
affirmed, the institutional delivery details are sent to The Depository 
Trust Company (``DTC'') where the trade is settled. NSCC risk 
management receives a daily feed from ITP that includes both ID 
transactions that have only been confirmed as well as those that have 
also been affirmed. Some eligible ID transactions may be processed 
through NSCC's CNS Accounting Operation or Balance Order Accounting 
Operation, as applicable, for clearance and settlement with the buying 
broker and selling broker as counterparties.\8\
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    \6\ For more information regarding this service, see https://www.dtcc.com/institutional-trade-processing/itp/tradesuite-id.
    \7\ Exceptions occur when the mandatory matching fields (for 
example, security identifier or settlement date) do not match.
    \8\ See Section B (Institutional Clearing Service) of Procedure 
IV (Special Representative Service) of the Rules, supra note 3.
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    Alternatively, Members may subscribe for the ID Net Service and 
direct ID transactions to be submitted to NSCC and DTC pursuant to this 
service. The ID Net Service is a joint service of NSCC and DTC that 
allows the executing brokers that are subscribers to the service to net 
affirmed eligible ID transactions that are held at DTC with 
transactions have been processed through CNS. ID Net Transactions net 
with CNS obligations to create efficiencies in settlement but these 
transactions are not processed through CNS. The ID Net Service accepts 
affirmed transactions in Eligible ID Net Securities (as defined in Rule 
65 (ID Net Service) of the Rules) and nets the broker-dealer side of 
such transactions with the broker-dealer's CNS obligations.\9\ Most 
equity securities that are eligible for processing through CNS are 
Eligible ID Net Securities.
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    \9\ See supra note 4.
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    Participation in the ID Net Service is voluntary. Eligibility for 
the ID Net Service requires that the broker-dealer in the ID 
transaction be an NSCC Member and a participant of DTC. The custodian 
bank in the ID transaction must be a DTC participant. In addition, 
eligibility for ID Net Service processing is based on the underlying 
security being processed, the type of transaction submitted for 
processing, and the timing of affirmation. As described in Procedure 
XVI of the Rules, ID Net Transactions that are not completed by the 
cut-off time established by NSCC (currently 11:30 a.m. EST) on 
settlement day are exited from NSCC's systems and must be settled on a 
trade-for-trade basis away from NSCC.\10\
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    \10\ Supra note 3.
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    This service provides Members with the operational benefit of 
netting these transactions with their CNS obligations, allowing them to 
combine their affirmed ID transactions with other trades in CNS. As 
noted above, ID Net transactions are not subject to NSCC's trade 
guarantee.
Required Fund Deposit and Risk Management of ID Net Transactions
    As part of its market risk management strategy, NSCC manages its 
credit exposure to Members by determining the appropriate Required Fund 
Deposits to the Clearing Fund and monitoring its sufficiency, as 
provided for in the Rules.\11\ The Required Fund Deposit serves as each 
Member's margin. The objective of a Member's Required Fund Deposit is 
to mitigate potential losses to NSCC associated with liquidating a 
Member's portfolio in the event NSCC ceases to act for that Member 
(hereinafter referred to as a ``default'').\12\ The aggregate of all 
Members' Required Fund Deposits constitutes the Clearing Fund of NSCC. 
NSCC would access its Clearing Fund should a defaulting Member's own 
Required Fund Deposit be insufficient to satisfy losses to NSCC caused 
by the liquidation of that Member's portfolio.
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    \11\ See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund 
Formula and Other Matters), supra note 3. NSCC's market risk 
management strategy is designed to comply with Rule 17Ad-22(e)(4) 
under the Act, where these risks are referred to as ``credit 
risks.'' 17 CFR 240.17Ad-22(e)(4).
    \12\ The Rules identify when NSCC may cease to act for a Member 
and the types of actions NSCC may take. For example, NSCC may 
suspend a firm's membership with NSCC or prohibit or limit a 
Member's access to NSCC's services in the event that Member defaults 
on a financial or other obligation to NSCC. See Rule 46 
(Restrictions on Access to Services) of the Rules, supra note 3.
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    Pursuant to the Rules, each Member's Required Fund Deposit amount 
consists of a number of applicable components, each of which is 
calculated to address specific risks faced by NSCC, and are described 
in Procedure XV of the Rules.\13\ Because ID Net Transactions are 
netted with CNS transactions, these transactions are currently included 
in the netted positions that are used to calculate certain components 
of Members' Required Fund Deposits. These components include the 
volatility component, the mark-to-market component, which includes both 
a Regular Mark-to-Market charge and an ID Net Mark-to-Market charge, 
the Margin Requirement Differential component (``MRD charge''), and a 
margin liquidity adjustment charge (``MLA charge'').
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    \13\ Supra note 3.
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    The volatility component of each Member's Required Fund Deposit is 
designed to measure market price volatility and is calculated for 
Members' net of unsettled pending positions, defined as ``Net Unsettled 
Positions.'' \14\ Currently, Members' Net Unsettled Positions, for 
purposes of calculating

[[Page 44102]]

the volatility component, include ID Net Transactions. The volatility 
component captures the market price risk associated with each Member's 
portfolio at a 99th percentile level of confidence. NSCC has two 
methodologies for calculating the volatility component. The volatility 
component applicable to most Net Unsettled Positions is calculated 
using a parametric Value at Risk (``VaR'') model and usually comprises 
the largest portion of a Member's Required Fund Deposit (``VaR 
Charge'').\15\
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    \14\ See Sections I(A)(1)(a) and (2)(a) of Procedure XV of the 
Rules, supra note 3.
    \15\ As described in Procedure XV, Section I(A)(1)(a)(ii), (iii) 
and (iv), and Section I(A)(2)(a)(ii), (iii) and (iv) of the Rules, 
Net Unsettled Positions in certain securities are excluded from the 
VaR Charge and instead charged a volatility component that is 
calculated by multiplying the absolute value of those Net Unsettled 
Positions by a percentage. Supra note 3.
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    The mark-to-market component measures the unrealized profit or loss 
using the contract price versus the Current Market Price (which is the 
price for a security determined daily for purposes of the CNS system; 
generally, the prior day's closing price).\16\ NSCC calculates both a 
Regular Mark-to-Market charge and, for Members that subscribe to the ID 
Net Service, NSCC also calculates a separate ID Net mark-to-market 
component with respect to only ID Net Transactions, using the same 
calculation, referred to in the Rules as the ID Net Mark-to-Market 
charge.\17\ For both calculations, and only with respect to Members 
that use the ID Net Service, if the mark-to-market calculation results 
in a positive number, there is no mark-to-market charge applied.\18\
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    \16\ See Section I(A)(1)(b) of Procedure XV of the Rules, supra 
note 3. See also the definition of ``Current Market Price'' in Rule 
1 (Definitions and Descriptions), id.
    \17\ See Section I(A)(1)(c) of Procedure XV of the Rules, supra 
note 3.
    \18\ See id.
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    The MRD charge is designed to help mitigate the risks posed to NSCC 
by day-over-day fluctuations in a Member's portfolio by forecasting 
future changes in a Member's portfolio based on a 100-day historical 
look-back at each Member's portfolio over a given time period.\19\ 
Currently, the charge is calculated as the sum of the changes in a 
Member's Regular Mark-to-Market charge, ID Net Mark-to-Market charge, 
and volatility component over the look-back period. Finally, the MLA 
charge is designed to address the risk presented to NSCC when a 
Member's portfolio contains large Net Unsettled Positions in a 
particular group of securities with a similar risk profile or in a 
particular asset type.\20\ Similar to the volatility component, the MLA 
charge is calculated on a Member's Net Unsettled Positions, which 
currently includes ID Net Transactions.
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    \19\ See Section I(A)(1)(f) and (d) of Procedure XV of the 
Rules, supra note 3.
    \20\ See supra note 3.
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Proposed Enhancement to NSCC's Margining Methodology
    NSCC is proposing to enhance its margining methodology to remove ID 
Net Transactions from the calculation of Members' Required Fund 
Deposits. NSCC does not guaranty the completion of these ID Net 
Transactions, so, in the event of a Member default, these transactions 
are excluded from NSCC's operations to be settled away from NSCC. By 
removing ID Net Transactions from the calculation of Members' Required 
Fund Deposits, NSCC would be able to calculate and collect an amount 
that more accurately reflects the risks presented by positions it would 
be obligated to complete in the event of a Member default.
    Including ID Net Transactions in the margin calculations presents 
the risk that NSCC is either under-margining or over-margining the 
positions of Members that use the ID Net Service.\21\ However, NSCC 
does not expect the proposed change to have a material impact on the 
size of its Clearing Fund. At the time of this filing, only twelve 
Members are subscribed to the ID Net Service, and their Required Fund 
Deposits are driven primarily by their CNS and Balance Order activity. 
For most of these Members, the inclusion of ID Net Transactions in 
margin calculations has an immaterial impact on these Members' Required 
Fund Deposits on a typical business day. In connection with its regular 
review of its margining methodology, NSCC has determined that it could 
more accurately and, therefore, more effectively measure the risks it 
faces following a Member default by removing these non-guaranteed 
positions from its margining methodology.
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    \21\ For example, if the inclusion of ID Net Transactions in a 
Member's Net Unsettled Positions results in a lower margin charge 
(as compared to the margin charge that would have been calculated 
for that Member if those ID Net Transactions were excluded from its 
Net Unsettled Positions), NSCC could be under-margining on that Net 
Unsettled Position.
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    In order to implement this proposed change, NSCC would remove ID 
Net Transactions from Members' Net Unsettled Positions for purposes of 
calculating the volatility charge and the MLA charge. NSCC would also 
(1) eliminate the ID Net Mark-to-Market charge from the Required Fund 
Deposit calculations by removing Section I(A)(1)(c) from Procedure XV 
of the Rules and (2) amend Section I(A)(1)(b) of Procedure XV of the 
Rules to make clear that ID Net Transactions are not included in the 
calculation of the Regular Mark-to-Market charge. Finally, NSCC would 
amend Section I(A)(1)(f) (which will be renamed Section I(A)(1)(e) 
following implementation of the proposed changes) and Section 
I(A)(2)(d) of Procedure XV of the Rules, which describe the calculation 
of the MRD charge, to remove the ID Net Mark-to-Market charge from this 
description.
    NSCC is not proposing any other changes to the calculation of these 
margin charges and is not proposing any changes to the operation of the 
ID Net Service.
Proposed Changes to Clarify the Non-Guaranteed Status of ID Net Service
    NSCC is also proposing to amend Rule 65 (ID Net Service) and Rule 
18 (Procedures for when the Corporation Declines or Ceases to Act) to 
provide greater transparency and clarity into how ID Net Transactions 
are processed in the event of a Member default. As stated above, the ID 
Net Service provides Members with the operational benefit of netting 
these transactions through NSCC's CNS system, allowing them to combine 
their affirmed ID transactions with other trades in CNS. However, ID 
Net Transactions are not subject to NSCC's trade guarantee and would be 
exited from NSCC's systems in the event of a Member default.
    Currently, Rule 65 current describes the circumstances in which 
NSCC may remove a Member's status as an ID Net Subscriber, which 
include the circumstances that provide NSCC with the right to suspend, 
prohibit or limit a Member's access to NSCC's services under Rule 46 
(Restrictions on Access to Services) of the Rules.\22\ Additionally, 
Procedure XVI (ID Net Service) of the Rules describes NSCC's ability to 
exit ID Net Transactions from its operations.\23\ Because the ID Net 
Service is not a guaranteed service, NSCC would rely on these rules to 
exit ID Net Transactions from its operations in the event of a Member 
default. Specifically, if NSCC ceases to act for a Member that is an ID 
Net Subscriber, that firm would no longer be eligible to use the 
service pursuant to Rule 65, and NSCC would exit its ID Net 
Transactions from its operations, and those transactions would be 
settled on a trade-for-trade basis outside the ID Net Service.\24\ NSCC

[[Page 44103]]

is proposing to amend Rules 65 and 18 of the Rules to improve the 
transparency of the Rules in describing this service as non-guaranteed 
and to provide clarity on how these transactions will be processed in 
the event of a Member default.
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    \22\ See Section 5(b) of Rule 65 (ID Net Service) and Section 1 
of Rule 46 (Restrictions on Access to Services) of the Rules, supra 
note 3.
    \23\ See supra note 3.
    \24\ See Securities Exchange Act Release No. 57901 (June 2, 
2008), 73 FR 32373, at 32375 (June 6, 2008) (File Nos. SR-DTC-2007-
14; SR-NSCC-2007-14) (``If the transaction becomes ineligible for 
any reason, the transaction will be exited from the ID Net Service 
processing and will be settled on a trade-for-trade basis between 
the ID Net Firm and the ID Net Bank outside of the ID Net Service at 
DTC.'')
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    First, NSCC would include a statement in a new Section 5(c) of Rule 
65 of the Rules that states the ID Net Service is not a guaranteed 
service, and refers to Rule 18 of the Rules to describe how ID Net 
Transactions would be treated if NSCC ceases to act for a Member that 
is an ID Net Subscriber. Second, NSCC would amend Section 2(a) of Rule 
18 of the Rules to make it clear that uncompleted transactions 
processed through the ID Net Service in accordance with Rule 65 would 
be excluded from NSCC's operations if NSCC ceased to act for a Member 
that is an ID Net Subscriber pursuant to Rule 46 of the Rules.
    The proposed changes to Rules 65 and 18 of the Rules would use 
language that is similar to language used to describe two other non-
guaranteed NSCC services--the Automated Customer Account Transfer 
Service (``ACATS'') and the Obligation Warehouse (``OW'') service.\25\ 
By using parallel language in describing the nature of each of these 
services as non-guaranteed and how transactions processed through these 
services would be excluded from NSCC's operations following a Member 
default, the proposed changes would create consistency and clarity 
within the Rules, improving the Rules' transparency to Members.
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    \25\ See Rule 50 (Automated Customer Account Transfer Service) 
and Rule 51 (Obligation Warehouse), supra note 3.
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Other Proposed Changes to the NSCC Rules To Implement the Proposal
    NSCC is proposing additional changes to the Rules in order 
implement the proposed changes described above. First, NSCC would move 
the definitions of ``Net Unsettled Positions'' and ``Net Balance Order 
Unsettled Positions'' from Procedure XV (Clearing Fund Formula and 
Other Matters) to Rule 1 (Definitions and Descriptions) of the Rules. 
In moving the definition of this term, which is used for the 
calculation of both the volatility component and the MLA charge, to 
Rule 1 of the Rules, NSCC would simplify the description of the 
calculation of these charges. NSCC would also amend the definition of 
Net Unsettled Positions to implement the proposed change to remove ID 
Net Transactions from these positions. Other than with respect to the 
removal of ID Net Transactions from these positions, the meaning of the 
term ``Net Unsettled Positions'' would not change from its current 
meaning.
    NSCC is also proposing to change the defined term ``Regular Mark-
to-Market'' charge to the ``Mark-to-Market'' charge in Procedure XV of 
the Rules.\26\ Following the proposed change to eliminate the ID Net 
Mark-to-Market charge, as described above, the Regular Mark-to-Market 
charge would be the only mark-to-market charge that is calculated by 
NSCC. Therefore, it will no longer be necessary to refer to this charge 
as the ``Regular'' mark-to-market charge.
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    \26\ See Section I(A)(1)(c) of Procedure XV of the Rules, supra 
note 3.
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    Finally, NSCC is proposing to re-number the margin components in 
Section I(A)(1) of Procedure XV of the Rules to reflect the deletion of 
the ID Mark-to-Market charge, and to update the references to these 
components in the description of the Excess Capital Premium charge.\27\
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    \27\ See Section I(B)(2) of Procedure XV of the Rules, supra 
note 3.
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(i) Implementation Timeframe
    NSCC would implement the proposed changes no later than 10 Business 
Days after the approval of the proposed rule change by the Commission. 
NSCC would announce the effective date of the proposed changes by 
Important Notice posted to its website.
2. Statutory Basis
    NSCC believes that the proposed changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. In particular, NSCC 
believes the proposed changes are consistent with Section 17A(b)(3)(F) 
of the Act,\28\ and Rules 17Ad-22(e)(4)(i) and (e)(6)(i), each 
promulgated under the Act,\29\ for the reasons described below.
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    \28\ 15 U.S.C. 78q-1(b)(3)(F).
    \29\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
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    Section 17A(b)(3)(F) of the Act requires that the rules of NSCC be 
designed to, among other things, assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible.\30\ The proposed change to remove ID Net 
Transactions from the calculation of the Members' Required Fund 
Deposits would allow NSCC to calculate these amounts using only the 
positions that it may be required to complete in the event of a Member 
default. The proposed change would assist NSCC in calculating and 
collecting margin requirements that better reflect the risks it may 
face in liquidating a defaulted Member's positions. The Clearing Fund 
is a key tool that NSCC uses to mitigate potential losses to NSCC 
associated with liquidating a Member's portfolio in the event of Member 
default. The proposal to enhance the calculation of margin requirements 
by removing non-guaranteed positions would enable NSCC to better 
measure the risks it faces in the event of a Member default, such that 
NSCC's operations would not be disrupted and non-defaulting Members 
would not be exposed to losses they cannot anticipate or control in 
such an event.
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    \30\ 15 U.S.C. 78q-1(b)(3)(F).
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    Additionally, the proposed changes to include transparency around 
the nature of the ID Net Service as a non-guaranteed service and 
clarity on how ID Net Transactions are processed following a Member 
default, and to update the Rules to implement the other proposed 
changes, would make the Rules more effective in communicating Members' 
rights and obligations in connection with the use of the ID Net 
Service. When Members better understand their rights and obligations 
regarding the Rules, they are more likely to act in accordance with the 
Rules, which NSCC believes would promote the prompt and accurate 
clearance and settlement of securities transactions.
    Therefore, the proposed changes are designed to assure the 
safeguarding of securities and funds which are in the custody or 
control of NSCC or for which it is responsible, consistent with Section 
17A(b)(3)(F) of the Act.\31\
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    \31\ Id.
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    Rule 17Ad-22(e)(4)(i) under the Act requires, in part, that NSCC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively identify, measure, 
monitor, and manage its credit exposures to participants and those 
arising from its payment, clearing, and settlement processes, including 
by maintaining sufficient financial resources to cover its credit 
exposure to each participant fully with a high degree of 
confidence.\32\ As described above, the proposed change to remove ID 
Net Transactions from the calculation of Required Fund Deposits of 
Members that are ID Net Subscribers would enable NSCC to more 
accurately measure the risks presented by those Members' guaranteed 
positions.

[[Page 44104]]

Therefore, NSCC believes the proposal would enhance NSCC's ability to 
effectively identify, measure, monitor and, through the collection of 
Required Fund Deposits, manage its credit exposures to Members by 
maintaining sufficient financial resources to cover its credit exposure 
fully with a high degree of confidence. As such, NSCC believes the 
proposed changes are consistent with Rule 17Ad-22(e)(4)(i) under the 
Act.\33\
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    \32\ 17 CFR 240.17Ad-22(e)(4)(i).
    \33\ Id.
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    Rule 17Ad-22(e)(6)(i) under the Act requires, in part, that NSCC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum, considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, 
and market.\34\ The Required Fund Deposits are made up of risk-based 
components (as margin) that are calculated and assessed daily to limit 
NSCC's credit exposures to Members. NSCC's proposal to remove ID Net 
Transactions from the calculation of Required Fund Deposits is designed 
to enable NSCC to more effectively measure the risks presented by its 
Members' guaranteed positions and, therefore, assess a more appropriate 
level of margin. The proposed change is designed to assist NSCC in 
maintaining a risk-based margin system that considers, and produces 
margin levels commensurate with, the risks and particular attributes of 
Members' portfolios. Therefore, NSCC believes the proposed change is 
consistent with Rule 17Ad-22(e)(6)(i) under the Act.\35\
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    \34\ 17 CFR 240.17Ad-22(e)(6)(i).
    \35\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC believes that the proposed change to remove ID Net 
Transactions from the calculation of Required Fund Deposits of Members 
that are ID Net Subscribers could have an impact on competition. 
Specifically, NSCC believes the proposed change could burden 
competition because it may result in either larger or smaller Required 
Fund Deposit amounts for those Members. When the proposal results in a 
larger Required Fund Deposit, the proposed change could burden 
competition for Members that have lower operating margins or higher 
costs of capital compared to other Members. However, any increase or 
decrease in a Required Fund Deposit is not expected to be material and 
would be the result of a margin calculation that more accurately 
reflects the risks presented by each Member's guaranteed positions. As 
such, NSCC believes that any burden on competition imposed by the 
proposed change would not be significant and, further, would be both 
necessary and appropriate in furtherance of NSCC's efforts to mitigate 
risks and meet the requirements of the Act, as described in this filing 
and further below.
    NSCC believes the above described burden on competition that may be 
created by the proposed change would be necessary in furtherance of the 
Act, specifically Section 17A(b)(3)(F) of the Act.\36\ As stated above, 
the proposal is designed to assist NSCC in better estimating and 
collecting margin requirements that reflect the risks it may face in 
liquidating a defaulted Member's guaranteed positions. Therefore, NSCC 
believes this proposed change is consistent with the requirements of 
Section 17A(b)(3)(F) of the Act, which requires that the Rules be 
designed to assure the safeguarding of securities and funds that are in 
NSCC's custody or control or which it is responsible.\37\
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    \36\ 15 U.S.C. 78q-1(b)(3)(F).
    \37\ Id.
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    NSCC believes the proposal would also support NSCC's compliance 
with Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under the Act, 
which require NSCC to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to (x) effectively 
identify, measure, monitor, and manage its credit exposures to 
participants and those arising from its payment, clearing, and 
settlement processes, including by maintaining sufficient financial 
resources to cover its credit exposure to each participant fully with a 
high degree of confidence; and (y) cover its credit exposures to its 
participants by establishing a risk-based margin system that, at a 
minimum, considers, and produces margin levels commensurate with, the 
risks and particular attributes of each relevant product, portfolio, 
and market.\38\
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    \38\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
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    As described above, NSCC believes the proposal to remove ID Net 
Transactions from the calculation of Required Fund Deposits would 
enable it to more effectively measure the risks presented by its 
Members' guaranteed positions, and improve its ability to maintain a 
risk-based margin system that considers, and produces margin levels 
commensurate with, the risks of each Member's portfolio. Therefore, the 
proposed change would better limit NSCC's credit exposures to Members, 
consistent with the requirements of Rules 17Ad-22(e)(4)(i) and Rule 
17Ad-22(e)(6)(i) under the Act.\39\ NSCC believes that the above 
described burden on competition that could be created by the proposed 
change would be appropriate in furtherance of the Act because such 
change has been appropriately designed to assure the safeguarding of 
securities and funds which are in the custody or control of NSCC or for 
which it is responsible, as described in detail above. The proposal 
would also enable NSCC to produce margin levels more commensurate with 
the risks and particular attributes of each Member's portfolio by 
removing non-guaranteed positions from the calculation of Required Fund 
Deposits. NSCC believes that it has designed the proposed change in an 
appropriate way in order to meet compliance with its obligations under 
the Act. Specifically, the proposal would improve the risk-based 
margining methodology that NSCC employs to set margin requirements and 
better limit NSCC's credit exposures to its Members. Therefore, as 
described above, NSCC believes the proposed change is necessary and 
appropriate in furtherance of NSCC's obligations under the Act, 
specifically Section 17A(b)(3)(F) of the Act \40\ and Rules 17Ad-
22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under the Act.\41\
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    \39\ Id.
    \40\ 15 U.S.C. 78q-1(b)(3)(F).
    \41\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
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    The proposed rule changes to increase transparency regarding the ID 
Net Service and to update the Rules to implement the other proposed 
changes would help ensure that the Rules remain clear and accurate. In 
addition, these changes would facilitate Members' understanding of the 
Rules and their obligations thereunder. These changes would not affect 
NSCC's operations or the rights and obligations of the membership. As 
such, NSCC believes these proposed rule changes would not have any 
impact on competition.

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

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, 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

[[Page 44105]]

(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 
tradingandmarkets@sec.gov 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 rule-comments@sec.gov. Please include 
File Number SR-NSCC-2021-011 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-2021-011. 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-2021-011 and should be submitted on 
or before September 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17074 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P