Document ID: SEC-2020-1934-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2020-12-07T05:00Z

[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78892-78897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26785]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90543; File No. SR-NSCC-2020-018]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change, as Modified by Amendment No. 1, To Amend the Fee Structure

December 1, 2020.
    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 November 16, 2020, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change. On November 30, 2020, NSCC 
filed Amendment No. 1 to the proposed rule change, which revised a 
portion of the rule text and corresponding description in the notice 
relating to NSCC's current policy regarding the issuance of rebates to 
Participants. NSCC filed the proposed rule change, as modified by 
Amendment No. 1, pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ The proposed rule change, as modified 
by Amendment No. 1, is described in Items I, II, and III below, which 
Items have been prepared primarily by NSCC. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

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

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, as Modified by Amendment No. 1

    The proposed rule change, as modified by Amendment No. 1, consists 
of amendments to Addendum A (Fee Structure) of the NSCC Rules & 
Procedures (``Rules'') \5\ in order to (i) modify the Clearing Fund 
Maintenance Fee (``Maintenance Fee''), (ii) modify the ``value out of 
the net'' component of the Clearance Activity Fee, and (iii) replace 
the description currently under the heading ``NSCC Pricing Policy'' 
with a description of NSCC's current policy regarding the issuance of 
rebates to Members, as described in greater detail below.
---------------------------------------------------------------------------

    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, as Modified by Amendment No. 1

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change, as modified by Amendment No. 1, and discussed any comments it 
received on the proposed rule change, as modified by Amendment No. 1. 
The text of these statements may be examined at the places specified in 
Item IV below. The clearing agency has prepared

[[Page 78893]]

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, as Modified by Amendment No. 1

1. Purpose
    The purpose of this proposed rule change, as modified by Amendment 
No. 1, is to amend Addendum A (Fee Structure) of the Rules in order to 
(i) modify the Maintenance Fee, (ii) modify the ``value out of the 
net'' component of the Clearance Activity Fee, and (iii) replace the 
description currently under the heading ``NSCC Pricing Policy'' with a 
description of NSCC's current policy regarding the issuance of rebates 
to Members.
(i) Overview
    NSCC provides clearance and settlement services for trades executed 
by its Members in the U.S. equity, corporate and municipal bond, and 
unit investment trust markets.
    Members are assessed fees in accordance with Addendum A (Fee 
Structure). The current Fee Structure covers a multitude of fees that 
are assessed on Members based upon their activities and the services 
utilized.
    NSCC operates a cost plus low margin pricing model and has in place 
procedures to control costs and to regularly review pricing levels 
against costs of operation. It reviews pricing levels against its costs 
of operation typically during the annual budget process. The budget is 
approved annually by the Board. NSCC's fees are cost-based plus a 
markup, as approved by the Board or management (pursuant to authority 
delegated by the Board), as applicable. This markup or ``low margin'' 
is applied to recover development costs and operating expenses, and to 
accumulate capital sufficient to meet regulatory and economic 
requirements.
Maintenance Fee
    NSCC implemented the Maintenance Fee in the current Fee Structure 
in 2016 in order to (i) diversify NSCC's revenue sources, mitigating 
NSCC's dependence on revenues driven by trading volumes, and (ii) add a 
more stable revenue source that would contribute to NSCC's operating 
margin by offsetting increasing costs and expenses.\6\ The fee is 
charged to all NSCC Members and Limited Members that are required to 
make deposits to the NSCC Clearing Fund (collectively, ``Contributing 
Members'') in proportion to the Contributing Member's average, end of 
day, monthly cash deposit to the Clearing Fund.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 78525 (August 9, 2016), 
81 FR 54146 (August 15, 2016) (SR-NSCC-2016-002).
---------------------------------------------------------------------------

    Until June 2020, the Maintenance Fee had been calculated monthly, 
in arrears, as the product of (A) 0.25 percent and (B) the average of 
the Contributing Member's actual cash deposit to the NSCC Clearing Fund 
as of the end of each day of the month, multiplied by the number of 
days in that month and divided by 360. However, by its terms at the 
time, the fee had been waived if the monthly rate of return on NSCC's 
investment of the cash portion in the Clearing Fund was less than 0.25 
percent for the month (``Waiver Provision'').
    In June 2020, NSCC modified the Maintenance Fee in three ways.\7\ 
First, NSCC removed the Waiver Provision. Second, instead of using a 
fixed rate of 0.25 percent when calculating the Maintenance Fee, NSCC 
calculated the fee using the corresponding month's average Interest 
Rate on Excess Reserves (i.e., the IOER rate) that is determined by the 
Board of Governors of the Federal Reserve System.\8\ Third, NSCC set a 
ceiling of 0.25 percent and a floor of 0.00 percent on the IOER rate 
used in the fee calculation.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 89141 (June 24, 2020), 
85 FR 39253 (June 30, 2020) (SR-NSCC-2020-011) (``June Filing'').
    \8\ Policy Tools, Interest on Required Reserve Balances and 
Excess Balances, https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm.
---------------------------------------------------------------------------

    Those three modifications were designed to help address an 
immediate financial issue that NSCC was experiencing due to the 
coronavirus global pandemic and overall reaction by the financial 
markets, and, based on information at the time, to better position NSCC 
going forward, with respect to its ability to fund its default 
liquidity resources in various economic environments, as well as to 
improve the overall functioning of the Maintenance Fee.\9\ However, 
after completing NSCC's annual budgeting process that began in August 
and finished in October 2020--in which NSCC evaluated its short- and 
long-term financial position in consideration of expected Contributing 
Member activity, revenues, cost of funding,\10\ market volatility, and 
the financial markets more broadly, concerns remained around NSCC's net 
income operating margin.
---------------------------------------------------------------------------

    \9\ See June Filing, supra note 7 (discussing the rationale for 
the three modifications made to the Maintenance Fee).
    \10\ See June Filing, supra note 7 (discussing NSCC's cost of 
funding).
---------------------------------------------------------------------------

    To help address this issue, NSCC proposes to further modify the 
Maintenance Fee. Specifically, NSCC will no longer calculate the fee 
using the corresponding month's average IOER rate but, instead, return 
to using a fixed rate of 0.25 percent, which, consequently, would 
render the current floor of 0.00 percent unnecessary. NSCC is using a 
fixed rate of 0.25 percent so that Members will not be charged an 
amount greater than what was possible under the original and current 
calculation of the fee.
    NSCC believes that reverting to a fixed rate in calculating the 
Maintenance Fee would have a number of benefits. For example, by using 
a fixed rate, the fee would no longer fluctuate as the IOER rate 
fluctuates, which should help Contributing Members better anticipate 
the cost of the fee and, for NSCC, stabilize revenue generated from the 
fee. Greater stability in the revenue generated from the fee would help 
support NSCC's net income operating margin and, accordingly, its credit 
ratings, which are key factors in NSCC's costs, expenses, and 
funding.\11\ Additionally, the proposed change would help provide 
consistent pricing between NSCC and its affiliate clearing agencies, 
The Depository Trust Company (``DTC'') and Fixed Income Clearing 
Corporation (``FICC''),\12\ as both DTC and FICC have filed proposed 
rule changes concurrently with this filing that would result in the 
same calculation of their respective maintenance fees.\13\
---------------------------------------------------------------------------

    \11\ Not only could a downgrade to an NSCC credit rating 
increase NSCC costs and expenses, but, more importantly, it could 
reduce the overall availability of default liquidity resources to 
NSCC if investors or lending banks reduce their current levels of 
engagement with NSCC.
    \12\ The Depository Trust & Clearing Corporation (``DTCC'') is 
the parent company of DTC, NSCC, and FICC. DTCC operates on a shared 
services model for DTC, NSCC, and FICC. Most corporate functions are 
established and managed on an enterprise-wide basis pursuant to 
intercompany agreements under which it is generally DTCC that 
provides a relevant service to DTC, NSCC, or FICC.
    \13\ See File No. SR-DTC-2020-014 and File No. SR-FICC-2020-014 
available at https://www.dtcc.com/legal/sec-rule-filings.
---------------------------------------------------------------------------

Clearance Activity Fee
    The ``value out of the net'' component of the Clearance Activity 
Fee in the Fee Structure is a fee based on the daily aggregate market 
value of all settling CNS positions after netting. It is currently 
$2.12 per million dollars of settling value (i.e., the absolute value 
of

[[Page 78894]]

the CNS Long Positions and Short Positions).\14\
---------------------------------------------------------------------------

    \14\ The current ``value out of the net'' component of the 
Clearance Activity Fee was implemented in 2019 as part of fee 
changes to address pricing complexity. See Securities Exchange Act 
Release No. 84770 (December 10, 2018), 83 FR 64374 (December 14, 
2018) (SR-NSCC-2018-011).
---------------------------------------------------------------------------

    Due to the coronavirus global pandemic and overall reaction by the 
financial markets, NSCC's cost of funding has risen sharply in 2020, 
particularly for NSCC's key default liquidity resources. The unexpected 
increases in cost and expense to secure and maintain those default 
liquidity resources has added millions of dollars to NSCC's expense.
    As described above, after completing NSCC's 2020 annual budgeting 
process--in which NSCC evaluated its short- and long-term financial 
position in consideration of expected Member activity, revenues, cost 
of funding, market volatility, and the financial markets more broadly, 
concerns remained around NSCC's net income operating margin. In order 
to address this issue and to better align cost with revenue, NSCC 
proposes to modify the ``value out of the net'' component of the 
Clearance Activity Fee from $2.12 per million dollars of settling value 
to $2.56 per million dollars of settling value. Specifically, NSCC 
anticipates that the proposed change would enable NSCC to offset the 
increase in its cost and expense while generating a low net income 
operating margin, consistent with NSCC's cost plus low margin pricing 
model.
    NSCC believes modifying the ``value out of the net'' component of 
the Clearance Activity Fee would further help support NSCC's net income 
operating margin and, accordingly, its credit ratings, which, as 
described above, are key factors in NSCC's costs, expenses, and 
funding.
Rebate Policy
    NSCC is also proposing to amend Section VIII of the Fee Structure 
to replace the description currently under the heading ``NSCC Pricing 
Policy'' with a description of its current policy regarding the 
issuance of rebates to Members. In connection with this change, the 
proposed change would also amend the title of Section VIII to ``NSCC 
Rebate Policy'' to better describe the policy in this section.
    Section VIII of the Fee Structure currently includes an outdated 
description of NSCC's policy to adjust Members' invoices based on 
NSCC's revenues. This description states that NSCC may adjust invoices 
down in the form of a discount or up in the form of a surcharge, based 
on its revenues. NSCC did historically provide its Members with a 
discount on their invoices, but it does not have any record of 
adjusting Members' invoices up, in the form of a surcharge, in the 
past.
    NSCC views its practice of providing a rebate to its Members as a 
corporate function, and not related to its operation as a self-
regulatory organization. An NSCC rebate is essentially a return of the 
revenue that NSCC collects through the fees it charges Members for its 
services (as set forth in Addendum A of the Rules). Rebates are not 
related to the amounts Members deposit with NSCC as their Required Fund 
Deposits, which are made up of risk-based margin charges calculated 
pursuant to Procedure XV of the Rules. The determination to provide a 
rebate is made at the corporation-level, based on a number of factors 
and considerations, as described below, and is not a separate 
determination made for each individual Member.
    Following the financial recession of 2008, NSCC ceased providing 
such discounts in connection with the implementation of a financial 
strategy to strengthen its financial position and health. As a result 
of that strategy and improved financial markets, in 2019 NSCC 
determined to reinstitute its practice of discounting Members' 
invoices, in the form of a rebate, based on its financial performance. 
In connection with this decision, NSCC is proposing to replace the 
language under the heading ``NSCC Pricing Policy'' in Section VIII of 
the Fee Structure to describe its current rebate practice. This 
proposed change would not change NSCC's current rebate practice but 
would provide Members with transparency into this practice and the 
governance around rebates.
(ii) Proposed Fee Changes
    NSCC is proposing to change the Maintenance Fee in Subsection G 
(Clearing Fund Maintenance Fee) of Section V (Pass-Through and Other 
Fees) of the Fee Structure. Specifically, NSCC is proposing to modify 
the Maintenance Fee by removing language regarding application of the 
IOER rate and a floor of 0.00 percent.
    In addition, NSCC is proposing to change the Clearance Activity Fee 
in Subsection A (Clearance Activity Fee) of Section II (Trade Clearance 
Fees) of the Fee Structure. Specifically, NSCC is proposing to modify 
the ``value out of the net'' component of the Clearance Activity Fee 
from $2.12 per million of settling value to $2.56 per million of 
settling value.
    Finally, NSCC is proposing to amend Section VIII of the Fee 
Structure to replace the description currently under the heading ``NSCC 
Pricing Policy'' with a description of its current policy regarding the 
issuance of rebates to Members, as described above.
    First, in connection with this change, the proposed change would 
also amend the title of Section VIII to ``NSCC Rebate Policy'' to 
better describe the policy in this section.
    Second, the proposed language would describe that NSCC may provide 
Members with a rebate of excess net income, and would define excess net 
income as either income of NSCC or income related to one business line 
of NSCC, after application of expenses, capitalization costs, and 
applicable regulatory requirements. The language would also state that 
a rebate is discretionary, to make it clear that NSCC is not obligated 
to provide a rebate.
    Third, the proposed language would state that a rebate would be 
approved by the Board. The proposed language would also state that, in 
determining whether a rebate is appropriate, the Board would consider 
one or more of the following, as appropriate: NSCC's regulatory capital 
requirements,\15\ anticipated expenses, investment needs, anticipated 
future expenses with respect to improvement or maintenance of NSCC's 
operations, cash balances, financial projections, and appropriate level 
of shareholders' equity.
---------------------------------------------------------------------------

    \15\ NSCC manages its general business risk by holding 
sufficient liquid net assets funded by equity to cover potential 
general business losses so it can continue operations and services 
as going concerns if those losses materialize, in compliance with 
the requirements of Rule 17Ad-22(e)(15). 17 CFR 240.17Ad-22(e)(15). 
NSCC maintains a Clearing Agency Policy on Capital Requirements 
which defines the amount of capital it must maintain for this 
purpose and sets forth the manner in which this amount is 
calculated. See Securities Exchange Act Release No. 89360 (July 21, 
2020), 85 FR 45280 (July 27, 2020) (SR-NSCC-2020-014) (amending 
original filing).
---------------------------------------------------------------------------

    Fourth, the proposed language would state that, if the Board 
determined to issue a rebate, it would set a rebate period and a rebate 
payment date, both of which are used to determine which Members are 
eligible for a rebate. The proposed language would state that Members 
that maintain their membership during all or a portion of the rebate 
period and on the rebate payment date are eligible for a rebate.
    Finally, the proposed language would describe how rebates are 
applied to the invoices of eligible Members. The proposed language 
would state that rebates are applied to all eligible Members on a pro-
rata basis based on

[[Page 78895]]

such Members' gross fees paid to NSCC within the applicable rebate 
period, excluding pass-through fees and interest earned on Required 
Fund Deposits. The proposed language would also state that rebates are 
applied to eligible Members' invoices on the rebate payment date as 
either a reduction in fees owed or, if fees owed are lower than the 
allocated rebate amount, a payment of such difference. The proposed 
language would also note that rebate amounts may be adjusted for 
miscellaneous charges and discounts.
(iii) Expected Member Impact
    The proposed rule change, as modified by Amendment No. 1, is 
expected to increase NSCC's annual revenue by approximately $31.6 
million.
    In general, NSCC anticipates that, as result of the proposed 
changes, approximately 62% of impacted affiliated family of members 
would have a fee increase of less than $1,000 per year, approximately 
24% of impacted affiliated family of members would have a fee increase 
between $1,000 to $100,000 per year, approximately 10% of impacted 
affiliated family of members would have a fee increase of $100,000 to 
$1 million per year, and approximately 4% of impacted affiliated family 
of members would have a fee increase of $1 million or greater per year.
(iv) Member Outreach
    NSCC has conducted ongoing outreach to each Member in order to 
provide them with notice of the proposed changes and the anticipated 
impact for the Member. As of the date of this filing, no written 
comments relating to the proposed changes have been received in 
response to this outreach. The Commission will be notified of any 
written comments received.
(v) Implementation Timeframe
    NSCC would implement this proposal on January 1, 2021. As proposed, 
a legend would be added to the Fee Structure stating there are changes 
that became effective upon filing with the Commission but have not yet 
been implemented. The proposed legend also would include the date on 
which such changes would be implemented and the file number of this 
proposal, and state that, once this proposal is implemented, the legend 
would automatically be removed.
2. Statutory Basis
    NSCC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, NSCC believes the proposed 
changes to modify the Maintenance Fee and the ``value out of the net'' 
component of the Clearance Activity Fee are consistent with Section 
17A(b)(3)(D) of the Act \16\ and the proposed change to include a 
description of NSCC's current policy regarding the issuance of rebates 
to Members is consistent with Rule 17Ad-22(e)(23)(ii),\17\ as 
promulgated under the Act, for the reasons described below.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(D).
    \17\ 17 CFR.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act \18\ requires that the Rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its participants. NSCC believes that the proposed 
changes to the Maintenance Fee and the ``value out of the net'' 
component of the Clearance Activity Fee are consistent with this 
provision of the Act.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    As described above, the proposal would modify the Maintenance Fee 
to no longer calculate the fee using the corresponding month's average 
IOER rate; rather, the calculation would revert to using a fixed rate 
of 0.25 percent, thus, negating the need to maintain the current floor 
of 0.00 percent.
    Because the proposed change would not alter how the Maintenance Fee 
is currently allocated (i.e., charged) to Contributing Members, NSCC 
believes the fee would continue to be equitably allocated. More 
specifically, as mentioned above, the Maintenance Fee is and would 
continue to be charged to all Contributing Members in proportion to the 
Contributing Member's average monthly cash deposit to the Clearing 
Fund. As such, and as is currently the case, Contributing Members that 
make greater use of NSCC's guaranteed services or which have activity 
in those services that present greater risk to NSCC would generally be 
subject to a larger Maintenance Fee because such Contributing Members 
would typically be required to maintain larger Clearing Fund deposits 
pursuant to the Rules.\19\ Conversely, Contributing Members that use 
NSCC's guaranteed services less or which have activity that presents 
less risk would generally be subject to a smaller Maintenance Fee 
because such Contributing Members would typically be required to 
maintain smaller Clearing Fund deposits pursuant to the Rules.\20\ The 
proposed change to the Maintenance Fee would not adjust that 
allocation. For this reason, NSCC believes the Maintenance Fee would 
continue to be equitably allocated among Contributing Members.
---------------------------------------------------------------------------

    \19\ See Rule 4 and Procedure XV, supra note 5.
    \20\ Id.
---------------------------------------------------------------------------

    Similarly, NSCC believes that the Maintenance Fee would continue to 
be a reasonable fee under the proposed change described above. For 
example, by using a fixed rate, instead of a rate that fluctuates with 
the IOER rate, Contributing Members should be better able to anticipate 
the cost of the fee. Meanwhile, a fixed rate would not only improve 
NSCC's ability to estimate revenue from the fee, but it also would 
stabilize the revenue received from the fee. As described above, 
greater stability in the revenue generated from the fee would help 
support NSCC's net income operating margin and, accordingly, its credit 
ratings, which are key factors in NSCC's costs, expenses, and funding. 
Additionally, using a fixed rate of 0.25 percent would help ensure that 
Contributing Members are not charged an amount greater than what was 
possible under the original and current calculation of the fee. Lastly, 
the proposed change would help establish consistent pricing between 
NSCC and its affiliates, DTC and FICC, regarding each of their 
respective Maintenance Fees, as concurrent proposals by DTC and FICC 
would result in the same calculation.\21\ For this reason, NSCC 
believes the Maintenance Fee would continue to be reasonable. Based on 
the forgoing, NSCC believes the proposed rule change to the Maintenance 
Fee is consistent with Section 17A(b)(3)(D) of the Act.\22\
---------------------------------------------------------------------------

    \21\ See supra note 13.
    \22\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    NSCC believes the proposed rule change to the ``value out of the 
net'' component of the Clearance Activity Fee would provide for the 
equitable allocation of reasonable fees. Because the proposed change 
would not alter how the Clearance Activity Fee is currently allocated 
(i.e., charged) to Members, NSCC believes the fee would continue to be 
equitably allocated. More specifically, as mentioned above, the ``value 
out of the net'' component of the Clearance Activity Fee is based on a 
Member's daily aggregate market value of all settling CNS positions 
after netting. As such, and as is currently the case, Members that make 
greater use of NSCC's guaranteed services would generally be subject to 
a larger Clearance Activity Fee because such Members would typically 
have higher value of net positions after netting. Conversely, Members 
that use NSCC's guaranteed services less would generally be subject to 
a smaller Clearance Activity Fee

[[Page 78896]]

because such Members would typically have lower value of net positions 
after netting. The proposed change to the ``value out of the net'' 
component of the Clearance Activity Fee would not adjust that 
allocation. For this reason, NSCC believes the Clearance Activity Fee 
would continue to be equitably allocated among Members.
    NSCC believes that the Clearance Activity Fee would continue to be 
a reasonable fee under the proposed change described above. This is 
because the proposed change to modify the ``value out of the net'' 
component of the Clearance Activity Fee is designed to offset NSCC's 
increased costs and expenses while generating a low net income 
operating margin. As described above, in determining the appropriate 
level of the proposed change to modify the ``value out of the net'' 
component of the Clearance Activity Fee, NSCC considered a variety of 
factors, including expected Member activity, revenues, cost of funding, 
market volatility, and the financial markets more broadly. Based on 
that consideration, NSCC believes the proposed change would allow NSCC 
to assess a fee that is better aligned with NSCC's increased costs and 
expenses. Having the ability to assess a fee that is better aligned 
with NSCC's increased costs and expenses would further help support 
NSCC's net income operating margin and, accordingly, its credit 
ratings, which are key factors in NSCC's costs, expenses, and funding. 
For this reason, NSCC believes the Clearance Activity Fee would 
continue to be reasonable. Based on the forgoing, NSCC believes the 
proposed rule change to the ``value out of the net'' component of the 
Clearance Activity Fee is consistent with Section 17A(b)(3)(D) of the 
Act.\23\
---------------------------------------------------------------------------

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

    Rule 17Ad-22(e)(23)(ii) under the Act requires that NSCC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide sufficient information to enable 
participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency.\24\ The proposed change would replace an outdated description 
of NSCC's past practice of adjusting Members' invoices with an updated 
description of its current rebate practice, which, when applicable, 
results in a reduction to the amount of fees a Member owes to NSCC. By 
updating the Fee Structure with a clear, transparent description of 
NSCC's current rebate practice, the proposed change would provide 
Members with sufficient information to evaluate the fees they may incur 
by participating in NSCC. Therefore, NSCC believes the proposed change 
would be consistent with the requirements of Rule 17Ad-
22(e)(23)(ii).\25\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \25\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed change to the Maintenance 
Fee would have an impact on competition among Contributing Members. As 
described above, the Maintenance Fee is charged ratably based on 
Contributing Members' use of NSCC's guaranteed services, as reflected 
in Contributing Members' deposits to the Clearing Fund. Thus, the fee 
is designed to be reflective of each Contributing Member's individual 
activity at NSCC. Additionally, NSCC does not believe reverting to a 
fixed rate of 0.25 percent in calculating the Maintenance Fee would 
have any impact on competition among Contributing Members because using 
such a rate means that Contributing Members still cannot be assessed an 
amount greater than what could have been assessed under the original 
and current calculations of the fee.
    However, appreciating that the value of a dollar is not consistent 
for each Contributing Member, if the change to no longer calculate the 
fee using the corresponding month's average IOER rate would create a 
competitive burden for a Contributing Member because the Contributing 
Member could be assessed a higher fee at a time when that IOER rate is 
lower than the proposed 0.25 percent fixed rate, NSCC believes such a 
burden would not be significant, given that the amount assessed would 
still be within the range of what could be assessed under the current 
calculation. Moreover, NSCC believes that any such burden would be 
necessary and appropriate in furtherance of the purposes of the Act, as 
permitted by Section 17A(b)(3)(I) of the Act.\26\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    The burden would be necessary because it is essential that NSCC 
continue to offset some of its costs and expenses with stable revenue 
generated from the Maintenance Fee, regardless of the economic 
environment. As described above, not doing so could adversely affect 
NSCC's credit ratings, which could further increase funding or, 
possibly, decrease the availability of crucial liquidity resources for 
NSCC. The burden would be appropriate because, as described above, the 
Maintenance Fee is calculated, using a balanced formula, to assess a 
fee that is reflective of the Contributing Member's use of NSCC's 
guaranteed services, so that NSCC can defray some of its costs and 
expenses in providing those services. More specifically, returning to a 
fixed rate of 0.25 percent would be appropriate because it is the same 
rate that was used prior to the change made in June 2020,\27\ and it is 
currently the ceiling used in the existing calculation; thus, the new 
calculation still would not use a rate any higher than it could have 
previously.
---------------------------------------------------------------------------

    \27\ See June Filing, supra note 7.
---------------------------------------------------------------------------

    NSCC believes the proposed rule change to modify the ``value out of 
the net'' component of the Clearance Activity Fee may have an impact on 
competition among its Members because the change would likely increase 
the fees of those Members that utilize NSCC's guaranteed service when 
compared to their fees under the current Fee Structure. NSCC believes 
the proposed change could burden competition by negatively affecting 
such Members' operating costs. While these Members may experience 
increases in their fees when compared to their fees under the current 
Fee Structure, NSCC does not believe the proposed change in and of 
itself mean that the burden on competition is significant. This is 
because even though the amount of the fee increase may seem significant 
(e.g., from $2.12 to $2.56 per million of settling value), NSCC 
believes the increase in fees would similarly affect all Members that 
utilize NSCC's guaranteed services and would be reflective of each 
Member's individual activity at NSCC, and therefore the burden on 
competition would not be significant. Regardless of whether the burden 
on competition is deemed significant, NSCC believes any burden that is 
created by this proposed change would be necessary and appropriate in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act.\28\
---------------------------------------------------------------------------

    \28\ Id.
---------------------------------------------------------------------------

    The burden would be necessary because it is essential that NSCC 
continue to offset some of its costs and expenses with revenue 
generated from the Clearance Activity Fee, regardless of the economic 
environment. As described above, not doing so could adversely affect 
NSCC's credit ratings, which could further increase funding or, 
possibly, decrease the availability of crucial liquidity resources for 
NSCC. The burden would be appropriate because, as described above, the 
Clearance Activity Fee is calculated,

[[Page 78897]]

using a balanced formula, to assess a fee that is reflective of the 
Member's use of NSCC's guaranteed services, so that NSCC can defray 
some of its costs and expenses in providing those services. More 
specifically, NSCC believes the proposed rule change to modify the 
``value out of the net'' component of the Clearance Activity Fee would 
be appropriate because it would allow NSCC to assess a fee that is 
better aligned with NSCC's increased costs and expenses while 
generating a low net income operating margin.
    NSCC does not believe the proposed change to describe its current 
rebate practice would have any impact, or impose any burden, on 
competition among its Members. As described above, this proposed rule 
change, as modified by Amendment No. 1, would replace outdated 
information currently in the Fee Structure with an updated description 
of NSCC's current rebate practice. As described in the proposed 
language, under its current practice, rebates are allocated to eligible 
Members on a pro-rata basis based on such Members' gross fees paid to 
NSCC within the applicable rebate period. Therefore, the current 
practice is applied equally to all eligible Members. The proposed 
change to provide Members with transparency into this practice would 
not cause any increase or decrease in the rebates Members may receive. 
Therefore, this proposed rule change, as modified by Amendment No. 1, 
would not have any impact, or impose any burden, on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule 
Change, as Modified by Amendment No. 1, Received From Members, 
Participants, or Others

    Written comments relating to this proposed rule change, as modified 
by Amendment No. 1, have not been solicited or received. NSCC will 
notify the Commission of any written comments received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change, as Modified by 
Amendment No. 1, and Timing for Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \29\ and paragraph (f) of Rule 19b-4 
thereunder.\30\ At any time within 60 days of the filing of the 
proposed rule change, as modified by Amendment No. 1, the Commission 
summarily may temporarily suspend such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 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-2020-018 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-2020-018. 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, as modified by 
Amendment No. 1, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as modified by 
Amendment No. 1, 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-2020-018 and should be 
submitted on or before December 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26785 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P