Document ID: SEC-2020-1151-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2020-07-21T04:00Z

[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44137-44139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15691]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89322; File No. SR-NSCC-2020-013]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Remove the NSCC Equity Options and Bond Options Service 
From Addendum M of the NSCC Rules & Procedures

July 15, 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 July 10, 2020, 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. NSCC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(4) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).

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[[Page 44138]]

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'') in order to remove the NSCC Equity Options and 
Bond Options Service from Addendum M (``Addendum M'') of the Rules, as 
described in greater detail below.\5\
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    \5\ Capitalized terms not defined herein are defined in the 
Rules available at https://www.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
    Background--Equity Options and Bond Options Service. In 2004, NSCC 
established a confirmation and matching service for over-the-counter 
(``OTC'') equity options transactions, called the NSCC Equity Options 
Service.\6\ The NSCC Equity Options Service was created as a service by 
NSCC for NSCC's affiliate, DTCC Deriv/SERV LLC (``Deriv/SERV''), in 
connection with an OTC equity options confirmation and matching service 
developed and operated by Deriv/SERV (``OTC Matching and Confirmation 
Service'').\7\ The NSCC Equity Options Service was added as Addendum M 
to the Rules.\8\ In 2008, NSCC amended Addendum M to expand the NSCC 
Equity Options Service to include matching and confirmation for OTC 
bond option transactions and to rename the service the NSCC Equity 
Options and Bond Options Service.\9\
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    \6\ Securities Exchange Act Release No. 50652 (November 10, 
2004), 69 FR 67377 (November 17, 2004) (SR-NSCC-2004-04). The 
Commission granted approval on a temporary basis through May 31, 
2005. Id. A subsequent NSCC rule filing sought permanent approval of 
the service and was approved on May 26, 2005. Securities Exchange 
Act Release No. 51745 (May 26, 2005), 70 FR 33570 (June 8, 2005) 
(SR-NSCC-2005-04).
    \7\ Id. Deriv/SERV is a wholly owned subsidiary of The 
Depository Trust & Clearing Corporation (``DTCC'') which is the 
corporate parent of NSCC.
    \8\ Addendum M, supra note 5.
    \9\ Securities Exchange Act Release No. 58300 (August 4, 2008), 
73 FR 46956 (August 12, 2008) (SR-NSCC-2008-06).
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    NSCC provided matching and confirmation services \10\ to Deriv/SERV 
through its NSCC Equity Options and Bond Options Service pursuant to a 
service agreement between NSCC and Deriv/SERV. The NSCC Equity Options 
and Bond Options Service is limited to matching and confirmation of 
U.S. Equity Options or U.S. Bond Options.\11\ The Equity Options and 
Bond Options Service does not involve settlement and is not a 
guaranteed service of NSCC. NSCC has provided the service only to its 
affiliate Deriv/SERV as contemplated by Addendum M.\12\
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    \10\ Matching and confirmation involves comparison of trade 
information for a trade from two parties to determine whether trade 
information from both parties is the same. If it is determined to be 
the same, a confirmation will be sent to both trade parties 
confirming that the trade information matches.
    \11\ Addendum M provides that ``U.S. Equity Option'' means an 
over-the-counter equity option for which either the buyer or the 
seller of the equity option is a U.S. person and the equity option 
is issued by a U.S. issuer and a ``U.S. Bond Option'' means an over-
the-counter bond option for which either the buyer or the seller of 
the bond option is a U.S. person and the bond option is issued by a 
U.S. issuer. Addendum M, supra note 5.
    \12\ Id. Addendum M provides that NSCC ``may provide to its 
affiliate DTCC Deriv/SERV LLC . . . a service through which U.S. 
Equity Option and U.S. Bond Option transactions and their associated 
cash flows are confirmed and matched.'' Id.
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    Deriv/SERV operated the OTC Matching and Confirmation Service from 
2004 until 2009. From 2009 to 2013, the OTC Matching and Confirmation 
Service was operated by Deriv/SERV through a joint venture owned by 
Deriv/SERV and Markit North America, Inc. and its affiliates 
(collectively, ``Markit''), called MarkitSERV LLC (``MarkitSERV''). As 
part of the joint venture, Deriv/SERV contributed the OTC Matching and 
Confirmation Service to MarkitSERV and agreed to provide services to 
support the OTC Matching and Confirmation Service, including allowing 
the OTC Matching and Confirmation Service to operate on Deriv/SERV's 
mainframe platform and providing certain support services relating to 
the platform. In 2013, Deriv/SERV sold its interests in MarkitSERV to 
Markit and entered into a support agreement pursuant to which, among 
other things, Deriv/SERV continued to allow the OTC Matching and 
Confirmation Service to operate off of Deriv/SERV's mainframe platform 
and provide support services relating to the platform. In 2014, 
MarkitSERV began a process of moving the OTC Matching and Confirmation 
Service relating to equity options and bond options to its own 
mainframe platform which was completed by 2017. After MarkitSERV moved 
the OTC Matching and Confirmation Service relating to equity options 
and bond options to its own mainframe platform, Deriv/SERV ceased to 
provide support services relating to the OTC Matching and Confirmation 
Service with respect to equity options and bond options.
    In 2010, Deriv/SERV began the Equity Derivative Cash Flow Matching 
Service (``Equity Cash Flow Matching Service'') which provided for 
matching payment information in OTC equity derivatives transactions. 
The Equity Cash Flow Matching Service was a separate service from the 
OTC Matching and Confirmation Service. Deriv/SERV discontinued the 
Equity Cash Flow Matching Service in April 2020.
    Deriv/SERV used the Equity Options and Bond Options Service in 
connection with Deriv/SERV providing the OTC Matching and Confirmation 
Service and the Equity Cash Flow Matching Service. To the extent that 
the OTC Matching and Confirmation Service or the Equity Cash Flow 
Matching Service involved a transaction with U.S. Equity Options or 
U.S. Bond Options, NSCC would provide the matching and confirmation 
services to Deriv/SERV for that transaction pursuant to the Equity 
Options and Bond Options Service and service agreement between NSCC and 
Deriv/SERV.
    Deriv/SERV no longer offers, operates or supports the OTC Matching 
and Confirmation Service or the Equity Cash Flow Matching Service and 
has no current plans to provide or support similar services relating to 
U.S. Equity Options or U.S. Bond Options. As a result, Deriv/SERV no 
longer utilizes the NSCC Equity Options and Bond Options Service.
    Proposed Rule Change. NSCC has provided the NSCC Equity Options and 
Bond Options Service only to its affiliate, Deriv/SERV, and not to 
anyone else, as contemplated by Addendum M. Deriv/SERV no longer 
operates or supports the OTC Matching and Confirmation Service or the 
Equity Cash Flow Matching Service and does not utilize the NSCC Equity 
Options and Bond Options Service. Therefore, NSCC is proposing to 
discontinue the NSCC Equity Options and Bond Options Service and remove 
Addendum M from the Rules.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and

[[Page 44139]]

accurate clearance and settlement of securities transactions.\13\ NSCC 
believes that the proposed rule change is consistent with this 
provision because it would provide enhanced clarity and transparency 
for its members with respect to services offered by NSCC, by updating 
the Rules to remove a service that was provided only to Deriv/SERV and 
that is no longer utilized by Deriv/SERV, as described above. 
Therefore, by providing enhanced clarity and transparency in the Rules 
regarding the services provided by NSCC, NSCC believes the proposed 
rule change would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with the requirements 
of the Act, in particular Section 17A(b)(3)(F), cited above.
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change would have any 
impact on competition. The NSCC Equity Options and Bond Options Service 
is a service offering provided by NSCC specifically to Deriv/SERV, and 
only to Deriv/SERV, in connection with Deriv/SERV providing and 
supporting the OTC Matching and Confirmation Service and the Equity 
Cash Flow Matching Service. Deriv/SERV no longer provides or supports 
the OTC Matching and Confirmation Service or the Equity Cash Flow 
Matching Service and is not expected to provide or support such 
services in the future. As such, Deriv/SERV does not utilize the NSCC 
Equity Options and Bond Options Service and is not likely to utilize 
the NSCC Equity Options and Bond Options Service in the future. 
Therefore, the proposed rule change should not have any impact on 
competition or on NSCC members other than to clarify the services that 
NSCC provides under the Rules.

(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. NSCC will notify the Commission of any written comments 
received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and paragraph (f) of Rule 19b-4 
thereunder.\15\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2020-013 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-2020-013. 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-2020-013 and should be submitted on 
or before August 11, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15691 Filed 7-20-20; 8:45 am]
BILLING CODE 8011-01-P