Document ID: SEC-2017-1308-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.; National Securities Clearing Corp.; Fixed Income Clearing Corp.
Posted Date: 2017-08-02T04:00Z

[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 36049-36054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16268]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81248; File Nos. SR-DTC-2017-013; SR-NSCC-2017-012; SR-
FICC-2017-016]

Self-Regulatory Organizations; The Depository Trust Company; 
National Securities Clearing Corporation; Fixed Income Clearing 
Corporation; Notice of Filings of Proposed Rule Changes To Adopt the 
Clearing Agency Risk Management Framework

July 28, 2017.
    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 14, 2017, The Depository Trust Company (``DTC''), National 
Securities Clearing Corporation (``NSCC''), and Fixed Income Clearing 
Corporation (``FICC,'' and together with DTC and NSCC, the ``Clearing 
Agencies''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II 
and III below, which Items have been prepared primarily by the Clearing 
Agencies. The Commission is publishing this notice to solicit comments 
on the proposed rule changes 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 Agencies' Statement of the Terms of Substance of the 
Proposed Rule Changes

    The proposed rule changes would adopt the Clearing Agency Risk 
Management Framework (``Framework'') of the Clearing Agencies, 
described below. The Framework would apply to both of FICC's divisions, 
the Government Securities Division (``GSD'') and the Mortgage-Backed 
Securities Division (``MBSD''). The Framework would be maintained by 
the Clearing Agencies to support their compliance with Rules 17Ad-
22(e)(1),

[[Page 36050]]

(e)(3), (e)(20), and (e)(21) under the Act, as described below.\3\
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    \3\ 17 CFR 240.17Ad-22(e)(1), (e)(3), (e)(20), and (e)(21).
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    Although the Clearing Agencies would consider the Framework to be a 
rule, the proposed rule changes do not require any changes to the 
Rules, By-laws and Organization Certificate of DTC (``DTC Rules''), the 
Rulebook of GSD (``GSD Rules''), the Clearing Rules of MBSD (``MBSD 
Rules''), or the Rules & Procedures of NSCC (``NSCC Rules''), as the 
Framework would be a standalone document.\4\
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    \4\ Capitalized terms not defined herein are defined in the DTC 
Rules, GSD Rules, MBSD Rules, or NSCC Rules, as applicable, 
available at http://dtcc.com/legal/rules-and-procedures.
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II. Clearing Agencies' Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Changes

    In their filings with the Commission, the Clearing Agencies 
included statements concerning the purpose of and basis for the 
proposed rule changes and discussed any comments they received on the 
proposed rule changes. The text of these statements may be examined at 
the places specified in Item IV below. The Clearing Agencies have 
prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

(A) Clearing Agencies' Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Changes

1. Purpose
    The Clearing Agencies are proposing to adopt the Framework, which 
would describe the manner in which each of the Clearing Agencies (i) 
comprehensively manages legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by it (``Key Clearing Agency Risks''); (ii) maintains a well-
founded, clear, transparent and enforceable legal basis for each aspect 
of its activities; (iii) identifies, monitors, and manages risks 
related to links it establishes with one or more clearing agencies, 
financial market utilities, or trading markets; and (iv) meets the 
requirements of its participants \5\ and the markets it serves 
efficiently and effectively. The Framework would be maintained by the 
General Counsel's Office (``GCO'') of DTCC.\6\ The Framework would 
provide that GCO, in coordination with all departments responsible for 
the processes described in the Framework, reviews the Framework at 
least annually.
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    \5\ FICC and NSCC refer to their participants as ``Members,'' 
while DTC refers to its participants as ``Participants.'' These 
terms are defined in the Clearing Agencies' Rules. In this filing, 
as well as in the Framework, ``participant'' or ``participants'' 
refers to both the Members of FICC and NSCC and the Participants of 
DTC.
    \6\ The parent company of the Clearing Agencies is The 
Depository Trust & Clearing Corporation (``DTCC''). DTCC operates on 
a shared services model with respect to the Clearing Agencies. 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 a Clearing 
Agency.
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    The processes described in the Framework, and any policies, 
procedures or other documents created to support those processes, may 
be owned by other departments within DTCC, on behalf of each Clearing 
Agency. These processes, and any documents created to support those 
processes, would support the Clearing Agencies' compliance with the 
requirements of Rules 17Ad-22(e)(1), (e)(3), (e)(20), and (e)(21), and 
the Clearing Agencies may develop other processes or adopt other 
documents that further support these requirements and are not described 
in the Framework.\7\
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    \7\ 17 CFR 240.17Ad-22(e)(1), (e)(3), (e)(20), and (e)(21).
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Comprehensive Management of Key Clearing Agency Risks
    The Framework would state that the Boards have delegated to DTCC 
management, on behalf of the Clearing Agencies, the responsibility for 
identifying, assessing, measuring, monitoring, mitigating and reporting 
risks through a process of developing individual risk tolerance 
statements for identified risks. The Framework would describe how these 
risk tolerance statements set out applicable risk controls and other 
measures used to manage risks, and how residual risks may be identified 
through this process for either further management or ``acceptance'' 
(which follows a defined escalation and approval process). The 
Framework would also state that DTCC management, on behalf of the 
Clearing Agencies, is responsible for the day-to-day management of 
those residual risks. Finally, the Framework would describe the 
governance around maintenance of those risk tolerance statements, which 
are reviewed and approved by a management committee and by the Risk 
Committee of the Boards at least annually, and are also provided to the 
Boards for their review and approval at least annually.
    The Framework would describe how the Clearing Agencies employ a 
``Three Lines of Defense'' approach as a sound risk management 
framework for comprehensively managing Key Clearing Agency Risks in 
order to support their compliance with the requirements of Rule 17Ad-
22(e)(3).\8\ The Framework would describe the roles of personnel and 
business units in this risk management approach, which includes (1) a 
first line of defense comprised of the various business lines and 
functional units that support the products and services offered by the 
Clearing Agencies (collectively, ``Clearing Agency Business/Support 
Areas''); (2) a second line of defense comprised of control functions 
that support the Clearing Agencies, including the organization's legal, 
privacy and compliance areas, as well as the DTCC Risk Department, 
which is specifically dedicated to risk management concerns 
(collectively, ``Clearing Agency Control Functions''); and (3) a third 
line of defense, which is performed by DTCC Internal Audit.
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    \8\ 17 CFR 240.17Ad-22(e)(3).
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    The Framework would identify the roles of each line of defense. The 
Framework would state that, as the first line of defense, each Clearing 
Agency Business/Support Area would, for example, identify Key Clearing 
Agency Risks applicable to its function, determine the best way to 
mitigate such risks, self-test internal controls, and create and 
implement actions plans for risk mitigation. The Framework would state 
that the role of the second line of defense includes, for example, 
working with the Clearing Agency Business/Support Areas on efforts to 
mitigate Key Clearing Agency Risks and providing tools to those groups 
to enable them to analyze, monitor, and proactively manage those risks. 
Finally, the Framework would identify the role of DTCC Internal Audit 
as the third line of defense as including, for example, directing its 
own resources to review and test key controls that help mitigate 
significant Key Clearing Agency Risks, then reporting on the results of 
that testing.
    In connection with a description of the second and third lines of 
defense, the Framework would describe how personnel within the DTCC 
Risk Department and DTCC Internal Audit are provided with sufficient 
authority, resources, independence from management, and access to the 
Boards. The Framework would provide that the DTCC Risk Department and 
DTCC Internal Audit are functionally independent from all other 
Clearing Agency Business/Support Areas. The Framework would also 
describe how such personnel have a direct reporting line to, and 
oversight by, the Risk Committee of the Boards and the Audit Committee 
of the Boards, respectively,

[[Page 36051]]

which is supported by the charters of these committees.
    The Framework would provide that the Clearing Agencies maintain a 
policy to govern the requirements for establishing, managing, and 
assessing the performance of internal committees and councils, 
including a set of senior management committees that provide oversight 
of the Three Lines of Defense approach to management of Key Clearing 
Agency Risks, as well as other aspects of the Clearing Agencies' risk 
management. The Framework would also describe the process by which the 
Clearing Agencies maintain risk management policies, procedures, 
Clearing Agencies' Rules, frameworks and other documents designed to 
identify, measure, monitor and manage Key Clearing Agency Risks. The 
Framework would describe policies maintained by the Clearing Agencies 
that (1) govern the steps taken to meet their regulatory requirements 
related to proposed rule change and advance notice filings pursuant to 
Section 19(b)(1) of the Act,\9\ and the rules thereunder, and Section 
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, entitled the Payment, Clearing, and Settlement 
Supervision Act of 2010,\10\ and the rules thereunder (collectively, 
``Filing Requirements''); and (2) establish a set of standards and 
holistic approach for creating and managing risk management policies, 
procedures, Clearing Agencies' Rules, frameworks and other documents, 
which include required, periodic reviews as well as the governance for 
approval of such documents (``Document Standards''). The Framework 
would provide that, with respect to those documents that address Key 
Clearing Agency Risks, the Document Standards require annual approval 
by the Boards.
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    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 12 U.S.C. 5465(e)(1).
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    The Framework would describe certain documents that are subject to 
the respective policies governing the Filing Requirements and the 
Document Standards, described above. For example, the Framework would 
describe how the Clearing Agencies maintain the Clearing Agencies' 
Rules, which support the Clearing Agencies' ability to provide for a 
well-founded, clear, transparent, and enforceable legal basis for each 
aspect of their activities in all relevant jurisdictions. Maintenance 
of the Clearing Agencies' Rules is supported by the policy governing 
the Filing Requirements and the Document Standards, described above. 
The Framework would state that the Clearing Agencies' Rules establish 
the membership onboarding process of the Clearing Agencies, which 
supports the enforceable legal basis for the Clearing Agencies' Rules. 
The Framework would also state that the Clearing Agencies may adopt and 
maintain other risk management frameworks, separate from the Framework, 
that address, in whole or in part, the management of other Key Clearing 
Agency Risks, including, for example, the management of operational, 
liquidity and market risks.
Information and Incentives for Participant Management of Risks
    The Framework would describe how the Clearing Agencies support 
their compliance with Rule 17Ad-22(e)(3) by providing their respective 
participants with information and incentives to enable them, and, 
through them, their customers, to monitor, manage and contain the risks 
they pose to the respective Clearing Agencies. The Framework would 
identify some of the sources of the information that is made available 
to participants, including, for example, (1) materials on the DTCC Web 
site, such as the Clearing Agencies' Rules, user guides and training 
courses, and regularly updated disclosures made pursuant to the 
guidelines published by the Committee on Payment and Settlement Systems 
and the Technical Committee of the International Organization of 
Securities Commissions; \11\ and (2) reports provided to Clearing 
Agency participants regarding their margin and liquidity requirements 
and their transaction volumes and values, as applicable.
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    \11\ See Principles for financial market infrastructures, issued 
by the Committee on Payment and Settlement Systems and the Technical 
Committee of the International Organization of Securities 
Commissions (April 2012), available at http://www.bis.org/publ/cpss101a.pdf.
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    The Framework would also describe some of the incentives used by 
the Clearing Agencies to enable their participants to monitor, manage 
and contain risks they pose to the Clearing Agencies, including, for 
example, (1) daily margin requirements, pursuant to the Clearing 
Agencies' Rules, which are calculated in close correlation to the risk 
each participant poses to the relevant Clearing Agency; and (2) other 
tools within the Clearing Agencies' Rules that enable the Clearing 
Agencies to enforce their and their participants' respective rights and 
obligations under those rules.
Management of Risks Related to Material Interdependencies and External 
Links
    The Framework would describe some of the ways in which the Clearing 
Agencies regularly review the material risks they bear from and pose to 
other entities as a result of external links and material 
interdependencies. The Framework would identify some of the Clearing 
Agencies' external links that create material interdependencies between 
the Clearing Agencies and other entities party to such link, which may 
include, for example, links with their participants, settling banks, 
investment counterparties and liquidity providers, and links with 
vendors and other service providers. With respect to these links, the 
Framework would describe how the Clearing Agencies review and monitor 
any resulting risks, which is driven by the nature of the relationship.
    For example, risks related to the Clearing Agencies' link to their 
respective participants and settling banks, as applicable, are 
addressed through tools found within the Clearing Agencies' Rules, as 
these entities are bound by the Rules.
    Additionally, risks arising from links to vendors are identified, 
assessed, controlled, and monitored through a comprehensive review and 
vetting process. The Framework would describe how a risk-based approach 
is employed to assess the need and level of due diligence activities 
associated with the evaluation of new vendors before a contractual 
relationship is established and with the re-evaluation of existing 
vendors. The Framework would state that this process involves the 
review of certain information related to a proposed vendor 
relationship, which should focus on confidentiality, integrity, 
availability and recoverability related to that relationship. The 
Framework would also describe how risk related to existing vendor 
relationships is reviewed periodically, throughout the lifecycle of the 
relationship. The management of vendor relationships through the 
process that would be described in the Framework would also support the 
Clearing Agencies' maintenance of clear, understandable contracts that 
are consistent with relevant laws and regulations.
    The Framework would describe the Clearing Agencies' management and 
monitoring of systemic risks, and how the Clearing Agencies utilize a 
series of comprehensive reviews that include input from a cross-
functional group to identify, monitor and manage risks

[[Page 36052]]

related to all Clearing Agency external links, in addition to links 
that create material interdependencies.
Scope of Services Responsive to Market Needs
    The Framework would describe some of the ways in which the Clearing 
Agencies are efficient and effective in meeting the requirements of 
their participants and the markets they serve. The Framework would 
describe the Clearing Agencies' structured approach for the 
implementation of new initiatives, which includes conducting a 
comprehensive risk assessment of new initiatives that are in scope of 
this approach. These reviews address, among other matters, compliance 
with applicable laws, regulations and standards, and, in this way, 
support the Clearing Agencies' ability to demonstrate a well-founded 
legal basis for the activities to be conducted in connection with new 
initiatives.
    The Framework would also describe the Clearing Agencies' role in 
industry-wide strategic initiatives through participation on industry 
working groups and through the development and publication of concept 
papers. The Framework would describe how the Clearing Agencies use 
periodic surveys and employ product-aligned customer service 
representatives to ensure clients receive the right level of 
responsiveness in order to support their needs. The Framework would 
describe how the Clearing Agencies have established a process for 
escalating and responding to certain customer complaints. The Framework 
would also describe the Clearing Agencies' Core Balanced Business 
Scorecard, which is used by the Clearing Agencies to review and track 
the effectiveness of their operations, information technology service 
levels, financial performance, human capital as well as their 
participants' experience.
Recovery and Orderly Wind-Down
    The Framework would provide that the Clearing Agencies maintain 
policies and procedures to govern the development of plans for recovery 
or orderly wind-down. Such documents would define the roles and 
responsibilities of relevant business units in the development and 
documentation of the plans and would outline the general content of the 
plans.
2. Statutory Basis
    The Clearing Agencies believe that the proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, the Clearing Agencies believe that the Framework is 
consistent with Section 17A(b)(3)(F) of the Act \12\ and the 
subsections cited below of Rules 17Ad-22(e)(1), (e)(3), (e)(20), and 
(e)(21),\13\ each promulgated under the Act, for the reasons described 
below.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(1), (e)(3), (e)(20), and (e)(21).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a registered clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions, and to 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible.\14\ As described above, the Framework would describe some 
of the ways the Clearing Agencies comprehensively manage Key Clearing 
Agency Risks, which include legal, credit, liquidity, operational, 
general business, investment, custody, and other risks that arise in or 
are borne by the Clearing Agencies. For example, the Framework would 
describe how the Clearing Agencies utilize a Three Lines of Defense 
approach to assessing, measuring, monitoring, mitigating, and reporting 
those risks, and would identify the roles and responsibilities of each 
line of defense within that approach. The Framework would also describe 
other risk management activities, including, for example the 
establishment and maintenance of certain management committees that 
would provide oversight to the Clearing Agencies' businesses and 
related risk management.
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    \14\ 15 U.S.C. 78q-1(b)(3)(F).
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    By describing some of the ways the Clearing Agencies manage their 
Key Clearing Agency Risks, the Framework would serve as a basis for the 
processes, policies, procedures and other documents that the Clearing 
Agencies may develop to facilitate those risk management activities. 
The activities that would be described within the Framework, and the 
policies, procedures or other documents that would be reasonably and 
fairly implied, thereby collectively allow the Clearing Agencies to 
continue the prompt and accurate clearance and settlement of securities 
and assure the safeguarding of securities and funds which are in their 
custody or control or for which they are responsible notwithstanding 
the risks that arise in or are borne by the Clearing Agencies. 
Therefore, the Clearing Agencies believe the Framework is consistent 
with the requirements of Section 17A(b)(3)(F) of the Act.\15\
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    \15\ Id.
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    Rule 17Ad-22(e)(1) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to, provide for a 
well-founded, clear, transparent, and enforceable legal basis for each 
aspect of its activities in all relevant jurisdictions.\16\ The 
Framework would describe how the Clearing Agencies maintain the 
Clearing Agencies' Rules, which are the key legal basis for each of the 
Clearing Agencies' respective activities described therein. The 
Clearing Agencies' Rules are incorporated by reference into 
participants' membership agreements, and, therefore, constitute an 
enforceable contract governing the rights and obligations of the 
Clearing Agencies and those participants. The Framework would describe 
how the Clearing Agencies' Rules are published on the DTCC Web site, 
and how the Clearing Agencies adhere to the Filing Requirements, which 
provide a clear, transparent and enforceable legal framework under 
which the Clearing Agencies' Rules are adopted and enforced. Through 
their compliance with the Filing Requirements, as would be described in 
the Framework, the Clearing Agencies articulate the legal basis for 
proposed changes to their activities, as described in the Clearing 
Agencies' Rules, in a clear and understandable way.
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    \16\ 17 CFR 240.17Ad-22(e)(1).
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    The Framework would also describe how the Clearing Agencies review 
and assess risk related to their contractual arrangements with vendors, 
service providers and other external parties with which the Clearing 
Agencies may establish links. The Framework would also describe the 
process by which the Clearing Agencies review new initiatives prior to 
implementation, which include a review of the legal risks that may be 
posed by those initiatives. For these reasons, the processes described 
in the Framework allow the Clearing Agencies to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to provide for a well-founded, clear, transparent, and 
enforceable legal basis for each aspect of its activities in all 
relevant jurisdictions. Therefore, the Clearing Agencies believe the 
Framework is consistent with the requirements of Rule 17Ad-
22(e)(1).\17\
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    \17\ Id.
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    The Clearing Agencies believe that the Framework is consistent with 
the

[[Page 36053]]

requirements of the following subsections of Rule 17Ad-22(e)(3), cited 
below, for the reasons described below.\18\
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    \18\ 17 CFR 240.17Ad-22(e)(3).
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    Rule 17Ad-22(e)(3)(i) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to maintain a sound 
risk management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which includes risk management policies, procedures, and systems 
designed to identify, measure, monitor, and manage the range of risks 
that arise in or are borne by the covered clearing agency, that are 
subject to review on a specified periodic basis and approved by the 
board of directors annually.\19\ The Framework would describe how the 
Clearing Agencies maintain comprehensive policies, procedures and other 
documents, including, for example, the Framework and certain other risk 
management frameworks, separate and apart from the Framework, which are 
designed to identify, measure, monitor and manage Key Clearing Agency 
Risks. The Framework would state that the Framework is reviewed least 
annually. The Document Standards, which would be described in the 
Framework, set a timeframe for the periodic review of these documents, 
and would, with respect to those documents that address Key Clearing 
Agency Risks, require annual approval by the Boards. By describing the 
process for the establishment, implementation, maintenance and 
enforcement of these risk management documents, the Clearing Agencies 
believe the Framework is consistent with the requirements of Rule 17Ad-
22(e)(3)(i).\20\
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    \19\ 17 CFR 240.17Ad-22(e)(3)(i).
    \20\ Id.
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    Rule 17Ad-22(e)(3)(ii) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to maintain a sound 
risk management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which includes plans for the recovery and orderly wind-down of the 
covered clearing agency necessitated by credit losses, liquidity 
shortfalls, losses from general business risk, or any other losses.\21\ 
The Framework would describe how the Clearing Agencies maintain 
policies and procedures that govern the development of plans for the 
recovery and orderly wind-down of the Clearing Agencies, and would 
provide that these policies and procedures would define the roles and 
responsibilities of relevant business units in the development and 
documentation of those plans. Therefore, by describing the policies and 
procedures maintained by the Clearing Agencies in order to prepare 
appropriate plans for the recovery and orderly wind-down of the 
Clearing Agencies, the Clearing Agencies believe the Framework is 
consistent with the requirements of Rule 17Ad-22(e)(3)(ii).\22\
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    \21\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \22\ Id.
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    Rule 17Ad-22(e)(3)(iii) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to maintain a sound 
risk management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by the covered clearing agency, 
which provides risk management and internal audit personnel with 
sufficient authority, resources, independence from management, and 
access to the board of directors.\23\ Rule 17Ad-22(e)(3)(iv) under the 
Act requires, in part, that each covered clearing agency establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by the covered clearing agency, which provides risk management 
and internal audit personnel with a direct reporting line to, and 
oversight by, a risk management committee and an independent audit 
committee of the board of directors, respectively.\24\
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    \23\ 17 CFR 240.17Ad-22(e)(3)(iii).
    \24\ 17 CFR 240.17Ad-22(e)(3)(iv).
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    The Framework would describe how the Clearing Agencies use a Three 
Lines of Defense approach to the management of Key Clearing Agency 
Risks. In connection with this approach, the Framework would describe 
the roles of risk management and internal audit personnel as the second 
and third lines of defense. The Framework would describe how both the 
DTCC Risk Department and DTCC Internal Audit are functionally 
independent from all other Clearing Agency Business/Support Areas. The 
Framework would also describe how the senior management within both 
groups report directly to appropriate committees of the Boards, and 
how, through this reporting line, the groups have access to the Boards, 
as necessary. Therefore, through this description of the DTCC Risk 
Department's and DTCC Internal Audit's roles and functions, in 
connection with the Three Lines of Defense approach to risk management, 
the Clearing Agencies believe the Framework is consistent with the 
requirements of Rule 17Ad-22(e)(3)(iii) and (e)(3)(iv).\25\
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    \25\ Id.
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    Rule 17Ad-22(e)(20) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to identify, 
monitor, and manage risks related to any link the covered clearing 
agency establishes with one or more other clearing agencies, financial 
market utilities, or trading markets.\26\ The Framework would describe 
how the Clearing Agencies review both proposed and existing links with 
other entities, including those links that may result in material 
interdependencies. For example, the Framework would describe some of 
the ways the Clearing Agencies manage risks related to their links 
with, as applicable, participants, settling banks, investment 
counterparties and liquidity providers, vendors and service providers, 
and would also describe how the Clearing Agencies identify and address 
risks that have the potential of creating systemic impact. With respect 
to links with vendors and service providers, the Framework would 
describe how the Clearing Agencies, through the establishment, 
implementation, maintenance and enforcement of written policies and 
procedures, apply a comprehensive vendor review and vetting process 
that includes reviews of credit, operational, legal and other risks 
that may arise from that relationship. Therefore, by describing the 
various ways the Clearing Agencies identify and address risks related 
to links with other entities, the Clearing Agencies believe the 
Framework is consistent with the requirements of Rule 17Ad-
22(e)(20).\27\
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    \26\ 17 CFR 240.17Ad-22(e)(20).
    \27\ Id.
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    Rule 17Ad-22(e)(21) under the Act requires, in part, that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to

[[Page 36054]]

be efficient and effective in meeting the requirements of its 
participants and the markets it serves, and have the covered clearing 
agency's management regularly review the efficiency and effectiveness 
of its (i) clearing and settlement arrangements; (ii) operating 
structure, including risk management policies, procedures, and systems; 
(iii) scope of products cleared or settled; and (iv) use of technology 
and communication procedures.\28\ The Framework would describe some of 
the ways in which the Clearing Agencies review the efficiency and 
effectiveness of their businesses and operations. For example, the 
Framework would describe how the Clearing Agencies employ a structured 
approach to the pre-implementation reviews of new initiatives, 
including initiatives related to their clearing and settlement 
arrangements, scope of products cleared or settled, and use of 
technology and communication procedures. The Framework would also 
describe the Clearing Agencies' Core Balanced Business Scorecard, which 
is used to review the effectiveness of the Clearing Agencies' 
operations, information technology services levels, financial 
performance and other aspects of their business, including their 
respective participants' experiences. The Framework would also describe 
some of the steps the Clearing Agencies take in order to be efficient 
and effective in meeting the requirements of their participants and the 
markets they serve, including, for example, through the establishment, 
implementation, maintenance and enforcement of a written policy to 
address escalation, tracking and resolution of certain customer 
complaints. Therefore, by describing some of the ways in which the 
Clearing Agencies review the efficiency and effectiveness of their 
businesses and operations, the Clearing Agencies believe the Framework 
is consistent with the requirements of Rule 17Ad-22(e)(21).\29\
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    \28\ 17 CFR 240.17Ad-22(e)(21).
    \29\ Id.
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(B) Clearing Agencies' Statement on Burden on Competition

    None of the Clearing Agencies believe that the Framework would have 
any impact, or impose any burden, on competition because the proposed 
rule changes reflect some of the existing methods by which the Clearing 
Agencies manage Key Clearing Agency Risks, and would not effectuate any 
changes to the Clearing Agencies' processes described therein as they 
currently apply to their respective participants.

(C) Clearing Agencies' Statement on Comments on the Proposed Rule 
Changes Received From Members, Participants, or Others

    The Clearing Agencies have not solicited or received any written 
comments relating to this proposal. The Clearing Agencies will notify 
the Commission of any written comments received by the Clearing 
Agencies.

III. Date of Effectiveness of the Proposed Rule Changes, 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 clearing agency consents, the Commission will:
    (A) By order approve or disapprove such proposed rule changes, or
    (B) institute proceedings to determine whether the proposed rule 
changes 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 
changes are 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-DTC-2017-013, SR-NSCC-2017-012, or SR-FICC-2017-016 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-DTC-2017-013, SR-NSCC-
2017-012, or SR-FICC-2017-016. One of these file numbers 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes 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 Web site 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 the Clearing Agencies, and on 
DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-DTC-2017-013, SR-NSCC-2017-
012, or SR-FICC-2017-016, and should be submitted on or before August 
23, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16268 Filed 8-1-17; 8:45 am]
 BILLING CODE 8011-01-P