Document ID: SEC-2021-1690-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2021-11-30T05:00Z

[Federal Register Volume 86, Number 227 (Tuesday, November 30, 2021)]
[Notices]
[Pages 68007-68009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26074]

[[Page 68007]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93671; File No. SR-NSCC-2021-012]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Make Certain Revisions and Clarifications to the Rules

November 24, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 15, 2021, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to NSCC's Rules 
& Procedures (``Rules'') to (1) clarify defined terms related to the 
onboarding agreements required to be provided by Settling Banks and AIP 
Settling Banks; (2) incorporate in the Rules the affirmative 
undertakings that Members currently make in onboarding membership 
agreements; (3) clarify that Members shall appoint a duly authorized 
representative in connection with their membership, and remove the 
requirement that NSCC approve the form of power of attorney or 
resolutions of the Member's board of directors that evidences such 
authorization; (4) clarify NSCC's ability to rely on electronic 
signatures on agreements and other documents provided to NSCC pursuant 
to the Rules; and (5) incorporate into the Rules the governing law of 
agreements and other documents provided to NSCC pursuant to the Rules, 
as described in greater detail below.\5\
---------------------------------------------------------------------------

    \5\ Capitalized terms not defined herein are defined in the 
Rules, available at https://www.dtcc.com/legal/rules-and-procedures. 
NSCC has several types of membership with different access levels to 
services, each described in Rule 2, id. For ease of description, 
unless otherwise indicated by the context, the term ``Member'' is 
used to refer to all membership categories.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    NSCC is proposing amendments that would clarify, simplify and 
improve the disclosures in the Rules, primarily related to onboarding 
and other membership documentation between NSCC and its Members. NSCC, 
along with its affiliates, The Depository Trust Company and Fixed 
Income Clearing Corporation, has recently completed a review of the 
templates of onboarding agreements and other documents that are 
provided to NSCC in connection with a firm's application for membership 
and the templates of agreements and documents Members may provide to 
NSCC during the course of their membership pursuant to the Rules. In 
connection with this review, NSCC is proposing to make certain 
revisions and clarifications to the Rules.
    More specifically, the proposed rule changes would (1) clarify 
defined terms related to the onboarding agreements required to be 
provided by Settling Banks and AIP Settling Banks; (2) incorporate in 
the Rules the affirmative undertakings that Members currently make in 
onboarding membership agreements; (3) clarify that Members shall 
appoint a duly authorized representative in connection with their 
membership, and remove the requirement that NSCC approve the form of 
power of attorney or resolutions of the Member's board of directors 
that evidences such authorization; (4) clarify NSCC's ability to rely 
on electronic signatures on agreements and other documents provided to 
NSCC pursuant to the Rules; and (5) incorporate into the Rules the 
governing law of agreements and other documents provided to NSCC 
pursuant to the Rules, as described in greater detail below.
Proposed Revisions To Clarify the Defined Terms Related to Settling 
Bank Agreements
    NSCC is proposing to revise Rule 1 (Definitions and Descriptions) 
to clarify the defined terms related to the onboarding agreements 
required to be provided by Settling Banks and AIP Settling Banks. 
Settling Banks and AIP Settling Banks are types of NSCC membership that 
undertake to perform settlement services on behalf of other Members.\6\
---------------------------------------------------------------------------

    \6\ Settling Bank and AIP Settling Bank membership types are 
described in Sections 2(ii)(f) and (i) of Rule 2, id.
---------------------------------------------------------------------------

    Currently, the definition of ``Settling Bank'' in Rule 1 states 
that these Members are party to both an ``Appointment of Settling 
Bank'' and ``Settling Bank Agreement,'' and the definition of ``AIP 
Settling Bank'' in Rule 1 states that these Members are party to both 
an ``Appointment of AIP Settling Bank'' and ``AIP Settling Bank 
Agreement,'' However, there are no separate definitions of the terms 
``Appointment of Settling Bank,'' ``Settling Bank Agreement,'' 
``Appointment of AIP Settling Bank'' or ``AIP Settling Bank 
Agreement.'' Furthermore, NSCC does not currently require these types 
of Members to submit separate documents to evidence an appointment and 
an agreement. Rather, under NSCC's current practice, Settling Banks and 
AIP Settling Banks are required to be party to an effective agreement, 
which includes both the appointment of the Settling Bank or AIP 
Settling Bank and their affirmative undertaking to perform settlement 
services for another Member that is also party to that agreement.
    Therefore, NSCC is proposing to amend the definitions of Settling 
Bank and AIP Settling Bank in Rule 1 to refer only to a Settling Bank 
Agreement and to add a definition of ``Settling Bank Agreement'' to 
Rule 1, to clarify that this agreement includes both the appointment of 
the Settling Bank or AIP Settling Bank and their affirmative 
undertaking to perform settlement services for another Member that is 
also party to that agreement. The proposed rule change would clarify 
the definitions of these membership types and conform the description 
of their membership documentation requirements in the Rules to NSCC's 
current practice.
    In connection with this proposed change and also to conform the 
Rules to NSCC's current practice, NSCC would also amend Rule 53 
(Alternative Investment Product Services and Members) to refer to the 
Settling Bank

[[Page 68008]]

Agreement among the required documentation to establish AIP Settling 
Sub-Accounts in Section 1(d) and would revise a reference to an ``AIP 
Settling Bank Agreement'' to refer to the proposed ``Settling Bank 
Agreement'' in Section 7(h).
Proposed Revisions To Incorporate Member Undertakings Into the Rules
    NSCC is proposing to revise Section 1.E of Rule 2A (Initial 
Membership Requirements) to incorporate affirmative undertakings that 
Members currently make in their onboarding membership agreements.\7\ 
This section currently provides that an applicant for membership with 
NSCC shall sign and deliver to NSCC an agreement under which the 
applicant would agree to the affirmative undertakings that are listed 
in this Section 1.E of Rule 2A.\8\ These undertakings include, for 
example, to abide by the Rules and be bound by all the provisions 
thereof, and to pay any amounts that become payable by the Member to 
NSCC pursuant to the Rules.\9\
---------------------------------------------------------------------------

    \7\ Section 1.E of Rule 2A, id.
    \8\ Id.
    \9\ See Sections 1.E(e) and (h) of Rule 2A, id.
---------------------------------------------------------------------------

    To simplify and standardize the membership onboarding 
documentation, NSCC is proposing to revise Section 1.E of Rule 2A to 
state directly that Members agree to each of the undertakings listed in 
that section. In connection with this proposed change, NSCC would 
remove these undertakings from the template membership agreement, which 
already provides that Members are bound by the Rules.
    In connection with this proposed change, NSCC would also make 
identical revisions to statements within Section 1.E of Rule 2A 
regarding the undertakings of other membership types, including (i) 
footnotes 2 and 3 regarding Fund Members, (ii) a statement in 
subsection 1 that refers to undertakings of Members that are Municipal 
Securities Brokers' Brokers, (iii) a statement in subsection 2 that 
refers to the onboarding obligations of Third Party Administrator 
Members, Third Party Provider Members and Investment Manager/Agent 
Members, and (iv) a statement regarding the onboarding obligations of 
Settling Bank Only Members and Municipal Comparison Only Members.
Proposed Revisions to Requirements Related to Members' Authorized 
Representatives
    NSCC is proposing to revise Section 2 of Rule 5 (General 
Provisions), which describes Members' requirement to appoint an 
authorized representative in connection with their membership with 
NSCC.\10\ Currently, Section 2 of Rule 5 provides that a Member may 
designate an authorized representative that is not either a general 
partner or an officer of the Member by either a power of attorney or 
resolutions of the Member's board of directors, and requires such power 
of attorney and resolutions be in a form approved by NSCC.\11\ Section 
2 of Rule 5 also requires Members to provide NSCC with the signatures 
of individuals who are authorized representatives for purposes of 
conducting business with NSCC.\12\
---------------------------------------------------------------------------

    \10\ Section 2 of Rule 5, id.
    \11\ Id.
    \12\ Id.
---------------------------------------------------------------------------

    In order to simplify the onboarding membership requirements, NSCC 
is proposing to amend Section 2 of Rule 5 to clarify that Members must 
appoint a duly authorized representative, and to remove references to a 
power of attorney or resolutions of the Member's board of directors. 
The proposed change would also remove the requirement that NSCC approve 
the form of power of attorney or resolutions of the Member's board of 
directors that evidences the due authorization of that representative. 
Finally, NSCC is proposing to remove the requirement that Members 
provide NSCC with the signatures of representatives who are authorized 
to conduct business with NSCC.\13\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

Proposed Revisions to Rules Regarding NSCC's Reliance on Electronic 
Signatures
    NSCC is proposing to revise Rule 32 (Signatures), which lists the 
circumstances in which NSCC would rely on an electronic signature.\14\ 
The proposed revision to this Rule 32 would revise the rule to clarify 
that NSCC may rely on an electronic signature with respect to any and 
all agreements and other documents delivered pursuant to the Rules. In 
connection with this change, NSCC would also remove reference to the 
circumstances in which it would accept an electronic signature, to make 
clear that NSCC would do so in any circumstances. The proposed 
revisions would clarify and modernize the language in Rule 32, which 
still refers to outdated modes of electronic communication, such as 
telex, and would align the language in this Rule to language used in 
the New York Electronic Signatures and Records Act.\15\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ N.Y. State Tech. Law 304(2) (McKinney 2021).
---------------------------------------------------------------------------

Proposed Revisions to Rules Regarding Governing Law
    NSCC is proposing to revise Section 1 of Rule 38 (Governing Law and 
Captions), which currently states that the Rules are governed by New 
York law.\16\ The proposed change would revise Section 1 of Rule 38 to 
include a statement that all agreements and other documents that are 
entered into between NSCC and its Members are also governed by New York 
law, unless otherwise expressly provided. Currently, agreements and 
other documents entered into between NSCC and its Members either 
include a governing law provision or are governed by New York law 
through the application of both Section 1 of Rule 38, which provides 
that the rights and obligations under the Rules are governed by New 
York law, and the NSCC membership agreements, which provide that the 
Rules (including Section 1 of Rule 38) govern the matters and 
transactions between NSCC and its Members.
---------------------------------------------------------------------------

    \16\ Supra note 5.
---------------------------------------------------------------------------

    This proposed change would both clarify the governing law of the 
agreements and other documents entered into between NSCC and its 
Members pursuant to the Rules, and would allow NSCC to simplify those 
documents by removing the governing law provisions in such documents.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires that the rules of NSCC be 
designed to, among other things, promote the prompt and accurate 
clearance and settlement of securities transactions.\17\ NSCC believes 
the proposed changes are consistent with the requirements of Section 
17A(b)(3)(F) of the Act because such changes would clarify and improve 
the transparency of the Rules and would allow NSCC to simplify the 
membership agreements and other documentation provided to it by Members 
pursuant to the Rules.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    More specifically, the proposed changes would make clarifications 
to the Rules regarding (i) defined terms related to the onboarding 
agreements required to be provided by Settling Banks and AIP Settling 
Banks; (ii) Members' duly authorized representatives in connection with 
their memberships; and (iii) NSCC's ability to rely on electronic 
signatures on agreements and other documents provided to it pursuant to 
the Rules. The proposed changes would also update the Rules in order to 
allow NSCC to simplify the onboarding and other

[[Page 68009]]

membership agreements and documents by incorporating in the Rules (1) 
the governing law of agreements and other documents provided to NSCC 
pursuant to the Rules; and (2) the affirmative undertakings that 
Members currently make in onboarding membership agreements.
    By enhancing the clarity and transparency of the Rules, and 
allowing NSCC to simplify the membership agreements and other 
documents, the proposed changes would allow Participants to more 
efficiently and effectively conduct their business in accordance with 
the Rules, which NSCC believes would promote the prompt and accurate 
clearance and settlement of securities transactions. As such, NSCC 
believes that the proposed changes would be consistent with Section 
17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------

    \18\ Id.
---------------------------------------------------------------------------

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

    NSCC does not believe the proposed rule changes would impact 
competition. The proposed rule changes would merely enhance the clarity 
and transparency of the Rules and would simplify the documentation that 
is provided to NSCC by Members pursuant to the Rules. Therefore, the 
proposed changes would not affect NSCC's operations or the rights and 
obligations of membership. As such, NSCC believes the proposed rule 
changes would not have any impact on competition.

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

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    NSCC reserves the right to not respond to any comments received.

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) \19\ of the Act and paragraph (f) \20\ of Rule 19b-4 
thereunder. 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C 78s(b)(3)(A).
    \20\ 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 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 [email protected]. Please include 
File Number SR-NSCC-2021-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-NSCC-2021-012. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of NSCC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSCC-2021-012 and should be submitted on 
or before December 21, 2021.
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26074 Filed 11-29-21; 8:45 am]
BILLING CODE 8011-01-P