Document ID: SEC-2012-0011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The National Securities Clearing Corp.
Posted Date: 2012-01-05T05:00Z

[Federal Register Volume 77, Number 3 (Thursday, January 5, 2012)]
[Notices]
[Pages 528-529]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33825]

[[Page 528]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66068; File No. SR-NSCC-2011-10]

Self-Regulatory Organizations; The National Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change To Amend 
Rules Relating To the Creation of a Service To Provide Post-Trade 
Information

December 29, 2011.

I. Introduction

    On November 7, 2011, The National Securities Clearing Corporation 
(``NSCC'') filed proposed rule change SR-NSCC-2011-10 with the 
Securities and Exchange Commission (``Commission'') pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of 
the proposed rule change was published in the Federal Register on 
November 25, 2011.\2\ The Commission received no comment letters. For 
the reasons discussed below, the Commission is granting approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 65788 (November 18, 
2011), 76 FR 72741 (November 25, 2011).
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II. Description

    NSCC is creating an optional service for NSCC members, ``Trade Risk 
Pro'' or ``DTCC Trade Risk Pro,'' which will enable members to monitor 
intraday trading activity of their organizations, their correspondent 
firms, or both through review of post-trade data. An effective risk 
management structure provides for multiple check points, including pre-
trade controls and post-trade surveillance. Industry participants have 
indicated to NSCC that pre-trade monitoring as a stand-alone risk 
management tool may not provide adequate protection for firms or 
against systemic risk. For example, many orders are never actually 
executed and thus a pre-trade filter could overestimate potential 
positions or could generate false positives if not combined with 
information about what orders are actually executed. In addition, 
clearing firms only see their correspondents' orders that are routed 
through the clearing firm's trading desks or through the firm's order 
entry systems. Orders sent directly to the market can bypass pretrade 
controls. Trade Risk Pro will provide NSCC's members with a method to 
monitor clearing activity in their accounts and to set parameters that 
will enable them to monitor exposure.
    As approved, the service will be available to NSCC members on a 
voluntary basis to provide those members electing to participate in the 
service with: (1) Post-trade data relating to unsettled equity and 
fixed income securities trades for a given day that have been compared 
or recorded through NSCC's trade capture mechanisms on that day (``RP 
Trade Date Data'') and (2) other information based upon data the 
participating member may itself provide at start of or throughout the 
day (``RP Member-provided Data''), as provided in NSCC's Rules and 
Procedures governing the proposed service (RP Trade Date Data and RP 
Member-provided Data shall collectively be referred to as ``RP 
Transaction Data''). This will include allowing members the ability to 
input or load trade information from prior days into the system to 
supplement their view of overall risk exposure. As such, the Trade Risk 
Pro service will offer an industry-wide post-trade reporting system 
that will allow members to monitor their U.S. equity and fixed-income 
trading exposure.

Overview of the Trade Risk Pro Service

    Through Trade Risk Pro, NSCC will utilize market and other 
information to report post-trade activity to participating members. 
Such reporting will incorporate RP Trade Date Data from transactions in 
equity and municipal and corporate debt securities after such 
transactions have: (1) Passed through the NSCC's edit checks and not 
been pended or rejected and (2) been recorded or compared through 
NSCC's Universal Trade Capture and/or Real-Time Trade Matching trade 
capture and comparison systems. In addition, Trade Risk Pro will allow 
participating members to input or load start of day and intraday 
positions (i.e., RP Member-provided Data) to allow members to view 
their organization's (or one or more correspondent's) aggregate open 
positions in securities cleared through NSCC. Within Trade Risk Pro, 
members will be able to create ``Risk Entities'' to track activity for 
specific correspondents and clients as well as their own trading desks 
and to define the rules for the aggregation of trade data, to set 
parameters on open positions allowable for each Risk Entity, and to 
receive alerts for the display of breaches or near breaches of the 
parameters.\3\ Trade Risk Pro will provide members with a screen-based 
view of their trade data residing in Trade Risk Pro for a given day 
aggregated and organized according to parameters set by the member. 
Displays provided to participating members will offer the option to 
view aggregate and net value, to view share exposure across markets and 
other liquidity destinations, and to see exposure at the CUSIP and 
individual trade levels. In conformance with NSCC's Rule 49 (Release of 
Clearing Data and Clearing Fund Data), each member will only be able to 
view information with respect to its own clearing account(s). Trade 
Risk Pro will be a reporting service only and any action taken by a 
member as a result of any alert, parameter breach, or other information 
associated with the service will be at the discretion of the member and 
not either in whole or part by NSCC.
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    \3\ Members will be able to input such limits into the Trade 
Risk Pro interface in order to receive system alerts in the event of 
a breach; however, these limits will not trigger a block by NSCC on 
any activity processed through NSCC's clearance and settlement 
systems.
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    NSCC will create a new Rule 54 (Trade Risk Pro) and Procedure XVII 
(Trade Risk Pro) to reflect the proposed rule changes described below. 
The new rule change also will amend Rule 58 (Limitations of Liability) 
and will update Rule 1 (Definitions) to include definitions for RP 
Trade Data, RP Member-provided Data, and RP Transaction Data, as 
described more fully below.
1. Establishing and Maintaining Risk Entities and Limits
    As an initial step in using the Trade Risk Pro service, members 
will be required to establish Risk Entities (e.g., trading activity of 
a single desk, a correspondent, single or multiple NSCC clearing 
number(s), or a combination of entities). Trade Risk Pro will provide 
members with the ability to create Risk Entities through the defining 
and updating of the data structure and relationships for the entities 
to which they assign a parameter or risk limit. The Risk Entity 
definitions entered by members will drive position calculations and 
displays in Trade Risk Pro. Trade Risk Pro will provide members with a 
facility to set share and dollar limits with respect to each Risk 
Entity at a gross and net level, and it may provide for additional 
limits as NSCC may determine from time to time are appropriate.
    Through the use of trade arrays, each member may define the Risk 
Entities so that only trades that the member intends to belong to that 
Risk Entity are included. For each trade, relevant data elements to 
create a trade array may include: (1) The member's account number(s), 
(2) the executing broker, (3) the submitting market or firm, and (4) 
other categories as allowed by NSCC

[[Page 529]]

from time to time. Use of these elements will create an array so that 
each transaction will be assigned by virtue of the array to one or more 
Risk Entities. Users can assign multiple trade arrays to a single Risk 
Entity.
    Once implemented, updates and changes made to Risk Entities by the 
member will take effect overnight with a cut-off time designated by 
NSCC from time to time.\4\ Although Trade Risk Pro will prohibit double 
counting of trades within the same Risk Entity, it is possible that two 
separate Risk Entities may contain defined elements as specified by the 
member that cause a specific trade to be included into both Risk 
Entities.
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    \4\ Post-implementation of Trade Risk Pro, NSCC may eventually 
at its discretion provide for real-time updates.
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2. Limit Monitoring
    Trade Risk Pro will aggregate and make available position 
information for purposes of the member's limit monitoring. The 
aggregate data will be the sum of RP Member-provided data and RP Trade 
Date Data with the aggregated data defined as RP Transaction Data in 
NSCC's Rules and Procedures. RP Trade Date Data, RP Member-provided 
Data, and other relevant data will be aggregated and sorted, and the 
data will then be displayed to the member. The display may include 
shares and values on a gross or net basis or any other total 
aggregation and sorting methods as NSCC may from time to time make 
available to members. RP Trade Date Data will be carried at contract 
amount unless another pricing method is implemented by NSCC. RP Member-
provided Data will be priced according to information provided by the 
member.
    Intraday allocations in the settlement system will not be taken 
into consideration because they are not fully effective until money 
settlement completes (i.e., after the day cycle). The totals will be 
compared to the parameters set by the members, and the members will be 
alerted to breaches based upon their set parameters. The alerts may 
take the form of visual screen changes or other notification methods. 
The service will also provide updated information when the alert is 
resolved (e.g., when the Risk Entity is within the relevant limit as a 
result of an offsetting transaction reducing the position or the 
participant raises the limit for a Risk Entity). Information such as 
alert history, members' Risk Entity definitions, end of day positions, 
and other data that NSCC provides from time to time will be supplied to 
members in an end of day report.
3. No Effect on Trade Guaranty and Other Considerations
    The rule change will provide that any reports and data supplied to 
members through Trade Risk Pro is not intended to impact the timing or 
status of the guaranty of any transaction in CNS or Balance Order 
Securities. In addition, the issuance of information or data through 
Trade Risk Pro to a member or the lack of the issuance of information 
will not of itself indicate or have any bearing on the status of any 
trade including, but not limited to, as compared, locked-in, validated, 
guaranteed, or not guaranteed.
4. Limitation of Liability
    Trade Risk Pro provides members with a facility to review and 
monitor trade activity in a manner they select, including providing 
members with the ability to populate the service (but not limited to 
the ability to input or load positions), define Risk Entities and set 
limits, and receive alerts and position data of their choosing. Since 
NSCC is not the originator of information made available through Trade 
Risk Pro, NSCC will make clear that it is not responsible for the 
completeness or accuracy of Trade Date Data or other information or 
data which it receives from members or third parties used in offering 
the Trade Risk Pro service, for information or data that is received 
and compared or recorded by NSCC, or for any errors, omissions, or 
delays which may occur in the transmission of such data or information. 
In addition, because not all transactions are submitted to NSCC on a 
real-time basis, NSCC can only provide members using the service with 
Trade Date Data as it becomes compared or recorded. Accordingly, 
members should be aware that such Trade Date Data may not be complete.
5. Indemnification
    Since each member may use the information for purposes of its own 
discretion, the rule change will provide that any member participating 
in Trade Risk Pro shall indemnify NSCC and any or all of its employees, 
officers, directors, shareholders, agents, and participants who may 
sustain any loss, liability or expense as a result of a third party 
claim related to any act or omission of the member made in reliance 
upon data or information transmitted through Trade Risk Pro by NSCC to 
the member.
6. Implementation Time Frame
    NSCC will implement the above changes during the first quarter of 
2012 or soon thereafter, with the actual implementation date announced 
to members through an Important Notice.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to remove impediments to and 
perfect the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions.\5\ The Commission 
believes that by providing its members with a mechanism to their 
monitor post-trade activity on an intraday basis, the proposed rule 
change should enhance the risk management ability of those members 
using the service. By providing for enhanced risk management, the 
proposed rule change should help remove impediments to and perfect the 
mechanism of the national system for the prompt and accurate clearance 
and settlement of securities transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    Accordingly, for the reasons stated above the Commission believes 
that the proposed rule change is consistent with NSCC's obligation 
under Section 17A of the Exchange Act and the rules and regulations 
thereunder.\6\
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    \6\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
particularly with the requirements of Section 17A of the Act, and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-2011-10) be and hereby 
is approved.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-33825 Filed 1-4-12; 8:45 am]
BILLING CODE 8011-01-P