Document ID: SEC-2019-0002-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.; Fixed Income Clearing Corp.; National Securities Clearing Corp.
Posted Date: 2018-12-31T05:00Z

[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Notices]
[Pages 67779-67785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28378]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84949; File Nos. SR-DTC-2018-012; SR-FICC-2018-014; SR-
NSCC-2018-013]

Self-Regulatory Organizations; The Depository Trust Company; 
Fixed Income Clearing Corporation; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Changes To Revise the Clearing Agency Investment Policy

December 21, 2018.
    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 December 13, 2018, The Depository Trust Company (``DTC''), Fixed 
Income Clearing Corporation (``FICC''), and National Securities 
Clearing Corporation (``NSCC,'' and together with DTC and FICC, 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 Clearing Agencies filed the proposed rule 
changes 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 changes 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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I. Clearing Agencies' Statement of the Terms of Substance of the 
Proposed Rule Changes

    The proposed rule changes consists of amendments to the Clearing 
Agency Investment Policy (``Investment Policy'') of the Clearing 
Agencies in order to (1) update the governance for changes to the 
Investment Policy and provide for annual approval of the Investment 
Policy by the Board of Directors of each of the Clearing Agencies 
(collectively, ``Boards''); (2) revise the process for identifying an 
applicable external credit rating for a potential investment 
counterparty when there are discrepancies between available external 
credit ratings for that potential counterparty; (3) amend the authority 
to approve (a) the establishment of an investment relationship with an 
investment counterparty, (b) investment transactions that exceed 
applicable investment limits, and (c) investment

[[Page 67780]]

transactions in high grade corporate debt and U.S. Treasury securities; 
and (4) make technical corrections and revisions to clarify and 
simplify statements in the Investment Policy; as described in greater 
detail below.

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 revise the Investment 
Policy, which was adopted in December 2016 \5\ and are maintained in 
compliance with Rule 17Ad-22(e)(16) under the Act.\6\
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    \5\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
    \6\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the 
Investment Policy also addresses compliance with the requirements of 
Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
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Overview of the Investment Policy
    The Investment Policy governs the management, custody and 
investment of cash deposited to the respective NSCC and FICC Clearing 
Funds, and the DTC Participants Fund,\7\ the proprietary liquid net 
assets (cash and cash equivalents) of the Clearing Agencies, and other 
funds held by the Clearing Agencies pursuant to their respective rules.
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    \7\ The respective Clearing Funds of NSCC and FICC, and the DTC 
Participants Fund are described further in the Rules & Procedures of 
NSCC (``NSCC Rules''), the DTC Rules, By-laws and Organization 
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') or the Rulebook 
of the Government Securities Division of FICC (``GSD Rules''), 
respectively, available at http://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4 
(Participants Fund and Participants Investment) of the DTC Rules, 
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule 
4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
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    The Investment Policy identifies the guiding principles for 
investments and defines the roles and responsibilities of DTCC staff in 
administering the Investment Policy pursuant to those principles. The 
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'') 
\8\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group 
Chief Risk Office (``GCRO'').\9\ Treasury is responsible for 
identifying potential counterparties to investment transactions, 
establishing and managing investment relationships with approved 
investment counterparties, and making and monitoring all investment 
transactions with respect to the Clearing Agencies. CCR is responsible 
for conducting a credit review of any potential counterparty, updating 
those reviews on a quarterly basis, and establishing an investment 
limit for each counterparty.
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    \8\ Treasury is a part of the DTCC Finance Department and is 
responsible for the safeguarding, investment and disbursement of 
funds on behalf of the Clearing Agencies and in accordance with the 
principles outlined in the Investment Policy.
    \9\ Among other responsibilities, GCRO is generally responsible 
for the systems and processes designed to identify and manage 
credit, market and liquidity risks to the Clearing Agencies.
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    The Investment Policy also identifies sources of funds that may be 
invested, and the permitted investments of those funds, including the 
authority required to make such investments and the parameters of, and 
limitations on, each type of investment. Allowable investments include 
bank deposits, reverse repurchase agreements, direct obligations of the 
U.S. government, money market mutual funds, high-grade corporate debt, 
and hedge transactions. Finally, the Investment Policy defines the 
approval authority required to exceed established investment limits.
Proposed Revisions to the Investment Policy
    The Investment Policy is reviewed and approved by the Boards 
annually. In connection with the most recent annual review of the 
Investment Policy, the Clearing Agencies have decided to propose 
certain revisions and updates. These proposed revisions, described in 
greater detail below, are designed to update the Investment Policy and 
help ensure that it continues to operate as intended.
1. Investment Policy Change Management and Annual Board Approval
    The Clearing Agencies are proposing revisions to two aspects of 
governance in the Investment Policy: (1) Approving changes to the 
Investment Policy and (2) annual approval by the Board, as described 
below.
a. Governance for Approving Changes to Investment Policy
    Currently, the Investment Policy includes a statement that 
``routine'' changes to the Investment Policy must be approved jointly 
by an officer in Treasury and an officer in CCR, and that material 
changes to the Investment Policy must be approved by the Boards, or 
such committee as may be delegated authority by the Boards from time to 
time.
    The Boards have delegated to the General Counsel and the Deputy 
General Counsels of the Clearing Agencies the authority to approve 
certain proposed rule changes of the Clearing Agencies and the filings 
with respect to such proposed rule changes required by Rule 19b-4 under 
the Act.\10\ Specifically, the Boards have delegated to the General 
Counsel and Deputy General Counsels of the Clearing Agencies authority 
to approve (1) proposed rule changes that may be filed pursuant to 
Section 19(b)(3)(A) of the Act,\11\ (2) proposed rule changes that 
constitute clarifications, corrections or minor changes in the rules of 
the Clearing Agencies but that will not be filed pursuant to Section 
19(b)(3)(A) of the Act,\12\ in each case, other than any rule change 
where the aggregate annual fees generated as a result of such rule 
change are anticipated to be more than $1,000,000 at the time of the 
filing, and (3) all proposed changes that are subject to an advance 
notice as required by Rule 19b-4(n) under the Act \13\ but do not 
constitute a change to the rules of Clearing Agencies.
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    \10\ 17 CFR 240.19b-4.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ Id.
    \13\ 17 CFR 240.19b-4(n).
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    Therefore, the statement within the Investment Policy that 
``routine'' changes to the Investment Policy must be approved jointly 
by an officer in Treasury and an officer in CCR, and that material 
changes to the Investment Policy must be approved by the Boards or 
committees of the Boards is inconsistent with these existing 
delegations of approval authority. As such, the Clearing Agencies are 
proposing to amend the Investment Policy to clarify that changes to the 
Investment Policy may be approved by either (1) the Boards, (2) such 
Board committees as may be delegated authority by the Boards from time 
to time pursuant to their charters, or (3), with respect to certain 
changes, the General Counsel or Deputy General Counsels of the Clearing 
Agencies, pursuant to authority delegated by the

[[Page 67781]]

Boards and with the advice and direction of Treasury and CCR.
    The proposed change would make the Investment Policy consistent 
with existing internal delegations of authority and would also 
facilitate expedited review and approval of changes that may not 
require the review and approval of the Boards or committees of the 
Boards.
b. Annual Approval of Investment Policy by Boards
    The Investment Policy currently states that the Boards or such 
committees as may be delegated authority from time to time shall review 
the Investment Policy on an annual basis.
    Rule 17Ad-22(e)(3) under the Act requires the Clearing Agencies to 
maintain a sound risk management framework for comprehensively managing 
the risks that arise in or are borne by the Clearing Agencies, 
including investment and custody risks.\14\ Rule 17Ad-22(e)(3)(i) under 
the Act requires that the risk management policies, procedures, and 
systems that are maintained in compliance with Rule 17Ad-22(e)(3) be 
subject to review on a specified periodic basis and be approved by the 
Boards annually.\15\ As stated above, the Investment Policy governs the 
management, custody and investment held by the Clearing Agencies, and 
is maintained in order to manage the Clearing Agencies' investment and 
custody risks, as required by Rule 17Ad-22(e)(3) under the Act.\16\ 
Therefore, the Investment Policy must be approved by the Boards 
annually, as required by Rule 17Ad-22(e)(3)(i) under the Act.\17\
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    \14\ 17 CFR 240.17Ad-22(e)(3).
    \15\ 17 CFR 240.17Ad-22(e)(3)(i).
    \16\ 17 CFR 240.17Ad-22(e)(3).
    \17\ 17 CFR 240.17Ad-22(e)(3)(i).
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    The Clearing Agencies are proposing to amend the Investment Policy 
to provide that the Investment Policy shall be approved annually by the 
Boards or such committees as may be delegated authority from time to 
time.\18\ The proposed change would align the governance of the 
Investment Policy with the applicable requirements of Rule 17Ad-
22(e)(3)(i) under the Act.\19\
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    \18\ Id.
    \19\ Id.
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2. Process for Identifying External Credit Rating of Potential 
Investment Counterparties
    One of the responsibilities of CCR under the Investment Policy is 
to perform credit reviews of potential investment counterparties. The 
credit review is used to determine if the Clearing Agencies should 
establish an investment relationship with that entity, and what, if 
any, limits should be placed on investments with that entity as an 
investment counterparty. These credit reviews may include, for example, 
a business description, identification of key risks and any mitigants 
to those risks, a general financial analysis of the potential 
counterparty, such counterparty's available external credit ratings, 
and the recommended investment limit for such counterparty. The 
Investment Policy sets a minimum external credit rating for potential 
investment counterparties for specified types of investments. External 
credit ratings may be assigned by either S&P Global Ratings, Moody's 
Investors Service, Inc., or Fitch Ratings Inc.
    Currently, the Investment Policy states that if there is a single 
notch discrepancy between available external credit ratings, CCR shall 
use the more favorable rating available. The Investment Policy further 
states that, if there is a multiple notch discrepancy between available 
external credit ratings for a potential investment counterparty, CCR 
may use its discretion, based on information available to it, in 
determining the applicable credit rating for its credit review of that 
counterparty.
    The Clearing Agencies are proposing to amend the Investment Policy 
to remove CCR's discretion that may be used when there is a multiple 
notch discrepancy between the external credit ratings, and instead 
require that CCR shall use the rating that is one notch above the 
lowest available external credit rating for that counterparty.
    The Clearing Agencies determined that this approach would be 
appropriate because credit ratings may be obtained from one of the 
three credit rating agencies identified above, so there could only be a 
maximum of three available credit ratings for an entity. As such, under 
this proposed approach, the middle available rating would be applied 
where there is a multiple notch discrepancy between available credit 
ratings.
    The Clearing Agencies believe the proposed change would improve the 
process for applying an external credit rating in connection with 
credit reviews because it would create a clear and objective approach 
to identifying the applicable external credit rating in these 
circumstances by removing CCR's discretion in determining which rating 
to apply.
3. Approval Authority for Investments Relationships, Exceeding 
Investment Limits and Certain Investment Transactions
    The Investment Policy identifies the groups of individuals who have 
the authority to approve (1) the establishment of an investment 
relationship with an investment counterparty, (2) investment 
transactions that exceed applicable investment limits, and (3) 
investment transactions in high grade corporate debt and U.S. Treasury 
securities. The Clearing Agencies are proposing to revise the approval 
authority in the Investments Policy, as described below.
a. Focus the Approval Authority for Investments Relationships and 
Exceeding Investment Limits to Managing Director in CCR
    The Clearing Agencies are proposing to amend the authority for 
approving the establishment of investment relationships and investment 
transactions that exceed investment limits to restrict one of the 
individuals authorized to provide such approvals to a Managing Director 
in CCR, rather than any Managing Director in GCRO, for the reasons 
described below.
    First, with respect to the authority to establish an investment 
relationship with an investment counterparty, the Investment Policy 
currently identifies two groups of authorized individuals--``Group A'' 
and ``Group B''--and provides that an investment relationship may be 
approved by either two individuals from Group A acting jointly, or by 
one individual from Group A and one individual from Group B acting 
jointly. Currently, Group A includes the Group Chief Risk Officer or a 
Managing Director in the Financial Risk Management group (the former 
name of the GCRO).\20\
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    \20\ As described below, the Clearing Agencies are proposing to 
make a technical revision to the Investment Policy to update all 
references to the Financial Risk Management group, or ``FRM,'' to 
the Group Chief Risk Office, or ``GCRO.''
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    Second, with respect to approving investment transactions that 
exceed applicable investment limits, the Investment Policy currently 
identifies three groups of individuals--``Group A,'' ``Group B,'' and 
``Group C''--and provides that an investment transaction that exceeds 
applicable investment limits may be approved by either one individual 
in Group A and one individual from Group B acting jointly; or one 
individual in Group A or one individual in Group B, and one individual 
in Group C, acting jointly. Currently, Group B includes both a

[[Page 67782]]

Managing Director in GCRO and the Group Chief Risk Officer.
    The Clearing Agencies are proposing to limit the Managing Director 
in GCRO who is authorized to provide these approvals to a Managing 
Director in the CCR group within GCRO. As described above, CCR is 
responsible for conducting the credit reviews of potential investment 
counterparties, and for setting investment limits for investment 
counterparties. Therefore, a Managing Director in CCR is more closely 
involved in conducting credit reviews of potential investment 
counterparties and setting investment limits that are appropriate based 
on those reviews, where other Managing Directors within GCRO do not 
have a role in the administration of the Investment Policy. Therefore, 
the Clearing Agencies believe this proposed change is appropriate 
because it would focus the authorization to an individual who may be 
more capable of providing an informed authorization when necessary.
    The Clearing Agencies are also proposing to provide that a Managing 
Director in CCR may assign a delegate within CCR with the title of 
Executive Director or higher, to jointly approve investment 
transactions that exceed applicable limits in the event a CCR Managing 
Director is unavailable. The approval of these transactions may be 
required in a short timeframe. Therefore, the proposed change would 
allow the Clearing Agencies to obtain these joint approvals from an 
officer within CCR, when necessary, without unnecessary delay in the 
event a Managing Director in CCR is not available to provide the 
requested authorization.
b. Revising Approval Authority for Certain Investment Transactions
    The Clearing Agencies are proposing to make two revisions to the 
approval authority for investment transactions in high grade corporate 
debt and U.S. Treasury securities, as described below.
    Currently, the Investment Policy provides that investment 
transactions in high grade corporate debt and U.S. Treasury securities 
where the remaining time to maturity is two years or less must be 
approved by two individuals, acting jointly, who are identified in a 
group of individuals that includes both senior level executives and 
lower level officers. The value of investments that mature on a longer 
timeframe are subject to greater uncertainty over that period and such 
investments are generally viewed as posing greater risk. Therefore, the 
Investment Policy provides that investment transactions in high grade 
corporate debt and U.S. Treasury securities where the remaining time to 
maturity is more than two years must be approved by two individuals, 
acting jointly, from the same group of individuals who are authorized 
to approve such investments that mature on a shorter timeframe, so long 
as at least one of those individuals is a senior level executive.
    First, the Clearing Agencies are proposing to revise the scope of 
investments that the two groups of individuals are authorized to 
approve. The proposed change would provide the first group of 
individuals with authority to approve investments, with two of them 
acting jointly, for a time to maturity of one year or less, and would 
provide the second group of individuals with authority to approve 
investments with a time to maturity of greater than one year, and up to 
a maximum of ten years for investments in U.S. Treasury securities and 
up to a maximum of five years for investments in high grade corporate 
debt. This proposed change would provide for a more conservative 
approach to approving these investments by limiting the investments 
that may be approved by the first group of authorized individuals to 
only those that mature on a shorter timeframe, and pose less risk.
    Second, the Clearing Agencies are proposing to include an Executive 
Director in Finance in the first group of individuals, who are 
authorized to act jointly to approve investment transactions with a 
remaining time to maturity of one year or less. This proposed change 
would provide the Clearing Agencies with more flexibility to authorize 
investment transactions where the time to maturity is one year or less 
by authorizing an additional officer to approve this revised set of 
investments. The Investment Policy would continue to require that at 
least one of the individuals who approve investments that have a longer 
time to maturity be a senior level executive.
4. Technical Revisions
    The Clearing Agencies are proposing to reorganize and reorder 
certain sections of the Investment Policy, and make other updates, 
corrections and clarifications, as described below.
a. Reordering and Reorganizing Certain Sections of the Investment 
Policy
    First, the Clearing Agencies are proposing to remove Section 1.1, 
titled ``Document Control Information,'' from the Investment Policy. 
The information under this heading would be incorporated into the 
Overview in Section 1, and this proposed change would simplify the 
organization of this Section.
    Second, the Clearing Agencies are proposing to move the information 
currently in Section 7 to other sections in the Investment Policy and 
eliminate Section 7. Currently, Section 7.1 describes the 
authorizations for establishing investment relationships, and Section 
7.2 describes the authorizations for entering into investment 
transactions. The information currently in Section 7.1 would be moved 
to a new Section 4.3. This proposed change would revise the Investment 
Policy so the authorizations for establishing investment relationships 
appears directly after the description of credit reviews of potential 
investment counterparties performed by CCR in Section 4.2.
    The information currently in Section 7.2 would be moved to Section 
6.2. This proposed change would revise the Investment Policy so the 
authorizations for investment transactions appear in the same Section 
as the description of the applicable investment type. As such, Sections 
6.2.1, 6.2.2, and 6.2.4, which describe investments in bank deposits, 
reverse repurchase agreements, and money market mutual funds, 
respectively, would include a statement that investment transactions in 
these investment types are authorized pursuant to Section 4.1 of the 
Investment Policy and no separate approvals for such investment 
transactions are required. Sections 6.2.3 and 6.2.5, which describe 
investments in U.S. treasury securities and high-grade corporate debt, 
respectively, would include a table of the required authorizations for 
investment transactions in these investment types. The authorizations 
described in these tables would be amended as described above. The 
Investment Policy would also be updated to make conforming changes to 
update internal cross-references to these reorganized Sections.
    Third, the Clearing Agencies are proposing to revise Section 6.2.6, 
which describes hedge transactions. The proposed change would move a 
statement regarding factors that may be considered when authorizing a 
hedge transaction to appear above the table of authorizations of those 
transactions. This proposed change would align Section 6.2.6 to be 
organized similarly to other subsections within Section 6.2, such that 
the information regarding authorizations of those transactions appears 
at the end of the subsection.
    The Clearing Agencies believe each of the proposed changes are 
appropriate. By reorganization the Investment Policy such that sections 
regarding similar

[[Page 67783]]

matters appear together, the proposed changes would improve the clarity 
of the Investment Policy.
b. Other Updates and Technical Revisions
    The Clearing Agencies are also proposing to make other updates and 
technical revisions to the Investment Policy. These technical revisions 
would, for example, correct internal cross-references, revise the use 
of defined terms, and clarify descriptions within the Investment 
Policy, without changing the substantive statements being revised.
    For example, Section 6.2.1 would be revised to include term 
deposits in a list of types of bank deposit investment transactions 
that may be executed pursuant to the Investment Policy. While the 
existing list was intended to be non-exhaustive, the proposed change 
would clarify that term bank deposits are also permitted. As another 
example, the Investment Policy would be revised to reflect a change to 
the name of the DTCC's Financial Risk Management group, or ``FRM,'' to 
the GCRO.
    The Clearing Agencies believe the proposed updates and technical 
revisions would improve the clarity and accuracy of the Investment 
Policy and, therefore, would facilitate the execution of the Investment 
Policy.
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 proposed 
modifications to the Investment Policy are consistent with Section 
17A(b)(3)(F) of the Act \21\ and Rules 17Ad-22(e)(3)(i) and (16) under 
the Act,\22\ for the reasons described below.
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ 17 CFR 240.17Ad-22(e)(3)(i) and (16).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of each of the Clearing Agencies be designed to assure the safeguarding 
of securities and funds which are in the custody or control of each of 
the Clearing Agencies or for which they are responsible.\23\ The 
investment guidelines and governance procedures set forth in the 
Investment Policy are designed to safeguard funds which are in the 
custody or control of the Clearing Agencies or for which they are 
responsible. Such protections include, for example, following a prudent 
and conservative investment philosophy that places the highest priority 
on maximizing liquidity and risk avoidance. The Clearing Agencies 
believe each of these proposed changes would help facilitate the 
effective execution of the Investment Policy pursuant to the guiding 
principle set forth therein. Therefore, the Clearing Agencies believe 
the proposed changes would allow the Clearing Agencies to continue to 
operate the Investment Policy pursuant to a prudent and conservative 
investment philosophy that assures the safeguarding of securities and 
funds which are in their custody and control, or for which they are 
responsible.
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    First, the Clearing Agencies believe the proposed changes to the 
Investment Policy governance would improve the processes for 
maintaining the Investment Policy and ensuring it continues to operate 
as intended. The proposed changes to reflect the existing delegation of 
authority to the General Counsel and Deputy General Counsels of the 
Clearing Agencies to approve certain changes to the Investment Policy 
would align this process to existing governance and delegations of 
authority within the Clearing Agencies. This proposed change would 
permit an expedited review and approval of changes that do not require 
action by the Boards or Board committees. In this way, the Clearing 
Agencies believe the proposed change would simplify the steps necessary 
for the Clearing Agencies to make certain non-material changes to the 
Investment Policy, subject to required regulatory review and approval 
of such changes. Meanwhile, the Clearing Agencies believe that the 
proposed change to require annual approval of the Investment Policy 
would provide for stronger Board oversight and create an important 
control over the Investment Policy's effectiveness.
    Second, the Clearing Agencies believe the proposed change to the 
process for identifying an applicable external credit rating for 
potential investment counterparties when there is a multiple notch 
discrepancy between available ratings would improve the credit reviews 
of those entities. The proposed change would improve credit reviews by 
creating a more objective approach to this aspect of those reviews and 
creating more consistency in the evaluation of these entities. 
Understanding the risks that may be presented by an investment 
counterparty is an important aspect of the Investment Policy's 
guidelines and governance procedures that are designed to safeguard 
funds which are in the custody or control of the Clearing Agencies or 
for which they are responsible.
    Third, the Clearing Agencies believe the proposed change to certain 
approval authority within the Investment Policy would both enable the 
Clearing Agencies to authorize those individuals who are involved with 
the matters that they may be asked to approve, and would facilitate 
those approvals by authorizing additional individuals to approve lower 
risk matters. The proposed change to the approval authority for 
establishing investment relationships and entering investment 
transactions that exceed applicable limits to include only Managing 
Directors in CCR would refine this approval authority to individuals 
who are involved in these matters, and may be better able to provide an 
informed approval. The proposed change to the approval authority for 
investment transactions with maturity time would shift that authority 
to senior executives for investments that pose greater risk, creating a 
more conservative approach to those approvals. The proposed change to 
authorize Executive Directors in Finance to approve investment 
transactions with remaining time to maturity of less than one year 
would facilitate the approval of these transactions that pose less risk 
to the Clearing Agencies.
    Finally, the Clearing Agencies believe the proposed changes to 
reorganize certain sections within the Investment Policy and the 
proposed updates and technical revisions to the Investment Policy would 
improve the clarity and accuracy of the Investment Policy. By creating 
clearer descriptions, the Clearing Agencies believe these proposed 
changes would make the Investment Policy more effective in governing 
the management, custody, and investment of funds of and held by the 
Clearing Agencies.
    For the reasons described above, the Clearing Agencies believe the 
proposed changes would improve the effectiveness of the Investment 
Policy and allow the Investment Policy to continue to be administered 
in alignment with the investment guidelines and governance procedures 
set forth therein. Given that such guidelines and governance procedures 
are designed to safeguard funds which are in the custody or control of 
the Clearing Agencies or for which they are responsible, the Clearing 
Agencies believe the proposed changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\24\
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    \24\ Id.
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    Rule 17Ad-22(e)(3)(i) requires, in part, that the Clearing Agencies 
establish, implement, maintain and

[[Page 67784]]

enforce written policies and procedures reasonably designed to maintain 
a sound risk management framework for comprehensively managing 
investment and custody risks that arise in or are borne by the Clearing 
Agencies, 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 Clearing Agencies, that are 
subject to review on a specified periodic basis and approved by the 
board of directors annually.\25\ The Clearing Agencies are proposing to 
revise the Investment Policy to require that it be reviewed and 
approved by the Boards, or an authorized Board Committee, at least 
annually. The Boards, or an authorized Board Committee, will be 
provided with a copy of the Investment Policy at a regularly scheduled 
meeting, along with a memorandum describing any changes that had been 
made to the Investment Policy since its last annual approval. This 
proposed change would provide for important oversight of the operation 
of the Investment Policy and its continued effectiveness in governing 
the management, custody and investment of funds held by the Clearing 
Agencies. The proposed change is also designed to align the governance 
of the Investment Policy with the applicable requirements of Rule 17Ad-
22(e)(3)(i) under the Act.\26\
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    \25\ 17 CFR 240.17Ad-22(e)(3)(i).
    \26\ Id.
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    Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to safeguard the Clearing Agencies' own 
and their participants' assets, minimize the risk of loss and delay in 
access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\27\
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    \27\ 17 CFR 240.17Ad-22(e)(16).
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    The Clearing Agencies believe that the Investment Policy follows a 
prudent and conservative investment philosophy, placing the highest 
priority on maximizing liquidity and avoiding risk of loss, by 
requiring the segregation of funds of each Clearing Agency and of types 
of funds of each Clearing Agency, using external credit ratings in the 
evaluation of counterparties, and establishing investment limits by 
counterparty as well as investment type. As originally implemented, the 
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\28\
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    \28\ Id.
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    For the reasons stated above, the Clearing Agencies believe that 
each of the proposed revisions would improve the administration of the 
Investment Policy and would make the Investment Policy more effective 
in governing the management, custody, and investment of funds of and 
held by the Clearing Agencies. In this way, the proposed changes would 
better allow the Clearing Agencies to maintain these documents in a way 
that is designed to meet the requirements of Rule 17Ad-22(e)(16). 
Therefore, the Clearing Agencies believe the proposed revisions would 
be consistent with the requirements of Rule 17Ad-22(e)(16) under the 
Act.\29\
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    \29\ Id.
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(B) Clearing Agencies' Statement on Burden on Competition

    Each of the Clearing Agencies believes that none of the proposed 
revisions to the Investment Policy would have any impact, or impose any 
burden, on competition. The Investment Policy applies equally to the 
Clearing Fund and Participants Fund deposits, as applicable, of each 
member of the Clearing Agencies, and establishes a uniform policy at 
the Clearing Agencies. The proposed changes to the Investment Policy 
would not affect any changes on the fundamental purpose or operation of 
this document and, as such, would also not have any impact, or impose 
any burden, on competition.

(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

    The foregoing rule changes have become effective pursuant to 
Section 19(b)(3)(A) of the Act \30\ and paragraph (f) of Rule 19b-4 
thereunder.\31\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule changes 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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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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 
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-2018-012, SR-FICC-2018-014, or SR-NSCC-2018-013 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-DTC-2018-012, SR-FICC-
2018-014, or SR-NSCC-2018-013. 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 website (http://www.sec.gov/rules/sro.shtml). Copies of the 
submissions, 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 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 filings also will be available for inspection 
and copying at the principal office of the Clearing Agencies 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-DTC-2018-012, SR-FICC-2018-
014, or SR-NSCC-2018-013 and should be submitted on or before January 
22, 2019.

[[Page 67785]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-28378 Filed 12-28-18; 8:45 am]
BILLING CODE 8011-01-P