Notice2021-14791
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Relating To Confidential Information, Market Disruption Events, and Other Changes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 131 (Tuesday, July 13, 2021)</title>
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[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36815-36822]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14791]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92334; File No. SR-NSCC-2021-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Relating To
Confidential Information, Market Disruption Events, and Other Changes
July 7, 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 June 25, 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. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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'') \3\ to (i) revise certain provisions in the
Rules relating to the confidentiality of information furnished by
applicants, Members and Limited Members (collectively,
[[Page 36816]]
``participants'') to NSCC, (ii) require that each participant maintain
confidential information furnished by NSCC or its affiliates in
confidence and restrict use and disclosure of such information, (iii)
add certain officers who are allowed to determine that there is a
Market Disruption Event pursuant to Rule 60 and (iv) add a new Rule 60A
to address situations in which it is necessary to disconnect a Member,
Limited Member, third party service provider, or service bureau due to
an imminent threat of harm to NSCC, Members, Limited Members and/or
other market participants. Each of the proposed changes is described in
greater detail below.
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\3\ Capitalized terms not defined herein are defined in the
Rules, available at https://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The proposed rule change consists of modifications to (i) revise
certain provisions in the Rules relating to the confidentiality of
information furnished by participants to NSCC, (ii) require that each
participant maintain confidential information furnished by NSCC or its
affiliates in confidence and restrict use and disclosure of such
information, (iii) add certain officers who are allowed to determine
that there is a Market Disruption Event pursuant to Rule 60 and (iv)
add a new Rule 60A to address situations in which it is necessary to
disconnect a Member, Limited Member, third party service provider, or
service bureau due to an imminent threat of harm to NSCC, Members,
Limited Members and/or other market participants. Each of the proposed
changes is described in greater detail below.
(i) NSCC Confidentiality Requirements
Section 1.C. of Rule 2A \4\ and Section 3 of Rule 15 \5\ each
contain provisions relating to confidentiality of information furnished
by participants to NSCC (collectively, the ``NSCC Confidentiality
Requirements''). The NSCC Confidentiality Requirements provide that
such furnished information will be held by NSCC in the same degree of
confidence as may be required by law or the rules and regulations of
the appropriate regulatory body having jurisdiction over the
participant. NSCC is proposing to update the NSCC Confidentiality
Requirements because such provisions (i) may result in unequal
treatment of participants due to differing laws or regulations of
regulatory bodies, (ii) may result in a potential conflict of laws
where rules or regulations governing a regulatory body of a participant
differ from the laws applicable to NSCC, or a participant has multiple
regulatory bodies whose rules conflict, (iii) are burdensome as they
require NSCC to track the rules and regulations of each regulatory body
of its participants, and ensure that information provided by
participants to NSCC is held in confidence to the same degree as it is
held by such regulatory bodies and (iv) are unnecessary as NSCC has
sufficient protections in place relating to protection and
confidentiality of participant data.
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\4\ Section 1.C. of Rule 2A, supra note 3. Rule 2A relates to
initial membership requirements including information that NSCC may
require applicants to furnish to become Members or Limited Members
of NSCC.
\5\ Section 3 of Rule 15, supra note 3. Rule 15 relates to
assurances of financial responsibility and operational capability
including information that NSCC may require Members or applicants to
furnish.
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The regulatory bodies that have jurisdiction over participants
differ by participant depending on certain criteria of each
participant, including the type of entity of the participant, where the
participant was organized, the types of businesses in which the
participant engages and where the participant is doing business. In
addition, many participants are regulated by more than one regulatory
body. As a result, a requirement to maintain confidentiality standards
for information provided by a participant based on the regulatory body
or bodies that regulate such participant result in varying standards of
confidentiality for participants that are regulated by different
regulatory bodies. Such varying standards may result in unequal
treatment of participants due to differing laws or regulations of the
regulatory body or bodies governing such participants. In addition,
such varying standards may result in a potential conflict of laws where
rules or regulations governing a regulatory body of a participant
differ from the laws applicable to NSCC or an entity that has multiple
regulatory bodies whose rules conflict.
NSCC believes that it is unnecessarily burdensome to determine the
rules and regulations of each of the regulatory bodies that regulate
its participants. Such regulatory bodies include numerous U.S. federal
and state regulators as well as foreign national, state and local
regulators. NSCC proposes revising the language in the NSCC
Confidentiality Requirements to maintain one confidentiality standard
for all participants rather than maintaining potentially different
confidentiality standards for participants based on the various,
unrelated regulatory bodies regulating such participants. NSCC is
proposing to replace the existing language in the NSCC Confidentiality
Requirements with language that would provide that NSCC will hold non-
public information furnished pursuant to those Rules in confidence as
may be required under the law or the rules and regulations applicable
to NSCC that relate to the confidentiality of records. Such laws, rules
and regulations would include national, state and foreign laws
governing confidentiality of data that are applicable to NSCC in
connection with its collection and disclosure of data.
NSCC believes that the rules and regulations applicable to NSCC
governing the use and disclosure of confidential information provide
standards that are representative of those of the various regulatory
bodies governing its participants. As a result, NSCC does not believe
that the proposed rule change relating to the NSCC Confidentiality
Requirements would result in any change to NSCC's practices relating to
data protection and confidentiality of information provided by
participants.
(ii) Participant Confidentiality Requirements
Historically, NSCC has generally not provided, nor been requested
to provide, information that contains confidential or proprietary
information of NSCC or its affiliates to its participants except for
information necessary for participants and their service providers and
service bureaus to connect to NSCC and to participate in the services
that NSCC offers to its Members and Limited Members. While certain
information is protected by intellectual property rights of NSCC and
[[Page 36817]]
its affiliates under applicable intellectual property laws, such as
copyright laws and trademark laws, the Rules do not include any express
obligations for participants to protect confidential information
received by them from NSCC or its affiliates.
In connection with the development of cyber and information
security programs pursuant to applicable regulatory requirements by
participants, NSCC and its parent company, The Depository Trust &
Clearing Corporation (``DTCC''), have received an increasing number of
requests from participants for confidential and proprietary information
of NSCC and DTCC.\6\ This includes, for example, information regarding
DTCC's network operations and data security practices, legal
settlements, and other information. Additionally, in the event there is
a cyber incident relating to a participant, NSCC or DTCC may be
requested to disclose confidential information regarding its cyber
threat indicators, sources of cyber threat information, or other
information and actions taken related to a cyber event.
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\6\ DTCC provides a set of core business processes for NSCC and
DTCC's other subsidiaries, including the technology systems and
networks that provide connectivity between NSCC and its participants
and that provide the ability of NSCC to provide the services as
required under its Rules. Most corporate functions are established
and managed on an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that provides relevant
services to NSCC and DTCC's other subsidiaries.
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In order to provide for contractual protections for such
confidential information of DTCC, NSCC and DTCC's other subsidiaries,
NSCC is proposing to add provisions to the Rules that would require
participants to maintain confidential information of NSCC and its
affiliates that NSCC provides to such participants in confidence and
not to disclose such confidential information except as necessary to
perform such participant's obligations under NSCC's Rules or as
otherwise required by applicable law (``Participant Confidentiality
Requirements''). The Participant Confidentiality Requirements would
provide that in the event of a breach of the Participant
Confidentiality Requirements, NSCC or DTCC would be entitled to seek
any temporary or permanent injunctive or other equitable relief in
addition to any monetary damages under the Rules. In addition, as with
any failure to comply with its Rules, NSCC would have the ability to
impose other disciplinary proceedings or restrictions on access to
services as provided in the Rules for failure to comply with the
Participant Confidentiality Requirements.
(iii) Market Disruption Events
Rule 60 (Market Disruption and Force Majeure) \7\ (the ``Force
Majeure Rule'') contains provisions that identify the events or
circumstances that would be considered a Market Disruption Event,
including, for example, events that lead to the suspension or
limitation of trading or banking in the markets in which NSCC operates,
or the unavailability or failure of any material payment, bank
transfer, wire or securities settlement systems.\8\ Under the Force
Majeure Rule, during the pendency of a Market Disruption Event, NSCC
would be entitled to (i) suspend the provision of any or all services
and (ii) take, or refrain from taking, or require Members and Limited
Members to take, or refrain from taking, any actions NSCC considers
appropriate to address, alleviate, or mitigate the event and facilitate
the continuation of NSCC's services as may be practicable.\9\
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\7\ Rule 60, supra note 3.
\8\ Id.
\9\ Id.
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Section 2 of the Force Majeure Rule provides that the Board of
Directors may determine the existence of a Market Disruption Event and
the actions to be taken in response thereto.\10\ However, if the Board
of Directors is unable to convene, the Force Majeure Rule provides that
certain officers may make such determination, on an interim basis,
which determination is then ratified, modified or rescinded as soon as
practicable by the Board of Directors. The officers that may make such
determination are all senior executive officers of NSCC: Chief
Executive Officer, Chief Financial Officer, Group Chief Risk Officer
and General Counsel.
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\10\ Section 2 of Rule 60, id.
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The proposed rule change would add two senior executive officers of
NSCC, the Chief Information Officer and the Head of Clearing Agency
Services, to the list of officers that could make such determination if
the Board of Directors is unable to convene. These two officers, like
the other senior executive officers currently listed in the Rules,
maintain senior executive level positions at NSCC, oversee divisions of
NSCC, and hold positions at NSCC that would provide them a necessary
global view into NSCC's operations and systems to enable them to
determine the existence of a Market Disruption Event in the event that
the Board of Directors in unable to convene. Adding these two
additional officers would facilitate NSCC's ability to implement its
emergency procedures in the event of a Market Disruption Event.
(iv) Systems Disconnect: Threat of Significant Impact to NSCC's Systems
The proposed rule change would add a new Rule 60A (Systems
Disconnect: Threat of Significant Impact to the Corporation's Systems)
(``Systems Disconnect Rule'') that would address situations in which
NSCC determines it is necessary for NSCC to disconnect a single or
limited number of Members, Limited Members, or third party service
providers or service bureaus used by Members or Limited Members to
connect to NSCC \11\ (collectively, ``DTCC Systems Participants'') from
NSCC's systems or network due to an imminent threat of harm to NSCC's
or DTCC's systems. The imminent threat could be the result of a system
disruption or cyber incident applicable to the DTCC Systems
Participants. This would allow DTCC to work with the affected
participants while protecting NSCC, its systems and its other
participants.
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\11\ Some Members and Limited Members use third parties to
connect to NSCC's systems and/or to send data to NSCC and receive
data from NSCC on the Member's or Limited Member's behalf. Such
third parties are referred to as ``service providers'' or ``service
bureaus'' herein.
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The proposed Systems Disconnect Rule would be structured similarly
to the Force Majeure Rule. The Systems Disconnect Rule would address
NSCC's authority to take certain actions upon the occurrence, and
during the pendency, of a Major Event. A ``Major Event'' would be
defined as the happening of one or more Systems Disruption(s) (as
defined below) that is reasonably likely to have a significant impact
on NSCC's operations, including the DTCC Systems (as defined below),
that affect the business, operations, safeguarding of securities or
funds, or physical functions of NSCC, Members, Limited Members, and/or
other market participants. ``Systems Disruption'' would be defined as
the unavailability, failure, malfunction, overload, or restriction
(whether partial or total) of a DTCC Systems Participant's systems that
disrupts or degrades the normal operation of such DTCC Systems
Participant's systems; or anything that impacts or alters the normal
communication or the files that are received, or information
transmitted, to or from the DTCC Systems. ``DTCC Systems'' would be
defined as the systems, equipment and technology networks of DTCC, NSCC
and/or their Affiliates,\12\ whether owned, leased, or licensed,
software, devices, IP addresses
[[Page 36818]]
or other addresses or accounts used in connection with providing the
services set forth in the Rules, or used to transact business or to
manage the connection with NSCC.
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\12\ Affiliate is defined in Rule 1 and is intended to cover
DTCC and DTCC's other subsidiaries that use shared systems with
NSCC. Rule 1, supra note 3. See description of the shared systems of
DTCC, NSCC and DTCC's other subsidiaries, supra note 6.
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The proposed Systems Disconnect Rule would allow NSCC to mitigate
the effect of such events by facilitating the continuity of services
(or, if deemed necessary, the temporary suspension of services). To
that end, under the proposed Systems Disconnect Rule, NSCC would be
entitled, during the pendency of a Major Event, to (1) disconnect a
DTCC Systems Participant's systems from the DTCC Systems, (2) suspend
the receipt and/or transmission of files or communications to or from
the DTCC Systems Participant to the DTCC Systems and/or (3) take, or
refrain from taking, or require a DTCC Systems Participant to take or
refrain from taking, any actions that NSCC considers appropriate to
prevent, address, correct, mitigate or alleviate the Major Event and
facilitate the continuation of services as may be practicable and, in
that context, issue instructions to the DTCC Systems Participant.
The proposed Systems Disconnect Rule would define the governance
procedures for how NSCC would determine whether, and how, to implement
the provisions of the rule. A determination that a Major Event has
occurred could be made by the same officers with delegated authority
under the Force Majeure Rule as discussed above (an ``Officer Major
Event Action''). Following this determination, any management committee
on which all of the foregoing officers serve would convene, and NSCC
would convene a Board of Directors meeting as soon as practicable
thereafter, and in any event within five Business Days following such
determination, in each case, to ratify, modify, or rescind the Officer
Major Event Action. The proposed Systems Disconnect Rule would require
Members and Limited Members to notify NSCC immediately upon becoming
aware of a Major Event, and, likewise, would require NSCC to promptly
notify the DTCC Systems Participant(s) of any action NSCC takes or
intends to take with respect to such DTCC Systems Participant(s)
pursuant to the proposed rule.
Finally, the Systems Disconnect Rule would address certain
miscellaneous matters including: (i) A limitation of liability for any
failure or delay in performance, in whole or in part of NSCC's
obligations under the Rules, arising out of or related to a Major
Event, (ii) a statement that the power of NSCC to take any action
pursuant to the Systems Disconnect Rule also includes the power to
repeal, rescind, revoke, amend or vary such action, (iii) a statement
that the powers of NSCC pursuant to the Systems Disconnect Rule shall
be in addition to and not in derogation of, authority granted elsewhere
in the Rules to take action as specified therein, (iv) a requirement
that Members and Limited Members shall keep any DTCC Confidential
Information (as defined below) provided to them by NSCC and/or in
connection with a Major Event confidential and (v) a statement that in
the event of any conflict between the provisions of the Systems
Disconnect Rule and any other Rules or Procedures, the provisions of
the Systems Disconnect Rule would prevail.
(v) Proposed Rule Changes
The proposed rule change would amend the Rules to make the
following changes to implement the changes discussed above:
NSCC Confidentiality Requirements Changes
The proposed rule change would amend the NSCC Confidentiality
Requirements in Section 1.C. of Rule 2A \13\ and Section 3 of Rule 15
\14\ to state as follows:
\13\ Section 1.C. of Rule 2A, supra note 3.
\14\ Section 3 of Rule 15, supra note 3.
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Any non-public information furnished to the Corporation pursuant to
this Rule shall be held in confidence as may be required under the
laws, rules and regulations applicable to the Corporation that relate
to the confidentiality of records.
As discussed above, the proposed language is intended to provide
one standard that NSCC would apply uniformly to all participants, which
assures participants that such information would be held in confidence
with appropriate controls. NSCC would add ``non-public'' when
describing the information that is subject to the NSCC Confidentiality
Requirements to make it clear that such requirements would only apply
to information that is not public in both Section 1.C. of Rule 2A and
Section 3 of Rule 15. NSCC would also amend a sentence in Addendum L
that references the NSCC Confidentiality Requirements set forth in Rule
15 to reflect the proposed updated language.
Section 1.C. of Rule 2A would also include language relating to
Participant Confidentiality Requirements as described below.
Participant Confidentiality Requirements
In order to provide for Participant Confidentiality Requirements,
NSCC would add provisions in Section 1.C. of Rule 2A \15\ (with respect
to applicants) and a new Section 5 of Rule 2B \16\ (with respect to
Members and Limited Members) to state that each participant shall
maintain DTCC Confidential Information in confidence to the same extent
and using the same means it uses to protect its own confidential
information, but no less than a reasonable standard of care, and shall
not use DTCC Confidential Information or disclose DTCC Confidential
Information to any third party except as necessary to perform its
obligations under the Rules or as otherwise required by applicable law.
NSCC would add a new definition of DTCC Confidential Information in
Rule 1 \17\ to provide that ``DTCC Confidential Information'' would
mean all non-public information provided by DTCC and/or NSCC that (i)
is marked or otherwise identified in writing prior to disclosure to the
recipient as confidential, (ii) is designated by DTCC or NSCC as
confidential, or (iii) the recipient knows or, under the circumstances
surrounding disclosure, ought to reasonably know is confidential. NSCC
would also add a definition of DTCC in Rule 1 and remove a
corresponding definition in Rule 42 \18\ since it would be defined in
Rule 1.
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\15\ Section 1.C. of Rule 2A, supra note 3.
\16\ Rule 2B, supra note 3.
\17\ Rule 1, supra note 3.
\18\ Rule 42, supra note 3.
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NSCC would also add a statement in each provision relating to
Participant Confidentiality Requirements that each participant
acknowledges that a breach of its confidentiality obligations under the
Rules may result in serious and irreparable harm to NSCC and/or DTCC
for which there is no adequate remedy at law. In the event of such a
breach by the participant, NSCC and/or DTCC would be entitled to seek
any temporary or permanent injunctive or other equitable relief in
addition to any monetary damages. In addition, NSCC would re-number the
existing Section 5 of Rule 2B to Section 6 to reflect the addition of
the new Section 5.
Force Majeure Rule Officer Additions
The proposed rule change would add the Chief Information Officer
and the Head of Clearing Agency Services to the list of officers that
could make a determination of a Market Disruption
[[Page 36819]]
Event if the Board of Directors is unable to convene in Rule 60.\19\
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\19\ Rule 60, supra note 3.
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Systems Disconnect Rule
The proposed rule change would add a new Rule 60A entitled
``Systems Disconnect: Threat of Significant Impact to the Corporation's
Systems'' that would address situations in which NSCC determines it is
necessary for NSCC to disconnect a DTCC Systems Participant or DTCC
Systems Participants from NSCC's systems or network due to an imminent
threat of harm to NSCC's or DTCC's systems consistent with the
description above. The proposed Systems Disconnect Rule would include
new definitions for ``DTCC Systems,'' ``DTCC Systems Participant,''
``Major Event'' and ``Systems Disruption'' consistent with the
descriptions of the Systems Disconnect Rule above.
2. Statutory Basis
NSCC believes that the proposal is consistent with the requirements
of the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. In particular, NSCC believes that each of
the proposed rule changes is consistent with Section 17A(b)(3)(F) of
the Act,\20\ and Rules 17Ad-22(e)(1) and (e)(21) \21\ promulgated under
the Act. In addition, NSCC believes that the proposed changes to add
the two senior executive officers in the Force Majeure Rule and to add
the proposed Systems Disconnect Rule are consistent with Rules 17Ad-
22(e)(2) and (e)(17) under the Act.\22\
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\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17Ad-22(e)(1) and (e)(21).
\22\ 17 CFR 240.17Ad-22(e)(2) and (e)(17).
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Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act \23\ requires, in part, that the
Rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions, to assure the safeguarding of
securities and funds which are in the custody or control of NSCC or for
which it is responsible, and to remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
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NSCC believes that the proposed changes revising the NSCC
Confidentiality Requirements and adding the Participant Confidentiality
Requirements are each consistent with this provision of the Act. The
proposed revisions to the NSCC Confidentiality Requirements are
consistent with this provision because the proposed revisions would
provide a clear and consistent standard relating to how NSCC holds the
information furnished by participants pursuant to Rule 2A \24\ and Rule
15.\25\ The confidential information that NSCC receives pursuant to
Rule 2A and Rule 15 is used by NSCC to determine whether to admit a
participant as a Member or Limited Member, to continue to allow such
participant to be a Member or Limited Member, or to better understand
the risks relating to each participant. Providing a clear and
consistent standard would facilitate this process by allowing
participants to better understand NSCC's obligations with respect to
such information and providing a uniform obligation for NSCC with
respect to such information. NSCC believes that facilitating the
ability of NSCC to evaluate participants would promote the prompt and
accurate clearance and settlement of securities transactions by NSCC.
As such, NSCC believes the proposed rule changes are consistent with
Section 17A(b)(3)(F) of the Act.\26\
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\24\ Rule 2A, supra note 3.
\25\ Rule 15, supra note 3.
\26\ 15 U.S.C. 78q-1(b)(3)(F).
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NSCC also believes that the proposed rule change adding the
Participant Confidentiality Requirements is consistent with this
provision of the Act because the proposed revisions to the Participant
Confidentiality Requirements would provide a clear and consistent
contractual obligation for participants who are requesting confidential
information from NSCC. Having clear and consistent Rules would help
participants to better understand their rights and obligations
regarding NSCC's clearance and settlement services. The information
requested by participants that would be subject to the Participant
Confidentiality Requirements would be used by participants to determine
whether to participate in NSCC's services, NSCC system requirements and
NSCC system safeguards. NSCC believes that when Members and Limited
Members better understand their rights and obligations regarding NSCC's
clearance and settlement services, they can better act in accordance
with the Rules. NSCC believes that better enabling Members and Limited
Members to comply with the Rules would promote the prompt and accurate
clearance and settlement of securities transactions by NSCC. As such,
NSCC believes the proposed rule changes are consistent with Section
17A(b)(3)(F) of the Act.\27\
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\27\ Id.
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NSCC believes that the proposed changes to add the two officers to
make a determination of a Market Disruption Event and to add the
Systems Disconnect Rule are also consistent with this provision of the
Act because those changes would enhance and streamline NSCC's ability
to take necessary actions in the event of a Market Disruption Event or
a Major Event. Improving the ability of NSCC to react to a Market
Disruption Event or a Major Event would allow NSCC to protect its
participants and their ability to promptly and accurately clear and
settle securities transactions, and allow NSCC to safeguard securities
and funds that are in its custody or control. In particular, allowing
two additional officers that are able to make an interim determination
of a Market Disruption Event in the event that the Board of Directors
is unable to convene would add additional flexibility and tools to NSCC
while maintaining proper risk controls and improve the ability of NSCC
to act in the event of a Market Disruption Event. Also, providing for
the ability of NSCC to disconnect DTCC Systems Participants, suspend
the receipt or transmission of files or communications to or from a
DTCC Systems Participant, and/or require the DTCC Systems Participant
to take such other actions as are necessary to protect NSCC and its
participants would, in each case, provide additional tools for NSCC in
the event of a Major Event.
Improving the governance around the determination of a Market
Disruption Event, and the implementation of procedures allowing NSCC to
disconnect a DTCC Systems Participant or DTCC Systems Participants from
NSCC's systems or network due to an imminent threat of harm, would
improve NSCC's ability to address and minimize losses to NSCC and its
participants. Risks, threats and potential vulnerabilities due to a
Market Disruption Event or a Major Event could impact NSCC's ability to
clear and settle securities transactions, or to safeguard the
securities and funds which are in its custody or control or for which
it is responsible. In addition, providing governance around the ability
to disconnect a DTCC Systems Participant that is having a systems
disruption that could disrupt the ability of NSCC or other DTCC Systems
Participants from using NSCC's systems would remove impediments to and
perfect the mechanism of a national system for the prompt and accurate
clearance and settlement of securities transactions. Although
disconnecting or limiting the service of a DTCC Systems Participant
[[Page 36820]]
in the event of a Major Event would likely be an impediment to such
DTCC Systems Participant, improving NSCC's ability to address and
minimize losses to NSCC and its participants, and reducing risks,
threats and potential vulnerabilities due to a Major Event that could
impact NSCC's ability to clear and settle securities transactions, or
to safeguard the securities and funds which are in its custody or
control or for which it is responsible, would be consistent with
Section 17A(b)(3)(F) of the Act.\28\
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\28\ Id.
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Therefore, by implementing tools that would help to mitigate these
risks, NSCC believes that the proposed rule change would promote the
prompt and accurate clearance and settlement of securities
transactions, assure the safeguarding of securities and funds which are
in the custody or control of NSCC or for which it is responsible, and
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions, consistent with the requirements of Section 17A(b)(3)(F)
of the Act.\29\
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\29\ Id.
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Rule 17Ad-22(e)(1)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(1) promulgated under the Act,\30\ which requires
NSCC 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.
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\30\ 17 CFR 240.17Ad-22(e)(1).
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Establishing clear and consistent rules for each participant with
respect to the NSCC Confidentiality Requirements would allow NSCC to
maintain one confidentiality standard for all participants rather than
maintaining potentially different confidentiality standards for
participants based on the various, unrelated regulatory bodies
governing such participants. In addition, setting forth a clear
contractual obligation relating to Participant Confidentiality
Requirements would enhance the understanding of the participants
receiving information from NSCC and allow NSCC to treat participants
equally with respect to how the information furnished to participants
should be protected by the participants.
Adding the two officers to make a determination of a Market
Disruption Event and adding the Systems Disconnect Rule are also
consistent with Rule 17Ad-22(e)(1) under the Act because those changes
would describe the circumstances under which NSCC could take actions in
the event of a Market Disruption Event or a Major Event that are
necessary to protect NSCC and its participants. Providing clear
guidelines with respect to Market Disruption Events and Major Events
would allow participants to understand the rights and obligations of
the participants in the event of a Market Disruption Event or a Major
Event.
Therefore, by establishing uniform and clear standards with respect
to its receipt and furnishing of confidential information, and by
providing clear rights and obligations of NSCC and its participants
with respect to Market Disruption Events and Major Events, NSCC
believes that the proposed rule change is consistent with the
requirements of Rule 17Ad-22(e)(1) promulgated under the Act.\31\
---------------------------------------------------------------------------
\31\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(21)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(21) promulgated under the Act,\32\ which requires
NSCC to, inter alia, establish, implement, maintain and enforce written
policies and procedures reasonably designed to be efficient and
effective in meeting the requirements of its participants and the
markets it serves. The proposed rule change would streamline the NSCC
Confidentiality Requirements by providing that NSCC would apply one
standard for all participants relating to confidential information sent
to NSCC by participants, which would enhance (i) efficiency by avoiding
applying varying standards of confidentiality based on the rules and
regulations of the varying regulatory bodies that regulate the
participants, and (ii) effectiveness by reducing potential conflicts of
laws and providing equal treatment to participants relating to such
confidential information.
---------------------------------------------------------------------------
\32\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------
The addition of the Participant Confidentiality Requirements would
also provide a uniform and easily discernable requirement for all
participants with respect to confidential information provided by NSCC
allowing NSCC to provide necessary information to such participants in
a safe and efficient manner. Adding two additional officers that are
able to make an interim determination of a Market Disruption Event in
the event that the Board of Directors is unable to convene would add
additional flexibility and tools to NSCC while maintaining proper risk
controls and improve the ability of NSCC to act quickly, efficiently
and effectively in a Market Disruption Event to address and minimize
losses. Also, providing for the ability of NSCC to disconnect DTCC
Systems Participants, suspend the receipt or transmission of files or
communications to or from a DTCC Systems Participant, and/or require
the DTCC Systems Participant to take such other actions as are
necessary to protect NSCC and its participants would, in each case,
provide additional tools for NSCC in the event of a Major Event and
improve NSCC's ability to act quickly, efficiently and effectively in
the event of a Major Event to address and minimize losses.
Therefore, by establishing a more efficient and effective process
for the treatment of confidential language, and establishing procedures
designed to improve NSCC's ability to act quickly, efficiently and
effectively in the event of a Market Disruption Event and a Major
Event, NSCC believes that the proposed rule change is consistent with
the requirements of Rule 17Ad-22(e)(21) promulgated under the Act.\33\
---------------------------------------------------------------------------
\33\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(2)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(2) promulgated under the Act,\34\ which requires
NSCC to, inter alia, establish, implement, maintain and enforce written
policies and procedures reasonably designed to provide for governance
arrangements that are clear and transparent and that specify clear and
direct lines of responsibility.
---------------------------------------------------------------------------
\34\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------
Adding two additional officers that are able to make an interim
determination of a Market Disruption Event in the event that the Board
of Directors is unable to convene would add additional flexibility and
tools to NSCC while maintaining proper risk controls, and improve the
ability of NSCC to act quickly, efficiently and effectively in a Market
Disruption Event and mitigate any impact from such Market Disruption
Event. Adding these officers to the governance procedures relating to a
determination of a Market Disruption Event would make such governance
procedures clear and transparent, and specify clear and direct lines of
responsibility with respect to the determination of a Market Disruption
Event, consistent with Rule 17Ad-22(e)(2) under the Act.\35\
---------------------------------------------------------------------------
\35\ Id.
---------------------------------------------------------------------------
Adding the governance procedures relating to making a determination
of a Major Event in the Systems Disconnect
[[Page 36821]]
Rule is also consistent with Rule 17Ad-22(e)(2) promulgated under the
Act.\36\ Identifying the officers that have the ability to determine if
there is a Major Event, and providing for the ability of any management
committee on which all of such officers serve and the Board of
Directors to ratify, modify or rescind any determination of a Major
Event by an officer would make such governance procedures clear and
transparent, and specify clear and direct lines of responsibility with
respect to the determination of a Major Event, consistent with Rule
17Ad-22(e)(2).\37\
---------------------------------------------------------------------------
\36\ Id.
\37\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(17)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(17)(i) promulgated under the Act,\38\ which
requires NSCC to establish, implement, maintain and enforce written
policies and procedures reasonably designed to manage the covered
clearing agency's operational risks by identifying the plausible
sources of operational risk, both internal and external, and mitigating
their impact through the use of appropriate systems, policies,
procedures, and controls.
---------------------------------------------------------------------------
\38\ 17 CFR 240.17Ad-22(e)(17)(i).
---------------------------------------------------------------------------
Adding two additional officers that are able to make an interim
determination of a Market Disruption Event in the event that the Board
of Directors is unable to convene would add additional flexibility and
tools to NSCC while maintaining proper risk controls and improve the
ability of NSCC to act quickly, efficiently and effectively in a Market
Disruption Event and mitigate any impact from such Market Disruption
Event. Also, providing for the ability of NSCC to disconnect DTCC
Systems Participants, suspend the receipt or transmission of files or
communications to or from a DTCC Systems Participant, and/or require
the DTCC Systems Participant to take such other actions as are
necessary to protect NSCC and its participants would, in each case,
provide additional tools for NSCC in the event of a Major Event and
improve NSCC's ability to act quickly, efficiently and effectively in
the event of a Major Event and mitigate any impact from such Major
Event.
Therefore, by providing clear, efficient procedures of NSCC and its
participants with respect to Market Disruption Events and Major Events
that help identify and mitigate operational risks, NSCC believes that
the proposed rule change is consistent with the requirements of Rule
17Ad-22(e)(17)(i) promulgated under the Act.\39\
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed changes relating to the
NSCC Confidentiality Requirements would have any impact on competition.
These changes would provide one standard for how NSCC treats
participant information furnished subject to the NSCC Confidentiality
Requirements but would not affect the information that the participants
are required to provide or affect the manner in which the participants
must provide the information. As such, NSCC believes these proposed
rule changes would not have any impact on competition.
NSCC does not believe the proposed changes relating to adding
Participant Confidentiality Requirements would have any impact on
competition. Although the addition of the Participant Confidentiality
Requirements would be adding obligations on participants with respect
to how they treat confidential or proprietary information of NSCC or
its affiliates, such obligations would be minimal because NSCC would
only require that such participants hold such confidential information
using the same means they use to protect their own confidential
information but not less than a reasonable standard of care. The use of
this standard would protect NSCC by providing a clear legal obligation
to protect such information but would not be burdensome or expensive
for participants, and therefore NSCC believes that it would not have
any impact on competition.
NSCC does not believe the changes relating to adding the two
officers to make a determination of a Market Disruption Event would
have any impact on competition. The proposed rule change would add two
senior executive officers of NSCC, the Chief Information Officer and
the Head of Clearing Agency Services, to the list of officers that
could make a determination of a Market Disruption Event if the Board of
Directors is unable to convene. Such addition would provide additional
officers who could determine whether there is a Market Disruption Event
but would not otherwise affect the rights of Members or Limited Members
or NSCC in the determination of a Market Disruption Event or if a
Market Disruption Event is declared. Therefore, NSCC does not believe
that the addition of the two officers would have any impact on
competition.
NSCC does not believe that the changes relating to adding the
Systems Disconnect Rule would have any impact, or impose any burden, on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\40\ To the extent that NSCC determines that there is a
Major Event, it could take or refrain from taking actions, or require
participants to take or refrain from taking actions, that could burden
competition because such requirements could cause participants to incur
additional costs, allow NSCC to suspend services or communications, or
disconnect a DTCC Systems Participant from the DTCC Systems. NSCC
believes such burden on competition could be significant but would be
both necessary and appropriate in furtherance of the purposes of the
Act, as permitted by Section 17A(b)(3)(I) of the Act,\41\ for the
reasons described below.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78q-1(b)(3)(I).
\41\ Id.
---------------------------------------------------------------------------
NSCC believes that the proposed changes to add the Systems
Disconnect Rule are necessary in furtherance of the purposes of Section
17A(b)(3)(F) of the Act,\42\ and Rules 17Ad-22(e)(1), (e)(2), (e)(17)
and (e)(21) promulgated under the Act.\43\ The proposed changes to add
the Systems Disconnect Rule would (i) improve the ability of NSCC to
react to a Major Event allowing NSCC to protect itself and its
participants and their ability to promptly and accurately clear and
settle securities transactions, and allow NSCC to safeguard securities
and funds that are in its custody or control, consistent with the
requirements of Section 17A(b)(3)(F) of the Act,\44\ (ii) provide clear
guidelines with respect to Major Events that would allow participants
to understand the rights and obligations of the participants and NSCC
in the event of a Major Event, consistent with Rule 17Ad-22(e)(1)
promulgated under the Act,\45\ (iii) identify the officers that have
the ability to determine if there is a Major Event, and provide for the
ability of any management committee on which all of such officers
serve, and the Board of Directors, to ratify, modify or rescind any
determination of a Major Event by an officer, which would make such
governance procedures clear and transparent, and specify clear and
direct lines of responsibility with respect to the determination of a
Major Event, consistent with Rule 17Ad 22(e)(2)
[[Page 36822]]
promulgated under the Act,\46\ (iv) improve the ability of NSCC to act
quickly, efficiently and effectively in the event of a Major Event, and
mitigate any impact from such event by providing clear, efficient
procedures of NSCC and its participants with respect to such event,
consistent with the requirements of Rule 17Ad-22(e)(17)(i) promulgated
under the Act \47\ and (v) establish procedures designed to improve
NSCC's ability to act quickly, efficiently and effectively in the event
of a Major Event, consistent with the requirements of Rule 17Ad-
22(e)(21) promulgated under the Act.\48\
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\42\ 15 U.S.C. 78q-1(b)(3)(F).
\43\ 17 CFR 240.17Ad-22(e)(1), (e)(2), (e)(17) and (e)(21).
\44\ 15 U.S.C. 78q-1(b)(3)(F).
\45\ 17 CFR 240.17Ad-22(e)(1).
\46\ 17 CFR 240.17Ad-22(e)(2).
\47\ 17 CFR 240.17Ad-22(e)(17)(i).
\48\ 17 CFR 240.17Ad-22(e)(21).
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In addition, NSCC believes that the proposed changes to add the
Systems Disconnect Rule are appropriate in furtherance of the Act. Such
changes have been designed to improve the ability of NSCC to act
quickly, efficiently and effectively in the event of a Major Event, and
mitigate any impact from such event while also providing the Members
and Limited Members clear guidelines with respect to such event to
allow participants to understand their rights and obligations. Such
changes have also been designed to apply uniformly to all Members and
Limited Members in the event of a Major Event and should not affect
NSCC's day-to-day operations under normal circumstances, or in the
management of a typical Member or Limited Member default scenario or
non-default event.
Therefore, NSCC does not believe that the proposed rule change
would impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.\49\
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\49\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has not received or solicited any written comments relating to
this proposal. NSCC will notify the Commission of any written comments
received by NSCC.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
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 self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change 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
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0674736a632b65696b6b636872754675636528616970"><span class="__cf_email__" data-cfemail="c0b2b5aca5eda3afadada5aeb4b380b3a5a3eea7afb6">[email protected]</span></a>. Please include
File Number SR-NSCC-2021-007 on the subject line.
Paper Comments
<bullet> 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-2021-007. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
(<a href="http://dtcc.com/legal/sec-rule-filings.aspx">http://dtcc.com/legal/sec-rule-filings.aspx</a>). 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-2021-007 and should be submitted on
or before August 3, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14791 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 13, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.