Notice2021-26074
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make Certain Revisions and Clarifications to the Rules
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
November 30, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 227 (Tuesday, November 30, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 227 (Tuesday, November 30, 2021)]
[Notices]
[Pages 68007-68009]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-26074]
[[Page 68007]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93671; File No. SR-NSCC-2021-012]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Make Certain Revisions and Clarifications to the Rules
November 24, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 15, 2021, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the clearing agency.
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(4) thereunder.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to NSCC's Rules
& Procedures (``Rules'') to (1) clarify defined terms related to the
onboarding agreements required to be provided by Settling Banks and AIP
Settling Banks; (2) incorporate in the Rules the affirmative
undertakings that Members currently make in onboarding membership
agreements; (3) clarify that Members shall appoint a duly authorized
representative in connection with their membership, and remove the
requirement that NSCC approve the form of power of attorney or
resolutions of the Member's board of directors that evidences such
authorization; (4) clarify NSCC's ability to rely on electronic
signatures on agreements and other documents provided to NSCC pursuant
to the Rules; and (5) incorporate into the Rules the governing law of
agreements and other documents provided to NSCC pursuant to the Rules,
as described in greater detail below.\5\
---------------------------------------------------------------------------
\5\ Capitalized terms not defined herein are defined in the
Rules, available at <a href="https://www.dtcc.com/legal/rules-and-procedures">https://www.dtcc.com/legal/rules-and-procedures</a>.
NSCC has several types of membership with different access levels to
services, each described in Rule 2, id. For ease of description,
unless otherwise indicated by the context, the term ``Member'' is
used to refer to all membership categories.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
NSCC is proposing amendments that would clarify, simplify and
improve the disclosures in the Rules, primarily related to onboarding
and other membership documentation between NSCC and its Members. NSCC,
along with its affiliates, The Depository Trust Company and Fixed
Income Clearing Corporation, has recently completed a review of the
templates of onboarding agreements and other documents that are
provided to NSCC in connection with a firm's application for membership
and the templates of agreements and documents Members may provide to
NSCC during the course of their membership pursuant to the Rules. In
connection with this review, NSCC is proposing to make certain
revisions and clarifications to the Rules.
More specifically, the proposed rule changes would (1) clarify
defined terms related to the onboarding agreements required to be
provided by Settling Banks and AIP Settling Banks; (2) incorporate in
the Rules the affirmative undertakings that Members currently make in
onboarding membership agreements; (3) clarify that Members shall
appoint a duly authorized representative in connection with their
membership, and remove the requirement that NSCC approve the form of
power of attorney or resolutions of the Member's board of directors
that evidences such authorization; (4) clarify NSCC's ability to rely
on electronic signatures on agreements and other documents provided to
NSCC pursuant to the Rules; and (5) incorporate into the Rules the
governing law of agreements and other documents provided to NSCC
pursuant to the Rules, as described in greater detail below.
Proposed Revisions To Clarify the Defined Terms Related to Settling
Bank Agreements
NSCC is proposing to revise Rule 1 (Definitions and Descriptions)
to clarify the defined terms related to the onboarding agreements
required to be provided by Settling Banks and AIP Settling Banks.
Settling Banks and AIP Settling Banks are types of NSCC membership that
undertake to perform settlement services on behalf of other Members.\6\
---------------------------------------------------------------------------
\6\ Settling Bank and AIP Settling Bank membership types are
described in Sections 2(ii)(f) and (i) of Rule 2, id.
---------------------------------------------------------------------------
Currently, the definition of ``Settling Bank'' in Rule 1 states
that these Members are party to both an ``Appointment of Settling
Bank'' and ``Settling Bank Agreement,'' and the definition of ``AIP
Settling Bank'' in Rule 1 states that these Members are party to both
an ``Appointment of AIP Settling Bank'' and ``AIP Settling Bank
Agreement,'' However, there are no separate definitions of the terms
``Appointment of Settling Bank,'' ``Settling Bank Agreement,''
``Appointment of AIP Settling Bank'' or ``AIP Settling Bank
Agreement.'' Furthermore, NSCC does not currently require these types
of Members to submit separate documents to evidence an appointment and
an agreement. Rather, under NSCC's current practice, Settling Banks and
AIP Settling Banks are required to be party to an effective agreement,
which includes both the appointment of the Settling Bank or AIP
Settling Bank and their affirmative undertaking to perform settlement
services for another Member that is also party to that agreement.
Therefore, NSCC is proposing to amend the definitions of Settling
Bank and AIP Settling Bank in Rule 1 to refer only to a Settling Bank
Agreement and to add a definition of ``Settling Bank Agreement'' to
Rule 1, to clarify that this agreement includes both the appointment of
the Settling Bank or AIP Settling Bank and their affirmative
undertaking to perform settlement services for another Member that is
also party to that agreement. The proposed rule change would clarify
the definitions of these membership types and conform the description
of their membership documentation requirements in the Rules to NSCC's
current practice.
In connection with this proposed change and also to conform the
Rules to NSCC's current practice, NSCC would also amend Rule 53
(Alternative Investment Product Services and Members) to refer to the
Settling Bank
[[Page 68008]]
Agreement among the required documentation to establish AIP Settling
Sub-Accounts in Section 1(d) and would revise a reference to an ``AIP
Settling Bank Agreement'' to refer to the proposed ``Settling Bank
Agreement'' in Section 7(h).
Proposed Revisions To Incorporate Member Undertakings Into the Rules
NSCC is proposing to revise Section 1.E of Rule 2A (Initial
Membership Requirements) to incorporate affirmative undertakings that
Members currently make in their onboarding membership agreements.\7\
This section currently provides that an applicant for membership with
NSCC shall sign and deliver to NSCC an agreement under which the
applicant would agree to the affirmative undertakings that are listed
in this Section 1.E of Rule 2A.\8\ These undertakings include, for
example, to abide by the Rules and be bound by all the provisions
thereof, and to pay any amounts that become payable by the Member to
NSCC pursuant to the Rules.\9\
---------------------------------------------------------------------------
\7\ Section 1.E of Rule 2A, id.
\8\ Id.
\9\ See Sections 1.E(e) and (h) of Rule 2A, id.
---------------------------------------------------------------------------
To simplify and standardize the membership onboarding
documentation, NSCC is proposing to revise Section 1.E of Rule 2A to
state directly that Members agree to each of the undertakings listed in
that section. In connection with this proposed change, NSCC would
remove these undertakings from the template membership agreement, which
already provides that Members are bound by the Rules.
In connection with this proposed change, NSCC would also make
identical revisions to statements within Section 1.E of Rule 2A
regarding the undertakings of other membership types, including (i)
footnotes 2 and 3 regarding Fund Members, (ii) a statement in
subsection 1 that refers to undertakings of Members that are Municipal
Securities Brokers' Brokers, (iii) a statement in subsection 2 that
refers to the onboarding obligations of Third Party Administrator
Members, Third Party Provider Members and Investment Manager/Agent
Members, and (iv) a statement regarding the onboarding obligations of
Settling Bank Only Members and Municipal Comparison Only Members.
Proposed Revisions to Requirements Related to Members' Authorized
Representatives
NSCC is proposing to revise Section 2 of Rule 5 (General
Provisions), which describes Members' requirement to appoint an
authorized representative in connection with their membership with
NSCC.\10\ Currently, Section 2 of Rule 5 provides that a Member may
designate an authorized representative that is not either a general
partner or an officer of the Member by either a power of attorney or
resolutions of the Member's board of directors, and requires such power
of attorney and resolutions be in a form approved by NSCC.\11\ Section
2 of Rule 5 also requires Members to provide NSCC with the signatures
of individuals who are authorized representatives for purposes of
conducting business with NSCC.\12\
---------------------------------------------------------------------------
\10\ Section 2 of Rule 5, id.
\11\ Id.
\12\ Id.
---------------------------------------------------------------------------
In order to simplify the onboarding membership requirements, NSCC
is proposing to amend Section 2 of Rule 5 to clarify that Members must
appoint a duly authorized representative, and to remove references to a
power of attorney or resolutions of the Member's board of directors.
The proposed change would also remove the requirement that NSCC approve
the form of power of attorney or resolutions of the Member's board of
directors that evidences the due authorization of that representative.
Finally, NSCC is proposing to remove the requirement that Members
provide NSCC with the signatures of representatives who are authorized
to conduct business with NSCC.\13\
---------------------------------------------------------------------------
\13\ Id.
---------------------------------------------------------------------------
Proposed Revisions to Rules Regarding NSCC's Reliance on Electronic
Signatures
NSCC is proposing to revise Rule 32 (Signatures), which lists the
circumstances in which NSCC would rely on an electronic signature.\14\
The proposed revision to this Rule 32 would revise the rule to clarify
that NSCC may rely on an electronic signature with respect to any and
all agreements and other documents delivered pursuant to the Rules. In
connection with this change, NSCC would also remove reference to the
circumstances in which it would accept an electronic signature, to make
clear that NSCC would do so in any circumstances. The proposed
revisions would clarify and modernize the language in Rule 32, which
still refers to outdated modes of electronic communication, such as
telex, and would align the language in this Rule to language used in
the New York Electronic Signatures and Records Act.\15\
---------------------------------------------------------------------------
\14\ Id.
\15\ N.Y. State Tech. Law 304(2) (McKinney 2021).
---------------------------------------------------------------------------
Proposed Revisions to Rules Regarding Governing Law
NSCC is proposing to revise Section 1 of Rule 38 (Governing Law and
Captions), which currently states that the Rules are governed by New
York law.\16\ The proposed change would revise Section 1 of Rule 38 to
include a statement that all agreements and other documents that are
entered into between NSCC and its Members are also governed by New York
law, unless otherwise expressly provided. Currently, agreements and
other documents entered into between NSCC and its Members either
include a governing law provision or are governed by New York law
through the application of both Section 1 of Rule 38, which provides
that the rights and obligations under the Rules are governed by New
York law, and the NSCC membership agreements, which provide that the
Rules (including Section 1 of Rule 38) govern the matters and
transactions between NSCC and its Members.
---------------------------------------------------------------------------
\16\ Supra note 5.
---------------------------------------------------------------------------
This proposed change would both clarify the governing law of the
agreements and other documents entered into between NSCC and its
Members pursuant to the Rules, and would allow NSCC to simplify those
documents by removing the governing law provisions in such documents.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires that the rules of NSCC be
designed to, among other things, promote the prompt and accurate
clearance and settlement of securities transactions.\17\ NSCC believes
the proposed changes are consistent with the requirements of Section
17A(b)(3)(F) of the Act because such changes would clarify and improve
the transparency of the Rules and would allow NSCC to simplify the
membership agreements and other documentation provided to it by Members
pursuant to the Rules.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
More specifically, the proposed changes would make clarifications
to the Rules regarding (i) defined terms related to the onboarding
agreements required to be provided by Settling Banks and AIP Settling
Banks; (ii) Members' duly authorized representatives in connection with
their memberships; and (iii) NSCC's ability to rely on electronic
signatures on agreements and other documents provided to it pursuant to
the Rules. The proposed changes would also update the Rules in order to
allow NSCC to simplify the onboarding and other
[[Page 68009]]
membership agreements and documents by incorporating in the Rules (1)
the governing law of agreements and other documents provided to NSCC
pursuant to the Rules; and (2) the affirmative undertakings that
Members currently make in onboarding membership agreements.
By enhancing the clarity and transparency of the Rules, and
allowing NSCC to simplify the membership agreements and other
documents, the proposed changes would allow Participants to more
efficiently and effectively conduct their business in accordance with
the Rules, which NSCC believes would promote the prompt and accurate
clearance and settlement of securities transactions. As such, NSCC
believes that the proposed changes would be consistent with Section
17A(b)(3)(F) of the Act.\18\
---------------------------------------------------------------------------
\18\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe the proposed rule changes would impact
competition. The proposed rule changes would merely enhance the clarity
and transparency of the Rules and would simplify the documentation that
is provided to NSCC by Members pursuant to the Rules. Therefore, the
proposed changes would not affect NSCC's operations or the rights and
obligations of membership. As such, NSCC believes the proposed rule
changes would not have any impact on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="https://www.sec.gov/regulatory-actions/how-to-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</a>. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<a href="/cdn-cgi/l/email-protection#97e3e5f6f3fef9f0f6f9f3faf6e5fcf2e3e4d7e4f2f4b9f0f8e1"><span class="__cf_email__" data-cfemail="2c585e4d4845424b4d4248414d5e4749585f6c5f494f024b435a">[email protected]</span></a> or 202-551-5777.
NSCC reserves the right to not respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \19\ of the Act and paragraph (f) \20\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\19\ 15 U.S.C 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#f587809990d8969a9898909b8186b5869096db929a83"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
File Number SR-NSCC-2021-012 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-2021-012. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<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-2021-012 and should be submitted on
or before December 21, 2021.
---------------------------------------------------------------------------
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26074 Filed 11-29-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on November 30, 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.