Notice2022-07344
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make Certain Changes to Rule 52 to Support Processing of Interval Fund Repurchase Orders, Remove Underwriting Tender Offer Provisions and Make Certain Other Clarifications
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
April 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 67 (Thursday, April 7, 2022)</title>
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[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20481-20484]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-07344]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94577; File No. SR-NSCC-2022-002]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Make Certain Changes to Rule 52 to Support Processing of
Interval Fund Repurchase Orders, Remove Underwriting Tender Offer
Provisions and Make Certain Other Clarifications
April 1, 2022.
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 March 24, 2022, 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) \3\ of the Act and
subparagraph (f)(4) \4\ of Rule 19b-4 thereunder. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
(a) The proposed rule change of National Securities Clearing
Corporation (``NSCC'') is annexed hereto as Exhibit
[[Page 20482]]
5 and consists of modifications to Rule 52 of the NSCC's Rules &
Procedures (the ``Rules'') \5\ to (i) make certain changes to support
processing of interval fund repurchase orders, (ii) remove the
underwriting/tender offer provisions which are no longer in use and
(iii) re-number Rule 52 and make certain other clarifications. The
proposed changes are described in greater detail below.
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\5\ 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 Rule 52 of
the Rules \6\ to (i) make certain changes to support processing of
interval fund repurchase orders, (ii) remove the underwriting/tender
offer provisions which are no longer in use and (iii) re-number Rule 52
and make certain other clarifications. The proposed changes are
described in greater detail below.
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\6\ Rule 52, id.
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(i) Interval Fund Repurchase Orders
NSCC is proposing to enhance Rule 52 to support processing of
future-dated interval fund repurchase orders by allowing NSCC Members
\7\ to submit orders prior to the day the order is intended to take
place (``Trade Date'').
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\7\ For purposes of this filing, ``NSCC Members'' shall mean
Members and Limited Members.
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Interval Funds
Interval funds are closed-end funds that periodically offer to
repurchase shares from their shareholders in compliance with Rule 23c-3
under the Investment Company Act of 1940.\8\ Interval funds make
periodic offers to buy back shares from shareholders as disclosed in
the fund's prospectus and annual shareholder reports. Each offer will
specify the repurchase period (start and end dates) during which the
fund will accept shareholder repurchase requests to sell their shares
back to the fund. The repurchase occurs on the last day of the
repurchase period, or a later specified Trade Date.
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\8\ 17 CFR 270.23c-3.
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Fund/SERV[supreg] Order Processing
NSCC Members can submit interval fund repurchase orders on behalf
of shareholders to the Fund Members using Fund/SERV. Fund/SERV is an
NSCC service described in Rule 52 that provides for processing and
settling of Fund/SERV Eligible Funds,\9\ which include certain mutual
fund, bank collective fund and other pooled investment product
transactions between fund companies, including interval funds, and
their distributors.\10\
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\9\ Fund/SERV Eligible Fund is defined as a fund or other pooled
investment entity included in the list for which provision is made
in Section 1.(c) of Rule 3. Definition of Fund/SERV Eligible Fund,
Rule 1, supra note 5.
\10\ See Part A of Rule 52, supra note 5.
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Currently, Fund/SERV does not allow NSCC Members to submit interval
fund repurchase orders prior to the Trade Date. Fund/SERV currently
allows NSCC Members to submit repurchase orders for interval funds that
are Fund/SERV Eligible Funds by submitting a repurchase order on the
Trade Date, or to the extent established by each Fund Member, any day
thereafter (referred to as ``As-Of'' orders).\11\
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\11\ Part A, Section 2 of Rule 52, supra note 5.
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In 2018, the Broker Dealer Advisory Committee of the Investment
Company Institute formed an Interval Funds Task Force (``IFTF'') \12\
to explore opportunities to improve interval fund operational
efficiencies and reduce operating risk. The IFTF memorialized the
operational challenges of interval funds in a series of
whitepapers.\13\ One of the challenges that the IFTF identified with
respect to interval funds was the inability of funds to submit
repurchase orders prior to the Trade Date through Fund/SERV.
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\12\ The Investment Company Institute is a trade association
representing mutual funds, exchange-traded funds, closed-end funds
and unit investment trusts. See <a href="https://www.ici.org">https://www.ici.org</a>. The members of
the IFTF include fund companies offering interval funds,
intermediaries, services providers and The Depository Trust &
Clearing Corporation, NSCC's holding company.
\13\ See Interval Funds: Operational Challenges and the
Industry's Way Forward (<a href="http://ici.org">ici.org</a>) and Consider This: Interval Fund
Operational Practices (<a href="http://ici.org">ici.org</a>).
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Since NSCC Members are unable to submit the repurchase orders
through Fund/SERV until the Trade Date, they must currently track all
of the repurchase orders manually on their books until the applicable
Trade Date. There is operational risk involved with holding these
orders, rather than delivering them when received, including a risk
that the NSCC Member holding the order fails to submit the order on the
Trade Date. Likewise, interval fund providers would like to be informed
of these orders as soon as possible, to help them understand liquidity
demands and anticipate whether they may need to prorate repurchase
activity and to provide more time to correct an order if it contains
incorrect information. Therefore, there is an appreciable benefit to
interval funds, shareholders, and intermediaries to improve the
straight through processing capabilities for interval fund repurchases
through Fund/SERV. NSCC is proposing to allow NSCC Members to submit
orders prior to the Trade Date to support submission of interval fund
repurchase orders. Such orders would be submitted prior to the Trade
Date but dated as of the Trade Date.
NSCC is also proposing to amend the Rules to provide for an
acknowledgment process by NSCC Members relating to interval fund
repurchase orders. Currently, the Rules provide that NSCC Members may
only confirm or reject orders \14\ or accept, confirm or reject
corrections of orders.\15\ In order to provide NSCC Members confidence
that their repurchase orders have been received, NSCC is proposing to
allow NSCC Members that receive interval fund repurchase orders to
acknowledge orders and corrections relating to interval fund repurchase
orders, in addition to confirming and rejecting such orders or
corrections.
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\14\ See Part A, Section 4 of Rule 52, supra note 5.
\15\ See Part A, Section 8 of Rule 52, supra note 5.
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NSCC is also proposing to extend the confirmation deadline to
accommodate interval fund repurchase orders that are submitted prior to
the Trade Date. Currently NSCC provides that if any orders are not
confirmed or rejected within a certain time period established by NSCC
from time to time (``Confirmation Deadline'') such orders will be
deleted from the system.\16\ NSCC has established that the Confirmation
Deadline is 10 business days after the submission date. Since the
submission date is currently on or after the Trade Date, the
Confirmation Deadline is always at least 10 business days after the
Trade Date. To accommodate repurchase orders that are submitted prior
to the Trade Date, the acknowledgement process will provide that if an
interval fund repurchase order with a future Trade Date is acknowledged
prior to the Confirmation
[[Page 20483]]
Deadline, the Confirmation Deadline will be extended to 10 business
days after the Trade Date and the order will remain in the system until
the extended Confirmation Deadline, provided the order was not
previously confirmed or rejected. Therefore, as with other orders, the
Confirmation Deadline would remain at least 10 business days after the
Trade Date for such interval fund repurchase orders.
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\16\ See Part A, Section 4 of Rule 52, supra note 5.
Confirmation Deadline is not a defined term in the Rules and is
being defined in this filing for ease of reference.
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(ii) Removal of Underwriting/Tender Offer Provisions
In 1990 NSCC added provisions to Fund/SERV intended to support the
processing of orders relating to mutual fund underwritings and tender
offers (the ``Underwriting/Tender Offer Provisions'').\17\ The
provisions were intended to provide for automated processing of certain
processes that were specific to underwritings and tender offers.\18\
Previous to the addition, certain processes required manual
intervention due to the extended settlement timeframe and ability to
withdraw orders in underwritings and tender offers.\19\ Forms and
system developments were made to support the use of Underwriting/Tender
Offer Provisions, and certain NSCC Members used the underwriting/tender
offer functionality after it was implemented.
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\17\ See Securities Exchange Release No. 28456 (September 20,
1990) (SR-NSCC-90-14), 55 FR 40028 (October 1, 1990). See also Part
A, Section 17 of Rule 52, supra note 5.
\18\ Id.
\19\ Id.
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Over the years, however, NSCC Members began using the underwriting/
tender offer functionality less and less. NSCC believes that this is
likely due to enhancements to the non-underwriting/tender offer order
functionality of Fund/SERV that reduced the need for the underwriting/
tender offer functionality, NSCC Members becoming more familiar with
the non-underwriting/tender offer functionality of Fund/SERV and
finding that the non-underwriting/tender offer functionality of Fund/
SERV is sufficient to process the orders relating to underwritings and
tender offers. NSCC Members have not used the underwriting/tender offer
functionality for over a decade and NSCC no longer provides online
forms to support the full functionality due to lack of NSCC Member use
of the functionality and costs to maintain the functionality. Given
that the interval fund repurchase process is similar in some respects
to the offer process for underwritings and tender offers, NSCC
considered updating the underwriting/tender offer functionality to
support interval fund repurchase orders. NSCC decided, however, that it
would be more efficient to update the non-underwriting/tender offer
order functionality of Fund/SERV to support interval fund repurchases
as proposed in this filing rather than to overhaul the Underwriting/
Tender Offer Provisions and the underwriting/tender offer
functionality.
Since the Underwriting/Tender Offer Provisions are no longer being
used by NSCC Members and NSCC does not believe that the Underwriting/
Tender Offer Provisions will be used by NSCC Members in the future,
NSCC is proposing to remove the Underwriting/Tender Offer Provisions
from the Rules.
(iii) Clarifications
In order to improve readability of Rule 52, NSCC is proposing to
re-number and make certain other clarifications to Rule 52.
Certain section numbers in Rule 52 are reserved for future use and
NSCC is proposing to remove those placeholders and renumber the
existing sections.
In addition, Part A, Section 11(a) of Rule 52 currently provides
that certain orders and money only related charges will settle in
accordance with the time frames as established by NSCC from time to
time, or in such extended or shortened time frame as established by
agreement of the submitting parties; provided, that such modified time
frame shall be no shorter than T (the trade date) and longer than
T+7.\20\ The provision relating to the time frame being no longer than
T+7 is a legacy provision that is no longer applicable or necessary.
Historically, NSCC's technology on its platform did not allow for the
settlement timeframe to be longer than T+7. Such technology restriction
no longer exists. As such, NSCC is proposing to delete the provision
that the time frame as modified by the submitting parties may be no
longer than T+7.
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\20\ See Part A, Section 11(a) of Rule 52, supra note 5.
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(iv) Proposed Rule Changes
NSCC is proposing to amend Part A, Section 2 of Rule 52 to provide
that orders may be submitted prior to the Trade Date to support the
processing of interval fund repurchase orders. NSCC is also proposing
to amend Part A, Sections 4 and 8 of Rule 52 to provide for the
acknowledgment of interval fund repurchase orders and corrections as
described above.
NSCC is proposing to delete the Underwriting/Tender Offer
Provisions in Part A, Section 17 of Rule 52 and delete a reference to
Part A, Section 17 currently in Part A, Section 16 of Rule 52. NSCC is
also proposing to delete a number of section number references in Rule
52 that are currently reserved for future use and renumber the existing
section numbers to reflect the deletion of such section numbers and the
deletion of the Underwriting/Tender Offer Provisions. NSCC is also
proposing to delete the phrase ``and no longer than T+7'' in Part A,
Section 11(a) of Rule 52 as such legacy phrase is no longer applicable
or necessary.
(v) Implementation
NSCC expects to implement the proposed rule changes on March 28,
2022. As proposed, a legend would be added to Rule 52 stating there are
changes that became effective upon filing with the Commission but have
not yet been implemented. The proposed legend would also indicate that
the proposed rule change would be implemented on March 28, 2022,
indicate the file number of this proposal, and indicate that once this
proposal is implemented the legend would automatically be removed.
2. Statutory Basis
NSCC believes that the proposal is consistent with the requirements
of the Securities Exchange Act of 1934 (``Act'') and the rules and
regulations thereunder applicable to a registered clearing agency. In
particular, NSCC believes that the proposed rule changes are consistent
with Section 17A(b)(3)(F) of the Act \21\ and Rule 17Ad-22(e)(21)
promulgated under the Act.\22\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ 17 CFR 240.17Ad-22(e)(21).
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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. The proposed changes to support
interval fund repurchase orders are consistent with this provision
because such changes would enhance the ability of NSCC Members to
process interval fund repurchase orders. Providing a more efficient and
streamlined process with respect to placing, acknowledging and settling
interval fund repurchase orders would promote the prompt and accurate
clearance and settlement of securities transactions by NSCC consistent
with Section 17A(b)(3)(F) of the Act.\24\
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ Id.
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The removal of the Underwriting/Tender Offer Provisions, the
deletion of the section numbers in Rule 52 that are reserved for future
use, the renumbering in Rule 52 described above and the removal of the
phrase ``and no longer
[[Page 20484]]
than T+7'' in Part A of Section 11(a) are also consistent with this
provision because the proposed changes would enhance clarity and
transparency for participants with respect to services offered by NSCC
allowing NSCC Members to have a better understanding of the Rules
relating to Mutual Fund Services. Having clear and accurate Rules would
help NSCC Members to better understand their rights and obligations
regarding NSCC's services. NSCC believes that when NSCC Members better
understand their rights and obligations regarding NSCC's services, they
can act in accordance with the Rules. NSCC believes that better
enabling NSCC Members to comply with the Rules would promote the prompt
and accurate clearance and settlement of securities transactions by
NSCC consistent with Section 17A(b)(3)(F) of the Act.\25\
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\25\ Id.
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In addition, the proposed rule change is designed to comply with
Rule 17Ad 22(e)(21) promulgated under the Act.\26\ Rule 17Ad-22(e)(21)
under the Act 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 enhance the ability of NSCC Members to process interval fund
repurchase orders providing a more efficient and streamlined process
with respect to placing, acknowledging and settling interval fund
repurchase orders. Therefore, by establishing a more efficient and
effective process for NSCC Members to process interval fund repurchase
orders, NSCC believes that the proposed change is consistent with the
requirements of Rule 17Ad-22(e)(21), promulgated under the Act.\27\
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\26\ 17 CFR 240.17Ad-22(e)(21).
\27\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed changes would have an
adverse impact, or impose a burden, on competition. These proposed
changes would improve the ability of NSCC Members to process interval
fund repurchase orders and enhance the clarity and transparency of the
Rules and would not be adding any obligations on NSCC Members that are
using NSCC's services. As such, the proposed changes would not impede
any NSCC Members from engaging in the services or have an adverse
impact on any NSCC Members. Moreover, the proposed changes may promote
competition because the proposed changes would provide NSCC Members a
more efficient method of processing interval fund repurchase orders.
(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#ccb8beada8a5a2abada2a8a1adbea7a9b8bf8cbfa9afe2aba3ba"><span class="__cf_email__" data-cfemail="e2969083868b8c85838c868f839089879691a2918781cc858d94">[email protected]</span></a> or 202-551-5777.
NSCC reserves the right not to 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) \28\ of the Act and paragraph (f) \29\ 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.
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\28\ 15 U.S.C 78s(b)(3)(A).
\29\ 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
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#d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3"><span class="__cf_email__" data-cfemail="443631282169272b2929212a3037043721276a232b32">[email protected]</span></a>. Please include
File Number SR-NSCC-2022-002 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-2022-002. 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="https://dtcc.com/legal/sec-rule-filings.aspx">https://dtcc.com/legal/sec-rule-filings.aspx</a>). All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2022-002 and should be submitted on
or before April 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07344 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P
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