Notice2022-12171
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Voluntary Termination Provisions of the NSCC Rules for Limited Members
Primary source
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Published
June 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 109 (Tuesday, June 7, 2022)</title>
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[Federal Register Volume 87, Number 109 (Tuesday, June 7, 2022)]
[Notices]
[Pages 34737-34740]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-12171]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95021; File No. SR-NSCC-2022-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Revise the Voluntary Termination Provisions of the NSCC
Rules for Limited Members
June 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 May 27, 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)(6) \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)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change of NSCC consists of modifications to
NSCC's Rules & Procedures (the ``Rules'') \5\ to revise the voluntary
termination provisions of the Rules in order to provide that a Limited
Member may be deemed to have voluntarily terminated its membership if
NSCC is unable to contact the Limited Member's authorized
representatives, and the Limited Member has not used NSCC's services
for at least 6 months. 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 the voluntary
termination provisions of the Rules in order to provide that a Limited
Member may be deemed to have voluntarily terminated its membership if
NSCC is unable to contact an authorized representative of the Limited
Member, as designated by the participant pursuant to Rule 5,\6\ and
there has been no activity in the account by the participant for at
least 6 months. The proposed changes are described in greater detail
below.
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\6\ See Rule 5, Section 2, supra note 5, which requires that a
Limited Member appoint a representative that is duly authorized in
the name and on behalf of the Limited Member to sign all
instruments, correct errors and to perform such other duties as may
be required under the Rules and the Procedures and to transact all
business requisite in connection with the operations of NSCC.
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(i) NSCC Membership Types/Limited Members
NSCC has several types of membership with different access levels
to services.\7\ Generally, such membership types can be categorized
into ``Members'' which are full-service participants that have access
to NSCC's central counterparty services and ``Limited Members'' whose
access to services is limited to certain services by membership type
specified by NSCC.\8\ The services available for Limited Members are
``non-guaranteed'' services--meaning that NSCC does not act as a
central counterparty or guarantee payments for transactions conducted
through these services.\9\ If a Limited Member using non-guaranteed
services fails to pay for a transaction at settlement, NSCC does not
guarantee the payment and may reverse in whole or in part any credit
previously given to the contra side.\10\ As a result, NSCC bears less
risk for payments relating to non-guaranteed services than it does for
payments relating to its guaranteed services.
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\7\ See Rule 2, supra note 5, which describes various NSCC
membership types.
\8\ Id.
\9\ See Addendum D of the Rules, supra note 5.
\10\ See Addendum D of the Rules, supra note 5.
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(ii) NSCC Termination Provisions
NSCC has several Rules relating to the termination of a Limited
Member's membership. Those Rules include
[[Page 34738]]
provisions that allow NSCC to terminate the membership of a Limited
Member involuntarily (i.e., ``cease to act'') if the Limited Member
violates the Rules or in certain other circumstances listed in the
Rules (``Involuntary Termination Provisions'') \11\ and provisions that
provide that Limited Members can voluntarily terminate their membership
with NSCC. Section 5 of Rule 2B \12\ contains provisions relating to
the voluntary termination of a Limited Member's membership
(collectively, the ``Voluntary Termination Provisions'').\13\ The
Voluntary Termination Provisions generally state that a Limited Member
may terminate its membership by providing NSCC a voluntary termination
notice, and such termination will not be effective until NSCC has
accepted the termination notice. The Voluntary Termination Provisions
provide that NSCC's acceptance shall be evidenced by a notice to NSCC's
participants announcing the Limited Member's termination and the
effective date of the termination.
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\11\ See Rules 18 and 46, supra note 5.
\12\ Section 5 of Rule 2B, supra note 5. Note that although
Settling Bank Only Members are listed as Limited Members (See Rule
2, Section 2(ii), supra note 5), Section 5 of Rule 2B does not apply
to Settling Bank Only Members. See also Rule 2, Section 2, supra
note 5 which states that when the Rules refer to ``Members and
Limited Members'', the reference includes all member types; when
reference is made to ``participants'' in the Rules (as in the
Voluntary Termination Provisions), the reference generally means all
participants other than Settling Bank Only Members, unless the
context makes clear it refers to one or more specific member types.
Section 5 of Rule 2B refers to all Limited Members except for
Settling Bank Only Members. Section 5 of Rule 2B, supra note 5.
\13\ The Rules also contain voluntary termination provisions
related to a loss allocation withdrawal in Section 6 of Rule 4 that
would not be affected by this proposed rule change. See Section 6 of
Rule 4, supra note 5.
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(iii) Abandoned/Dormant Accounts
Neither the Involuntary Termination Provisions nor the Voluntary
Termination Provisions explicitly provide for a situation where a
Limited Member does not provide a voluntary termination notice, stops
using its account, and NSCC is unable to establish communications with
the Limited Member. This could occur for instance if the Limited Member
has gone out of business, merged into another entity and/or liquidated
without notifying NSCC. Although Limited Members are required to notify
NSCC of any material organizational changes and if they no longer meet
continuing membership standards,\14\ NSCC may not know if a Limited
Member has undergone such a change until NSCC has been notified, NSCC
discovers the circumstances due to its ongoing monitoring of its
Limited Members,\15\ or the Limited Member fails to deliver financial
statements or other reports required to be delivered to NSCC
periodically.\16\
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\14\ See Section 2.B of Rule 2B, supra note 5.
\15\ See Section 4 of Rule 2B, supra note 5, which provides that
certain members will be monitored and reviewed on an ongoing and
periodic basis.
\16\ For instance, Section 2.A of Rule 2B, supra note 5,
requires that a Limited Member provide a Cybersecurity Confirmation
to NSCC every two years. If a Limited Member has gone out of
business and/or liquidated, it would eventually fail to provide its
Cybersecurity Confirmation.
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It is likely in such a situation, that the Limited Member would
eventually violate a Rule, such as failing to provide a Cybersecurity
Confirmation \17\ or another ongoing membership requirement, and NSCC
would eventually become aware that the Limited Member has effectively
abandoned the account. For instance, as a result of following up with
Limited Members on the Cybersecurity Confirmation requirement, NSCC has
recently discovered that there are currently Limited Members that have
not used NSCC's services for over 6 months. In addition, NSCC has been
unable to contact the designated authorized representatives of such
Limited Members.
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\17\ See Section 2.A of Rule 2B, supra note 5.
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NSCC could formally cease to act for such a Limited Member pursuant
to the Involuntary Termination Provisions. If NSCC is unable to reach
the Limited Member, or if NSCC knows that the Limited Member is
unreachable because, for instance, it has gone out of business, NSCC
does not believe that going through the steps of a cease to act, such
as formally notifying the Limited Member with the grounds under
consideration and its right to request a hearing, would be necessary or
appropriate when NSCC has been unable to contact the Limited
Member.\18\ In addition, NSCC uses resources to maintain accounts, such
as monitoring for compliance of the Rules, conducting risk assessments
of Limited Members and updating account documentation. If a Limited
Member has ceased using an account, and NSCC cannot contact the Limited
Member, NSCC would like to avoid continuing to use resources to
maintain the account.
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\18\ See Rules 37, 45 and 46, which set forth certain steps to
be taken by the Limited Member and NSCC in a cease to act including
notification and hearing requirements. Rules 37, 45 and 46, supra
note 5.
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NSCC is proposing to expand the Voluntary Termination Provisions to
provide that a Limited Member would be deemed to have voluntarily
terminated its membership if NSCC is unable to contact an authorized
representative of the Limited Member, as designated by the Limited
Member pursuant to Rule 5, and there has been no activity in the
account by the Limited Member for at least 6 months. NSCC believes that
in such situations, the Limited Member is effectively abandoning the
account, which is equivalent to affirmatively taking action to close
the account.
(iv) Proposed Rule Changes
NSCC is proposing to amend each of the Voluntary Termination
Provisions to provide that a Limited Member may be deemed to have
voluntarily terminated its membership if NSCC is unable to contact an
authorized representative of the Limited Member, as designated by the
Limited Member pursuant to Rule 5, and there has been no activity in
the account by the Limited Member for at least 6 months. In addition,
NSCC is proposing to add that any such deemed voluntary termination
shall be effective when NSCC determines that the criteria for a deemed
voluntary termination have been met (i.e., NSCC is unable to contact
the Limited Member and the Limited Member hasn't used its account for
at least 6 months) and that NSCC's determination shall be evidenced by
a notice to NSCC's participants announcing the Limited Member's
termination and the effective date of termination.
(v) Implementation Timeframe
NSCC would implement the proposed changes no earlier than thirty
(30) days after the date of filing, or such shorter time as the
Commission may designate. As proposed, a legend would be added to Rule
2B stating there are changes that were effective upon filing but have
not yet been implemented. The legend would also state that NSCC would
implement the proposed changes no earlier than thirty (30) days after
the date of filing, or such shorter time as the Commission may
designate. The legend would state that the legend would automatically
be removed upon the implementation of the proposed changes. NSCC would
announce the implementation date of the proposed changes by Important
Notice posted to its website.
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 the
proposed rule changes are consistent with Section 17A(b)(3)(F)
[[Page 34739]]
of the Act \19\ and Rules 17Ad-22(e)(18) and (e)(23)(i),\20\ each as
promulgated under the Act, for the reasons described below.
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
\20\ 17 CFR 240.17Ad-22(e)(18), (e)(23)(i).
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Section 17A(b)(3)(F) of the Act 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.\21\ The proposed revisions to
the Voluntary Termination Provisions are consistent with Section
17A(b)(3)(F) of the Act because they would provide a clear and
consistent standard relating to how NSCC would treat a Limited Member
that is no longer using the account and that NSCC is unable to contact.
Providing a clear and consistent standard would allow Limited Members
to better understand NSCC's and the Limited Members' rights and
obligations with respect to their membership. NSCC believes that when
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
Limited 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.\22\
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\21\ Id.
\22\ Id.
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In addition, NSCC believes that treating such a Limited Member as
having voluntarily terminated would make the membership maintenance
process more efficient by allowing NSCC to avoid wasting resources on
maintaining accounts that are no longer used and avoid having to cease
to act in cases where attempting to provide notice to the Limited
Member is pointless and unnecessary. Allowing NSCC to deem such a
Limited Member as having voluntarily terminated would increase
efficiency of the account maintenance process and would free up
resources at NSCC which would leave more resources to ensure the prompt
and accurate clearance and settlement of securities transactions. As
such, NSCC believes the proposed rule changes are consistent with
Section 17A(b)(3)(F) of the Act.\23\
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\23\ Id.
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Rule 17Ad-22(e)(18) under the Act requires that NSCC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to establish objective, risk based, and publicly
disclosed criteria for participation, which permit fair and open access
by direct and, where relevant, indirect participants and other
financial market utilities, require participants to have sufficient
financial resources and robust operational capacity to meet obligations
arising from participation in the clearing agency, and monitor
compliance with such participation requirements on an ongoing
basis.\24\ NSCC believes that the proposed rule changes have been
designed to meet the applicable provisions of Rule 17Ad-22(e)(18)
because the proposed changes would provide publicly disclosed criteria
relating to how NSCC would treat a Limited Member that is no longer
using the account and that NSCC is unable to contact as having
voluntarily terminated its participation. The proposed rule change
would not adversely affect fair and open access because the deemed
voluntary termination provisions would only be applied to those Limited
Members that have not been using the service and that NSCC has been
unable to contact. Moreover, the deemed voluntary termination
provisions would constitute publicly disclosed requirements for
maintaining participation at NSCC. Therefore, NSCC believes that its
proposal to provide for a deemed voluntary termination is consistent
with Rule 17Ad-22(e)(18) under the Act.\25\
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\24\ 17 CFR 240.17Ad-22(e)(18).
\25\ Id.
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Rule 17Ad-22(e)(23)(i) under the Act requires that NSCC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to publicly disclose all relevant rules and
material procedures, including key aspects of its default rules and
procedures.\26\ NSCC believes that the proposed rule changes have been
designed to meet the applicable provisions of Rule 17Ad-22(e)(23)(i)
because the proposed changes would provide publicly disclosed criteria
relating to how NSCC would remove a Limited Member that is no longer
using the account and that NSCC is unable to contact as if such Limited
Member had voluntarily terminated its participation. Therefore, NSCC
believes that its proposal to provide for a deemed voluntary
termination is consistent with Rule 17Ad-22(e)(23)(i) under the
Act.\27\
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\26\ 17 CFR 240.17Ad-22(e)(23)(i).
\27\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed changes relating to the
Voluntary Termination Provisions would have any impact on competition.
These changes would provide a clear and consistent standard for how
NSCC could treat all Limited Members that are no longer using an
account and that NSCC is unable to contact. The proposed changes would
not be adding any obligations on Limited Members that are using NSCC's
services. 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 by NSCC, 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#3145435055585f56505f555c50435a544542714254521f565e47"><span class="__cf_email__" data-cfemail="92e6e0f3f6fbfcf5f3fcf6fff3e0f9f7e6e1d2e1f7f1bcf5fde4">[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
Because the foregoing proposed rule change does not:
(i) significantly affect the protection of investors or the public
interest;
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(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) \28\ of the Act and
paragraph (f) of Rule 19b-4(f)(6) thereunder.\29\
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\28\ 15 U.S.C 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
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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.
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#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="2c5e594049014f4341414942585f6c5f494f024b435a">[email protected]</span></a>. Please include
File Number SR-NSCC-2022-007 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-2022-007. 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="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-2022-007 and should be submitted on
or before June 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. 2022-12171 Filed 6-6-22; 8:45 am]
BILLING CODE 8011-01-P
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