Notice2022-19346
Self-Regulatory Organizations; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Revise the Excess Capital Premium Charge
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
September 8, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 173 (Thursday, September 8, 2022)</title>
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[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55058-55060]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19346]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95656; File No. SR-NSCC-2022-005]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Revise the Excess
Capital Premium Charge
September 1, 2022.
I. Introduction
On May 20, 2022, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2022-005 (the ``Proposed
Rule Change'') pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The Proposed
Rule Change was published for comment in the Federal Register on June
8, 2022,\3\ and the Commission has received comments regarding the
changes proposed in the Proposed Rule Change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 95026 (June 2, 2022), 87
FR 34913 (June 8, 2022) (File No. SR-NSCC-2022-005). The Notice
referred to an incorrect filing date of May 30, 2022; however, the
proposal was filed on May 20, 2022, as indicated here.
\4\ Comments are available at <a href="https://www.sec.gov/comments/sr-nscc-2022-005/srnscc2022005.htm">https://www.sec.gov/comments/sr-nscc-2022-005/srnscc2022005.htm</a>.
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On July 11, 2022, pursuant to Section 19(b)(2) of the Act,\5\ the
Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the Proposed Rule Change.\6\ This order institutes
proceedings, pursuant to Section 19(b)(2)(B) of the Act,\7\ to
determine whether to approve or disapprove the Proposed Rule Change.
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\5\ 15 U.S.C. 78s(b)(2).
\6\ Securities Exchange Act Release No. 95245 (July 11, 2022),
87 FR 42523 (July 15, 2022) (SR-NSCC-2022-005).
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change
A key tool that NSCC uses to manage its respective credit exposures
to its members is the daily collection of margin from each member,
which is referred to as each member's Required Fund Deposit. The
aggregated amount of all members' margin constitutes the Clearing Fund,
which NSCC would access should a defaulted member's own margin be
insufficient to satisfy losses to NSCC caused by the liquidation of
that member's portfolio.
The Excess Capital Premium (ECP) charge is a component of the
Clearing Fund that is designed to mitigate the heightened default risk
a member could pose to NSCC if it operates with lower capital levels
relative to its margin requirements. Each Business Day, NSCC determines
if a member may be subject to the ECP charge by first determining its
Calculated Amount. The Calculated Amount is a portion of a member's
Required Fund Deposit designed to represent its margin requirements to
NSCC.
As described in the Notice, NSCC proposes to modify Procedure XV
(Clearing Fund Formula and Other Matters) of NSCC's Rules & Procedures
(``Rules'') to revise the ECP charge by enhancing the methodology for
calculating the charge to (1) compare a member's applicable capital
amounts with the amount it contributes to the Clearing Fund that
represents its volatility charge, (2) for members that are broker-
dealers, use net capital amounts rather than excess net capital amounts
in the calculation of the ECP charge; and for all other members, use
equity capital in the calculation of the ECP charge, and (3) establish
a cap of 2.0 for the Excess Capital Ratio that is used in calculating a
member's ECP
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charge.\8\ In addition, NSCC proposes to make additional changes
directed at the transparency of the Rules regarding the ECP charge,
including (1) clarifying the capital amounts that are used in the
calculation of the charge by introducing new defined terms, (2)
removing NSCC's discretion to waive or reduce the charge, and (3)
providing that NSCC may calculate the charge based on updated capital
information.
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\8\ The description of the Proposed Rule Change is based on the
statements prepared by NSCC in the Notice. See Notice, supra note 3.
Capitalized terms used herein and not otherwise defined herein are
defined in the Rules, available at <a href="https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf">https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf</a>.
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First, NSCC proposes to revise the ECP Charge to use the members'
Volatility Component \9\ as the Calculated Amount. Specifically, it
proposes to replace the Calculated Amount with the amount collected as
that member's volatility component as determined pursuant to Sections
I(A)(1)(a)(i)-(iii) and (2)(a)(i)-(iii) of Procedure XV of the Rules.
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\9\ The volatility component is designed to capture the market
price risk associated with each member's portfolio at a 99th
percentile level of confidence. NSCC has two methodologies for
calculating the volatility component--a model-based volatility-at-
risk, or VaR, charge and a haircut-based calculation, for certain
positions that are excluded from the VaR charge calculation. The
charge that is applied to a member's Required Fund Deposit with
respect to the volatility component is referred to as the volatility
charge and is the sum of the applicable VaR charge and the haircut-
based calculation. Amounts calculated pursuant to Sections
I(A)(1)(a)(iv) and (2)(a)(iv) of Procedure XV with respect to long
positions in Net Unsettled Positions in Family-Issued Securities are
designed to address wrong-way risk presented by these positions, not
volatility risks, and, as such, are not a part of a member's
volatility charge. See Sections I(A)(1)(a) and (2)(a) of Procedure
XV, supra note 3.
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Second, NSCC proposes to make changes to the calculation of the ECP
charge based on whether or not a member is a broker-dealer.
Specifically, for broker-dealer members, it would revise the capital
measure used to calculate the ECP charge to replace excess net capital
with net capital. In addition, it would revise the calculation of the
ECP charge for members that are not broker-dealers by using equity
capital rather than different measures that are based on other
membership requirements.
Third, NSCC proposes to set a maximum amount of Excess Capital
Ratio that is used in calculating members' ECP charge to 2.0.
Finally, NSCC proposes certain changes directed at improving
transparency regarding the Excess Capital Premium. Specifically, the
proposed changes would eliminate NSCC's discretion to waive or reduce
the ECP charge. In addition, the proposed changes would add new
definitions to its Rules to clarify the description of the capital
amounts that NSCC uses in the calculation of the ECP charge and provide
that NSCC may calculate the charge based on updated capital
information.
III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \10\ to determine whether the Proposed Rule
Change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the Proposed Rule Change. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the Proposed Rule Change,
providing the Commission with arguments to support the Commission's
analysis as to whether to approve or disapprove the Proposed Rule
Change.
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\10\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\11\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the Proposed
Rule Change's consistency with Section 17A of the Act,\12\ and the
rules thereunder, including the following provisions:
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\11\ Id.
\12\ 15 U.S.C. 78q-1.
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<bullet> Section 17A(b)(3)(F) of the Act,\13\ which requires, among
other things, that the rules of a clearing agency must 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 the clearing agency or for which it is
responsible, and to protect investors and the public interest; and
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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<bullet> Rule 17Ad-22(e)(4)(i) of the Act, \14\ which requires that
a covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to effectively
identify, measure, monitor, and manage its credit exposures to
participants and those arising from its payment, clearing, and
settlement processes, including by maintaining sufficient financial
resources to cover its credit exposure to each participant fully with a
high degree of confidence.
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\14\ 17 CFR 240.17Ad-22(e)(4)(i).
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<bullet> Rule 17Ad-22(e)(6)(i) of the Act,\15\ which requires that
a covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to cover, if the
covered clearing agency provides central counterparty services, its
credit exposures to its participants by establishing a risk-based
margin system that, at a minimum, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market.
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\15\ 17 CFR 240.17Ad-22(e)(6)(i).
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<bullet> Rule 17Ad-22(e)(23)(ii) of the Act \16\ which requires
that a covered clearing agency establish, implement, maintain, and
enforce written policies and procedures reasonably designed to provide
sufficient information to enable participants to identify and evaluate
the risks, fees, and other material costs they incur by participating
in the covered clearing agency.
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\16\ 17 CFR 240.17Ad-22(e)(23)(ii).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the Proposed Rule Change. In particular, the Commission invites
the written views of interested persons concerning whether the Proposed
Rule Change is consistent with Section 17A(b)(3)(F) of the Act,\17\ and
Rules 17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii) of the Act,\18\ or
any other provision of the Act, or the rules and regulations
thereunder.
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
\18\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by September 29, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 13, 2022.
The Commission asks that commenters address the sufficiency of
NSCC's statements in support of the Proposed Rule Change, which are set
forth in the Notice,\19\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
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\19\ See Notice, supra note 3.
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Comments may be submitted by any of the following methods:
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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#e193948d84cc828e8c8c848f9592a1928482cf868e97"><span class="__cf_email__" data-cfemail="384a4d545d155b5755555d564c4b784b5d5b165f574e">[email protected]</span></a>. Please include
File Number SR-NSCC-2022-005 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSCC-2022-005. 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-2022-005 and should be submitted on
or before September 29, 2022. Rebuttal comments should be submitted by
October 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(31).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19346 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P
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