Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Certain Fees

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Published

December 29, 2022

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 87 Issue 249 (Thursday, December 29, 2022)</title>
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[Federal Register Volume 87, Number 249 (Thursday, December 29, 2022)]
[Notices]
[Pages 80228-80231]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28298]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96571; File No. SR-NSCC-2022-016]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Amend Certain Fees

December 22, 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 December 20, 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) of
the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

The proposed rule change modifies Addendum A (Fee Structure)
(``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to reduce
certain trade clearance fees, as described below.\5\
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\5\ Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Rules,
available at http://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 purpose of this proposed rule change is to amend Addendum A
(Fee Structure) of the Rules to modify the ``value into the net'' and
``value out of the net'' components of NSCC's Clearance Activity Fees
effective January 1, 2023. The proposed fee change is discussed in
detail below.
Background
NSCC provides clearance and settlement services for trades executed
by its Members in the U.S. equity, corporate and municipal bond, and
unit investment trust markets and for equities securities financing
transactions (``SFTs'') entered into by Members, certain firms that are
sponsored into NSCC membership by a Sponsoring Member, and Agent
Clearing Members on behalf of their customers, as provided in the
Rules. Members are charged fees in accordance with Addendum A based
upon Members' activities and the NSCC services utilized.
As part of the annual budgeting process, NSCC reviews price levels
against its cost of operations and evaluates potential expense
reductions and/or fee changes to correct any misalignment of costs and
fees. NSCC's fees are cost-based plus a markup as approved by the Board
of Directors or management (pursuant to authority delegated by the
Board), as applicable. This markup is applied to recover development
costs and operating expenses and to accumulate capital sufficient to
meet regulatory and economic requirements.\6\
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\6\ NSCC maintains procedures to control costs and regularly
review pricing levels against costs of operation. See NSCC
Disclosure Framework for Covered Clearing Agencies and Financial
Market Infrastructures, available at <a href="https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf">https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf</a>, at 120.
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During the 2023 budgeting process, management identified
opportunities to better align fees and costs for NSCC, which were
approved by the Businesses, Technology and Operations Committee of the
Board of Directors. As a result of this review, NSCC is proposing to

[[Page 80229]]

reduce the ``value into the net'' and ``value out of the net''
components of its Clearance Activity Fees.
Proposed Fee Changes
Pursuant to Section II.A. of Addendum A, NSCC charges Clearance
Activity Fees for SFT and non-SFT transactions. For transactions
excluding SFTs, NSCC charges a (i) ``value into the net'' fee of $0.47
per million of processed value (i.e., for CNS and Balance Order
netting, the sum of the contract amount and any CNS fail value) and
(ii) a ``value out of the net'' fee of $2.56 per million of settling
value (i.e., the absolute value of the CNS Long and Short Positions).
The ``value into the net'' fee is the value of transactions for which a
broker is buyer or seller (excluding non-DTCC settling trades, non-CNS
municipal bond transactions, flip trades, and foreign security trades)
and is calculated as the gross cleared value prior to netting. The
``value into the net'' fee also includes any fails re-entered into CNS.
The into the net value reflects the aggregate of each opening CNS
security position multiplied by the current market price for each
security. The ``value out of the net'' fee is based on the daily
aggregate market value of all settling CNS positions after netting.\7\
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\7\ Additional details regarding NSCC's equity trade capture
fees, including the ``value into the net'' and ``value out of the
net'' fees, can be found on the DTCC Learning Center website,
available at <a href="https://dtcclearning.com/products-and-services/equities-clearing/utc/utc-users.html">https://dtcclearning.com/products-and-services/equities-clearing/utc/utc-users.html</a>.
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Based on its annal budgeting review, NSCC proposes to (i) decrease
its ``value into the net'' fee from $0.47 to $0.46 per million of
processed value and (ii) decrease its ``value out of the net'' fee from
$2.56 to $2.16 per million of settling value in order to achieve a
targeted annual fee revenue reduction of approximately $30 million. The
``value into the net'' and ``value out of the net'' fees affect all
participants using NSCC's trade capture and CNS Accounting Operation
services. The ``value into the net'' fee, specifically, is the largest
fee type for NSCC. As a result, the proposed reduction in this fee from
$0.47 to $0.46 is expected to result in the largest portion of the
aggregate fee reduction. However, NSCC would be unable to completely
align its targeted projected revenue reduction based on a decrease in
the ``value into the net'' fee alone. NSCC therefore proposes to also
reduce its ``value out of the net'' fee from $2.56 to $2.16 to achieve
its targeted cost-revenue alignment. To effectuate the proposed fee
change, NSCC would amend Section II.A. of Addendum A concerning
Clearance Activity Fees for transactions other than SFTs to reflect the
new ``value into the net'' fee of $0.46 per million of processed value
and ``value out of the net'' fee of $2.16 per million of settling
value.
Expected Member Impact
The proposed rule change would result in reduced ``value into the
net'' and ``value out of the net'' fees for NSCC Members, the impact of
which would vary based on their usage of the underlying NSCC services.
The proposed fee change is expected to decrease NSCC's overall annual
fee revenue by approximately $30 million. Individual Member impacts are
estimated to range from an approximately 0-13% reduction in fees
depending on their ``value into the net'' and ``value out of the net''
activity.
Member Outreach
NSCC has conducted ongoing outreach to Members in order to provide
them with notice of the proposed changes and the anticipated impact for
the Member. As of the date of this filing, no written comments relating
to the proposed changes have been received in response to this
outreach. The Commission will be notified of any written comments
received.
Implementation Timeframe
NSCC would implement this proposal on January 1, 2023. As proposed,
a legend would be added to Addendum A stating there are changes that
became effective upon filing with the Commission but have not yet been
implemented. The proposed legend also would include the date on which
such changes would be implemented and the file number of this proposal,
and state that, once this proposal is implemented, the legend would
automatically be removed.
2. Statutory Basis
NSCC believes the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, NSCC believes
the proposed rule change is consistent with Section 17A(b)(3)(D) of the
Act \8\ and Rule 17Ad-22(e)(23)(ii) \9\ thereunder for the reasons set
forth below.
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\8\ 15 U.S.C. 78q-1(b)(3)(D).
\9\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act \10\ requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants. NSCC believes the
proposed fees would be allocated equitably among its full-service
Members. The proposed rule change would result in reduced ``value into
the net'' and ``value out of the net'' fees for NSCC Members. The
proposed ``value into the net'' and ``value out of the net'' fee
changes would be fairly applied to all Members using NSCC's trade
capture and CNS Accounting Operation services. While the impact of the
proposed fees would vary based on Members' usage of the underlying NSCC
services, the proposed rule change would not alter how the Clearance
Activity Fees are calculated or how such fees are allocated to Members.
As mentioned above, the ``value into the net'' component of the
Clearance Activity Fee is based on the Member's gross cleared value
prior to netting. As such, and as is currently the case, Members that
make greater use of NSCC's guaranteed services would generally be
subject to larger ``value into the net'' fees, and therefore would see
a greater reduction in fees as a result of the proposed fee change,
because such Members would typically have a higher value of gross
positions prior to netting. And conversely, Members that use NSCC's
guaranteed services less would generally be subject to smaller ``value
into the net'' fees, and therefore would see smaller fee reductions,
because such Members would typically have a lower value of gross
positions. Similarly, the ``value out of the net'' component of the
Clearance Activity Fee is based on a Member's daily aggregate market
value of all settling CNS positions after netting. Members that make
greater use of NSCC's guaranteed services are generally subject to
larger ``value out of the net'' fees, and therefore would see greater
fee reductions as a result of the proposed fee change, because such
Members typically have higher value out of the net positions after
netting. Conversely, Members that use NSCC's guaranteed services less
would generally be subject to a smaller ``value out of the net'' fees,
and therefore would see smaller fee reductions, because such Members
would typically have lower value of net positions after netting. The
proposed changes to the ``value into the net'' and ``value out of the
net'' components of the Clearance Activity Fee would not adjust these
allocations or the manner in which the fees are applied. As a result,
NSCC believes the proposed fees would continue to be allocated
equitably among its Members.
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\10\ 15 U.S.C. 78q-1(b)(3)(D).
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NSCC also believes that the proposed fee changes are reasonable.
The proposed fees were selected based on an analysis of projected
market volumes and revenues for NSCC during its

[[Page 80230]]

annual budgeting process. The proposed fee changes are intended to
better align to the projected operating costs and expenses of NSCC and
would result in an overall reduction of fees imposed on NSCC's Members.
As discussed above, the ``value into the net'' fee is the largest fee
type for NSCC. As a result, the proposed reduction in this fee is
expected to result in the largest portion of the projected aggregate
fee reduction. However, NSCC also proposes to reduce its ``value out of
the net'' fee to achieve its targeted cost-revenue alignment. Together,
the proposed fee changes are designed to achieve a targeted annual fee
revenue reduction of approximately $30 million, which would better
align to the projected operating costs and expenses of NSCC. Moreover,
as noted above, the proposed rule change would not alter how these
Clearance Activity Fees are calculated or how such fees are allocated
to Members. For these reasons, NSCC believes the proposed fees would
continue to be reasonable.
Rule 17Ad-22(e)(23)(ii) under the Act \11\ requires NSCC to
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. The proposed fees would be clearly and transparently published
in Addendum A of the Rules, which are available on a public
website,\12\ thereby enabling Members to identify the fees and costs
associated with participating in NSCC. As such, NSCC believes the
proposed rule change is consistent with Rule 17Ad-22(e)(23)(ii) under
the Act.\13\
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\11\ 17 CFR 240.17Ad-22(e)(23)(ii).
\12\ See supra note 5.
\13\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

NSCC does not believe the proposed reduction in Clearance Activity
Fees would have any impact or burden on competition. As discussed
above, NSCC believes the proposed fees would be allocated equitably
among its full-service Members. The proposed fee change would result in
reduced ``value into the net'' and ``value out of the net'' fees for
NSCC Members, the impact of which would vary based on their usage of
the underlying NSCC services. The proposed ``value into the net'' and
``value out of the net'' fee changes would apply to all Members using
NSCC's trade capture and CNS Accounting Operation services and would
not alter how the Clearance Activity Fees are calculated or allocated
to Members. In the aggregate, NSCC expects the proposed fee change
would result in a reduction of NSCC's annual fee revenue by
approximately $30 million. Individual Member impacts are estimated to
range from an approximately 0-13% reduction in fees depending on their
``value into the net'' and ``value out of the net'' activity. NSCC
believes the proposed fee reduction would not unfairly inhibit access
to NSCC's services by any Member. NSCC therefore believes the proposed
rule changed would not have any impact or burden on competition.

NSCC has conducted outreach to Members to provide them with notice
of the proposed fees.
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#72060013161b1c15131c161f130019170601320117115c151d04"><span class="__cf_email__" data-cfemail="fc888e9d9895929b9d9298919d8e9799888fbc8f999fd29b938a">[email&#160;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) \14\ of the Act and paragraph (f) \15\ 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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\14\ 15 U.S.C 78s(b)(3)(A).
\15\ 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#5220273e377f313d3f3f373c2621122137317c353d24"><span class="__cf_email__" data-cfemail="8ffdfae3eaa2ece0e2e2eae1fbfccffceaeca1e8e0f9">[email&#160;protected]</span></a>. Please include
File Number SR-NSCC-2022-016 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-2022-016. 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

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submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NSCC-2022-016 and should be submitted on or before January 19, 2023.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28298 Filed 12-28-22; 8:45 am]
BILLING CODE 8011-01-P

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