Notice2022-28542
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make Certain Adjustments in the Fees for NSCC's I&RS Positions and Valuations Service and Certain Clarifications to Addendum A
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Published
January 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 2 (Wednesday, January 4, 2023)</title>
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[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Notices]
[Pages 378-381]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28542]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96590; File No. SR-NSCC-2022-017]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Make Certain Adjustments in the Fees for NSCC's I&RS
Positions and Valuations Service and Certain Clarifications to Addendum
A
December 28, 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 21, 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)(2) \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)(2).
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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
Addendum A (Fee Structure) (``Addendum A'') of NSCC's Rules &
Procedures (``Rules'') in order to make certain adjustments in the fees
for the Positions and Valuations service (``Positions'') in NSCC's
Insurance & Retirement Services (``I&RS'') and make certain
clarifications to Addendum A, as described below.\5\
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\5\ Capitalized terms used herein and not otherwise defined have
the meaning assigned to such terms 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
Overview of Proposed Rule Change
The purpose of this proposed rule change is to increase the fees
for Positions, as described below, in order to align those fees more
closely with the costs of providing the products and services to
Members and Limited Members that use I&RS (collectively, ``I&RS
Members''). The fee changes are being made to better align fees with
the costs of services provided by NSCC by adjusting the fees so that
the revenue received by NSCC would be closer to the costs of providing
the services consistent with NSCC's cost-based plus markup fee
model.\6\ In general, fee
[[Page 379]]
levels for NSCC are set by NSCC after periodic reviews of a number of
factors, including revenues, operating costs and potential service
enhancements.
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\6\ NSCC has in place procedures to control costs and to
regularly review pricing levels against costs of operation. NSCC's
fees are cost-based plus a markup as approved by its Board of
Directors or management (pursuant to authority delegated by the
Board of Directors), as applicable. This markup is applied to
recover development costs and operating expenses, and to accumulate
capital sufficient to meet regulatory and economic requirements. 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 121.
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Pursuant to Section 5 of Rule 57, NSCC provides a service to enable
Insurance Carrier/Retirement Services Members to transmit data to other
I&RS Members relating to positions and valuations specific to I&RS
Eligible Products.\7\ Pursuant to this service, Insurance Carrier/
Retirement Services Members can send data using four file types--(i) a
focused file (``Positions Focused'') that includes underlying fund and
current value information as well as a distributor's entire book of
business, which is typically sent daily; (ii) a full file (``Positions
Full'') that includes information in the Positions Focused file as well
as information pertaining to contract parties and service features,
which is typically sent on a schedule agreed to by the trading
partners; (iii) a new business file (``Positions New'') that provides
data in the identical format to the Positions Full file but includes
only new contract information, which is only sent once; and (iv) a
retirement plan file (``Positions for Retirement Plans'') that provides
data relating to insurance-based group annuities and mutual fund-based
retirement accounts including detailed plan and participant level data.
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\7\ Section 5 of Rule 57, supra note 5. The term ``I&RS Eligible
Product'' means an insurance product or a retirement or other
benefit plan or program included in the list for which provision is
made in Section 1.(d) of Rule 3. Definition of ``I&RS Eligible
Product'', Rule 1, supra note 5.
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NSCC continuously engages in discussions with I&RS Members
regarding proposed enhancements, proposed fee changes and potential
impacts. As a result of these discussions, I&RS Members have requested
enhancements to the current Positions file. The enhancements include
modifying current records and adding a new record to accommodate data
related to indexed life and annuity products. The proposed pricing
increase was developed using a cost-plus pricing methodology and would
be an increase in Positions fees of approximately 4% for Positions
Full, Positions New and Positions for Retirement Plans and an increase
of approximately 9.1% for Positions Focused. The estimated annual
revenue increase for Positions fees would cover development cost and
maintenance for the proposed enhancements and related system
developments.
NSCC is also proposing to add abbreviations in Addendum A of the
Rules to match descriptions of Positions Full, Positions New, Positions
for Retirement Plans and Positions Focused used in marketing materials
and client communications.
Proposed Rule Change
NSCC is proposing to increase the fees charged for the Positions
Full, Positions New, Positions for Retirement Plans files that are
currently set forth in Section IV.H.2.a.(i) of Addendum A as follows:
(i) increase fees for 0 to 500,000 items/month from $6.00 to $6.25 per
1,000 items, (ii) increase fees for 500,001 to 2,000,000 items/month
from $3.50 to $3.65 per 1,000 items, (iii) increase fees for 2,000,001
to 4,000,000 items/month from $3.00 to $3.10 per 1,000 items and (iv)
increase fees for 4,000,001 or more items/month from $1.25 to $1.30 per
1,000 items. NSCC is also proposing to add the abbreviations PVF, PNF
and PRP next to Full, New and Retirement Plans, respectively, to
reflect the abbreviations used in marketing materials and client
communications relating to these services.
NSCC is proposing to increase the fees charged for the Positions
Focused file that are currently set forth in Section IV.H.2.a.(ii) of
Addendum A as follows: (i) increase fees for 0 to 500,000 items/month
from $3.00 to $3.25 per 1,000 items, (ii) increase fees for 500,001 to
2,000,000 items/month from $1.50 to $1.65 per 1,000 items, (iii)
increase fees for 2,000,001 to 4,000,000 items/month from $1.00 to
$1.10 per 1,000 items and (iv) increase fees for 4,000,001 or more
items/month from $0.50 to $0.55 per 1,000 items. NSCC is also proposing
to add the abbreviation PFF next to Positions Focused to reflect the
abbreviations used in marketing materials and client communications
relating to this services.
Expected Member/NSCC Impact
The proposed fee changes would impact all users of Positions. Based
on a review of users in the second quarter of 2022, it is anticipated
that approximately 82% of the I&RS Members receive files using
Positions Full, Positions New or Positions for Retirement Plans and
approximately 63% of I&RS Members receive files using Positions
Focused. The proposed pricing increase is expected to result in an
increase in Positions fees of approximately 4% for Positions Full,
Positions New and Positions for Retirement Plans and an increase of
approximately 9.1% for Positions Focused.
The proposed fee increases are designed to cover the costs of
enhancing and maintaining I&RS in accordance with NSCC's cost-based
plus markup fee model.\8\ Following the implementation of fees,
assuming revenues and expenses remain constant,\9\ NSCC anticipates
recouping the costs of building the enhancements within approximately
two years of implementing the fees.
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\8\ See supra note 6.
\9\ Revenues and expenses may not remain constant. Costs of
providing the service may change if, for example, I&RS Members
request further service enhancements or the costs of NSCC's
technology change. In addition, revenues may change depending on the
number of users of the service. NSCC regularly reviews pricing
levels against costs of operation. As with its other services, if
NSCC determines that its operating margin is too high or too low,
NSCC would propose changes to pricing levels accordingly.
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Implementation Timeline
NSCC expects to implement the proposed rule change on January 1,
2023. As proposed, a legend would be added to Addendum A stating that
changes became effective upon filing with the Commission but have not
yet been implemented. The proposed legend also would include January 1,
2023 as 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 from Addendum A.
2. Statutory Basis
NSCC believes this proposal is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, NSCC believes this proposal
is consistent with Sections 17A(b)(3)(D) \10\ and 17A(b)(3)(F) \11\ and
Rule 17Ad-22(e)(23)(ii),\12\ as promulgated under the Act, for the
reasons described below.
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\10\ 15 U.S.C. 78q-1(b)(3)(D).
\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act 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 I&RS Members that use
Positions.\13\ NSCC believes the proposed fee changes are reasonable
because they are based on the expected investment costs to develop the
Positions enhancements
[[Page 380]]
and related system developments, the projected annual costs to run the
service (including both technology and non-technology run costs) and
projected revenues for the service. Such proposed fee changes are
expected to recover such investment and operating costs in an
appropriate timeframe. NSCC notes that once the proposed Positions fees
are implemented, the fees would be periodically reviewed pursuant to
NSCC's procedures to determine whether they continue to appropriately
reflect NSCC's costs of operation.\14\
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\13\ 15 U.S.C. 78q-1(b)(3)(D).
\14\ See supra note 6.
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency promote the prompt and accurate clearance and
settlement of securities transactions.\15\ NSCC believes that the
proposed clarifications to add abbreviations for the services in
Addendum A would enhance I&RS Members' ability to understand which fees
are associated with the with files within Positions. Specifically, the
proposal would add abbreviations to the Rules that are currently used
in marketing materials and other client communications to refer to
these services. As such, the proposed clarifications would improve the
clarity of the Fee Structure in Addendum A of the Rules and provide
I&RS Members with a better understanding of those fees in relation to
their activities. In this way, the proposed clarification are
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act 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.\17\ The proposed fees would be clearly and transparently stated
in Addendum A of the Rules, which are available on a public
website,\18\ thereby enabling Members to identify the fees associated
with participating in Positions. As such, NSCC believes the proposed
rule change is consistent with Rule 17Ad-22(e)(23)(ii) under the
Act.\19\
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\17\ 17 CFR 240.17Ad-22(e)(23)(ii).
\18\ See supra note 5.
\19\ 17 CFR 240.17Ad-22(e)(23)(ii).
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The proposed clarifications to add abbreviations for services, as
described above, would improve the transparency of the fees in Addendum
A to I&RS Members. Having a clear and transparent Addendum A would help
I&RS Members to better understand NSCC's fees and help provide I&RS
Members with increased predictability and certainty regarding the fees
they incur in participating in NSCC. As such, NSCC believes the
proposed rule changes are also consistent with Rule 17Ad-22(e)(23)(ii)
under the Act.\20\
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\20\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC believes the proposed rule change to increase fees for
Positions may have an impact on competition. NSCC believes the proposed
rule change could burden competition by negatively affecting such I&RS
Members' operating costs. While these I&RS Members may experience
increases in their fees when compared to their fees under the current
fee structure, NSCC does not believe such change in fees would, in and
of itself, mean that the burden on competition is significant. The
proposed Positions fee increase would not advantage or disadvantage any
particular member or user of Positions, or unfairly inhibit access to
Positions. Further, the proposal would similarly affect all I&RS
Members that utilize Positions based on each I&RS Member's usage of
Positions.
Regardless of whether the burden on competition is deemed
significant, NSCC believes any burden on competition that is created by
the proposed rule change would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\21\ The proposed rule change to increase fees
for Positions would be necessary in furtherance of the purposes of the
Act because the Rules must provide for the equitable allocation of
reasonable dues, fees, and other charges among its participants.\22\ As
described above, NSCC believes that the proposed rule change would
result in fees that are equitably allocated because they are applied
uniformly to all I&RS Members that use the applicable services. The
proposal also would result in reasonable fees, because they would allow
NSCC to recoup its expenses in building the proposed enhancements and
related system developments and continue to operate Positions with a
positive operating margin. As such, NSCC believes the proposed rule
change would be necessary in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\23\
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\21\ 15 U.S.C. 78q-1(b)(3)(I).
\22\ 15 U.S.C. 78q-1(b)(3)(D).
\23\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC also believes that the fees are appropriate in furtherance of
the purposes of the Act because the fees are designed to align NSCC's
revenue with the costs of enhancing and providing the services,
consistent with NSCC's cost-based plus markup fee model. As noted
above, the proposed fees are equitably allocated among I&RS
Members.\24\ The fees would enable NSCC to pay for building the
proposed enhancements to this service and would allow continue to
operate Positions with a positive operating margin. As such, NSCC
believes the proposed rule change would be appropriate in furtherance
of the purposes of the Act, specifically Section 17A(b)(3)(I) of the
Act.\25\
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\24\ See supra note 6.
\25\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has conducted outreach to I&RS Members in order to provide
them with notice of the proposed rule change to the affected 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#eb9f998a8f82858c8a858f868a99808e9f98ab988e88c58c849d"><span class="__cf_email__" data-cfemail="5e2a2c3f3a3730393f303a333f2c353b2a2d1e2d3b3d70393128">[email protected]</span></a> or 202-551-5777.
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) \26\ of the Act and paragraph
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(f) \27\ 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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\26\ 15 U.S.C 78s(b)(3)(A).
\27\ 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#7c0e091019511f1311111912080f3c0f191f521b130a"><span class="__cf_email__" data-cfemail="81f3f4ede4ace2eeecece4eff5f2c1f2e4e2afe6eef7">[email protected]</span></a>. Please include
File Number SR-NSCC-2022-017 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-2022-017. 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-2022-017 and should be submitted on
or before January 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-28542 Filed 1-3-23; 8:45 am]
BILLING CODE 8011-01-P
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