Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Decommission the DTCC Limit Monitoring Risk Management Tool

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Published

June 4, 2024

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 89 Issue 108 (Tuesday, June 4, 2024)</title>
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[Federal Register Volume 89, Number 108 (Tuesday, June 4, 2024)]
[Notices]
[Pages 48019-48021]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-12143]

[[Page 48019]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100237; File No. SR-NSCC-2024-004]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Decommission
the DTCC Limit Monitoring Risk Management Tool

May 29, 2024.
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 16, 2024, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

The proposed rule change consists of amendments to the NSCC Rules &
Procedures (``Rules'') to decommission a risk management tool called
DTCC Limit Monitoring, as described in greater detail below.\3\
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\3\ Capitalized terms not defined herein shall have the meaning
assigned to such terms in the Rules, available at <a href="https://www.dtcc.com/legal/rules-and-procedures.aspx">https://www.dtcc.com/legal/rules-and-procedures.aspx</a>.
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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 the proposed rule change is to modify the Rules to
decommission the DTCC Limit Monitoring risk management tool (``Limit
Monitoring''). The proposed rule change is discussed in detail below.
(i) Background
NSCC provides its Members with a risk management tool called DTCC
Limit Monitoring, which enables Members to monitor trading activity on
an intraday basis of their organizations and/or their correspondent
firms through the review of post-trade data.\4\ Limit Monitoring was
implemented in 2014 in connection with industry-wide efforts to develop
tools and strategies to mitigate and address the risks associated with
increasingly complex, interconnected, and automated market technology
(such risks include, but are not limited to, trade input errors,
software or trading algorithm errors, and inadequate controls for
automated processes). Through Limit Monitoring, NSCC Members can
establish pre-set limits for their organizations and/or their
correspondent firms to monitor trading activity and review
notifications that are delivered when these pre-set limits are being
approached and when they are reached. Limit Monitoring was intended to
supplement Members' existing internal risk management processes.\5\ Any
actions Members determine to take in response to Limit Monitoring
alerts are the Member's responsibility and are taken away from NSCC.
Limit Monitoring is primarily discussed in Rule 54 and Procedure
XVII.\6\
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\4\ See Securities Exchange Act Release Nos. 71637 (Feb. 28,
2014), 79 FR 12708 (Mar. 6, 2014) (File No. SR-NSCC-2013-12) and
77990 (June 3, 2016), 81 FR 37229 (June 9, 2016) (File No. SR-NSCC-
2016-001).
\5\ In 2022, NSCC modified Rule 54 and Procedure XVII to make
Limit Monitoring a voluntary tool for all Members and eliminate the
requirement that certain specified Members register for Limit
Monitoring. See Securities Exchange Act Release No. 95723 (Sept. 9,
2022), 87 FR 56724 (Sept. 15, 2022) (File No. SR-NSCC-2022-012).
\6\ See supra note 3.
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(ii) Proposed Changes to the Rules
As discussed above, Limit Monitoring was created as part of a
broader industry-wide effort to develop tools and strategies to
mitigate and address trading risks. Since the implementation of Limit
Monitoring in 2014, U.S. equity exchanges have also implemented risk
controls to mitigate risks inherent with direct exchange transaction
flow (such controls include, but are not limited to, credit limits,
single order limits, and kill switch functionality).\7\ These exchange
risk controls are optional risk management tools made available to
exchange members to assist them in monitoring and managing their risks.
In addition, broker-dealers have continued to enhance their own
internal risk management systems and processes to manage their trading
risks.
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\7\ See, e.g., Securities Exchange Act Release Nos. 88599 (Apr.
8, 2020), 85 FR 20793 (Apr. 14, 2020) (File No. SR-CboeBZX-2020-
006); 88776 (Apr. 29, 2020), 85 FR 26768 (May 5, 2020) (File No. SR-
NYSE-2020-17); 88904 (May 19, 2020), 85 FR 31560 (May 26, 2020)
(File No. SR-NYSEArca-2020-43); 89225 (July 6, 2020), 85 FR 41650
(July 10, 2020) (File No. SR-NASDAQ-2020-034).
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NSCC currently makes Limit Monitoring available to all full-service
Members to use on a voluntary basis.\8\ Limit Monitoring is intended to
supplement, and not replace, a Member's own internal systems and
procedures or other tools, such as exchange pre-trade risk controls,
available to the Member for managing its risks. NSCC does not require
Members to take any particular actions based on the output of Limit
Monitoring, and any actions Members determine to take in response to
Limit Monitoring alerts are performed away from NSCC. Moreover, NSCC
does not use Limit Monitoring for its own internal clearance,
settlement, or risk management purposes.
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\8\ See supra note 5.
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The technology platform currently used by NSCC to maintain the data
infrastructure for Limit Monitoring is nearing the end of its
lifecycle. As a result, NSCC would need to invest significant resources
to replace this platform in order to continue to offer Limit Monitoring
to Members. NSCC has conducted internal review and performed initial
outreach to Members to evaluate their use of Limit Monitoring. The
review and outreach indicated that a majority of Members either do not
use Limit Monitoring or do not rely on it extensively to manage their
risks. Members that do not use Limit Monitoring or make only limited
use of it have noted that they primarily rely on other industry or in-
house tools to monitor and evaluate these risks. Additionally, several
Members that do currently use Limit Monitoring informed NSCC that they
would be able to work around the elimination of this tool. There were
no Members that raised significant concerns or objections to the
decommissioning of Limit Monitoring, or that indicated they could not
accommodate the elimination of the tool. Given the evolution in
industry-wide risk control tools and processes since the implementation
of Limit Monitoring in 2014 and the limited usage of Limit Monitoring
by Members, NSCC is proposing to decommission the Limit Monitoring
tool.
To implement the proposed rule change, NSCC would remove Rule 54

[[Page 48020]]

and Procedure XVII from the Rules. NSCC would also remove associated
defined terms ``LM Member-provided Data,'' ``LM Trade Date Data,'' ``LM
Transaction Data,'' ``RP Member-provided Data,'' ``RP Trade Date
Data,'' and ``RP Transaction Data'' from Rule 1. Finally, NSCC would
remove section 2(i) of Rule 58 concerning the limitations on NSCC's
liability for the completeness or accuracy of LM Trade Date Data, LM
Member-provided Data, LM Transaction Data, or other information or data
which it receives from Members or third parties and which is utilized
in DTCC Limit Monitoring, or for any errors, omissions or delays which
may occur in the transmission of such data or information.
Implementation Timeframe
Subject to approval by the Commission, NSCC would implement the
proposed rule change on November 15, 2024.
2. Statutory Basis
NSCC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Section 17A(b)(3)(F) of Act
\9\ requires, in part, that the rules of a clearing agency be designed
to promote the prompt and accurate clearance and settlement of
securities transactions and 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. NSCC believes the proposed rule change is
consistent with the requirements of section 17A(b)(3)(F) of Act for the
reasons set forth below.
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, the technology platform currently used by NSCC
to maintain the data infrastructure for Limit Monitoring is nearing the
end of its lifecycle. As a result, NSCC would need to invest
significant resources to replace this platform to continue offering
Limit Monitoring to Members. Limit Monitoring is a voluntary tool that
is intended to supplement, and not replace, a Member's own internal
systems and procedures or other tools, such as exchange pre-trade risk
controls, available to the Member for managing its risks. NSCC does not
require Members to take any particular action based on the output of
Limit Monitoring, and any actions Members determine to take in response
to Limit Monitoring alerts are performed away from NSCC. Moreover, NSCC
does not use the Limit Monitoring tool for its own internal purposes to
promote or facilitate the clearance, settlement, or risk management of
securities transactions.
NSCC's internal analysis and preliminary outreach to Members
indicated that a majority of Members either do not use Limit Monitoring
or do not rely on it extensively to manage their risks. Members that do
not use Limit Monitoring or make only limited use of it noted that they
primarily rely on other industry or in-house tools to monitor and
evaluate these risks. Certain other Members that do currently use Limit
Monitoring informed NSCC that they would be able to work around the
elimination of this tool. Given the voluntary and supplemental nature
of Limit Monitoring, the limited use of Limit Monitoring by Members,
and the evolution and improvement of industry-wide risk control tools
and processes since the implementation of Limit Monitoring in 2014,
NSCC is proposing to decommission the Limit Monitoring tool.
For reasons set forth above, NSCC believes that decommissioning the
Limit Monitoring tool would not impact the prompt and accurate
clearance and settlement of securities transactions by NSCC or the
safeguarding of securities and funds in NSCC's custody or control or
for which it is responsible. NSCC's rules would therefore continue to
be designed to promote the prompt and accurate clearance and settlement
of securities transactions, and to assure the safeguarding securities
and funds in accordance with section 17A(b)(3)(F) of the Act.\10\
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\10\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

Section 17A(b)(3)(I) of Act \11\ requires that the rules of a
clearing agency do not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. The proposed
rule change would impact certain Members to a greater extent than
others; however, NSCC does not believe that the proposed rule change
would have an impact significant enough to present a burden on
competition. NSCC's internal analysis and preliminary outreach
indicated that a majority of NSCC Members either do not use Limit
Monitoring or do not rely on it extensively to manage their risks.
Members that do not use Limit Monitoring or make only limited use of it
noted that they primarily rely on other industry or in-house tools to
monitor and evaluate these risks. Certain Members that do currently use
Limit Monitoring informed NSCC that they would be able to work around
the elimination of this tool. Those Members may need to expend
resources to acquire industry tools or solutions or develop in-house
tools of their own to replace their use of Limit Monitoring. However,
NSCC does not believe that the impact would be significant enough to
impose a burden on competition, particularly as it relates to the use
of NSCC's services. Therefore, NSCC does not believe that the proposed
rule change would impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\11\ 15 U.S.C. 78q-1(b)(3)(I).
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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#dca8aebdb8b5b2bbbdb2b8b1bdaeb7b9a8af9cafb9bff2bbb3aa"><span class="__cf_email__" data-cfemail="c0b4b2a1a4a9aea7a1aea4ada1b2aba5b4b380b3a5a3eea7afb6">[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

Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:

[[Page 48021]]

(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da"><span class="__cf_email__" data-cfemail="abd9dec7ce86c8c4c6c6cec5dfd8ebd8cec885ccc4dd">[email&#160;protected]</span></a>. Please include
File Number SR-NSCC-2024-004 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-2024-004. 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="https://www.sec.gov/rules/sro.shtml">https://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>). Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to File Number SR-NSCC-2024-004 and should be
submitted on or before June 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-12143 Filed 6-3-24; 8:45 am]
BILLING CODE 8011-01-P

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