Notice2024-14064
Self-Regulatory Organizations; The Depository Trust Company; Fixed Income Clearing Corporation; National Securities Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Clearing Agency Risk Management Framework
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
June 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 124 (Thursday, June 27, 2024)</title>
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[Federal Register Volume 89, Number 124 (Thursday, June 27, 2024)]
[Notices]
[Pages 53674-53676]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14064]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100400; File Nos. SR-DTC-2024-003; SR-FICC-2024-006;
SR-NSCC-2024-003]
Self-Regulatory Organizations; The Depository Trust Company;
Fixed Income Clearing Corporation; National Securities Clearing
Corporation; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Amend the Clearing
Agency Risk Management Framework
June 21, 2024.
I. Introduction
On March 11, 2024, The Depository Trust Company (``DTC''), Fixed
Income Clearing Corporation (``FICC''), and National Securities
Clearing Corporation (``NSCC,'' each a ``Clearing Agency,'' and
collectively, the ``Clearing Agencies''), filed with the Securities and
Exchange Commission (``Commission'') proposed rule changes SR-DTC-2024-
003, SR-FICC-2024-006, and SR-NSCC-2024-003, respectively (each, a
``Proposed Rule Change, and collectively, the ``Proposed Rule
Changes''), pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder.\2\
The Proposed Rule Changes were published for comment in the Federal
Register on March 26, 2024.\3\ The Commission has received comments on
the changes proposed.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 99802 (Mar. 20,
2024), 89 FR 21118 (Mar. 26, 2024) (File No. SR-DTC-2024-003) (``DTC
Notice of Filing''); Securities Exchange Act Release No. 99805 (Mar.
20, 2024), 89 FR 21068 (Mar. 26, 2024) (File No. SR-FICC-2024-006)
(``FICC Notice of Filing''); Securities Exchange Act Release No.
99803 (Mar. 20, 2024), 89 FR 21091 (Mar. 26, 2024) (File No. SR-
NSCC-2024-003)(``NSCC Notice of Filing'') (collectively, ``Notices
of Filing'').
\4\ Specifically, the Commission received comments on the FICC
Notice of Filing, and the comments are available at <a href="https://www.sec.gov/comments/sr-ficc-2024-006/srficc2024006.htm">https://www.sec.gov/comments/sr-ficc-2024-006/srficc2024006.htm</a>.
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On May 14, 2024, pursuant to Section 19(b)(2) of the Exchange
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\ The Commission is
instituting proceedings, pursuant to Section 19(b)(2)(B) of the
Exchange 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\ See Notices of Filing, supra note 3.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change
A. Background
The Clearing Agency Risk Management Framework (``Framework'')
provides an outline for, among other things, how each of the Clearing
Agencies comprehensively manages the risks, including the legal,
credit, liquidity, operational, general business, investment, custody,
and other risks, that arise in or are borne by it.
On December 13, 2023, the Commission adopted rules under the Act to
amend the standards applicable to covered clearing agencies providing
central counterparty services for transactions in U.S. Treasury
securities to require policies and procedures be reasonably designed to
ensure that the covered clearing agency has appropriate means to
facilitate access to clearance and settlement services of all eligible
secondary market transactions in U.S. Treasury securities, including
those of indirect participants.\8\ The adopted rules also require that
these policies and procedures be reviewed annually by the board of
directors of such covered clearing agencies for U.S. Treasury
securities.\9\ Currently, FICC is the only Clearing Agency providing
clearance and settlement services to the U.S. Treasury securities
market.
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\8\ See Securities Exchange Act Release No. 99149 (Dec. 13,
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22) (Standards for Covered
Clearing Agencies for U.S. Treasury Securities and Application of
the Broker-Dealer Customer Protection Rule with Respect to U.S.
Treasury Securities).
\9\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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B. Proposed Rule Changes
The Proposed Rule Changes would amend the Framework to: (i)
describe generally Clearing Agency participant and industry stakeholder
outreach in the development and evaluation of new programs or risk
management practices; (ii) provide for the annual review of FICC's
Government Securities Division (``GSD'') access models by FICC's Board
of Directors; and (iii) make other conforming and clean up changes to
the text of the Framework. Other than those described in (iii), these
changes would be set forth in a new section 3.4 ``Solicitation of
Participant and Stakeholder Views,'' consisting of two subsections
described below.
First, new subsection 3.4.1 (General Solicitation of Views) would
codify an existing practice, that is, that the Clearing Agencies
routinely solicit their participants' and other industry stakeholders'
views when developing and evaluating products, services, or risk
management practices so they may best meet the industry's needs.\10\
This new subsection would describe several ways that the Clearing
Agencies may seek the views of participants and stakeholders,
including, but not limited to, targeted outreach to firms expected to
be impacted by a proposal, widely distributed surveys, ad hoc forums,
and standing and temporary advisory councils assembled to consider
issues relevant to a proposal. The subsection would also identify the
stakeholders that may participate in such advisory councils, including
for example, representatives from transfer agents, liquidity providers,
market infrastructures, institutional and retail investors, customers
of the Clearing Agencies' participants, securities issuers, and
securities holders. The Clearing Agencies state that the proposed
changes in sub-section 3.4.1 do not create any particular obligation
for the Clearing Agencies to conduct such outreach in any
circumstance.\11\
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\10\ See DTC Notice of Filing, supra note 3, 89 FR at 21119;
FICC Notice of Filing, supra note 3, 89 FR at 21069; NSCC Notice of
Filing, supra note 3, 89 FR at 21092.
\11\ Id.
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Second, the Clearing Agencies proposed new sub-section 3.4.2
(Required Solicitation of Views--Annual Review of GSD Access Models) in
connection with the recently adopted requirement, noted above, that the
Board of Directors of all covered clearing agencies serving the U.S.
Treasury securities market conduct an annual review of their policies
and
[[Page 53675]]
procedures to ensure that they have appropriate means to facilitate
access to clearance and settlement services of all eligible secondary
market transactions in U.S. Treasury securities, including those of
indirect participants. To address the new requirement, the new
subsection would provide that FICC would establish an advisory council
which would assist in the annual review of GSD's access models. The
advisory council will be comprised of participants, their customers,
and other industry stakeholders. This annual advisory council review of
GSD's access models would precede an annual review of GSD's access
models by the FICC Board, which would also be required by this new
subsection.\12\ The new subsection would require that the annual review
include the following: (1) document any instance in which FICC treats
transactions differently and confirm that any variation in treatment is
both necessary and appropriate; (2) consider whether to enable GSD's
Netting Members to submit eligible transactions for clearance and
settlement that have been executed by two indirect participants of
FICC/GSD (``done-away''); (3) consider the volumes and proportion of
the markets that are being centrally cleared through different access
models; and (4) consider whether it is appropriate to develop and
propose an additional category or categories of Netting Members to the
GSD Rules to reflect the types of legal entities that applied to be a
Netting Member over the prior 12 months and did not fit into one of the
existing Netting Member categories.
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\12\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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i. Other Conforming and Clean Up Changes
Third, the Proposed Rule Changes would make other conforming, non-
substantive changes to the release to reflect the inclusion of the new
subsections described above and to remove the defined term ``Management
Committee'' wherever referenced and replace it with ``senior management
committee'' while maintaining the current makeup and responsibilities
of the current Management Committee, as described in the Framework. The
Clearing Agencies state that the Proposed Rule Changes would allow the
Framework to continue to be accurate notwithstanding any future name
changes to the committee.\13\ Other minor grammatical and clean up
changes would also be made to the Framework.
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\13\ See DTC Notice of Filing, supra note 3, 89 FR at 21120;
FICC Notice of Filing, supra note 3, 89 FR at 21070; NSCC Notice of
Filing, supra note 3, 89 FR at 21093.
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III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change and Grounds for Dispproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the Proposed Rule
Changes should be approved or disapproved.\14\ Institution of
proceedings is appropriate at this time in view of the legal and policy
issues raised by the Proposed Rule Changes. 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 Changes,
which would provide the Commission with arguments to support the
Commission's analysis as to whether to approve or disapprove the
Proposed Rule Changes.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\15\ 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 Changes' consistency with Section 17A of the Exchange Act
\16\ and the rules thereunder, including the following provisions:
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\15\ Id.
\16\ 15 U.S.C. 78q-1.
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<bullet> Section 17A(b)(3)(F) of the Exchange Act,\17\ which
requires, among other things, that the rules of a clearing agency are
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, as well as to foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions; and to protect investors and the public
interest;
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
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<bullet> Rule 17ad-22(e)(2) under the Exchange Act,\18\ which
requires that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
provide for governance arrangements that: (i) are clear and
transparent; (ii) clearly prioritize the safety and efficiency of the
covered clearing agency; (iii) support the public interest requirements
in Section 17A of the Exchange Act (15 U.S.C. 78q-1) applicable to
clearing agencies, and the objectives of owners and participants; (iv)
establish that the board of directors and senior management have
appropriate experience and skills to discharge their duties and
responsibilities; (v) specify clear and direct lines of responsibility;
and (vi) consider the interests of participants' customers, securities
issuers and holders, and other relevant stakeholders of the covered
clearing agency;
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\18\ 17 CFR 240.17ad-22(e)(2).
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<bullet> Rule 17ad-22(e)(3)(i) under the Exchange Act,\19\ which
requires that a covered clearing agency establish, implement, maintain,
and enforce written policies and procedures reasonably designed to
maintain a sound risk management framework for comprehensively managing
legal, credit, liquidity, operational, general business, investment,
custody, and other risks that arise in or are borne by the covered
clearing agency, which includes risk management policies, procedures,
and systems designed to identify, measure, monitor, and manage the
range of risks that arise in or are borne by the covered clearing
agency, that are subject to review on a specified periodic basis and
approved by the board of directors annually;
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\19\ 17 CFR 240.17ad-22(e)(3)(i).
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<bullet> Rule 17ad-22(e)(18)(iv)(C) under the Exchange Act,\20\
which requires that a covered clearing agency establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to ensure that it has appropriate means to facilitate access
to clearance and settlement services of all eligible secondary market
transactions in U.S. Treasury securities, including those of indirect
participants, which policies the U.S. Treasury securities covered
clearing agency board of directors reviews annually; and,
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\20\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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<bullet> Rule 17ad-25(j) of the Exchange Act,\21\ which requires
each registered clearing agency establish, implement, maintain and
enforce written policies and procedures reasonably designed to solicit,
consider, and document its consideration of the views of participants
and other relevant stakeholders of the registered clearing agency
regarding material developments in its governance and operations on a
recurring basis.
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\21\ 17 CFR 240.17ad-25(j).
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[[Page 53676]]
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 Changes. In particular, the Commission invites
the written views of interested persons concerning whether the Proposed
Rule Changes are consistent with Section 17A(b)(3)(F) \22\ and Rules
17ad-22(e)(2), 17ad-22(e)(3)(i), 17ad-22(e)(18)(iv)(C), and 17ad-25(j)
\23\ of the Exchange Act, or any other provision of the Exchange Act,
or the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4(g) under the Exchange
Act,\24\ any request for an opportunity to make an oral
presentation.\25\
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\22\ 15 U.S.C. 78q-1(b)(3)(F).
\23\ 17 CFR 240.17ad-22(e)(2), (e)(3)(i), and (e)(18)(iv)(C),
and 17 CFR 240.17ad-25(j).
\24\ 17 CFR 240.19b-4(g).
\25\ Section 19(b)(2) of the Exchange Act grants to the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency of
FICC's statements in support of the Proposed Rule Changes, which are
set forth in the Notices of Filing \26\ in addition to any other
comments they may wish to submit about the Proposed Rule Changes.
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\26\ See Notice of Filing, supra note 3.
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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#7301061f165e101c1e1e161d0700330016105d141c05"><span class="__cf_email__" data-cfemail="d9abacb5bcf4bab6b4b4bcb7adaa99aabcbaf7beb6af">[email protected]</span></a>. Please include
file numbers SR-DTC-2024-003; SR-FICC-2024-006; SR-FICC-2024-003 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 numbers SR-DTC-2024-003; SR-FICC-
2024-006; SR-FICC-2024-003. 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 Changes that are filed with the Commission, and all
written communications relating to the Proposed Rule Changes 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 a.m. and 3 p.m. Copies
of such filing also will be available for inspection and copying at the
principal office of FICC and on FICC's website (<a href="http://www.dtcc.com/legal/sec-rule-filings">www.dtcc.com/legal/sec-rule-filings</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 Numbers SR-DTC-2024-003; SR-
FICC-2024-006; SR-FICC-2024-003 and should be submitted on or before
July 18, 2024. Rebuttal comments should be submitted by August 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(31).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14064 Filed 6-26-24; 8:45 am]
BILLING CODE 8011-01-P
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