Notice2024-15500
Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Decommission the DTCC Limit Monitoring Risk Management Tool
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
July 16, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 136 (Tuesday, July 16, 2024)</title>
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[Federal Register Volume 89, Number 136 (Tuesday, July 16, 2024)]
[Notices]
[Pages 57959-57960]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15500]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100486; File No. SR-NSCC-2024-004]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Decommission the
DTCC Limit Monitoring Risk Management Tool
July 10, 2024.
I. Introduction
On May 16, 2024, The National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2024-004, pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder (the ``Proposed Rule Change'').\2\ The
Proposed Rule Change was published for comment in the Federal Register
on June 4, 2024.\3\ The Commission has received no comments on the
Proposed Rule Change. For the reasons discussed below, the Commission
is approving the Proposed Rule Change.
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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. 100237 (May 29,
2024), 89 FR 48019 (Jun. 4, 2024) (File No. SR-NSCC-2024-004)
(``Notice of Filing'').
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II. Background
DTCC Limit Monitoring is a risk management tool currently made
available to all NSCC Members. Limit Monitoring is a voluntary tool
that is intended to supplement, and not replace, a Member's internal
risk management systems, procedures, or use of other available industry
tools.\4\ Limit Monitoring enables Members to monitor trading activity
on an intraday basis for their organizations and/or correspondent firms
using post-trade data by allowing Members to establish pre-set limits
to monitor trading activity and to receive notifications when these
pre-set limits are being approached and reached.\5\ NSCC does not
require Members to take any particular action based on the output of
Limit Monitoring, and any response by Members to a Limit Monitoring
alert is performed away from NSCC.\6\
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\4\ See id. at 48019.
\5\ See NSCC Rules and Procedures, Rule 54, available at <a href="https://www.dtcc.com/legal/rules-and-procedures.aspx">https://www.dtcc.com/legal/rules-and-procedures.aspx</a>.
\6\ See Notice of Filing, supra note 3, at 48019.
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NSCC states that DTCC Limit Monitoring was created as part of a
broader industry-wide effort to develop tools and strategies to
mitigate and address trading risks associated with complex,
interconnected, and automated market technology.\7\ NSCC further states
that, since the implementation of Limit Monitoring in 2014, U.S. equity
exchanges have implemented certain optional risk management tools
including, but not limited to, credit limits, single order limits, and
kill switch functionality, which provide additional risk management
tools for Members to supplement their internal controls.\8\ NSCC also
states that broker-dealers have also continued to enhance their own
internal risk management systems.\9\
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\7\ See id.
\8\ See id.
\9\ See id.
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III. Description of the Proposed Rule Change
The Proposed Rule Change would decommission the Limit Monitoring
tool. NSCC states that the technology platform to maintain the data
infrastructure for Limit Monitoring will soon need to be replaced,
which would require the investment of significant resources to continue
to offer Limit Monitoring.\10\ NSCC conducted outreach to evaluate its
Members' use of Limit Monitoring. The outreach indicated that a
majority of Members either do not use Limit Monitoring or do not rely
on it extensively to manage their risks.\11\ Members that do not use or
make only limited use of Limit Monitoring primarily rely on other
industry or in-house tools to monitor and evaluate risks.\12\ NSCC
conducted follow up outreach with those Members that do currently use
Limit Monitoring, identifying no Members that raised significant
concerns or objections to the decommissioning of Limit Monitoring.\13\
Therefore, NSCC has determined that it would no longer offer the Limit
Monitoring tool, given the significant investment needed to continue to
offer Limit Monitoring, 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.\14\
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\10\ See id.
\11\ See id.
\12\ See id.
\13\ See id.
\14\ See id.
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To implement the Proposed Rule Change, NSCC would remove Rule 54
and Procedure XVII from their Rules.\15\ NSCC would also remove
associated
[[Page 57960]]
defined terms from Rule 1.\16\ 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.
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\15\ See supra note 5.
\16\ ``LM Member-provided Data,'' ``LM Trade Date Data,'' ``LM
Transaction Data,'' ``RP Member-provided Data,'' ``RP Trade Date
Data,'' and ``RP Transaction Data.''
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IV. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \17\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the Proposed Rule
Change, the Commission finds that the Proposed Rule Change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to NSCC. In particular, the
Commission finds that the Proposed Rule Change is consistent with
Section 17A(b)(3)(F) \18\ of the Act.
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\17\ 15 U.S.C. 78s(b)(2)(C).
\18\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency, such as NSCC, be designed to, among other things,
promote the prompt and accurate clearance and settlement of securities
transactions and, in general, to protect investors and the public
interest.\19\ The Commission believes that the Proposed Rule Change is
consistent with Section 17A(b)(3)(F) of the Act for the reasons stated
below.
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\19\ Id.
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As described in Part II above, Limit Monitoring is a voluntary tool
intended to supplement a Member's internal risk management processes
and use of other available tools. Although the tool was created in
response to an industry-wide need due to trading risks associated with
new market technologies in 2014, there now is a broader range of
options available to Members to help manage these risks. Limit
Monitoring is not a widely used risk management tool, and those who do
use it did not raise significant concerns about its elimination. Given
that NSCC would need to invest significant resources to continue to
offer Limit Monitoring to its Members, decommissioning the Limit
Monitoring tool should allow NSCC to determine where to allocate the
resources that would have been used on updating the Limit Monitoring
technology to better react to the changing needs of market participants
who rely on NSCC's central role in the securities market. This ability
to allocate resources should, in turn, help NSCC to continue to promote
the prompt and accurate clearance and settlement of securities
transactions by NSCC, consistent with the requirements of Section
17A(b)(3)(F) of the Exchange Act.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(F)
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Accordingly, and for the reasons stated above, the proposed changes
are consistent with Section 17A(b)(3)(F).
V. Conclusion
Based on the foregoing, the Commission finds that the Proposed Rule
Change is consistent with the requirements of the Act and in particular
with the requirements of Section 17A of the Act \21\ and the rules and
regulations promulgated thereunder.
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\21\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\22\ that proposed rule changes SR-NSCC-2024-004 be, and hereby are,
approved.\23\
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\22\ 15 U.S.C. 78s(b)(2).
\23\ In approving the Proposed Rule Change, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15500 Filed 7-15-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 16, 2024.
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