Notice2024-30527
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Addendum A (Fee Structure)
Primary source
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Published
December 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 246 (Monday, December 23, 2024)</title>
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[Federal Register Volume 89, Number 246 (Monday, December 23, 2024)]
[Notices]
[Pages 104582-104584]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30527]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101949; File No. SR-NSCC-2024-011]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Modify Addendum A (Fee Structure)
December 17, 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 December 9, 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.
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
NSCC is filing the proposed rule change to modify Addendum A (Fee
Structure) (``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to
modify the Clearing Fund Maintenance Fee, as described below.\5\
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\5\ Capitalized terms not defined herein are defined in the
Rules, available at <a href="http://www.dtcc.com/legal/rules-and-procedures">www.dtcc.com/legal/rules-and-procedures</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 this proposed rule change is to amend Addendum A
(Fee Structure) of the Rules to modify NSCC's Clearing Fund Maintenance
Fee effective January 1, 2025. The proposed fee change is discussed in
detail below.
Background
NSCC's Clearing Fund Maintenance Fee was implemented in 2016 in
order to (i) diversify NSCC's revenue sources, mitigating NSCC's
dependence on revenues driven by trading volumes and (ii) add a stable
revenue source that would contribute to NSCC's operating margin by
offsetting increasing costs and expenses.\6\ The fee is charged to all
NSCC Members that are required to make deposits to the NSCC Clearing
Fund in proportion to the Member's average monthly cash deposit to the
Clearing Fund.
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\6\ See Securities Exchange Act Release No. 78525 (Aug. 9,
2016), 81 FR 54146 (Aug. 15, 2016) (SR-NSCC-2016-002).
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In June 2022, NSCC launched its Securities Financing Transaction
(``SFT'') clearing service.\7\ The SFT clearing service provides
central clearing for SFTs, which are, broadly speaking, transactions
where members borrow or lend eligible securities versus cash and
simultaneously agree to exchange the same securities and cash, plus or
minus a rate payment, on a future date. NSCC novates the on leg of SFT
trades as a central counterparty and risk manages the outstanding SFTs
through maturity. The SFT clearing service allows Members to clear SFTs
for their own proprietary accounts and established new membership
categories and account types for Sponsoring Members, Sponsored Members
and Agent Clearing Members.\8\
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\7\ See Securities Exchange Act Release No. 95011 (May 31,
2022), 87 FR 34339 (June 6, 2022) (SR-NSCC-2022-003) (Order
Approving Proposed Rule Change to Introduce Central Clearing for
Securities Financing Transaction Clearing Service). NSCC also filed
the proposal as advance notice SR-NSCC-2022-801. See Securities
Exchange Act Release No. 94998 (May 27, 2022), 87 FR 33528 (June 2,
2022) (SR-NSCC-2022-801) (Notice of No Objection to Advance Notice
to Introduce Central Clearing for Securities Financing Transaction
Clearing Service).
\8\ See NSCC Rule 2C for Sponsoring Member and Sponsored Member
requirements and NSCC Rule 2D for Agent Clearing Member
requirements, supra note 5.
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SFT Members are required to make contributions to the Clearing Fund
(``Required Fund Deposits'') \9\ for each applicable SFT Account \10\
that they maintain for the SFT Clearing Service.\11\ The cash deposits
made to satisfy Required Fund Deposits for SFT Accounts are currently
subject to the Clearing Fund Maintenance Fee. SFT Members also pay
Trade Clearance Fees that include: (i) a fee of $1.00 per side of each
new SFT submitted (excluding any Linked SFT and Sponsored Member
Transactions) and (ii) a fee of $0.14 per million of outstanding SFT
notional balance.\12\
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\9\ Required Fund Deposit is generally defined to include the
Sponsoring Member Required Fund Deposit, the Agent Clearing Member
Required Fund Deposit and the Required SFT Deposit. See definition
of Required Fund Deposit in Rule 1, supra note 5.
\10\ SFT Account is defined to include an SFT Member's SFT
Account for proprietary activity as well as any Agent Clearing
Member Customer Omnibus Account and any Sponsored Member Sub-
Account. See definition of SFT Account in Rule 1, supra note 5.
\11\ See Section 12 of NSCC Rule 56 for Required SFT Deposit
generally, Section 7 of NSCC Rule 2C for Sponsoring Member Required
Fund Deposit, and Section 6 of NSCC Rule 2D for Agent Clearing
Member Required Fund Deposit, supra note 5.
\12\ See Section II.A.2. of Addendum A of the NSCC Rules, supra
note 5.
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Proposed Fee Change
Pursuant to Section V.F of Addendum A, NSCC charges a Clearing Fund
Maintenance Fee, which is a monthly fee calculated, in arrears, as the
product of (A) 0.35% and (B) the average of each Member's cash deposit
balance in the Clearing Fund, as of the end of each day, for the month,
multiplied by the number of days for that month and divided by 360.
NSCC has evaluated the application of the Clearing Fund Maintenance
Fee to cash deposits in SFT Accounts and determined to exclude SFT
Accounts from the Clearing Fund Maintenance Fee. In the current
bilateral market for this activity, which is not cleared, SFTs are
generally subject to standard haircuts regardless of the instrument or
its volatility. In the NSCC SFT clearing service, NSCC utilizes a
Value-at-Risk (``VaR'') model designed to specifically manage the
market and volatility risk of the underlying assets. NSCC's VaR charge
for SFTs is typically greater than the standard haircut generally used
in the bilateral market and therefore raises the costs of clearing such
activity. Specifically, the margin requirements associated with SFTs in
the SFT clearing service increase the amount of capital necessary to
participate in the service. SFT Member profit margins are traditionally
slim as lenders must pass a large portion of their profits back to the
beneficial owners of the underlying securities. The additional 35 basis
point fee charged via the NSCC Clearance Fund Maintenance Fee may
therefore create a negative return for certain
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Members attempting to use the SFT clearing service and may also serve
to discourage broader participation, volumes, and liquidity in the SFT
clearing service. NSCC also notes that SFTs are currently subject to
Trade Clearance Fees that include: (i) a fee of $1.00 per side of each
new SFT submitted (excluding any Linked SFT and Sponsored Member
Transactions) and (ii) a fee of $0.14 per million of outstanding SFT
notional balance, which are intended to cover the necessary costs of
maintaining the service.\13\
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\13\ 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. 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="http://www.dtcc.com/legal/policy-and-compliance">www.dtcc.com/legal/policy-and-compliance</a>.
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To effectuate the proposed fee change, NSCC would amend Section
V.F. of Addendum A concerning the Clearing Fund Maintenance Fee by
inserting a parenthetical statement to clarify that the calculation of
the average of each Member's cash deposit balance in the Clearing Fund
would exclude cash deposit balances in any SFT Accounts.
Expected Impact
The proposed fee change would have a minimal impact on Members and
on NSCC's overall revenues. Based on an analysis of NSCC's SFT Account
cash deposits and year-to-date revenues, the impact of the proposed fee
change would be significantly less than one percent of NSCC's overall
revenues and would result in only slightly lower Clearing Fund
Maintenance Fees for NSCC Members participating in the SFT clearing
service.
Member Outreach
NSCC will perform outreach to those Members with SFT Accounts to
notify them of the change. The Commission will be notified of any
written comments received.
Implementation Timeframe
NSCC would implement this proposal on January 1, 2025. 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 \14\ and Rule 17ad-22(e)(23)(ii) \15\ thereunder for the reasons
set forth below.
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\14\ 15 U.S.C. 78q-1(b)(3)(D).
\15\ 17 CFR 240.17ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act \16\ 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 fee change is reasonable and would be allocated equitably
among its full-service Members. Members participating in the SFT
clearing service are already subject to the Clearance Fund Maintenance
Fee for all cash balances in their primary full-service accounts, which
constitute the vast majority of NSCC's Clearing Fund cash balances,
similar to all other full-service Members. Moreover, the SFT Trade
Clearance Fees, and not the Clearance Fund Maintenance Fee, are
primarily intended to cover the costs of maintaining the SFT clearing
service. Any Member that wishes to join the SFT clearing service in the
future would receive the same treatment on their SFT Account cash
balances. As a result, NSCC believes the proposed change to the
Clearing Fund Maintenance Fee is equitable.
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\16\ 15 U.S.C. 78q-1(b)(3)(D).
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NSCC also believes that the proposed change to the Clearing Fund
Maintenance Fee is reasonable. As described above, the application of
the Clearance Fund Maintenance Fee can create negative returns for
certain Members attempting to use the SFT clearing service and may also
serve to discourage broader participation, volumes, and liquidity in
the SFT clearing service. Moreover, as noted above, the Trade Clearance
Fees, and not the Clearance Fund Maintenance Fee, are primarily
intended to cover the cost of the SFT clearing service. Additionally,
Members participating in the SFT clearing service are already subject
to the Clearance Fund Maintenance Fee for all cash balances in their
primary full-service accounts, similar to all other full-service
Members. The proposed change is designed to reduce economic burdens on
SFT clearing and promote greater access to the service for NSCC's
Members. For this reason, NSCC believes the proposed change to the
Clearing Fund Maintenance Fee is reasonable.
Rule 17ad-22(e)(23)(ii) under the Act \17\ 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,\18\ 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.\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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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \20\ requires that the rules of the
clearing agency do not impose any burden on competition not necessary
or appropriate in furtherance of the Act. NSCC does not believe that
the proposed change to the Clearing Fund Maintenance Fee would impose
any burden on competition. The proposed rule change would result in a
reduction of fees to Members using NSCC's SFT clearing service and
would apply to any Member using or desiring the use the SFT clearing
service. NSCC believes the proposed fee change would not unfairly
inhibit access to NSCC's services by any Member, and in fact, is
designed to reduce burdens on SFT clearing and promote greater access
to the service for NSCC's Members. NSCC therefore believes the proposed
rule change would have a minimal impact on Members and would not impose
any burden on competition.
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\20\ 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 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, NSCC will amend
this filing to
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publicly file such comments 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="http://www.sec.gov/regulatory-actions/how-to-submit-comments">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#87f3f5e6e3eee9e0e6e9e3eae6f5ece2f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="daaea8bbbeb3b4bdbbb4beb7bba8b1bfaea99aa9bfb9f4bdb5ac">[email 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) \21\ of the Act and paragraph (f) \22\ 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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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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#b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf"><span class="__cf_email__" data-cfemail="0a787f666f27696567676f647e794a796f69246d657c">[email protected]</span></a>. Please include
File Number SR-NSCC-2024-011 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-2024-011. 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://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 Number SR-NSCC-2024-011 and should be submitted on or
before January 13, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30527 Filed 12-20-24; 8:45 am]
BILLING CODE 8011-01-P
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