Notice2025-07314
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend the Recovery and Wind-Down Plan To Satisfy the Requirements of Exchange Act Rule 17ad-26
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
April 29, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 81 (Tuesday, April 29, 2025)</title>
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[Federal Register Volume 90, Number 81 (Tuesday, April 29, 2025)]
[Notices]
[Pages 17840-17846]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-07314]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102919; File No. SR-NSCC-2025-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Amend the
Recovery and Wind-Down Plan To Satisfy the Requirements of Exchange Act
Rule 17ad-26
April 23, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 16, 2025, 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.\3\ 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\ Capitalized terms not defined herein are defined in the
Rules and Procedures of NSCC (the ``Rules''), available at
www.dtcc.com/~/media/Files/Downloads/legal/rules/nscc_rules.pdf, or
in the Recovery & Wind-down Plan of NSCC (the ``R&W Plan'' or
``Plan'').
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The R&W Plan was adopted in August 2018, has been amended over time
to reflect changes since its adoption,\4\ and is maintained by NSCC for
compliance with Rule 17ad-22(e)(3)(ii) under the Act.\5\ Rule 17ad-
22(e)(3)(ii) requires registered clearing agencies to, in short,
establish, implement and maintain plans for the recovery and orderly
wind-down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The Plan is intended to be used by the Board and NSCC
management in the event NSCC encounters scenarios that could
potentially prevent it from being able to provide its critical services
to the marketplace as a going concern. The R&W Plan is managed by the
Office of Recovery & Resolution Planning (referred to in the Plan as
the ``R&R Team'') of NSCC's parent company, the Depository Trust &
Clearing Corporation (``DTCC''),\6\ on behalf of NSCC, with review and
oversight by the DTCC Executive Committee and the Board.
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\4\ See Securities Exchange Act Release Nos. 83974 (Aug. 28,
2018), 83 FR 44988 (Sept. 4, 2018) (SR-NSCC-2017-017); 83955 (Aug.
27, 2018), 83 FR 44340 (Aug. 30, 2018) (SR-NSCC-2017-805); 98328
(Sept. 8, 2023), 88 FR 63180 (Sept. 14, 2023) (SR-NSCC-2023-008);
91428 (Mar. 29, 2021), 86 FR 17440 (Apr. 2, 2021) (SR-NSCC-2021-
004); and 102757 (Apr. 1, 2025), 90 FR 15026 (Apr. 7, 2025) (SR-
NSCC-2025-004).
\5\ 17 CFR 240.17ad-22(e)(3)(ii). NSCC is a ``covered clearing
agency'' as defined in Rule 17ad-22(a)(5) under the Act and must
comply with paragraph (e) of Rule 17ad-22. In 2012, NSCC was
designated a systemically important financial market utility
(``SIFMU'') by the Financial Stability Oversight Council (``FSOC'').
\6\ DTCC operates on a shared service model with respect to NSCC
and its other affiliated clearing agencies, The Depository Trust
Company (``DTC'') and Fixed Income Clearing Corporation (``FICC'').
Most corporate functions are established and managed on an
enterprise-wide basis pursuant to intercompany agreements under
which it is generally DTCC that provides relevant services to NSCC,
DTC and FICC (collectively, the ``Clearing Agencies'').
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The R&W Plan is comprised of two primary sections: (i) the
``Recovery Plan,'' which sets out the tools and strategies to enable
NSCC to recover, in the event it experiences losses that exceed its
prefunded resources, and (ii) the ``Wind-down Plan,'' which describes
the tools and strategies to be used to conduct an orderly wind-down of
NSCC's business in a manner designed to permit the continuation of
NSCC's critical services in the event that its recovery efforts are not
successful.
The purpose of the rule proposal is to amend the R&W Plan to
satisfy the requirements of new Exchange Act Rule 17ad-26 \7\ (the
``RWP Rule'' or ``Rule 17ad-26''), which codifies the definitions of
``Recovery'' \8\ and ``Orderly wind-down,'' \9\ and requires that plans
for the recovery and orderly wind-down of a covered clearing agency,
such as NSCC, identify and include certain specific elements.\10\ In
addition to incorporating the required elements into the Plan, the rule
proposal would also make other conforming updates and technical
revisions consistent with the RWP Rule, including incorporating key
terms as defined in Rule 17ad-26. NSCC believes that by helping to
ensure that the R&W Plan meets the requirements of Rule 17ad-26 and
making necessary amendments and technical revisions that provide
additional clarity, the proposed rule change will help NSCC ensure
that, in times of extreme market stress, the Plan can ensure continuity
of NSCC's critical services and enable Members to maintain access to
NSCC's services through the transfer of its membership in the event
NSCC defaults or the Wind-down Plan is ever triggered by the Board.
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\7\ See Covered Clearing Agency Resilience and Recovery and
Orderly Wind-down Plan, Exchange Act Release No. 101446 (October 25,
2024), 89 FR 91000 (November 18, 2024) (S7-10-23).
\8\ Id. Pursuant to Rule 17ad-26, ``Recovery'' means the actions
of a covered clearing agency, consistent with its rules, procedures,
and other ex ante contractual arrangements, to address any uncovered
loss, liquidity shortfall, or capital inadequacy, whether arising
from participant default or other causes (such as business,
operational, or other structural weaknesses), including actions to
replenish any depleted prefunded financial resources and liquidity
arrangements, as necessary to maintain the covered clearing agency's
viability as a going concern and to continue its provision of core
services, as identified by the covered clearing agency pursuant to
(a)(1) of this section.''
\9\ Id. Pursuant to Rule 17ad-26, ``Orderly wind-down'' means
the actions of a covered clearing agency to effect the permanent
cessation, sale, or transfer of one or more of its core services, as
identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section, in a manner that would not increase the risk
of significant liquidity, credit, or operational problems spreading
among financial institutions or markets and thereby threaten the
stability of the U.S. financial system.''
\10\ Id. Rule 17ad-26 identifies the elements that a covered
clearing agency's RWP must contain, including: (i) elements related
to planning, including the identification and use of scenarios,
triggers, tools, staffing and services providers, and (ii) testing
and board approval of the plans.
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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
Executive Summary
The R&W Plan was adopted in August 2018, has been amended over time
to reflect changes since its adoption,\11\ and is maintained by NSCC
for compliance with Rule 17ad-22(e)(3)(ii) under the Act.\12\ Rule
17ad-22(e)(3)(ii) requires registered clearing agencies to, in short,
establish, implement and maintain plans for the recovery and orderly
wind-down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The Plan is intended to be used by the Board and NSCC
management in the event NSCC encounters scenarios that could
[[Page 17841]]
potentially prevent it from being able to provide its critical services
to the marketplace as a going concern. The R&W Plan is managed by the
R&R Team of NSCC's parent company, the DTCC,\13\ on behalf of NSCC,
with review and oversight by the DTCC Executive Committee and the
Board.
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\11\ Supra note 4.
\12\ Supra note 5.
\13\ Supra note 6.
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The R&W Plan is comprised of two primary sections: (i) the
``Recovery Plan,'' which sets out the tools and strategies to enable
NSCC to recover, in the event it experiences losses that exceed its
prefunded resources, and (ii) the ``Wind-down Plan,'' which describes
the tools and strategies to be used to conduct an orderly wind-down of
NSCC's business in a manner designed to permit the continuation of
NSCC's critical services in the event that its recovery efforts are not
successful.
The purpose of the rule proposal is to amend the R&W Plan to
satisfy the requirements of new Exchange Act Rule 17ad-26,\14\ which
codifies the definitions of ``Recovery'' \15\ and ``Orderly wind-
down,'' \16\ and requires that plans for the recovery and orderly wind-
down of a covered clearing agency, such as NSCC, identify and include
certain specific elements.\17\ In addition to incorporating the
required elements into the Plan, the rule proposal would also make
other conforming updates and technical revisions consistent with the
RWP Rule, including incorporating key terms as defined in Rule 17ad-26.
NSCC believes that by helping to ensure that the R&W Plan meets the
requirements of Rule 17ad-26 and making necessary amendments and
technical revisions that provide additional clarity, the proposed rule
change will help NSCC ensure that, in times of extreme market stress,
the Plan can ensure continuity of NSCC's critical services and enable
Members to maintain access to NSCC's services through the transfer of
its membership in the event NSCC defaults or the Wind-down Plan is ever
triggered by the Board.
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\14\ Supra note 7.
\15\ Supra note 8.
\16\ Supra note 9.
\17\ Supra note 10.
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Background
As stated above, the R&W Plan is managed by the R&R Team, with
review and oversight by the DTCC Executive Committee and the Board.
NSCC completed its most recent review of the Plan in 2024, prior to the
SEC's adoption of Rule 17ad-26.\18\ The proposed rule change reflects
amendments proposed to the Plan that are intended to address the
requirements of Rule17ad-26, which are described in greater detail
below.
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\18\ Supra note 4.
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Proposed Amendments
A. Proposed Changes To Reflect the Requirements of Rule 17ad-26
NSCC is proposing changes to the Plan to reflect the requirements
of Rule 17ad-26. Specifically, NSCC proposes to amend the Plan to
incorporate a series of attachments to be added to the end of the Plan
that address the requirements of Rule 17ad-26. The proposed attachments
would address those requirements of the RWP Rule that are not otherwise
covered by the current Plan. NSCC would also add a new section to the
Plan, Section 9 (Compliance with SEC Rule 17ad-26: Recovery and Orderly
Wind-down Plans of Covered Clearing Agencies) describing each of the
attachments
The following are the required elements of Rule 17ad-26 with
descriptions of the proposed new attachments to the Plan or, where
applicable, the relevant section in which the element is already
addressed in the Plan.
Rule 17ad-26(a)(1) (Core Services): This element of the RWP Rule
requires, among other things, that the covered clearing agency identify
and describe its core payment, clearing, and settlement services.
NSCC's current Plan already includes the information necessary to
satisfy this aspect of Rule 17ad-26. Therefore, other than the relevant
name changes needed to replace the term ``Critical'' with ``Core,''
consistent with the RWP Rule \19\ the rule proposal would not amend
this portion of the Plan. Specifically, Section 3 (Critical Services)
defines the criteria for classifying certain of NSCC's services as
``critical,'' \20\ and identifies such critical services and the
rationale for their classification. There is a table (Table 3-B: NSCC
Critical Services) that lists each of the services, functions or
activities that NSCC has identified as ``critical'' based on the
applicability of the criteria.\21\
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\19\ Supra note 7.
\20\ The criteria that is used to identify an NSCC service or
function as critical includes consideration as to whether (1) there
is a lack of alternative providers or products; (2) failure of the
service could impact NSCC's ability to perform its central
counterparty services; (3) failure of the service could impact
NSCC's ability to perform its netting services, and, as such, the
availability of market liquidity; and (4) the service is
interconnected with other participants and processes within the U.S.
financial system (for example, with other FMIs, settlement banks,
broker-dealers, and exchanges).
\21\ The following are NSCC's critical services as set forth in
Table 3-B: (NSCC Critical Services): (1) Trade Capture and Reporting
(Universal Trade Capture), (2) Corporate, Municipals, and Unit
Investment Trusts (CMU) Service, (3) Obligation Warehouse, (4)
Correspondent Clearing, (5) ETPs, (6) ACATS, (7) Account Information
Transmission, (8) Continuous Net Settlement (CNS), (9)WMS FundSERV,
(10) WMS--Networking and (11) WMS--Mutual Funds Profile Service I
(Price and Rate).
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Rule 17ad-26(a)(1)(i) (Staffing): Attachment A-1 of the Plan would
address the requirements of Rule 17ad-26(a)(1)(i), which requires that
NSCC include identification of the staffing roles necessary to support
NSCC's core services.\22\ Specifically, Attachment A-1 would be in the
form of an Excel spreadsheet and would identify the staffing roles
necessary to support the core services of NSCC as identified and
described in the Plan, in the event of a recovery and during an orderly
wind-down. Attachment A-1 would identify the core service and describe
the necessary staffing roles, broken out by the number of managers and
performers required within the relevant department (for example,
Operations, IT). It would also include whether the number of roles is
equal to the current business as usual staffing or less and provide a
rationale as to why.
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\22\ Supra note 7.
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Rule 17ad-26(a)(1)(ii) (Staffing Analysis): Attachment A-2 of the
Plan would address the requirement in Rule 17ad-26(a)(1)(ii) \23\ that
NSCC analyze how the staffing roles necessary to support the core
services identified and described in Attachment A-1 would continue in
the event of a recovery and during an orderly wind-down. Specifically,
Attachment A-2 would be an analysis that identifies the potential
challenges of retaining staffing roles during a recovery or wind-down
event and potential ways NSCC has identified to address those
challenges so that the core services can continue uninterrupted. The
analysis would acknowledge that retaining staff can be particularly
challenging during recovery or orderly wind-down periods as
uncertainties may lead to employee apprehension. It would also reflect
the fact that DTCC cannot guarantee staff retention, but that DTCC has
developed various tools to mitigate potential challenges, especially
the risk of loss of employees with unique or highly specialized
knowledge, skills, or relationships that are critical to functioning
and viability of NSCC. The following are the key tools described in
Attachment A-2 that NSCC would
[[Page 17842]]
consider leveraging based on the unique circumstances of the recovery
and orderly wind-down event or staffing roles, (i) succession planning,
(ii) retention agreements, and (iii) cross-training.
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\23\ Id.
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Rule 17ad-26(a)(2)(i) (Service Providers for Core Services):
Attachment B-1 of the Plan would address the requirements of Rule 17ad-
26(a)(2)(i), which requires NSCC to identify and describe any service
providers for core services (``CSPs''),\24\ specifying which core
services each service provider supports. Specifically, Attachment B-1
would be in the form of a table with the following rows of information,
(i) identification of the third-party service provider for core
service(s) (``TCSP''), (ii) a description of service performed by the
TCSP, and (iii) identification of the relevant NSCC core service(s)
which the TCSP supports. With respect to the identification and
description of NSCC's affiliated service providers of core services,
this element of Rule 17ad-26 is addressed in the current Plan in the
section covering ``Intercompany Arrangements.'' \25\
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\24\ Id. Pursuant to Rule 17ad-26(b) (Definitions), ``Service
provider for core services'' means any person, including an
affiliate or a third party, that, through a written agreement for
services provided to or on behalf of the covered clearing agency, on
an ongoing basis, directly supports the delivery of core services,
as identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section.''
\25\ Section 2.4 of the Plan (Intercompany Arrangements)
describes how each of the DTCC SIFMUs receives the majority of its
shared or corporate support services from DTCC through intercompany
agreements. It describes that services are provided by DTCC, DTCC
Europe Limited, DTCC Enterprise Services India Private Limited, and
DTCC Singapore Pte. Ltd. The services generally cover enterprise-
wide support, including human resources, finance, information
technology, credit and quantitative risk, audit, legal, marketing
and other services.
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Rule 17ad-26(a)(2)(ii) (Ensure Continued Performance of Service
Providers for Core Services): Attachment B-2 of the Plan would cover
the requirements of Rule 17ad-26(a)(2)(ii),\26\ which require covered
clearing agencies to address how the covered clearing agency would
ensure that CSPs would continue to perform in the event of a recovery
and during an orderly wind-down, including consideration of its written
agreements with such service providers and whether the obligations
under those written agreements are subject to alteration or termination
as a result of initiation of the recovery and orderly wind-down plan.
Specifically, Attachment B-2 would be a summary describing, among other
things, that by the compliance date of Rule 17ad-26,\27\ NSCC would
review the written agreements with TCSPs that govern the services
provided to NSCC \28\ and evaluate the terms and conditions covering
termination and alteration of performance in the event of initiation of
the Plan, and the ability of NSCC to provide the services to a
Transferee in the event of a wind-down.\29\Attachment B-2 would further
provide that NSCC would endeavor to amend such written agreements, if
necessary, to ensure that such TCSPs would continue to perform as
required by Rule 17ad-26.
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\26\ Supra note 7.
\27\ Id. The compliance date in which the proposed rule changes
must be effective is by December 15, 2025.
\28\ See supra note 6. As set forth in Section 8.4.2 of the Plan
(Critical Services and Clearing Agency Link Arrangements), NSCC
utilizes a shared service model in which services are centralized in
DTCC, which provides enterprise-wide shared services, staffing,
infrastructure and operational support. As a result, NSCC is not
typically the party to the written agreements with TCSPs. Rather,
these are primarily entered into by DTCC with the TCSP agreeing to
provide services to DTCC and/or one or more of its affiliates,
including the Clearing Agencies. Therefore, in general, the TCSP
does not have a basis to terminate or suspend the performance under
the written agreement based on a change in condition in respect of a
Clearing Agency, especially when DTCC continues to satisfy its
payment obligations for the services.
\29\ See supra note 3. As described in Section 8.1 of the Plan
(Introduction and Executive Summary) and in NSCC Rule 42 (Wind-down
of the Corporation), in the event the Board determines that NSCC
will initiate the orderly wind-down Plan, a ``Transferee'' means an
entity to which the Business of the Corporation is transferred
pursuant to the Wind-down Plan, and may include (i) a failover
entity established by DTCC, (ii) a then-existing or newly-
established third party entity or (iii) a bridge entity formed to
operate the business on an interim basis.
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With respect to NSCC's affiliated CSPs, each of the relevant
written agreements is designated in Table 2-A of the Plan (SIFMU Legal
Entity Structure and Intercompany Agreements). In order to confirm
DTCC's commitment to continue to provide services to NSCC in a recovery
and to a Transferee in the event of an orderly wind-down, Attachment B-
2 would describe that NSCC would work with internal stakeholders to
amend the applicable intercompany agreements to include terms and
conditions that address a recovery and orderly wind-down scenario
similar to those described above covering TCSPs.
Rule 17ad-26(a)(3) (Scenarios): Attachment C of the Plan would
address the requirements of Rule 17ad-26(a)(3) which are that NSCC
identify and describe scenarios that may potentially prevent it from
being able to provide its core services as identified in the Plan as a
going concern. Specifically, Attachment C identifies three (3)
scenarios that include uncovered credit losses, uncovered liquidity
shortfalls and general business losses. For example, there is a multi-
Member default scenario, a scenario involving a significant internal
operational incident, and a third-party failure scenario. For each
scenario, proposed Attachment C would describe, among other things, (i)
the scenario type (e.g., uncovered credit loss, uncovered liquidity
loss, general business loss), (ii) the scenario background in terms of
the cause of the circumstances, and (iii) the severely adverse market
conditions associated with or resulting from the scenario.
Rule 17ad-26(a)(4) (Triggers): This element of the RWP Rule
requires that NSCC identify and describe the criteria that could
trigger NSCC's implementation of the Plan and the process that NSCC
uses to monitor and determine whether the criteria have been met,
including NSCC's governance arrangements applicable to such
process.\30\ NSCC's current Plan already includes the information
necessary to satisfy this aspect of Rule 17ad-26. Specifically, the
rule proposal would take the existing language in the Plan that
describes the criteria for NSCC's entry into the Recovery Phase \31\
and implementation of the Recovery Plan and move it into a new separate
Section of the Plan, Section 5.3 (The Recovery Plan Trigger).\32\ In
addition, with respect to the trigger for an orderly wind-down of NSCC,
current Section 8.4.3 (Triggers for Implementing Wind-down) as well as
NSCC Rule 42 (Wind-down of the Corporation), Section 2 (Initiation of
the Wind-down Plan) describe the trigger for implementation of the
Wind-down Plan and the associated governance process by the Board.\33\
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\30\ Supra note 7.
\31\ Supra note 4. Pursuant to Section 5.2.4 of the Plan
(Recovery Corridor and Recovery Phase), the ``Recovery Phase''
relates to the actions taken by NSCC to restore its financial
resources and avoid wind-down.
\32\ Section 5.3 (The Recovery Trigger) would state that the
criteria that would trigger NSCC's entry into the Recovery Phase and
thus the implementation of the Recovery Plan is the date that it
issues the first Loss Allocation Notice of the second loss
allocation round with respect to a given Event Period.
\33\ Supra note 4. Pursuant to Section 8.4.3 of the Plan
(Triggers for Implementing Wind-down) and as set forth in NSCC Rule
42 (Wind-down of the Corporation), Section 2 (Initiation of the
Wind-down Plan), the trigger for the implementation of the Wind-down
Plan is the Board's determination that the application of the tools
set forth in the Plan to mitigate the adverse impact of credit
losses, liquidity shortfalls, losses from general business risk or
any other losses, have not restored NSCC to viability as a going
concern, able to continue to provide its core services to Members in
a safe and efficient manner, or will not likely restore NSCC to
viability as a going concern able to continue to provide its core
services to Participants and Pledgees in a safe and efficient
manner.
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[[Page 17843]]
Rule 17ad-26(a)(5) and Rule 17ad-26(a)(6) (Rules, Policies,
Procedures, and Tools): Attachment D of the Plan would address the
requirements of Rule 17ad-26(a)(5) and Rule 17ad-25(a)(6),\34\ which
require covered clearing agencies to (i) identify and describe the
rules, policies, procedures and any other tools or resources on which
the covered clearing agency would rely in a recovery or orderly wind-
down, and (ii) address how such rules, policies, procedures and any
other tools or resources would ensure timely implementation of the
Plan. Specifically, Attachment D would be in the form of a two-part
table that would include the following column headings: (i) ``Tools and
Resources,'' (ii) ``Relevant Rules, Policies and Procedures,'' and
(iii) ``Responsible Body/Personnel'' necessary for their governance and
implementation. Each row of the table would include this information
for each of NSCC's loss allocation waterfall tools (Part 1 of the
table) and for each of NSCC's liquidity resources (Part 2 of the
table).\35\ Because the Plan already includes a table that describes
NSCC's loss waterfall tools (Table 5-B) \36\ and a table that describes
the NSCC's liquidity tools (Table 5-C),\37\ proposed Attachment D would
expand upon the information included in Table 5-B and Table 5-C to
incorporate the additional information set forth above.
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\34\ Supra note 7.
\35\ NSCC's liquidity risk management strategy, including the
manner in which NSCC would deploy liquidity tools as well as its
intraday use of liquidity, is described in the Clearing Agency
Liquidity Risk Management Framework. See Securities Exchange Act
Release No. 102757 (Apr. 1, 2025), 90 FR 15026 (Apr. 7, 2025) (SR-
NSCC-2025-004).
\36\ See supra note 3. The Loss Waterfall tools set out in Table
5-B of the Plan are the ``Corporate Contribution'' and ``Loss
Allocation.'' See also, NSCC Rule 4, (Clearing Fund).
\37\ Liquidity tools identified in Table 5-C of the Plan include
(i) Utilize short-settling liquidating trades, (ii) Increase the
speed of portfolio asset sales, (iii) Credit Facility, (iv) Unissued
Commercial Paper, and (v) Non-Qualifying Liquid Resources.
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Rule 17ad-26(a)(7) (Notification to the Commission): Attachment E
would address the requirements of Rule 17ad-26(a)(7), which requires
covered clearing agencies to inform the Commission as soon as
practicable when the covered clearing agency is considering
implementing a recovery or orderly wind-down.\38\ Specifically, with
respect to notification that NSCC is considering implementing a
recovery, proposed Attachment E would state that as set forth in
Section 5.2.4 of the Plan (Recovery Corridor and Recovery Phase), NSCC
would monitor, during a ``Recovery Corridor,'' the early warning
indicators that could indicate that NSCC may transition into
recovery.\39\ NSCC would notify the SEC \40\ at the time a
determination is made by the Executive Committee that NSCC has entered
the Recovery Corridor, which means that either a market event,
including a Member default or a non-default event, may result in
uncovered losses, liquidity shortfalls or general business losses
following end-of-day settlement. As further described in this section
of the Plan, NSCC's entry into the Recovery Corridor indicates that
NSCC is considering implementing the Recovery Plan. Therefore, the
timing of this notification would provide the SEC with advance notice
that NSCC is considering implementing its Recovery Plan and coincide
with NSCC's monitoring of both the adequacy of its resources and the
actual and expected timing of resource replenishment.
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\38\ Supra note 7.
\39\ Supra note 4.
\40\ Attachment E would state that NSCC would provide this
notification to its regular supervisory contacts at the SEC, either
verbally and/or in writing.
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With respect to notification that NSCC is considering implementing
an orderly wind-down, as set forth in Section 8.2.2 of the Plan (Wind-
down Indicators),\41\ proposed Attachment E would state that NSCC would
expect that a significant inability to replenish the Clearing Fund and/
or other liquidity resources could lead NSCC to remain in the Recovery
Phase \42\ for an extended period or potentially consider wind-down. If
the various options set forth in the Recovery Plan are not deemed
feasible or readily available, NSCC would enter wind-down following a
Runway Period.\43\ NSCC would notify the SEC \44\ at the time a
determination is made by the Executive Committee that NSCC has entered
the Runway Period. The length of the Runway Period would vary based on
the severity of the market stress or other event and the ability of
NSCC to replenish its resources in a timely manner. However, in all
scenarios, a Runway Period would occur before NSCC would need to
implement the Wind-down Plan. Thus, proposed Attachment E would state
that the timing of this notification would provide the SEC with advance
notice of the fact that NSCC is considering implementing the Wind-down
Plan. It would note further that as a result of NSCC's prior
notification to the SEC that it is considering implementing the
Recovery Plan, the SEC would already be actively engaged with NSCC as
it proceeds through each stage of the Crisis Continuum, including prior
to NSCC's entry into the Runway Period.
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\41\ Supra note 4.
\42\ Id. The Recovery Plan describes the recovery phase of the
Crisis Continuum, which would begin on the date that NSCC issues the
first Loss Allocation Notice of the second loss allocation round
with respect to a given Event Period. See supra note 3. As provided
for in Rule 4 (Clearing Fund).
\43\ Id. The Wind-down Plan identifies the time period leading
up to a decision to wind-down NSCC as the ``Runway Period.''
\44\ Supra note 40.
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Rule 17ad-26(a)(8) (Testing): Attachment F of the Plan would
address the requirements of Rule 17ad-26(a)(8) \45\ that procedures for
testing the ability of a covered clearing agency to implement the
recovery and orderly wind-down plan at least every 12 months be
included in the Plan. Specifically, Attachment F would describe NSCC's
procedures for testing its ability to implement the Plan at least every
12 months, including describing the requirement that certain NSCC
Members participate in the testing based on specified criteria \46\
and, when practicable, other stakeholders.
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\45\ Supra note 7.
\46\ Proposed Attachment F would state that the R&R Team would
identify the Members required to participate in the simulation and
that considerations for the Member selection may include, but are
not limited to, (i) account structure, (ii) affiliated family
structure, (iii) business model, (iv) operational details, and (v)
Member size in terms of trading and settlement activity.
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Rule 17ad-26(a)(9) (Board Approval): Attachment G to the Plan would
address the requirements of Rule 17ad-26(a)(9), which is that the plans
include procedures requiring review and approval of the plans by the
board of directors at least every 12 months or following material
changes to the covered clearing agency's operations that would
significantly affect the viability or execution of the plans, with
review informed, as appropriate, by the covered clearing agency's
testing of the plans.\47\ Specifically, Attachment G would describe
that the R&R Team provides pertinent information and status updates to
the Executive Committee and the Board of each SIFMU, including NSCC,
with regard to changes and enhancements to the R&W Plan. It would state
that approval of the Plan is required at least every 12 months or
following material changes to NSCC's operations that would
significantly affect the viability or execution of the Plan. The review
by the board is informed, as appropriate, by the SIFMU's testing of the
Plan as described in Attachment F (Testing) to the Plan. It would
further describe that the board reviews the SIFMU R&W plans through
formal and ad hoc board meetings, receiving any necessary interim
updates as determined by the Executive
[[Page 17844]]
Committee. It would identify that the policy and procedures that
describe the process for the review and approval of the SIFMU R&W plans
by the board are set forth in the following: (i) Office of Recovery and
Resolution Planning Procedures and (ii) Office of Recovery and
Resolution Planning Policy. In addition, it would provide that the
Charter of the board would be amended to include the obligation that
the board review and approve the Plan at least every 12 months or
following material changes to the DTCC SIFMUs' operations that would
significantly affect the viability or execution of the Plan(s).
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\47\ Supra note 7.
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B. Proposed Addition of Section 9 (Compliance With Rule 17ad-26)
For purposes of clarity and consolidation of each of the elements
required by 17ad-26 in one section of the Plan, NSCC is proposing to
amend the Plan to add a new Section 9 entitled ``Compliance with Rule
17ad-26: Recovery and Orderly Wind-down Plans of Covered Clearing
Agencies.'' This proposed new Section would set forth a description of
each of the attachments that are incorporated into the Plan that
address the required elements of Rule 17ad-26.
C. Other Conforming Updates and Technical Revisions
NSCC is also proposing to make other conforming updates and
technical revisions to the Plan for consistency with Rule 17ad-26. For
example, NSCC would include the following defined terms included in
Rule 17ad-26 for ``Recovery,'' ``Orderly wind-down,'' and ``Service
provider for core services.'' \48\ These technical revisions would
also, for example, replace the name of the defined term ``Critical
Services'' in the Plan to ``Core Services,'' to align with the RWP Rule
without changing the substantive statements being revised. NSCC
believes the proposed updates and technical revisions would improve the
clarity and accuracy of the Plan and, therefore, would help facilitate
the execution of Plan, if necessary.
---------------------------------------------------------------------------
\48\ Supra note 7, 17ad-26(b) (Definitions).
---------------------------------------------------------------------------
D. Implementation Date
The proposed rule changes would become effective on the Compliance
Date of Rule 17ad-26, December 15, 2025,\49\ subject to Commission
approval.
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\49\ Id.
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2. Statutory Basis
NSCC believes that the proposal is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
registered clearing agency. In particular, NSCC believes that the
amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of
the Act,\50\ Rule 17ad-22(e)(3)(ii) under the Act,\51\ and Rule 17ad-26
under the Act,\52\ for the reasons described below.
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\50\ 15 U.S.C. 78q-1(b)(3)(F).
\51\ 17 CFR 240.17ad-22(e)(3)(ii).
\52\ Id. NSCC is a ``covered clearing agency'' as defined in
Rule 17ad-22(a)(5) under the Act and must comply with paragraph (e)
of Rule 17ad-22. In 2012, NSCC was designated a systemically
important financial market utility (``SIFMU'') by the Financial
Stability Oversight Council (``FSOC'').
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of NSCC be designed to promote the prompt and accurate clearance and
settlement of securities transactions. As described above, the proposed
rule change would update the R&W Plan to address the requirements of
Rule 17ad-26 and make certain technical revisions. By helping to ensure
that the R&W Plan reflects the information required by 17ad-26, and
providing additional clarity through the technical revisions, NSCC
believes that the proposed rule change would help it continue to
maintain the Plan in a manner that supports the continuity of NSCC's
core services and enables Members to maintain access to NSCC's services
through the transfer of its membership in the event NSCC defaults or
the Wind-down Plan is ever triggered by the Board. For example, by
incorporating the staffing roles necessary to support NSCC's core
services and the tools that NSCC could invoke to retain staff in the
event of a recovery and during an orderly wind-down, the proposed rule
change would assist NSCC in ensuring necessary staff is maintained to
support access to and continuity of NSCC's core services. Similarly,
the proposed rule change would identify the service providers
supporting NSCC's core services and how NSCC would endeavor to ensure
that such service providers for core services would continue to perform
in the event of a recovery and during an orderly wind-down. This would
assist NSCC in ensuring necessary core service providers continue to
perform under their contractual arrangements and thus, supporting
access to and continuity of NSCC's core services. By facilitating the
continuity of its core clearance and settlement services, NSCC believes
the Plan and the proposed rule change would continue to promote the
prompt and accurate clearance and settlement of securities
transactions. Therefore, NSCC believes the proposed amendments to the
R&W Plan are consistent with the requirements of Section 17A(b)(3)(F)
of the Act.
Rule 17ad-22(e)(3)(ii) under the Act requires NSCC to 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 plans for the
recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\53\
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\53\ Id.
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Specifically, the Recovery Plan defines the risk management
activities, stress conditions and indicators, and tools that NSCC may
use to address stress scenarios that could eventually prevent it from
being able to provide its core services as a going concern. Through the
framework of the Crisis Continuum, the Recovery Plan addresses measures
that NSCC may take to address risks of credit losses and liquidity
shortfalls, and other losses that could arise from a Member default.
The Recovery Plan also addresses the management of general business
risks and other non-default risks that could lead to losses. The Wind-
down Plan would be triggered by a determination by the Board that
recovery efforts have not been, or are unlikely to be, successful in
returning NSCC to viability as a going concern. Once triggered, the
Wind-down Plan sets forth clear mechanisms for the transfer of NSCC's
membership and business and is designed to facilitate continued access
to NSCC's core services and to minimize market impact of the transfer.
By establishing the framework and strategy for the execution of the
transfer and orderly wind-down of NSCC in order to facilitate
continuous access to its critical services, the Wind-down Plan
establishes a plan for the orderly wind-down of NSCC.
As described above, the proposed rule change would update the R&W
Plan to reflect information regarding the (i) staffing roles necessary
to support NSCC's core services and the tools that NSCC could invoke to
retain staff in the event of a recovery and during an orderly wind-
down, (ii) Service providers of core services supporting NSCC's core
services and how NSCC would endeavor to ensure that such service
providers for core services would continue to perform in the event of a
recovery and during an orderly
[[Page 17845]]
wind-down, (iii) scenarios that may potentially prevent NSCC from being
able to provide its core services as a going concern, (iv) criteria
that could trigger NSCC's implementation of the Plan, (v) rules,
policies, procedures, tools and resources on which NSCC would rely
during a recovery or orderly wind-down and how these would ensure
timely implementation of the Plan, (vi) NSCC's process for notification
to the Commission as soon as practicable when NSCC is considering
implementing a recovery or orderly wind-down, (vii) testing of NSCC's
ability to invoke the Plan, and (viii) review and approval of the Plans
by NSCC's Board of Directors. The proposed rule change would also make
certain technical corrections to align with the RWP Rule. By including
the above detailed information in the Plan and ensuring that material
provisions of the Plan are current, clear, and technically correct,
NSCC believes that the proposed amendments are designed to support the
maintenance of the Plan for the recovery and orderly wind-down of the
covered clearing agency necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any other losses,
and, as such, meets the requirements of Rule 17ad-22(e)(3)(ii) under
the Act.\54\ Therefore, the proposed changes would help NSCC to
maintain the Plan in a way that continues to be consistent with the
requirements of Rule 17ad-22(e)(3)(ii).
---------------------------------------------------------------------------
\54\ Id.
---------------------------------------------------------------------------
Rule 17ad-26 requires the plans for recovery and orderly wind-down
of covered clearing agencies, such as NSCC, to identify and address
certain information that is pertinent to the Plan.\55\ The proposed
rule change would add the various elements required by Rule 17ad-26
noted in the previous paragraph and described more fully above. By
adding the various required elements, the Plan would contain the
necessary information that would facilitate its implementation if it
ever needed to be invoked. Therefore, the proposed rule changes would
help NSCC maintain the Plan in a way that is consistent with Rule 17ad-
26.
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\55\ Supra note 7.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would have any
impact, or impose any burden, on competition. NSCC does not anticipate
that the proposal would affect its day-to-day operations under normal
circumstances, or the management of a typical Member default scenario
or non-default event. The R&W Plan was developed and documented in
order to satisfy applicable regulatory requirements, as discussed
above. The proposal is intended to enhance and update the Plan to
ensure it is clear and remains current in accordance with applicable
rules in the event it is ever necessary to be implemented. The proposed
revisions would not affect any changes to the overall structure or
operation of the Plan or NSCC's recovery and wind-down strategy as set
forth under the current Plan. As such, NSCC believes the proposal would
not have any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
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 publicly file such comments as an Exhibit 2 to this
filing, as required by Form 19b-4 and the General Instructions thereto.
Persons submitting written 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#b9cdcbd8ddd0d7ded8d7ddd4d8cbd2dccdcaf9cadcda97ded6cf"><span class="__cf_email__" data-cfemail="f4808695909d9a93959a909995869f918087b4879197da939b82">[email protected]</span></a> or 202-551-5777.
NSCC reserves the right to not 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:
(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#fa888f969fd7999597979f948e89ba899f99d49d958c"><span class="__cf_email__" data-cfemail="3e4c4b525b135d5153535b504a4d7e4d5b5d10595148">[email protected]</span></a>. Please include
file number SR-NSCC-2025-007 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-2025-007. 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
a.m. and 3 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-2025-007 and
[[Page 17846]]
should be submitted on or before May 20, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-07314 Filed 4-28-25; 8:45 am]
BILLING CODE 8011-01-P
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