Notice2025-14859
Paxos Securities Settlement Company, LLC; Notice of Filing of an Application for Registration as a Clearing Agency Under Section 17A of the Securities Exchange Act of 1934
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Published
August 6, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 149 (Wednesday, August 6, 2025)</title>
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[Federal Register Volume 90, Number 149 (Wednesday, August 6, 2025)]
[Notices]
[Pages 37940-37943]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14859]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103624; File No. 600-39]
Paxos Securities Settlement Company, LLC; Notice of Filing of an
Application for Registration as a Clearing Agency Under Section 17A of
the Securities Exchange Act of 1934
August 1, 2025.
On July 14, 2025, Paxos Securities Settlement Company, LLC
(``PSSC'') filed with the Securities and Exchange Commission
(``Commission'') an application on Form CA-1 (``Application'') under
Section 17A of the Securities Exchange Act of 1934 (``Exchange Act'')
seeking to register as a clearing agency.\1\ Specifically, the
Application states that PSSC is applying to register as a clearing
agency to provide clearance and settlement services as a central
securities depository (``CSD'') and securities settlement system.\2\
The Application explains that PSSC would provide such services through
its private, permissioned settlement service that supports a
distributed ledger, which is designed to conduct delivery versus
payment (``DVP'') settlement on a bilateral basis.\3\ The Application
provides additional information regarding how PSSC proposes to operate
and to satisfy the requirements of the Exchange Act.\4\ The proposed
rules of PSSC and its proposed fees are included as attachments to
Exhibit E to the Application.\5\
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\1\ 15 U.S.C. 78q-1.
\2\ See, e.g., Application, Exhibit I at 1; Exhibit J at 1.
Consistent with the activities described in the Application, PSSC's
proposed settlement system meets the definition of ``central
securities depository'' under Commission rules. See 17 CFR 240.17ad-
22(a); see also Release No. 34-88616 (Apr. 9, 2020), 85 FR 28853,
28857 (May 14, 2020) (describing the ``cluster of services''
provided by CSDs and securities settlement systems).
\3\ See Application, Exhibit J at 1.
\4\ The non-confidential exhibits of the Application are
available for viewing on the Commission's website <a href="http://www.sec.gov/rules/other/shtml">www.sec.gov/rules/other/shtml</a>. PSSC has sought confidential treatment regarding
certain elements of the Application, see 17 CFR 240.24b-2, and made
redactions from the Application materials available for public
viewing on the Commission's website where the Application contains
information for which it has sought confidential treatment.
\5\ Exhibits E.12 through E.26 of the Application contain PSSC's
proposed rules. Exhibit E.37 of the Application describes PSSC's
proposed fees.
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The Commission is publishing this notice to solicit comments on the
Application. To grant PSSC's request to register as a clearing agency,
the Commission must find that it satisfies the requirements of the
Exchange Act and the rules and regulations thereunder, including the
determinations required by paragraphs (A) through (I) of Section
17A(b)(3).\6\ Pursuant to Section 17A of the Exchange Act, the
Commission is directed, having due regard for the public interest, the
protection of investors, the safeguarding of securities and funds, and
maintenance of fair competition among brokers and dealers, clearing
agencies, and transfer agents, to use its authority to: (i) facilitate
the establishment of a national system for the prompt and accurate
clearance and settlement of transactions in securities (other than
exempt securities); and (ii) facilitate the establishment of linked or
coordinated facilities for clearance and settlement of transactions in
securities in accordance with the findings and to carry out the
objectives set forth in Section 17A.\7\ The Commission will consider
any comments it receives in making its determination about whether to
grant PSSC's request to be registered as a clearing agency.
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\6\ 15 U.S.C. 78s(a); 15 U.S.C. 78q-1(b)(3).
\7\ 15 U.S.C. 78q-1(a)(2)(A).
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I. Discussion
Prior to the formation of PSSC in June 2020, its affiliate, Paxos
Trust Company, LLC (``Paxos'') received on October 28, 2019, a no-
action letter from the Commission's Division of Trading and Markets
that enabled Paxos to conduct a feasibility study under specified
conditions in connection with the operation of a securities settlement
system using a private and permissioned distributed ledger system for
an 24-month period, expiring on October 28, 2021.\8\ PSSC is now filing
this Application seeking to register as a clearing agency to provide
clearance and settlement services similar to the services that were
performed by Paxos during the feasibility study.\9\
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\8\ Letter from Jeffrey S. Mooney, Associate Director, Division
of Trading and Markets, Commission to Charles G. Cascarilla and
Daniel M. Burstein, Paxos Trust Company, LLC (Oct. 28, 2019). Both
the request and response letters are available at <a href="https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf">https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf</a>. As discussed below, Paxos is an affiliate of
PSSC, both wholly owned by Kabompo Holdings, Ltd.
\9\ See Application, Exhibit J.
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[[Page 37941]]
The Application states that PSSC is a limited liability company
formed under Delaware law and a wholly owned subsidiary of Kabompo
Holdings, Ltd. (``Kabompo''), which is also the parent holding company
for Paxos Holdings LLC (``Paxos Holdings''), which in turn is the
parent of 20 other U.S. and non-U.S. subsidiaries, including PSSC and
Paxos.\10\ Kabompo is domiciled in the Cayman Islands.\11\
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\10\ PSSC was formed on June 23, 2020, and subsequently entered
into a Limited Liability Company Agreement with Kabompo on October
20, 2021. PSSC Application, Exhibit E.1. The Application describes
PSSC as a wholly owned single member limited liability company,
operating as a stand-alone entity with no divisions or segregable
entities or subsidiaries. In addition to PSSC, Kabompo is the parent
holding company for a number of other U.S. and non-U.S.
subsidiaries, including Paxos; Paxos Technology Solutions, LLC
(``PTS''); Paxos Technology Limited (``PTL''); Paxos Services
Limited; Paxos Canada Inc.; Lomami Intermediacao (dba Paxos Brazil);
Bruntal SA (dba Paxos Uruguay); Molopo, Sociedad de Responsabilidad
Limitada de CV (dba Paxos Mexico); Kabompo Lending Ltd.; Paxos
Digital Singapore Pte. Ltd.; Paxos Lending LLC; Paxos Issuance MENA
Ltd.; Paxos Insurance Company Ltd.; Paxos Singapore Pte. Ltd.; Paxos
Middle East Ltd.; Paxos Issuance Europe Oy; Castor Pollux Holdings
SARL (``Castor''); and HRQ, LLC. Paxos Global PTE, Ltd. (``PTE'') is
a wholly owned subsidiary of Castor. In addition, the chairman of
PSSC's Board of Directors (``Board'') would also be PSSC's Chief
Executive Officer (``CEO'') and is one of the three owners of
Kabompo. Another of the three owners of Kabompo is LCV Digital
Currency II, LLC. The PSSC CEO is a majority stakeholder in both
Kabompo and LCV Digital Currency II, LLC. See PSSC Application,
Exhibits C.1 and C.2. respectively, for more information about each
of these affiliates and PSSC's governance and ownership
arrangements.
\11\ See Application, Exhibit C.2.
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PSSC's Board would be comprised of ten directors.\12\ To assist the
Board, PSSC would have five Board-level committees and one Participant
Advisory Committee (``PAC'').\13\ Three of the ten directors would be
``member directors,'' selected by Paxos Holdings. Five directors would
be ``public directors,'' initially specified in PSSC's bylaws and
thereafter elected annually by the PSSC's Board from among nominees
selected by the Board's Governance Committee.\14\ Two directors would
be ``participant directors,'' affiliated with a PSSC participant and
nominated by participant representatives serving on the Board's PAC.
PSSC's Board would not initially include the participant directors.
PSSC's bylaws provide that within 180 calendar days of PSSC commencing
operations and having at least two participants (or a different time
that is agreed to by PSSC and its PAC), two additional participant
directors selected by the PAC would be added to the Board.\15\
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\12\ See Application, Exhibit B.I.
\13\ See Application, Exhibit B.II. PSSC's Board committees
include the: Governance, Nominating and Policy Committee
(``Governance Committee''); Audit Committee; Compliance and Risk
Management Committee; Business, Technology and Operations Committee;
and Compensation Committee. Id.
\14\ See Application, Exhibit B.I.
\15\ Id.
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PSSC would provide clearance and settlement services through the
Paxos Settlement Service (``PSS''), which is a private and permissioned
system developed and operated by PSSC. The technology that supports PSS
includes a distributed ledger called the Paxos Ledger, which records
ownership of eligible securities and cash. PSS is designed to conduct
DVP settlement, on a bilateral basis, of settlement obligations between
counterparty pairs (``CP Pairs'').\16\ As a participant in the
Depository Trust Company (``DTC''),\17\ PSSC would make its services
available to DTC participants who also (i) meet the participant
qualifications specified in PSSC's proposed rules, including
qualifications regarding the types of entities eligible to become a
PSSC participant; \18\ (ii) are approved by the PSSC's Compliance and
Risk Management Committee; \19\ and (iii) have met applicable margin
requirements pursuant to PSCC's proposed rules.\20\
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\16\ See Application, Exhibit J.E.
\17\ DTC, a securities depository as that term is described in
the Exchange Act, 15 U.S.C. 78c(a)(23)(A), is registered with the
Commission as a clearing agency and provides CSD services. The
Application states that PSSC has not yet applied to become a
participant in DTC. See Application, Exhibit A.
\18\ See Application, Exhibit E.16 (Rule 2A); see also
Application, Exhibit J. Pursuant to PSSC's proposed Rule 2A, the
types of entities that would be eligible to become participants
include registered broker-dealers, certain bank and trust companies,
registered clearing agencies, insurance companies or insurance
entities, and registered investment companies.
\19\ See Application, Exhibit E.16 (Rule 2A).
\20\ See Application, Exhibit E.15 (Rule 2, referring to margin
requirements in PSSC's proposed Rules 5A, 5B, and 5C); see also
Exhibit J.
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Only trades received by CP Pairs established pursuant to PSCC's
proposed rules would be eligible for settlement in PSSC. Prior to
commencing participation in PSSC, each participant would be required to
notify PSSC in writing of other participants with which it agrees to
settle settlement obligations in PSSC.\21\ By providing such written
notices, the PSSC participants and PSCC would agree between and among
themselves that: (i) each participant would be a CP Pair of the other
such participant as provided in PSSC's proposed rules for the purposes
of settling settlement obligations between them through PSSC; (ii) the
settlement obligations would be determined by PSSC pursuant to its
proposed rules; (iii) each participant in the CP Pair agrees to be
obligated to the other participant to settle the settlement obligations
pursuant to PSSC's proposed rules; and (iv) PSCC and each participant
in the CP Pair would have all the rights and obligations as against
each other as specified in the proposed rules.\22\
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\21\ See Application, Exhibit E.19 (Rule 2D); see also
Application, Exhibit J.
\22\ Id. The Application states that, in the event of an
unsettled close-out liability obligation, PSSC would apply the
defaulting participant's margin assets for any close-out liability
obligation not fully settled and generate a final value for any
outstanding close-out liability obligation. Each CP Pair then has
the discretion to pursue recovery of the amount of the final value
against the defaulting participant, provided however, that any such
process would not be governed by PSSC's proposed rules. See
Application, Exhibit J.J.
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PSSC would not operate as a central counterparty. Instead, all
settlement obligations submitted to PSSC would be settled on a net
basis between CP Pairs unless both participants in a CP Pair provide
written instructions to PSSC specifying that one or more transactions
should be settled on a gross basis.\23\ As explained more fully in its
Application, PSSC would also make available the option for ``enhanced
netting'' across CP Pairs.\24\
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\23\ See Application, Exhibit J.H.
\24\ Id.
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Between trade date and settlement date, PSSC would calculate and
collect from participants margin collateral on all settlement
obligations in the form of cash. PSSC would require both an initial
margin deposit based on factors detailed in its proposed rules and a
``minimum required margin deposit'' (``MRMD'') of $10,000, which may be
increased based on specified factors detailed in PSSC's proposed rules.
In addition to the initial margin and MRMD, PSSC's proposed rules
also would calculate a ``required margin amount'' (``RMA''), which
would be defined as the greater of the initial margin deposit, the
minimum required margin deposit, and the ``computed margin
requirement'' (``CMR'').'' As described in more detail in the
Application, the CMR would be calculated by (i) determining a
``preliminary computed margin requirement'' (``PCMR''); (ii) adjusting
the PCMR using PSSC's ``credit risk modification factor'' to arrive at
a CMR; and then (iii) adding to the CMR any fails charges, excessive
fails penalties, or both.\25\
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\25\ See Application, Exhibit E.25. The PCMR would be calculated
using the following measures: (i) a dynamic spot price; (ii)
liquidity exposure requirement; (iii) low-priced securities
requirement; (iv) market capitalization requirement; and (iv)
percentage of outstanding shares requirement. Each of these measures
is further defined and explained in the Application. See
Application, Exhibit E.25.
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[[Page 37942]]
PSSC would determine and communicate to each participant the RMA at
least once daily by 10:00 p.m., or in certain circumstances not later
than 11:59 p.m. on trade date, and participants would be required to
satisfy its RMA by 10:00 a.m. the following day.\26\ PSSC also would
determine and calculate to each participant additional intraday CMR
charges as soon as practicable, and participants would be required to
satisfy an intraday CMR charge within two hours of communication by
PSSC.\27\ Under PSSC's proposed rules, participants would be permitted
to withdraw margin assets exceeding the required margin amount upon
request, unless otherwise rejected by PSCC based on parameters set
forth in its proposed rules.\28\
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\26\ See Application, Exhibit E.26.
\27\ Id.
\28\ See Application, Exhibit E.26.
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To facilitate the clearance and settlement of obligations between
CP Pair participants, each participant would be required to deposit
eligible securities \29\ into its PSSC participant account by
instructing DTC to move its securities from the PSSC participant's
account at DTC to PSSC's account at DTC, which in turn would hold such
securities for the benefit of the PSSC participant.\30\ Upon receipt,
PSSC, through a process it describes as ``securities digitization,''
would create a security entitlement on the Paxos Ledger credited to the
relevant participant's account that is a representation of the eligible
security held in PSSC's DTC account.\31\ Upon instructions from a PSSC
participant, PSSC would facilitate a withdrawal of securities from the
participant's PSSC account by removing the security entitlement to the
securities credited to that participant's account on the Paxos Ledger
and initiating relevant instructions through DTC to remove the security
from PSSC's DTC account and deliver it to the PSCC participant's DTC
account. PSSC would not remove the security entitlement to the
securities credited to the participant's PSSC account without also
transferring the securities ``in rapid succession'' to a DTC account
designated by the PSSC participant.\32\
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\29\ Pursuant to PSSC's proposed rules, eligible securities
include those that are securities eligible for deposit at DTC and
that meet additional criteria as determined by PSSC. See
Application, Exhibit E.20 (Rule 3).
\30\ See Exhibit E.22 (Rule 4).
\31\ In its Application, in describing the indirect holding
system for securities cleared and settled through its proposed
clearing agency, PSSC uses the term ``security entitlement'' as
defined in U.C.C. Section 8-102(a)(17). See Application, Exhibit L.
\32\ Id.
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With regard to the deposit of cash into a PSSC participant account,
PSSC would maintain two types of omnibus cash custody accounts for the
benefit of participants at a settling bank: (i) an operating cash
account which would be used to settle PSSC participant settlement
obligations and fees owed to PSSC; \33\ and (ii) a margin cash account,
which would be used to satisfy PSSC participants' margin
obligations.\34\ Upon receipt of cash from a participant into the
operating cash or margin cash account, PSSC, through a process called
``cash digitization,'' would create a securities entitlement on the
Paxos Ledger credited to the participant account that would be a
representation of the cash in the operating cash or margin cash
account, as applicable.\35\ Upon instruction from a participant, PSSC
would also facilitate the withdrawal of operating cash or margin cash
from the participant's account by removing the security entitlement
credited to the participant in its account on the Paxos Ledger and
initiating a transfer from PSSC to an account designated by the
participant. PSSC would not remove the security entitlement to cash
without also transferring the cash ``in rapid succession'' to the
account designated by the participant.\36\
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\33\ PSSC defines the term ``Operating Cash Account'' to mean an
omnibus cash custody account at each settling bank that holds
operating cash deposited by participants for the purpose of settling
obligations to purchase securities from CP Pairs and to settle fees
owed to PSSC. Application, Exhibit E.12 (Rule 1) at 12.
\34\ Id.; see also Application, Exhibit E.34 (Rule 13)
(providing information regarding eligibility and ongoing obligations
of PSSC-approved settling banks). PSSC defines the term ``Margin
Cash Account'' to mean an omnibus cash custody account at a settling
bank that is maintained in PSSC's name for the purpose of holding
cash that represents the margin assets of each participant.
Application, Exhibit E.12 (Rule 1) at 10.
\35\ See Application, Exhibit 22 (Rule 4) at 2.
\36\ Id.
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PSSC would use a cloud services provider to support its core
clearing agency services, including trade capture, pre-settlement
processing (e.g., comparison, netting), margin, settlement, and custody
of security entitlements to securities and cash.\37\
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\37\ See Application, Exhibit M.4. PSSC intends to execute a
service agreement with a cloud services provider through which that
provider would provide computer system hardware and software
services to PSSC. Id.
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Additional information concerning PSSC and its proposed operations
may be found in the Schedule A and non-confidential exhibits appended
to PSSC's Application. For example, Schedule A to PSSC's Application
includes a description of the PSSC's arrangements with other entities
to perform its clearing agency activities, and internal policy and
procedures for reconciling differences within its clearing agency
activities. Exhibit A provide a list of PSSC's Board of Directors and
shareholder information, while Exhibit B provides a list of its
officers and senior managers. Exhibit C includes both a narrative and
graphical depiction of PSSC's organizational and governance structure,
and Exhibit E includes copies of PSSC's proposed rules for
participation, along with copies of PSSC's governing documents and
description of fees and charges. Exhibit J provides a description of
PSSC's services and functions. Finally, Exhibit K provides a
description of PSSC's security measures and procedures, and Exhibit M
provides a description of PSSC's systems used to prevent interruptions
in the performance of its clearing agency functions.
II. Request for Comment
PSSC's application on Form CA-1, including each exhibit thereto
referenced above, is available online at <a href="http://www.sec.gov/rules/other/shtml">www.sec.gov/rules/other/shtml</a>.
Interested persons are invited to submit written data, views, and
arguments concerning the Application, including whether the Application
is consistent with the Exchange Act and the rules and regulations
thereunder applicable to clearing agencies (e.g., Exchange Act Rules
17Ad-22, 17Ad-25, 17Ad-26, and Regulation Systems Compliance and
Integrity, among others).\38\
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\38\ See 17 CFR 240.17ad-22 (``Rule 17Ad-22''), 240.17ad-25
(``Rule 17Ad-25''), and 240.17ad-26 (``Rule 17Ad-26''); 17 CFR
242.1000 through 242.1007 (``Regulation Systems Compliance and
Integrity'').
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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/other.shtml">http://www.sec.gov/rules/other.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="8af8ffe6efa7e9e5e7e7efe4fef9caf9efe9a4ede5fc">[email protected]</span></a>. Please include
File Number 600-39 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549-1090. All submissions should refer to File Number 600-39.
To help the Commission process and review your comments more
efficiently, please use only one method of
[[Page 37943]]
submission. The Commission will post all comments on the Commission's
internet website (<a href="http://www.sec.gov/rules/other.shtml">http://www.sec.gov/rules/other.shtml</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 600-39 and should be
submitted on or before September 22, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(16).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-14859 Filed 8-5-25; 8:45 am]
BILLING CODE 8011-01-P
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