Notice2026-11144
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance NSCC's Clearing Fund Methodology
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 4, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 107 (Thursday, June 4, 2026)</title>
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[Federal Register Volume 91, Number 107 (Thursday, June 4, 2026)]
[Notices]
[Pages 33839-33844]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11144]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105593; File No. SR-NSCC-2026-008]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Enhance NSCC's
Clearing Fund Methodology
June 1, 2026.
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 May 26, 2026, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would modify the NSCC Rules & Procedures
(``NSCC Rules'') \3\ to enhance NSCC's Clearing Fund methodology to
address certain risks presented by exchange-traded products (``ETPs'').
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\3\ Capitalized terms not defined herein shall have the meaning
assigned to such terms in the NSCC 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
Background
(i) Overview of the NSCC Clearing Fund
NSCC is a clearing agency that provides clearing, settlement, risk
management, and central counterparty (``CCP'') services for trades
involving equity securities, corporate and municipal debt, ETPs,\4\ and
unit investment trusts. NSCC manages its credit exposure to its Members
by determining the appropriate Required Fund Deposit to the Clearing
Fund for each Member and by monitoring the sufficiency of such
deposits, as provided for in the NSCC Rules.\5\
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\4\ ETPs cleared by NSCC include exchange-traded funds
(``ETFs'') and exchange-traded notes (``ETNs''). ETFs are securities
that are traded on an exchange and track underlying securities,
indexes or other financial instruments, including equities,
corporate and municipal bonds and treasury instruments. ETNs are
unsecured debt obligations of financial institutions that trade on a
securities exchange.
\5\ See NSCC Rule 4 (Clearing Fund) and Procedure XV (Clearing
Fund Formula and Methodology), supra note 3.
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NSCC Procedure XV describes NSCC's Clearing Fund formula and
methodology. NSCC calculates and
[[Page 33840]]
collects Clearing Fund from its Members (i.e., a Required Fund Deposit)
on a daily basis using a risk-based margin methodology. The objective
of a Member's Required Fund Deposit is to mitigate potential losses to
NSCC associated with liquidating a Member's portfolio in the event NSCC
ceases to act for that Member (hereinafter referred to as a
``default'').\6\ Required Fund Deposits operate, individually, as the
Member's margin, and the aggregate of all such Members' deposits is
referred to, collectively, as the Clearing Fund, which operates as
NSCC's default fund. NSCC would access the Clearing Fund should a
defaulting Member's own Required Fund Deposit be insufficient to
satisfy losses to NSCC caused by the liquidation of that Member's
portfolio.
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\6\ The NSCC Rules identify when NSCC may cease to act for a
Member and the types of actions NSCC may take. See NSCC Rule 46
(Restrictions on Access to Services), supra note 3.
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Each Member's Required Fund Deposit amount consists of a number of
applicable components, each of which is calculated to address specific
risks faced by NSCC, as identified within the NSCC Rules. The major
components of NSCC's Clearing Fund charges include, but are not limited
to: (i) volatility charges for securities based on asset type and
liquidity profile (``Volatility Charge''); (ii) mark-to-market charges;
(iii) fail charges; (iv) a charge for Family-Issued Securities to
mitigate wrong-way risk; (v) a charge to mitigate day over day margin
differentials; (vi) a coverage component; (vii) a margin liquidity
adjustment component; (viii) a backtesting charge; and (ix) an excess
capital premium charge. The primary component of NSCC's Clearing Fund
is the Volatility Charge, which is designed to measure market price
volatility of each Member's start of day (``SOD'') portfolio.
(ii) Volatility Charge Component of the Clearing Fund
The Volatility Charge of each Member's Required Fund Deposit is
designed to measure the market price volatility of the SOD portfolio
and is calculated for Members' Net Unsettled Positions \7\ and Net
Balance Order Unsettled Positions \8\ (hereinafter, collectively
referred to as ``Net Unsettled Positions''). The Volatility Charge is
designed to capture the market price risk \9\ associated with each
Member's portfolio at a 99th percentile level of confidence. The
Volatility Charge component usually comprises the largest portion of a
Member's Required Fund Deposit.
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\7\ Net Unsettled Positions are defined in the NSCC Rules as a
Member's net of unsettled Regular Way, When-Issued and When-
Distributed positions in CNS Securities that have not yet passed
Settlement Date and net positions in CNS Securities that did not
settle on Settlement Date. See Definitions and Descriptions in NSCC
Rule 1, supra note 3.
\8\ Net Balance Order Unsettled Positions are defined as a
Member's net of unsettled Regular Way, When-Issued and When-
Distributed positions in Balance Order Securities that have not yet
passed Settlement Date. See Definitions and Descriptions in NSCC
Rule 1, supra note 3.
\9\ Market price risk refers to the risk that volatility in the
market causes the price of a security to change between the
execution of a trade and settlement of that trade. This risk is also
referred to herein as market risk and volatility risk.
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NSCC has two methodologies for calculating the Volatility Charge.
For the majority of equity Net Unsettled Positions, NSCC calculates the
Volatility Charge as the sum of (1) the greater of (a) the larger of
two separate calculations that utilize a parametric Value-at-Risk
(``VaR'') model \10\ and (b) a portfolio margin floor calculation
(``Margin Floor'') based on the market values of the long and short
positions in the portfolio \11\ and (2) a gap risk measure calculation
(``Gap Risk Charge'') based on the concentration threshold of the two
largest non-diversified positions in a portfolio (collectively, the
``VaR Charge'').\12\ NSCC also excludes certain equity Net Unsettled
Positions from the calculation of the VaR Charge and instead applies a
haircut-based volatility charge that is calculated by multiplying the
absolute value of those Net Unsettled Positions by a percentage.\13\
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\10\ The parametric VaR calculation utilizes (i) an
exponentially-weighted moving average (``EWMA'') estimation and (ii)
an evenly-weighted estimation that is directly compared to the EWMA
parameter. The greater of these two separate calculations produces a
single core parametric result (``Core Parametric Estimation'').
\11\ The Margin Floor is then compared to the Core Parametric
Estimation to determine the parametric VaR (i.e., the parametric VaR
is the highest among the Core Parametric Estimation and the Margin
Floor).
\12\ See Procedure XV, Sections I(A)(1)(a)(i) and I(A)(2)(a)(i)
of the NSCC Rules, supra note 3.
\13\ See Procedure XV, Sections I(A)(1)(a)(ii) and
I(A)(2)(a)(ii) of the NSCC Rules, supra note 3.
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Fat Tail Adjustment Factor. Under NSCC's current parametric VaR
model methodology, NSCC supplements its assumption of a normal return
distribution for equity portfolios with a factor that utilizes the
degrees of freedom (``DOF'') derived from a family of Student's t-
distributions, which are more representative of the historically
observed return distributions in the equities markets (the ``Fat Tail
Adjustment Factor'').\14\ NSCC estimates periodically the DOF factor of
the empirical t-distribution in the model by using daily return data
from an industry standard index over a historical window of no shorter
than 12 months. NSCC then computes a multiplication factor that
represents the magnitude of increase of t-distribution-based parametric
VaR from the normal-based parametric VaR. This multiplication factor is
then applied to parametric VaR.
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\14\ In 2014, the Commission issued a notice of no objection to
an advance notice filing by NSCC to make certain enhancements to its
parametric VaR model by supplementing the assumption of normal
distribution underlying the current model with a family of Student's
t-distributions. The Fat Tail Adjustment Factor is not currently
described in the NSCC Rules. See Securities Exchange Act Release No.
72260 (May 27, 2014), 79 FR 31360 (June 2, 2014) (SR-NSCC-2014-802).
The Fat Tail Adjustment Factor is described in NSCC's internal
methodology and risk model documentation and in the externally
available NSCC Risk Margin Component Guide, posted on the DTCC
website at <a href="http://www.dtcclearning.com/products-and-services/equities-clearing/nscc-risk-management.html">www.dtcclearning.com/products-and-services/equities-clearing/nscc-risk-management.html</a>.
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Bid-Ask Spread Charge. In calculating estimations of volatility for
the Core Parametric Estimation, NSCC also includes an additional charge
designed to cover the risk presented by the variation of bid-ask
spreads over time and varying market conditions (``Bid-Ask Spread
Charge''). The Bid-Ask Spread Charge is measured by multiplying the
gross market value of each Net Unsettled Position by a basis point
charge.\15\ The applicable basis point charge is based on the following
groups/classifications: (i) large and medium capitalization equities;
(ii) small capitalization equities; (iii) micro-capitalization
equities; and (iv) ETPs. NSCC reviews the basis point charges at least
annually.
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\15\ See Procedure XV, Sections I(A)(1)(a)(i)I and
I(A)(2)(a)(i)I of the NSCC Rules, supra note 3.
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Gap Risk Charge. In addition to the Core Parametric Estimation and
the Margin Floor, NSCC calculates a Gap Risk Charge, which is designed
to address a pronounced form of idiosyncratic risk from unexpected,
large, gap-like price movements of a stock due to company-specific
events. The Gap Risk Charge is added, if applicable, to the parametric
VaR to determine the VaR Charge.\16\
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\16\ See Procedure XV, Sections I(A)(1)(a)(i)III and
I(A)(2)(a)(i)III of the NSCC Rules, supra note 3.
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The Gap Risk Charge is assessed if the sum of the gross market
values of the two largest non-diversified Net Unsettled Positions in a
Member's portfolio represents a percentage designated by NSCC of the
gross market value of the entire portfolio (the ``Concentration
Threshold''), currently set at a value that is no greater than 30
percent. The amount of the Gap Risk Charge is determined by adding the
sum of (1) the product of (A) the gross market value of the largest
non-diversified Net Unsettled Position and (B) a ``gap risk haircut''
determined by NSCC of not
[[Page 33841]]
less than five percent and (2) the product of (A) the gross market
value of the second largest non-diversified Net Unsettled Position and
(B) a gap risk haircut, no larger than the gap risk haircut applied to
the largest Net Unsettled Position (but not less than 2.5 percent). The
Concentration Threshold and the gap risk haircuts are determined by
NSCC from time to time and are calibrated based on backtesting and
impact analysis during a time period of not less than the previous 12
months.\17\
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\17\ See id.
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Additionally, NSCC excludes ETF \18\ positions from the calculation
if the positions have characteristics that indicate that they are less
prone to the effects of gap risk events. Such characteristics include
whether the ETF positions track to an index that is linked to a broad-
based market index, contain a diversified underlying basket, are
unleveraged, or track to an asset class that is less prone to gap
risk.\19\
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\18\ As noted above, ETFs are securities that are traded on an
exchange and that track underlying securities, indexes or other
financial instruments, including equities, corporate and municipal
bonds and treasury instruments. Unlike mutual funds, ETFs are
created with the assistance of certain financial institutions called
authorized participants (``APs''), often banks, that are given the
ability to create and redeem ETF shares directly from the ETF
issuer. To create ETF shares, an AP can either deliver a pre-
specified bundle of securities underlying the ETFs (i.e., an ``in-
kind basket'') in exchange for ETF shares or provide cash equal to
the value of the cost of purchasing underlying securities for the
ETF shares. To redeem ETF shares, an AP would do the opposite--
deliver ETF shares to the ETF issuer in exchange for an in-kind
basket of underlying securities or cash equal to the value of the
underlying securities. NSCC supports the creation and redemption of
ETFs on both a ``cash-only'' and ``in-kind'' basis. ``Cash-only''
creations and redemptions represent an exchange of ETF shares for
cash rather than for the component securities and other assets in
the trading basket. ``In-kind'' ETF creations and redemptions
represent an exchange of ETF shares for the component securities and
other assets in the trading basket. See NSCC Rule 7 (Comparison and
Trade Recording Operation (Including Special Representative/Index
Receipt Agent)) and Procedure II (Trade Comparison and Recording
Service), Section F concerning the ETF creation/redemption process,
supra note 3.
\19\ See Securities Exchange Act Release No. 98086 (Aug. 8,
2023), 88 FR 55100 (Aug. 14, 2023) (SR-NSCC-2022-015).
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Proposed Changes to the NSCC Rules
NSCC proposes to amend the NSCC Rules to (i) enhance its Gap Risk
Charge methodology to address certain risks presented by ETFs; (ii)
enhance the Bid-Ask Spread Charge by applying more granular basis point
charges for different sub-categories of ETPs; and (iii) describe the
use of the Fat Tail Adjustment Factor in the parametric VaR
calculation. The proposed changes are described in detail below.
(i) Proposed Enhancements to the Gap Risk Charge
NSCC proposes to enhance its methodology for the Gap Risk Charge by
introducing a mapping and decomposition process for ETFs that is
designed to more accurately isolate and address the risk exposures of
the underlying ETF holdings. The proposed rule change would allow NSCC
to (i) map certain leveraged or inverse equity ETFs \20\ to a related
non-leveraged ETF with in-kind baskets with adjustment of the
corresponding leverage/inverse factor; (ii) decompose equity ETFs
eligible for in-kind baskets, including the mapped ETFs from (i), into
their underlying components; and (iii) map single stock ETFs to their
corresponding single stock positions with adjustments for any
corresponding leverage/inverse factor, so that NSCC can net indirect
and direct exposures within a Member's portfolio.
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\20\ A ``leveraged'' ETF is an ETF that seeks to deliver
multiples of the daily performance of the index or benchmark it
tracks. For example, a 2x (or two times) leveraged ETF seeks to
deliver double the daily performance of the index or benchmark that
it tracks. An ``inverse'' ETF seeks to deliver the opposite of the
daily performance of the index or benchmark it tracks. To accomplish
their objectives, leveraged and inverse ETFs may pursue a range of
investment strategies through the use of swaps, futures contracts,
and other derivative instruments. See U.S. Securities and Exchange
Commission, Commission Investor Bulletin, Leveraged and Inverse
ETFs: Specialized Products with Extra Risks for Buy-and-Hold
Investors, Office of Investor Education and Advocacy (Aug. 29,
2023), available at <a href="https://sec.gov/investor/pubs/leveragedetfs-alert.htm">https://sec.gov/investor/pubs/leveragedetfs-alert.htm</a>.
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NSCC proposes to modify Sections I(A)(1)(a)(i)(III) and
I(A)(2)(a)(i)(III) of Procedure XV to describe the proposed
enhancements to the Gap Risk Charge. First, NSCC would revise the NSCC
Rules to provide that the enhanced Gap Risk Charge would be assessed
based on the sum of the gross market values of the two largest non-
diversified ``net positions'' within a Member's portfolio, rather than
the Net Unsettled Positions. The proposed rule change would further
provide that, for purposes of determining ``net positions'' for the Gap
Risk Charge calculation, NSCC would start with Net Unsettled Positions
and then apply a mapping and decomposition process for ETF Net
Unsettled Positions to isolate the risk exposures of the underlying ETF
holdings, which is described in further detail below. The proposed
changes are intended to reflect the application of the proposed mapping
and decomposition process in determining the net position used to (i)
determine whether positions in the portfolio exceed the Concentration
Threshold and (ii) calculate the resultant Gap Risk Charge.
Second, NSCC would amend the NSCC Rules to describe the proposed
mapping and decomposition process, which would enable the Gap Risk
Charge to account for both direct exposure and indirect exposure for
applicable equities. Specifically, the proposed rule change would
provide that (i) equity ETFs eligible for in-kind baskets may be
decomposed into positions in their underlying components; (ii)
leveraged or inverse equity ETFs may be mapped to a related non-
leveraged ETF with in-kind baskets, which may then be decomposed into
positions in their underlying components; and (iii) single stock ETFs
may be mapped to their corresponding single stock positions.
Third, NSCC would amend the NSCC Rules to provide that NSCC would
then net all positions, whether they have direct exposure from the Net
Unsettled Positions within the original portfolio or indirect exposures
from the ETF mapping and decomposition process, to establish the ``net
positions'' for the Gap Risk Charge calculation. Accordingly, the Gap
Risk Charge would then be determined by adding the sum of the product
of the gross market value of the two largest non-diversified net
positions (as derived by the mapping and decomposition process) and
corresponding gap risk haircuts established by NSCC, if the sum of the
gross market values of the two largest non-diversified net positions in
the portfolio represent a percentage designated by NSCC of the gross
market value of the entire liquid equity portfolio, minus the exempted
equity ETFs.
In addition, NSCC would modify its existing procedures for
determining which ETFs would be excluded from the Gap Risk Charge
calculation by moving those procedures from a footnote into the body of
the NSCC Rules and clarifying that the characteristics that are
described to determine the exclusions (e.g., whether the ETF positions
track to an index that is linked to a broad-based market index, contain
a diversified underlying basket, are unleveraged, or track to an asset
class that is less prone to gap risk) are not exclusive and may be
subject to modification by NSCC.
NSCC believes the proposed changes would improve the design of its
current Gap Risk Charge methodology, which does not fully account for
idiosyncratic risks presented by the underlying holdings of ETFs and
broadly exempts diversified ETFs from the charge entirely without
considering potential idiosyncratic risks. The proposed changes would
enhance the Gap Risk
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Charge to address security exposures embedded in single-stock ETFs and
those ETFs currently exempted from the Gap Risk Charge, which may
contribute to the concentration risk of single name equities presented
by such ETFs in a Member's portfolio. The proposed mapping and
decomposition process is designed to enable NSCC to address unique
risks presented by equity-based ETFs. By mapping leveraged and inverse
equity ETFs to related non-leveraged ETFs with in-kind baskets,
decomposing in-kind baskets into their underlying components, and
mapping single stock ETFs to their corresponding single stock
positions, and then netting and aggregating the resulting positions,
NSCC would be able to better assess and address the underlying security
exposures embedded within single-stock ETFs and those ETFs currently
exempted from the Gap Risk Charge. NSCC therefore believes that the
proposed change would result in more accurate and appropriate Gap Risk
Charges for Member portfolios.
(ii) Proposed Enhancements to the Bid-Ask Spread Charge
NSCC also proposes to enhance its Bid-Ask Spread Charge by applying
more granular basis point charges for different sub-categories of ETPs.
Specifically, NSCC proposes to revise Sections I(A)(1)(a)(i)I and
I(A)(2)(a)(i)I of Procedure XV of the NSCC Rules to provide that NSCC
would apply different basis point charges within the ETP risk group
based on an ETP's inclusion in additional sub-categories determined by
NSCC, which would be based on factors such as capitalization or asset
class.\21\
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\21\ Examples of such sub-categories may include but are not
limited to: (i) large and mid-capitalization ETPs; (ii) small and
micro capitalization ETPs; (iii) cryptocurrency ETPs; and (iv) fixed
income ETPs.
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As discussed above, the Bid-Ask Spread Charge is calculated by
multiplying the gross market value of each Net Unsettled Position by an
applicable basis point charge, which is determined based on the
following groups/classifications: (i) large and medium capitalization
equities; (ii) small capitalization equities; (iii) micro-
capitalization equities; and (iv) ETPs.\22\ NSCC currently applies one
standard basis point charge for all ETPs, which assumes that all ETPs
share similar liquidity and bid-ask spread haircuts.
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\22\ See Procedure XV, Sections I(A)(1)(a)(i)I and
I(A)(2)(a)(i)I of the NSCC Rules, supra note 3.
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The proposed rule change would enhance the current design of the
Bid-Ask Spread Charge by improving the granularity of the basis point
charges used within the ETP risk group to account for different asset
classes and market capitalizations of ETPs. As a result, NSCC believes
that the proposed change would result in more accurate and
representative Bid-Ask Spread Charges for the liquidity profile of
different types of ETPs.
(iii) Proposed Clarifications Related to the Fat Tail Adjustment Factor
Finally, NSCC proposes to modify the NSCC Rules to include a
description of the Fat Tail Adjustment Factor used in its parametric
VaR calculations and to provide additional clarification that NSCC may
apply different parameter values to more accurately calibrate for the
tail risk of different Member portfolio types. Specifically, NSCC
proposes to modify Sections I(A)(1)(a)(i)I and I(A)(2)(a)(i)I of
Procedure XV, which currently state that the volatility component
calculation of the VaR Charge shall be made utilizing such assumptions
and based on such historical data as NSCC deems reasonable and shall
cover such range of historical volatility as NSCC from time to time
deems appropriate, to include that such assumptions and historical data
would also account for the tail risk of Member portfolio types.
As discussed above, NSCC currently applies one Fat Tail Adjustment
Factor for all portfolios based on an industry standard index as a
proxy for tail risk calibration. While the current Fat Tail Adjustment
Factor is conservative from a risk perspective, the current approach
does not reflect the complexity of all Member portfolios, which include
long and short positions, diverse securities, and dynamic compositions.
As a result, NSCC may calibrate tail risk using actual member portfolio
residuals for better accuracy. NSCC believes that calibrating the Fat
Tail Adjustment Factors based on considerations of portfolio
characteristics such as portfolio size would result in more accurate
estimations of risk and associated margin requirements.
The proposed rule change would improve Members understanding of the
use of the Fat Tail Adjustment Factor in NSCC's parametric VaR
calculations and clarify that Fat Tail Adjustment Factor parameters may
be calibrated from time to time to ensure that NSCC is appropriately
addressing tail risk for various Member portfolio types.
(iv) Anticipated Impact on Members
NSCC conducted an impact analysis of portfolios over the period
January 2025 to February 2026 (``Impact Study''). If the proposed rule
change had been in place during the Impact Study period, the analysis
showed that the proposed changes would have resulted in an overall
increase of approximately $60 million across NSCC Members, which is
less than 1 percent of the total VaR Charge.
With respect to the Gap Risk Charge, the Impact Study showed an
average daily increase in the overall Gap Risk Charge of approximately
$223 million (from $727 million to approximately $950 million), which
was mostly attributable to changes in portfolio concentration profile
due to the netting of indirect and direct security exposures. With
respect to the Bid-Ask Spread Charge, the Impact Study showed an
average daily increase in the overall Bid-Ask Spread Charge of
approximately $6 million (from $96 million to approximately $102
million). Finally, for the Fat Tail Adjustment Factor calibration, the
Impact Study showed an average daily reduction in the VaR Charge of
approximately $168 million (from $5.49 billion to approximately $5.32
billion).
NSCC notes that individual Member-level impacts would vary based on
the composition and size of each Member's portfolio. With respect to
the Gap Risk Charge, the Impact Study results for the top 20 largest
daily average notional impacts by account showed an increase in the Gap
Risk Charge ranging from approximately $4.4 million to $23.4 million,
with 15 of those accounts seeing an average impact of less than $10
million. The percentage impact for the top 20 largest accounts ranged
from approximately 110 to 750 percent increases in the Gap Risk Charge;
however, there was also one Member account that would have seen Gap
Risk Charges imposed that had not previously incurred such charges. As
noted above, these larger impacts are mostly attributable to changes in
portfolio concentration profiles due to the netting of indirect and
direct security exposures, which were not previously captured in the
Gap Risk Charge on these portfolios.
For the Bid-Ask Spread Charge, the Impact Study results for the top
20 largest daily average notional impacts by account showed a reduction
in the charge of approximately $75,000 to $100,000 for two Member
accounts and increases ranging from approximately $82,000 to $752,000
for the rest of the top 20 accounts, with half of those accounts seeing
an increase of less than $150,000. From a percentage impact
perspective, all but three of the most impacted accounts saw an
increase in the Bid-Ask Spread Charge of 50 percent or less.
[[Page 33843]]
For the Fat Tail Adjustment Factor calibration, the Impact Study
results for the top 20 largest daily average notional impacts by
account showed reductions in the parametric VaR ranging from
approximately $2.6 to $13 million. Meanwhile, the top 20 percentage
impacts fall between the range of 3.3 to 3.7 percent of reduction.
NSCC will perform individual client outreach by sharing impact
studies for all Members and conducting targeted outreach for Members
that are most significantly impacted by the proposed rule change.
Implementation Timeframe
NSCC expects to implement the proposed rule change by no later than
October 30, 2026. NSCC would announce the effective date of the
proposed changes by an Important Notice posted to NSCC's website.
2. Statutory Basis
NSCC believes that 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
that the proposed changes are consistent with Section 17A(b)(3)(F) of
the Act \23\ and Rules 17ad-22(e)(4) and (6) thereunder \24\ for the
reasons set forth below.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17ad-22(e)(4) and (6).
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Section 17A(b)(3)(F) of Act \25\ requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions, to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible and, in
general, to protect investors and the public interest. The proposed
rule change would improve risk management at NSCC by enhancing its
Clearing Fund calculations, specifically as they relate to the Gap Risk
Charge, Bid-Ask Spread Charge, and Fat Tail Adjustment Factor. First,
the proposed rule change would improve the design of NSCC's Gap Risk
Charge methodology by more accurately isolating and addressing the risk
exposures of underlying ETF holdings, such as security exposures
embedded in single-stock ETFs and those ETFs currently exempted from
the Gap Risk Charge, which may contribute to the concentration risk
presented by such ETFs in a Member's portfolio. Second, the proposed
rule change would enhance the Bid-Ask Spread Charge by improving the
granularity of the basis point charges used within the ETP risk group
to account for different asset classes and market capitalizations,
resulting in more accurate and representative Bid-Ask Spread Charges
for the liquidity profile of different types of ETPs. Third, the
proposed rule change would improve Members understanding of the use of
the Fat Tail Adjustment Factor in NSCC's parametric VaR calculations
and clarify that Fat Tail Adjustment Factor parameters may be
calibrated from time to time to ensure that NSCC is appropriately
addressing tail risk for various Member portfolio types. NSCC uses the
margin and Clearing Fund it collects to mitigate potential losses to
NSCC (and through loss allocation, to its Members) associated with
liquidating a defaulting Member's portfolio and to continue to effect
the prompt and accurate clearance and settlement of securities
transactions in the event of a Member default. As a result, NSCC
believes the proposed rule change is designed to promote the prompt and
accurate clearance and settlement of securities transactions, to assure
the safeguarding of securities and funds which are in the custody or
control of NSCC or for which it is responsible and, in general, to
protect investors and the public interest in accordance with the
requirements of Section 17A(b)(3)(F) of Act.
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\25\ 15 U.S.C. 78q-(b)(3)(F).
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Rule 17ad-22(e)(6)(i) \26\ under the Act requires that each covered
clearing agency that provides CCP services establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to establish a risk-based margin system that, among other
things, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market. As discussed above, the proposed rule change would improve
the design of NSCC's Gap Risk Charge methodology by more accurately
isolating and addressing the risk exposures of underlying ETF holdings,
including security exposures embedded in single-stock ETFs and those
ETFs currently exempted from the Gap Risk Charge. The proposed rule
change also would enhance the Bid-Ask Spread Charge by improving the
granularity of the basis point charges used within the ETP risk group
to account for different asset classes and market capitalizations of
ETPs, resulting in more accurate and representative Bid-Ask Spread
charges as applied to different types of ETPs. In addition, the
proposed rule change would describe the use of the Fat Tail Adjustment
Factor in NSCC's parametric VaR calculations and clarify that Fat Tail
Adjustment Factor parameters may be calibrated from time to time to
ensure that NSCC is appropriately addressing tail risk for various
Member portfolio types. As a result, NSCC believes that the proposed
changes are reasonably designed to allow NSCC to consider, and produce
margin levels commensurate with, the risks and particular attributes of
relevant products, portfolios, and markets in accordance with Rule
17ad-22(e)(6)(i) under the Act.
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\26\ 17 CFR 240.17ad-22(e)(6)(i).
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Rule 17ad-22(e)(4)(i) \27\ under the Act requires that each covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes,
including by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence. As described above, the proposed rule change is generally
designed to enhance NSCC's Clearing Fund calculations by (i) improving
the design of NSCC's Gap Risk Charge to more accurately isolate and
address the risk exposures of underlying ETF holdings; (ii) improving
the design of the Bid-Ask Spread Charge to include more granularity in
the basis point charges used within the ETP risk group to account for
different asset classes and market capitalizations of ETPs; and (iii)
providing additional clarity regarding the Fat Tail Adjustment Factor
parameter, which may be calibrated from time to time to ensure that
NSCC is appropriately addressing tail risk for various Member portfolio
types. NSCC believes that these changes are reasonably designed to
enable NSCC to better identify, measure, monitor, and manage its credit
exposures to participants and to maintain sufficient resources to cover
those credit exposures fully with a high degree of confidence,
consistent with the requirements of Rule 17ad-22(e)(4)(i) under the
Act.
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\27\ 17 CFR 240.17ad-22(e)(4)(i).
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For the reasons set forth above, NSCC believes the proposed rule
change is consistent with Section 17A(b)(3)(F) of the Act \28\ and
Rules 17ad-22(e)(4) and (6) thereunder.\29\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ 17 CFR 240.17ad-22(e)(4) and (6).
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[[Page 33844]]
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \30\ requires that the rules of a
clearing agency do not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. NSCC believes
that the proposed changes could have an impact on competition because
they may result in larger Clearing Fund charges for Members,
specifically with respect to the Gap Risk Charge and Bid-Ask Spread
Charge components of the Clearing Fund. However, NSCC believes any
impact or burden on competition that may result from the proposed rule
change would be necessary and appropriate in furtherance of the
purposes of the Act, for the reasons described below.
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\30\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC believes the proposed rule change is necessary and appropriate
to improve the design of its current Gap Risk Charge methodology, which
does not fully account for idiosyncratic risks presented by the
underlying holdings of ETFs and broadly exempts diversified ETFs from
the charge entirely without considering potential idiosyncratic risks.
The proposed changes would enhance the Gap Risk Charge to address
security exposures embedded in single-stock ETFs and those ETFs
currently exempted from the Gap Risk Charge, which may contribute to
the concentration risk presented by such ETFs in a Member's portfolio.
NSCC also believes the proposed rule change is necessary and
appropriate to enhance its Bid-Ask Spread Charge methodology by
improving the granularity of the basis point charges used within the
ETP risk group to account for risks presented by different asset
classes and market capitalizations of ETPs. NSCC believes that the
proposed changes would result in more accurate and appropriate Clearing
Fund requirements that address certain risks presented by ETFs and ETPs
in its Members' cleared portfolios.
NSCC believes that it has designed the proposed changes in an
appropriate way in order to meet compliance with its obligations under
the Act. Specifically, the proposal would improve the risk-based
margining methodology that NSCC employs to set margin requirements and
better limit NSCC's credit exposures to its Members. As discussed
above, NSCC uses the margin and Clearing Fund it collects to mitigate
potential losses to NSCC (and through loss allocation, to its Members)
associated with liquidating a defaulting Member's portfolio and to
continue to effect the prompt and accurate clearance and settlement of
securities transactions in the event of a Member default. Therefore, as
described above, NSCC believes the proposed changes are necessary and
appropriate in furtherance of NSCC's obligations under the Act,
specifically Section 17A(b)(3)(F) of the Act \31\ and Rules 17ad-
22(e)(4) and (6) thereunder.\32\
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\31\ 15 U.S.C. 78q-1(b)(3)(F).
\32\ 17 CFR 240.17ad-22(e)(4) and (6).
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(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, they will be
publicly filed 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/rules-regulations/how-submit-comment">www.sec.gov/rules-regulations/how-submit-comment</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#285c5a494c41464f49464c45495a434d5c5b685b4d4b064f475e"><span class="__cf_email__" data-cfemail="4e3a3c2f2a2720292f202a232f3c252b3a3d0e3d2b2d60292138">[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
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#deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-NSCC-2026-008 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSCC-2026-008. 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>). Copies of the
filing 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-2026-
008 and should be submitted on or before June 25, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-11144 Filed 6-3-26; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.