[Federal Register Volume 78, Number 232 (Tuesday, December 3, 2013)]
[Notices]
[Pages 72737-72740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28846]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70946; File No. SR-NSCC-2013-12]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Provide Its 
Members With a Risk Management Tool That Would Enable Members To 
Monitor Trading Activity and Receive Notifications When Pre-Set Trading 
Limits are Reached

November 26, 2013.
    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 November 15, 2013, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Item I, II and 
III below, which Items have been prepared primarily by NSCC. 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 consist of amendments to the Rules & 
Procedures (``Rules'') of NSCC to provide NSCC Members with a risk 
management tool that would allow those Members to monitor trading 
activity and would deliver to them notifications when pre-set trading 
limits are reached, as more fully described below.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, NSCC 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. NSCC 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
Introduction
    In connection with recent industry-wide efforts to develop tools 
and strategies to mitigate and address the risks associated with the 
increasingly complex, interconnected, and automated market 
technology,\3\ NSCC has developed a risk management tool, called ``DTCC 
Limit Monitoring,'' that would provide its Members with post-trade 
surveillance.\4\ The proposed DTCC Limit Monitoring would provide 
NSCC's Members with a tool to monitor the intraday clearing activity of 
their own trading desks and the intraday clearing activity for their 
correspondents and clients. The tool would send out alerts to those 
Members when pre-set trading limits with respect to this clearing 
activity is being approached and is reached, allowing them to monitor 
exposure of this trading activity, and providing them with notice when 
there is an unusual or unexpected spike in trading activity that could 
indicate a trading error, or that a customer is trading outside the 
limits set by its clearing firm.
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    \3\ While other market participants may be developing additional 
risk management tools in connection with these recent industry-wide 
efforts, the proposed DTCC Limit Monitoring would be separate from 
and would operate completely independently from any such tools.
    \4\ For the purposes of this proposed rule change, ``post-
trade'' refers to the period in a transaction life cycle after it 
has been submitted to NSCC for clearing and settlement.
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DTCC Limit Monitoring Proposal Overview
    Pursuant to this filing, NSCC proposes to amend its Rules to create 
DTCC Limit Monitoring, a risk management tool that would enable Members 
to monitor both their own intraday trading activity and the intraday 
trading activity of their correspondents and/or clients. DTCC Limit 
Monitoring would be available to all NSCC Members. The effectiveness of 
DTCC Limit Monitoring in addressing risk depends on its use by NSCC 
Members, particularly those Members that clear for other firms, and 
depends on their inclusion of the tool within their broader risk 
management strategies. As such, NSCC is proposing to require that the 
following NSCC Members register for DTCC Limit Monitoring: (1) any NSCC 
full service Member that clears for others; (2) any NSCC full service 
Member that submits transactions to NSCC's trade capture system either 
as a Qualified Special Representative (``QSR'') or Special 
Representative, pursuant to Procedure IV (Special Representative 
Service); and (3) any NSCC full service Member that has established a 
9A/9B relationship in order to allow another NSCC Member (either a QSR 
or Special Representative) to submit locked in [sic] trade data on its 
behalf. NSCC Members would incur minimal, if any, cost to implement 
DTCC Limit Monitoring. The tool would provide NSCC Members with an 
additional method to monitor the post-trade activity of their own 
trading desks and the activity of their correspondents and/or clients.
    DTCC Limit Monitoring would provide NSCC Members with: (i) post-
trade data relating to unsettled equity and fixed income securities 
trades for a given day that have been compared or recorded through 
NSCC's trade capture mechanisms on that day (``LM Trade Date Data''), 
and (ii) other information based upon data the participating Member may 
itself provide at start of or throughout the day (``LM Member-provided 
Data''), as provided in the Rules governing DTCC Limit Monitoring (LM 
Trade Date Data and LM Member-provided Data shall collectively be 
referred to as ``LM Transaction Data''). Members registered for DTCC 
Limit Monitoring would be permitted to input or load trade information 
from prior days to the system on their own to supplement their view of 
overall risk exposure, and to monitor their trading exposure.

[[Page 72738]]

Description of DTCC Limit Monitoring
    Through DTCC Limit Monitoring, NSCC would utilize market 
transactions and other information to report post-trade activity to 
Members. Members would only receive data related to their own trading 
desks and the activity of their correspondents and/or clients. Such 
reporting would incorporate transactions (defined above as LM Trade 
Date Data) in equity, and municipal and corporate debt securities after 
such transactions have: (i) passed through NSCC's edit checks, i.e., 
validated, and not been pended or rejected, and (ii) been recorded or 
compared through NSCC's Universal Trade Capture and/or Real-Time Trade 
Matching trade capture and comparison systems. In addition, DTCC Limit 
Monitoring would allow Members to input or load start of day and/or 
intra-day positions (defined above as LM Member-provided Data) so as to 
be able to view their organization's (or one or more of their 
correspondents' or clients') aggregate open positions in securities 
cleared through NSCC.
    Within DTCC Limit Monitoring, Members would be required to create 
``Risk Entities,'' as described further below, to track such activity 
for their correspondents and clients, as well as their own trading 
desks, and define the rules for the aggregation of trade data, set 
trading limits on open positions allowable for each Risk Entity, and 
receive alerts for the display of breaches or near breaches of the 
trading limits. DTCC Limit Monitoring would provide a screen-based view 
for individual Members of their trade data residing in DTCC Limit 
Monitoring for a given day aggregated and organized according to 
trading limits set by the Member. Displays provided to Members would 
offer Members the option to view aggregate and net value across markets 
and other liquidity destinations, as well as provide them an ability to 
see exposure at the CUSIP and individual trade levels. In conformance 
with NSCC's Rule 49 (Release of Clearing Data and Clearing Fund Data), 
each Member would only be able to view information with respect to its 
own clearing account(s).
    DTCC Limit Monitoring would be a reporting tool only and any action 
by a Member as a result of any alerts, or other information associated 
with the risk management tool would be at the discretion of the Member 
and would not, nor imply that any such action was effected, either in 
whole or part, by NSCC. Furthermore, alerts that an established trading 
limit has been breached would not automatically trigger a block by NSCC 
on any activity processed through NSCC's clearance and settlement 
systems.
Procedural Considerations of DTCC Limit Monitoring
    A. Establishing and Maintaining Risk Entities and Limits
    As an initial step in utilizing DTCC Limit Monitoring, Members 
would establish Risk Entities. These might include the trading activity 
of a single desk, a correspondent, a single clearing number within the 
Member's NSCC account structure, or the overall firm. Members required 
to use DTCC Limit Monitoring would be required to create a Risk Entity 
for their own trading desks as well as for all correspondents and 
clients for which they clear trades through NSCC. DTCC Limit Monitoring 
would provide Members with the ability to create Risk Entities through 
the definition and updating of the data structure and relationships for 
the entities to which they assign a trading limit at a net notional 
value.\5\ These trading limits are also referred to in the proposed 
Rules governing DTCC Limit Monitoring as ``parameters.'' The Risk 
Entity definitions entered by Members would drive position calculations 
and displays in DTCC Limit Monitoring. DTCC Limit Monitoring would 
provide Members with a facility to set dollar limits with respect to 
each Risk Entity at a net notional level, and it may provide for 
additional limits as NSCC determines from time to time.
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    \5\ ``Net notional'' means the sum of the absolute value of 
exposure for each ticker security symbol. For example, a firm that 
is net long in Company X for $50,000 and net short position in 
Company Z for $100,000 has $150,000 in net notional exposure.
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    Members would be required to review reports and alerts on an on-
going basis and, as necessary, modify established trading limits to 
reflect current trading activities within each of their Risk Entities. 
Changes made by Members with respect to established trading limits 
would be made in real time. All other updates and changes made by 
Members to their Risk Entities would take effect overnight. While 
Members would ultimately be responsible for ensuring that the trading 
limits set on trading activity are appropriate, NSCC staff would be 
able to review trade activity reports and alerts, and, at its 
discretion, may contact Members to discuss any concerns, for example if 
the established trading limits are not aligned with recent average 
trading activity. Members would be required to identify contacts within 
their firms for these purposes.
    B. Limit Monitoring Function
    DTCC Limit Monitoring would aggregate and make available position 
information for purposes of the Member's limit monitoring. The 
aggregate data would be the sum of: (a) LM Member-provided data, and 
(b) LM Trade Date Data, with the aggregated data referred to in the 
Rules as LM Transaction Data. Under the proposal, LM Trade Date Data, 
LM Member-provided Data, and other relevant data would be aggregated 
and sorted, and the data would then be displayed to the Member.
    The totals would be compared to the trading limits set by the 
Members and the Members would be alerted to breaches based upon these 
limits. NSCC would set ``early warning'' limits at 50%, 75%, and 90% of 
the trading limits set by Members for each Risk Entity. Members may 
elect to receive early warning and breach alerts through on-screen 
interface within the DTCC Limit Monitoring, an email alert, and/or an 
automated electronic message. DTCC Limit Monitoring would also provide 
updated information when the alert is resolved (i.e., when the Risk 
Entity is within the relevant limit, for example, as a result of an 
offsetting transaction reducing the position or the Member raises the 
limit for a Risk Entity). Information such as alert history, Members' 
Risk Entity definitions, end of day positions, and other data as NSCC 
provides from time to time would be supplied to Members in reports 
delivered both daily, in an end-of-day report, and monthly. Members 
would be required to identify primary and secondary contacts within 
their firm to receive alerts and these reports.
    C. No Effect on Trade Guaranty and Other Considerations
    The proposed rule change would provide that any reports and data 
supplied to Members through DTCC Limit Monitoring are not intended to 
impact the timing or status of NSCC's guaranty of any transaction in 
CNS or Balance Order Securities. In addition, the issuance of 
information or data through DTCC Limit Monitoring to Members, or lack 
thereof, would not of itself indicate or have any bearing on the status 
of any trade, including but not limited to, as compared, locked-in, 
validated, guaranteed, or not guaranteed.
    D. Limitation of Liability
    DTCC Limit Monitoring would provide Members with a risk management 
tool in which they can review and monitor trade activity in a manner 
they select, and providing Members with the ability to populate the 
system by inputting or loading positions, defining Risk Entities and 
setting related limits, and receiving alerts and position data of their

[[Page 72739]]

choosing, for example. Accordingly, since NSCC would not be the 
originator of information made available through DTCC Limit Monitoring, 
the proposed Rule [sic] would provide that NSCC is not responsible for 
the completeness or accuracy of LM Trade Date Data or other information 
or data which it receives from Members or third parties and which is 
utilized in DTCC Limit Monitoring or received and compared or recorded 
by NSCC, nor for any errors, omissions, or delays which may occur in 
the transmission of such data or information. In addition, not all 
transactions are submitted to NSCC on a real-time basis, thus NSCC can 
only provide Members using DTCC Limit Monitoring with LM Trade Date 
Data as it is compared or recorded. Accordingly, Members should be 
aware that such LM Trade Date Data may not be complete.
    E. Indemnification
    Since each Member may use the information in DTCC Limit Monitoring 
for purposes of its own discretion, the proposed rule change would 
provide that any Member that registers for DTCC Limit Monitoring shall 
indemnify NSCC, and any of its employees, officers, directors, 
shareholders, agents, and participants who may sustain any loss, 
liability, or expense as a result of a third party claim related to any 
act or omission of the Member made in reliance upon data or information 
transmitted by NSCC to the Member through DTCC Limit Monitoring.
Implementation Timeframe
    Following regulatory approval, NSCC would implement the changes set 
forth in this filing on a date no earlier than ten (10) days following 
notice to Members through issuance of an NSCC Important Notice.
Proposed Rule Changes
    NSCC proposes to create a new Rule 54 (DTCC Limit Monitoring) and 
Procedure XVII (DTCC Limit Monitoring) to reflect the proposed rule 
changes described above. The proposed rule change would also amend Rule 
58 (Limitations of Liability) to reflect the limitation of liability 
provision described above. In addition, Rule 1 (Definitions) would be 
updated to include definitions for LM Trade Date Data, LM Member-
provided Data, and LM Transaction Data.
2. Statutory Basis
    The proposed DTCC Limit Monitoring will facilitate the prompt and 
accurate clearance and settlement of securities transactions by 
providing NSCC's Members with a mechanism to monitor post-trade 
activity on an intra-day basis and thereby allow for enhanced risk 
management by those Members. Therefore, NSCC believes the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to NSCC, in particular Section 
17A(b)(3)(F) of the Act,\6\ which requires that NSCC's Rules be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and, in general, to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    As stated above, the proposed DTCC Limit Monitoring would provide 
Members with a mechanism with which to monitor post-trade activity on 
an intra-day basis and, thereby, allow for enhanced risk management by 
those Members. NSCC believes that the effectiveness of DTCC Limit 
Monitoring in addressing risk depends on its use by NSCC Members, 
particularly those Members that clear for other firms, and depends on 
their inclusion of the tool within their broader risk management 
strategies. Approximately 85% of NSCC's Members would be required to 
use DTCC Limit Monitoring under the proposed rule change. NSCC Members 
would incur minimal, if any, cost in implementing DTCC Limit 
Monitoring. Therefore, NSCC does not believe that the proposed rule 
change would impose any burden on competition.
    Furthermore, because NSCC believes that any impact DTCC Limit 
Monitoring has in addressing risk would facilitate the prompt and 
accurate clearance and settlement of securities transactions and 
protect investors and the public interest, in furtherance of the 
requirements of the Act applicable to NSCC, any burden on competition 
the proposed rule change is perceived as imposing would be both 
necessary and appropriate in furtherance of the purposes of the Act, in 
particular Section 17A(b)(3)(F) of the Act, cited above.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received from Members, Participants, or Others

    Written comments relating to the proposed rule change have not yet 
been solicited or received. NSCC will notify the Commission of any 
written comments received by NSCC.

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 a 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2013-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2013-12. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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

[[Page 72740]]

10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of NSCC and on 
NSCC's Web site (http://dtcc.com/legal/rule_filings/nscc/2013.php).
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NSCC-2013-12 
and should be submitted on or before December 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28846 Filed 12-2-13; 8:45 am]
BILLING CODE 8011-01-P