[Federal Register Volume 80, Number 93 (Thursday, May 14, 2015)]
[Notices]
[Pages 27714-27716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11602]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74906; File Nos. SR-DTC-2015-801; SR-NSCC-2015-801]


Self-Regulatory Organizations; The Depository Trust Company; 
National Securities Clearing Corporation; Notice of Filing and No 
Objection to Advance Notices Relating to the Renewal of Existing Line 
of Credit

May 7, 2015.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 \1\ (``Clearing 
Supervision Act'') and Rule 19b-4(n)(1)(i) \2\ under the Securities 
Exchange Act of 1934, notice is hereby given that on April 20, 2015, 
The Depository Trust Company (``DTC'') and National Securities Clearing 
Corporation (``NSCC,'' together with DTC, ``Clearing Agencies'') filed 
with the Securities and Exchange Commission (``Commission'') the 
advance notices SR-DTC-2015-801 and SR-NSCC-2015-801 (``Advance 
Notices'') as described in Items I and II below, which Items have been 
prepared primarily by the Clearing Agencies. The Commission is 
publishing this notice to solicit comments on the Advance Notices from 
interested persons and provide notice that the Commission does not 
object to the Advance Notices.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agencies' Statement of the Terms of Substance of the 
Advance Notices

    The Advance Notices are being filed by the Clearing Agencies in 
connection with the renewal of the Clearing Agencies' 364-day 
syndicated revolving credit facility (``Renewal''), as more fully 
described below.

II. Clearing Agencies' Statement of the Purpose of, and Statutory Basis 
for, the Advance Notices

    In their filings with the Commission, the Clearing Agencies 
included statements concerning the purpose of and basis for the Advance 
Notices and discussed any comments they received on the Advance 
Notices. The text of these statements may be examined at the places 
specified in Item IV below. The Clearing Agencies have prepared 
summaries, set forth in sections (A) and (B) below, of the most 
significant aspects of such statements.

(A) Clearing Agencies' Statement on Comments on the Advance Notices 
Received From Members, Participants, or Others

    Written comments on the Advance Notices have not yet been solicited 
or received. The Clearing Agencies will notify the Commission of any 
written comments received by the Clearing Agencies.

(B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

Description of the Change
    As part of their liquidity risk management regime, the Clearing 
Agencies maintain a 364-day committed

[[Page 27715]]

revolving line of credit with a syndicate of commercial lenders which 
is renewed every year. The terms and conditions of the current Renewal 
will be specified in the Fourteenth Amended and Restated Revolving 
Credit Agreement, to be dated as of May 12, 2015 (``Renewal 
Agreement''), among the Clearing Agencies,\3\ the lenders party 
thereto, the primary administrative agent and the other parties 
thereto, and are substantially the same as the terms and conditions of 
the existing credit agreement, dated as of May 13, 2014, among the same 
parties, as heretofore amended (``Existing Agreement''),\4\ except that 
pricing and the amount of the aggregate commitment will change. The 
substantive terms of the Renewal are set forth in the Summary of 
Indicative Principal Terms and Conditions, dated March 23, 2015, which 
is not a public document. The aggregate commitments being sought under 
the Renewal will be for an amount of approximately $15 billion for NSCC 
and DTC together, with an aggregate commitment of $1.9 billion to DTC 
as borrower, and all but $1.9 billion aggregate commitments would be 
the commitments to NSCC as borrower, as provided in the Existing 
Agreement.
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    \3\ The Renewal Agreement will provide for both DTC and NSCC as 
borrowers, with an aggregate commitment of $1.9 billion for DTC and 
the amount of any excess aggregate commitment for NSCC. The 
borrowers are not jointly and severally liable and each lender has a 
ratable commitment to each borrower. DTC and NSCC have separate 
collateral to secure their separate borrowings.
    \4\ Last year, the Securities and Exchange Commission 
(``Commission'') published Notice of Filing and No Objection to the 
Clearing Agencies' advance notice filings with respect to the 
Clearing Agencies' renewal beginning on May 13, 2014. See Securities 
Exchange Act Release No. 72131 (May 8, 2014), 79 FR 27654 (May 14, 
2014) (SR-NSCC-2014-805); Securities Exchange Act Release No. 72132 
(May 8, 2014), 79 FR 27658 (May 14, 2014) (SR-DTC-2014-805).
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    This agreement and its substantially similar predecessor agreements 
have been in place since the introduction of same day funds settlement 
at the Clearing Agencies. The Clearing Agencies require same-day 
liquidity resources to cover the failure-to-settle of NSCC's largest 
Member or affiliated family of Members, or of the DTC Participant or 
affiliated family of Participants with the largest net settlement 
obligations. If a NSCC Member defaults on or a DTC Participant fails to 
satisfy its end-of-day settlement obligations, each Clearing Agencies 
may borrow under its line to enable it, if necessary, to fund 
settlement among non-defaulting NSCC Members or DTC Participants.
    Any NSCC borrowing would be secured principally by (i) securities 
deposited by Members in NSCC's Clearing Fund (i.e., the Eligible 
Clearing Fund Securities, as defined in NSCC's Rule 4, pledged by 
Members to NSCC in lieu of cash Clearing Fund deposits), and (ii) 
securities cleared through NSCC's Continuous Net Settlement System 
(CNS) that were intended for delivery to the defaulting Member upon 
payment of its net settlement obligation. NSCC's Clearing Fund \5\ 
(which operates as its default fund) addresses potential exposure 
through a number of risk-based component charges calculated and 
assessed daily. As integral parts of NSCC's risk management structure, 
the line of credit and the Clearing Fund, together, provide NSCC 
liquidity to complete end-of-day money settlement.
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    \5\ NSCC's Clearing Fund includes additional liquidity deposits 
by certain Members pursuant to NSCC's Supplemental Liquidity Deposit 
rule (Rule 4(A)).
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    Any DTC borrowing would be secured principally by securities that 
were intended to be delivered to the defaulting Participant upon 
payment of its net settlement obligation and securities previously 
designated by the defaulting Participant as collateral. The liquidity 
facility is built into DTC's primary risk management controls, the net 
debit cap and collateral monitor, which together require that the end-
of-day net funds settlement obligation of a Participant cannot exceed 
DTC's liquidity resources and is fully collateralized.
Anticipated Effect on and Management of Risk
    As noted, the committed revolving line of credit is a cornerstone 
of Clearing Agencies risk management and this Renewal is critical to 
the Clearing Agencies risk management infrastructure. The Renewal does 
not otherwise affect or alter the management of risk at the Clearing 
Agencies. The Renewal is consistent with Section 805(b) of the Clearing 
supervision Act \6\ and with Commission Rule 17Ad-22(d)(11) \7\ 
(regarding default procedures) because it mitigates liquidity risk.
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    \6\ 12 U.S.C. 5464(b). The Financial Stability Oversight Council 
designated NSCC a systemically important financial market utility on 
July 18, 2012. See Financial Stability Oversight Council 2012 Annual 
Report, Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, the Clearing 
Agencies are required to comply with the Clearing Supervision Act.
    \7\ 17 CFR 240.17Ad-22(d)(11).
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III. Date of Effectiveness of the Advance Notices, and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The Clearing Agencies shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the Clearing Agencies with prompt written 
notice of the extension. The proposed change may be implemented in less 
than 60 days from the date the Advance Notices are filed, or the date 
further information requested by the Commission is received, if the 
Commission notifies the Clearing Agencies in writing that it does not 
object to the proposed change and authorizes the Clearing Agencies to 
implement the proposed change on an earlier date, subject to any 
conditions imposed by the Commission.
    The Clearing Agencies shall post notice on their Web site of 
proposed changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the Advance 
Notices are consistent with the Clearing Supervision 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-DTC-2015-801 or SR-NSCC-2015-801 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2015-801 or SR-NSCC-
2015-801. One of these file numbers 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

[[Page 27716]]

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 Advance Notices 
that are filed with the Commission, and all written communications 
relating to the Advance Notices 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 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 the 
Clearing Agencies and on DTCC's Web site at http://dtcc.com/legal/sec-rule-filings.aspx. 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-DTC-
2015-801 or SR-NSCC-2015-801 and should be submitted on or before June 
4, 2015.

V. Commission Findings and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive.\8\ 
The stated purpose is to mitigate systemic risk in the financial system 
and promote financial stability by, among other things, promoting 
uniform risk management standards for systemically important financial 
market utilities (``FMUs'') and strengthening the liquidity of 
systemically important FMUs.\9\ Section 805(a)(2) of the Clearing 
Supervision Act \10\ authorizes the Commission to prescribe risk 
management standards for the payment, clearing, and settlement 
activities of designated clearing entities and financial institutions 
engaged in designated activities for which it is the Supervisory Agency 
or the appropriate financial regulator. Section 805(b) of the Clearing 
Supervision Act \11\ states that the objectives and principles for the 
risk management standards prescribed under Section 805(a) shall be to:
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    \8\ See 12 U.S.C. 5461(b).
    \9\ Id.
    \10\ 12 U.S.C. 5464(a)(2).
    \11\ 12 U.S.C. 5464(b).
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     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act \12\ and the Exchange Act 
(``Clearing Agency Standards'').\13\ The Clearing Agency Standards 
require registered clearing agencies to establish, implement, maintain, 
and enforce written policies and procedures that are reasonably 
designed to meet certain minimum requirements for their operations and 
risk management practices on an ongoing basis.\14\ Therefore, it is 
appropriate for the Commission to review advance notices against these 
Clearing Agency Standards and the objectives and principles of these 
risk management standards as described in Section 805(b) of the 
Clearing Supervision Act.\15\
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    \12\ 12 U.S.C. 5464(a)(2).
    \13\ See Exchange Act Rule 17Ad-22. 17 CFR 240.17Ad-22. 
Securities Exchange Act Release No. 68080 (October 22, 2012), 77 FR 
66220 (November 2, 2012) (S7-08-11).
    \14\ Id.
    \15\ 12 U.S.C. 5464(b).
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    The Commission believes that the proposal in the Advance Notices is 
consistent with Clearing Agency Standards, in particular, Commission 
Rule 17Ad-22(d)(11) for NSCC and DTC, and Rule 17Ad-22(b)(3) for NSCC. 
Commission Rule 17Ad-22(d)(11) requires that registered clearing 
agencies ``establish, implement, maintain and enforce written policies 
and procedures reasonably designed to, as applicable . . . establish 
default procedures that ensure that the clearing agency can take timely 
action to contain losses and liquidity pressures and to continue 
meeting its obligations in the event of a participant default.'' The 
Commission believes that the proposal is consistent with Rule 17Ad-
22(d)(11) because the renewed credit facility will provide the Clearing 
Agencies with a readily available liquidity resource that will enable 
them to continue to meet their respective obligations in a timely 
fashion, in the event of a member default, thereby helping to contain 
losses and liquidity pressures from that default.
    Commission Rule 17Ad-22(b)(3) requires a central counterparty 
(``CCP''), like NSCC,\16\ to ``establish, implement, maintain and 
enforce written policies and procedures reasonably designed to . . . 
[m]aintain sufficient financial resources to withstand, at a minimum, a 
default by the participant family to which it has the largest exposure 
in extreme but plausible market conditions. . . .'' The Commission 
believes that the proposal is consistent with Rule 17Ad-22(b)(3) 
because NSCC's proposal to enter into a renewed credit facility will 
help it maintain sufficient financial resources to withstand, at a 
minimum, a default by an NSCC member to which NSCC has the largest 
exposure.
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    \16\ See FSOC 2012 Annual Report, supra note 4. DTC serves as a 
central securities depository, not as a CCP, for almost all 
corporate and municipal debt and equity securities available for 
trading in the United States. Id.
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    For these reasons, the Commission believes the Advance Notices are 
consistent with the objectives and principles described in Section 
805(b) of the Clearing Supervision Act, including that they reduce 
systemic risks and support the stability of the broader financial 
system. As discussed above, the renewal of the credit facility will 
provide the Clearing Agencies needed liquidity when experiencing severe 
liquidity pressure from a member default. Given that the Clearing 
Agencies have been designated as systemically important FMUs, the 
Clearing Agencies' ability to provide their clearing services during 
such an event contributes to reducing systemic risks and supporting the 
stability of the broader financial system.
    For the reasons stated above, the Commission does not object to the 
Advance Notices.

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\17\ that the Commission does not object to 
the advance notices SR-DTC-2015-801 and SR-NSCC-2015-801 and that DTC 
and NSCC be and hereby are authorized to implement the change as of the 
date of this notice.
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    \17\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-11602 Filed 5-13-15; 8:45 am]
BILLING CODE 8011-01-P