[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21850-21854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09459]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80605; File Nos. SR-DTC-2017-802; SR-NSCC-2017-802]


Self-Regulatory Organizations; The Depository Trust Company; 
National Securities Clearing Corporation; Notice of Filing of and No 
Objection To Advance Notices, as Modified by Amendments No. 1, To Renew 
the Credit Facility

May 5, 2017.
    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 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on April 
4, 2017 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-2017-802 and SR-NSCC-2017-
802. On May 1, 2017, the Clearing Agencies filed Amendments No. 1 to 
the advance notices.\3\ The advance notices, as modified by Amendments 
No. 1 (hereinafter, collectively ``Advance Notices''), are described in 
Items I, II and III 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 
providing notice that the Commission does not object to the Advance 
Notices.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ In Amendments No. 1 to the advance notices, the Clearing 
Agencies request Commission approval to (i) accept $14.075 billion 
in aggregate commitments for this year's facility, and (ii) clarify 
that for future renewals of the credit facility, the Clearing 
Agencies may accept, not just seek, an aggregate commitment amount 
within 15 percent of $14 billion, as discussed below.
---------------------------------------------------------------------------

I. Clearing Agencies' Statement of the Terms of Substance of the 
Advance Notices

    These Advance Notices are filed by the Clearing Agencies in 
connection with their proposals to (1) renew (``Renewal'') their 364-
day committed revolving credit facility (``Credit Facility''), 
described below, and (2) make annual renewals of the Credit Facility on 
substantially similar terms and conditions (``Future Renewals''), also 
described below, as described in greater detail below.\4\
---------------------------------------------------------------------------

    \4\ Terms not defined herein are defined in the Terms not 
defined herein are defined in the Rules, By-Laws and Organization 
Certificate of DTC, available at http://www.dtcc.com/~/media/Files/
Downloads/legal/rules/dtc_rules.pdf; or Rules and Procedures of NSCC 
(``Rules''), available at http://www.dtcc.com/~/media/Files/
Downloads/legal/rules/nscc_rules.pdf.
---------------------------------------------------------------------------

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

    The Clearing Agencies have not solicited or received any written 
comments relating to these proposals. 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 Proposals
    Renewal. As part of their liquidity risk management regime, the 
Clearing Agencies maintain a 364-day committed revolving line of credit 
with a syndicate of commercial lenders, which is renewed every year. 
The terms and conditions of the current Renewal would be specified in 
the Sixteenth Amended and Restated Revolving Credit Agreement, to be 
dated as of May 9, 2017 (``Renewal Agreement''), among the Clearing 
Agencies,\5\ the lenders party thereto, the administrative agent and 
the collateral agent. Such terms and conditions are substantially the 
same as the terms and conditions of the existing credit agreement, 
dated as of May 10, 2016, as heretofore amended (``Existing 
Agreement''),\6\ except that pricing \7\ and the amount of the 
aggregate commitment for NSCC may change. The substantive terms of the 
Renewal Agreement are set forth in the Summary of Indicative Principal 
Terms and Conditions, dated March 30, 2017, which is not a public 
document. The aggregate commitments being sought under the Renewal 
would be for an amount up to $14 billion for NSCC and DTC together, of 
which all but $1.9 billion commitment would be the

[[Page 21851]]

aggregate commitment to NSCC as borrower, as provided in the Existing 
Agreement; however, the Clearing Agencies may, subject to obtaining all 
proper internal approvals, accept aggregate commitments under the 
Renewal up to $14.075 billion.
---------------------------------------------------------------------------

    \5\ The Renewal Agreement would 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 provide separate 
collateral to secure their respective borrowings.
    \6\ See Securities Exchange Act Release No. 77750 (April 29, 
2016), 81 FR 27181 (May 5, 2016) (SR-DTC-2017-801; SR-NSCC-2016-
801).
    \7\ ``Pricing'' of the Credit Facility refers to the charges and 
fees owed by the borrowers to the agents and lenders thereto with 
respect to the services performed by the agents, the commitment to 
lend and the rate of interest applicable to any borrowing under the 
Credit Facility, among other such matters.
---------------------------------------------------------------------------

    Future Renewals. The Clearing Agencies expect to continue to renew 
the Credit Facility annually on substantially similar terms and 
conditions as the Renewal. The terms and conditions of all Future 
Renewals would be specified in subsequent credit agreements among the 
Clearing Agencies, the lenders party thereto, the administrative agent 
and the collateral agent.
    In connection with all Future Renewals, the Clearing Agencies would 
not make changes to (a) the amount of aggregate commitment being sought 
for or accepted by DTC, which would continue to be $1.9 billion; (b) 
the financial institution acting as administrative agent; or (c) the 
commitment period, which would continue to be for 364 days.
    However, in connection with all Future Renewals, the Clearing 
Agencies may consider changes to (1) the amount of aggregate commitment 
being sought for and accepted by NSCC, so long as such amounts do not 
vary more than 15 percent either above or below the amount of aggregate 
commitment being sought by NSCC under the Renewal being proposed by 
this Advance Notice, which would be no less than $10.285 billion and no 
more than $13.915 billion; \8\ (2) the syndicate, so long as all 
lenders party to future Credit Facilities are subject to the same 
credit review as those lenders party to the Renewal; (3) pricing and 
collateral haircuts,\9\ so long as such terms are consistent with the 
then current market practice; or (4) representations, warranties, 
covenants, and terms of events of default,\10\ so long as any 
modifications are immaterial to the Clearing Agencies as a borrower and 
do not impair the Clearing Agencies' ability to borrow under the line 
of credit. The Clearing Agencies would not consider such changes as 
materially altering the terms and conditions of the Credit Facility.
---------------------------------------------------------------------------

    \8\ NSCC believes that, given the average size of the 
commitments for NSCC in past Credit Facilities, a difference of no 
more than 15 percent, either above or below the aggregate NSCC 
commitment of the Renewal would not be a material change.
    \9\ ``Collateral haircuts'' with respect to the collateral for 
any borrowing under the Credit Facility refers to the schedule of 
percentages of market value, by type of collateral, determining the 
collateral value of that type of collateral, for purposes of 
securing a borrowing under the Credit Facility.
    \10\ ``Events of default'' under the Credit Facility refers to 
those events or conditions which trigger or constitute a default of 
the borrowers under the agreement (e.g., a breach of terms or 
conditions or a failure to perform an obligation).
---------------------------------------------------------------------------

    So long as the Clearing Agencies do not make changes to the terms 
described in items (a), (b), and (c) above in any Future Renewal, and 
so long as any Future Renewal adheres to the conditions described in 
items (1) through (4) above, the Clearing Agencies would consider such 
Future Renewal as being on substantially the same terms and conditions 
as the Renewal and predecessor agreements such that it would not need 
to be subject to the requirement to file an advance notice filing 
pursuant to Section 806(e)(1) of the Clearing Supervision Act.\11\ In 
the event that any annual renewal of the Credit Facility is not on 
terms and conditions that are substantially similar to the Renewal, as 
specified in the paragraphs above, such renewal would be subject to an 
advance notice filing pursuant to Section 806(e)(1) of the Clearing 
Supervision Act. If the Clearing Agencies determine to address future 
renewals in such filing, it would include in that filing the proposed 
conditions to the terms of any subsequent renewals.
---------------------------------------------------------------------------

    \11\ 12 U.S.C. 5465(e)(1).
---------------------------------------------------------------------------

Expected Effect on Risks to the Clearing Agencies, Their Participants 
and the Market
    The Renewal and Future Renewals would continue to promote the 
reduction of liquidity risk to the Clearing Agencies, DTC's 
Participants, NSCC's Members (collectively, ``Members''), and the 
securities market in general because they would help the Clearing 
Agencies maintain sufficient liquidity resources to timely meet their 
settlement obligations with a high degree of confidence. The Renewal 
Agreement and its substantially similar predecessor agreements have 
been in place since the introduction of same day funds settlement at 
the Clearing Agencies, and the Clearing Agencies expect to continue to 
renew the Credit Facility annually pursuant to Future Renewals.
Management of Identified Risks
    The Clearing Agencies require same day liquidity resources to cover 
the failure-to-settle of their Member, or affiliated family of Members, 
with the largest aggregate liquidity exposure. If a Member defaults on 
its end-of-day net settlement obligation, the Clearing Agencies may 
borrow under the Credit Facility to enable them, if necessary, to fund 
settlement among non-defaulting Members, including settlement of 
guaranteed trades due to settle. Any NSCC borrowing would be secured 
principally by (i) securities deposited by NSCC Members in NSCC's 
Clearing Fund \12\ (i.e., the Eligible Clearing Fund Securities, as 
defined in NSCC's Rules, pledged by Members to NSCC in lieu of cash 
Clearing Fund deposits) and (ii) securities cleared through NSCC's 
Continuous Net Settlement System that were intended for delivery to the 
defaulting Member upon payment of its net settlement obligation. In 
addition to the Credit Facility and the Clearing Fund, NSCC has 
diversified its liquidity resources by implementing a commercial paper 
and extendible-term note facility.\13\ Any DTC borrowing would be 
secured principally by (i) securities that were intended to be 
delivered to the defaulting DTC Participant upon payment of its net 
settlement obligation and (ii) securities previously designated by the 
defaulting Participant as collateral.
---------------------------------------------------------------------------

    \12\ NSCC's Clearing Fund (which operates as its default fund) 
addresses potential exposure through a number of risk-based 
component charges calculated and assessed daily and includes 
additional liquidity deposits by certain NSCC Members pursuant to 
NSCC's Supplemental Liquidity Deposits rule (NSCC's Rule 4(A)). 
Supra, note 3.
    \13\ See Securities Exchange Act Release No. 75730 (August 19, 
2015), 80 FR 51638 (August 25, 2015) (SR-NSCC-2015-802).
---------------------------------------------------------------------------

    As integral parts of NSCC's risk management structure, the Credit 
Facility, the commercial paper and extendible-term note facility, and 
the Clearing Fund, together, provide NSCC liquidity to complete end-of-
day net funds settlement.
    The Credit Facility is built into DTC's primary risk management 
controls, the Net Debit Cap \14\ and Collateral Monitor,\15\ which 
together require that

[[Page 21852]]

the end-of-day net funds settlement obligation of a DTC Participant 
cannot exceed DTC's liquidity resources and is fully collateralized.
---------------------------------------------------------------------------

    \14\ The Net Debit Cap risk control is designed so that DTC may 
complete settlement among non-defaulting DTC Participants, even if 
the Participant or affiliated family of Participants with the 
largest settlement obligation that day fails to settle. Before 
completing a transaction in which a Participant is the receiver, DTC 
calculates the effect the transaction would have on such 
Participant's Settlement Account, and determines whether any 
resulting Net Debit Balance would exceed the Participant's Net Debit 
Cap. Any transaction that would cause the Net Debit Balance to 
exceed the Net Debit Cap is placed on a pending (recycling) queue 
until the Net Debit Cap will not be exceeded by processing the 
transaction.
    \15\ DTC tracks Collateral in a DTC Participant's account 
through the Collateral Monitor. At all times, the Collateral Monitor 
reflects the amount by which the Collateral Value in the account 
exceeds the Net Debit Balance in the account. When processing a 
transaction, DTC verifies that the Collateral Monitor of each of the 
deliverer and receiver will not become negative when the transaction 
is processed. If the transaction would cause either party's 
Settlement Account to have insufficient collateral to support its 
net settlement obligation, the transaction will recycle until the 
deficient account has sufficient Collateral to proceed or until the 
applicable cutoff time occurs.
---------------------------------------------------------------------------

    The Credit Facility is a cornerstone of the Clearing Agencies' risk 
management and both the Renewal and Future Renewals are critical to the 
Clearing Agencies' risk management infrastructure. Because the Renewal 
would preserve substantially similar terms and conditions to the 
Existing Agreement, and Future Renewals would preserve substantially 
similar terms and conditions to the Renewal Agreement, the Clearing 
Agencies believe that the Renewal and Future Renewals would not 
otherwise affect or alter the management of risk at the Clearing 
Agencies.
Consistency With the Clearing Supervision Act
    The Clearing Agencies believe the Renewal and Future Renewals are 
consistent with Section 805(b) of the Clearing Supervision Act.\16\ The 
objectives and principles of Section 805(b) of the Clearing Supervision 
Act are the promotion of robust risk management, promotion of safety 
and soundness, reduction of systemic risks, and support of the 
stability of the broader financial system.\17\ The Clearing Agencies 
believe that the Renewal and Future Renewals would promote these 
objectives and principles because they would provide the Clearing 
Agencies with a continuing source of committed liquidity to meet its 
settlement obligations and thus mitigate the Clearing Agencies' 
liquidity risk. Therefore, the Clearing Agencies believe the Renewal 
and Future Renewals are consistent with Section 805(b) of the Clearing 
Supervision Act.\18\
---------------------------------------------------------------------------

    \16\ 12 U.S.C. 5464(b).
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    The Clearing Agencies believe the Renewal and Future Renewals are 
also consistent with Rule 17Ad-22(b)(3),\19\ Rule 17Ad-22(d)(11),\20\ 
and Rule 17Ad-22(e)(7) under the Act.\21\
---------------------------------------------------------------------------

    \19\ 17 CFR 240.17Ad-22(b)(3).
    \20\ 17 CFR 240.17Ad-22(d)(11).
    \21\ 17 CFR 240.17Ad-22(e)(7). The Commission adopted amendments 
to Rule 17Ad-22, including the addition of new section 17Ad-22(e), 
on September 28, 2016. See Securities Exchange Act Release No. 78961 
(September 28, 2016), 81 FR 70786 (October 13, 2016) (S7-03-14). 
NSCC and DTC are ``covered clearing agencies'' as defined by new 
Rule 17Ad-22(a)(5) and must comply with new subsection (e) of Rule 
17Ad-22 by April 11, 2017.
---------------------------------------------------------------------------

    Rule 17Ad-22(b)(3) requires, in part, that central counterparties, 
like NSCC, 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 . . . .'' \22\ NSCC believes that the 
Renewal and Future Renewals are consistent with Rule 17Ad-22(b)(3) 
because they would help NSCC maintain sufficient financial resources to 
withstand, at a minimum, a default by a NSCC Member to which NSCC has 
the largest exposure.\23\
---------------------------------------------------------------------------

    \22\ 17 CFR 240.17Ad-22(b)(3).
    \23\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(d)(11) \24\ requires that the 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 
Clearing Agencies believe the Renewal and Future Renewals are 
consistent with Rule 17Ad-22(d)(11) \25\ because they would provide the 
Clearing Agencies with a readily available liquidity resource that 
would enable the Clearing Agencies to continue to meet its obligations 
in a timely fashion, in the event of a Member default, thereby helping 
to contain losses and liquidity pressures from that default.
---------------------------------------------------------------------------

    \24\ 17 CFR 240.17Ad-22(d)(11).
    \25\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7), which was recently adopted by the Commission, 
will require, in part, that the Clearing Agencies ``effectively 
measure, monitor, and manage the liquidity risk that arises in or is 
borne by [it], including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by . . . [m]aintaining sufficient liquid 
resources at the minimum in all relevant currencies to effect same-day 
. . . settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios that 
includes, but is not limited to, the default of the participant family 
that would generate the largest aggregate payment of obligation for 
[each Clearing Agency] in extreme but plausible conditions.'' \26\ The 
Renewal and Future Renewals would provide NSCC with an additional 
liquidity resource that, together with its other sources of liquidity, 
including the Clearing Fund and the commercial paper and extendible-
term note facility, can be used to complete end of day money settlement 
in the event a failure of a Member, including the failure of the 
participant family that would generate the largest aggregate payment of 
obligation for NSCC in extreme but plausible conditions. The Renewal 
and Future Renewals would provide DTC with an additional liquidity 
resource to enable it to complete system-wide settlement 
notwithstanding the failure-to-settle of a Participant or affiliated 
family of Participants with the largest net settlement obligation. In 
this way, the Renewal and Future Renewals are consistent with Rule 
17Ad-22(e)(7).\27\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(7).
    \27\ Id.
---------------------------------------------------------------------------

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. A 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:

[[Page 21853]]

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-2017-802 or SR-NSCC-2017-802 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2017-802 or SR-NSCC-
2017-802. 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 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 filings also will be 
available for inspection and copying at the principal office of the 
Clearing Agencies and on DTCC's Web site (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-2017-802 or SR-NSCC-2017-802 and should be submitted on or 
before May 31, 2017.

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: 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 and 
strengthening the liquidity of systemically important financial market 
utilities.\28\ Section 805(a)(2) of the Clearing Supervision Act \29\ 
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 \30\ states 
that the objectives and principles for the risk management standards 
prescribed under Section 805(a) shall be to:
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 5461(b).
    \29\ 12 U.S.C. 5464(a)(2).
    \30\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.\31\
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

    The Commission has adopted risk management standards under Section 
805(a)(2) of the Act \32\ and Section 17A of the Act (``Rule 17Ad-
22'').\33\ The Rule 17Ad-22 requires 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.\34\ Therefore, it is appropriate for the Commission to 
review changes proposed in advance notices against Rule 17Ad-22 and the 
objectives and principles of these risk management standards as 
described in Section 805(b) of the Clearing Supervision Act.\35\ The 
Commission believes the proposal in the Advance Notices is consistent 
with the objectives and principles described in Section 805(b) of the 
Act,\36\ and in Rule17Ad-22, in particular, Rule 17Ad-22(e)(7) under 
the Act.\37\
---------------------------------------------------------------------------

    \32\ 12 U.S.C. 5464(a)(2).
    \33\ See 17 CFR 240.17Ad-22.
    \34\ Id.
    \35\ 12 U.S.C. 5464(b).
    \36\ Id.
    \37\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------

A. Consistency With Section 805(b) of the Clearing Supervision Act

    As discussed below, the Commission believes that the changes 
proposed in the Advance Notice are consistent with Section 805(b) of 
the Clearing Supervision Act because they (i) promote robust risk 
management; (ii) are consistent with promoting safety and soundness; 
and (iii) are consistent with reducing systemic risks and promoting the 
stability of the broader financial system.
    The Commission believes that the changes proposed in the Advance 
Notices are consistent with promoting robust risk management, in 
particular management of liquidity risk presented to the Clearing 
Agencies. Renewing and maintaining the currently proposed credit 
facility in the manner proposed by the Clearing Agencies would 
diversify the liquidity resources that the Clearing Agencies may use to 
resolve a Member default. Additionally, allowing the Clearing Agencies 
annually to renew the credit facility under certain specified 
circumstances without an additional advance notice, subject to the 
specific conditions described above (the ``Evergreen'' provisions), 
would provide the Clearing Agencies and market participants with 
greater certainty regarding a continuing source of committed liquidity 
to meet its settlement obligations and thus mitigate the Clearing 
Agencies' liquidity risk. Further, because the Evergreen provisions 
would ensure that any such annual renewals would be substantially 
similar to the currently proposed credit facility, the Commission 
believes that any such renewals would promote robust risk management by 
diversifying the liquidity resources that the Clearing Agencies may use 
to resolve a Member default in the same manner as the currently 
proposed credit facility. As such, the Commission believes that the 
proposal would promote robust risk management practices at the Clearing 
Agencies, consistent with Section 805(b) of the Clearing Supervision 
Act.\38\
---------------------------------------------------------------------------

    \38\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

    The Commission also believes that the changes proposed in the 
Advance Notices are consistent with promoting safety and soundness. As 
described above, the currently proposed credit facility would provide 
the Clearing Agencies with an additional liquidity resource in the 
event of a Member default. This liquidity would promote safety and 
soundness for Members because it would provide the Clearing Agencies 
with a readily available liquidity resource that would 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. Because the Evergreen provisions 
would ensure that any annual renewals implemented without filing an 
advance notice would be substantially similar to the currently proposed 
credit facility, any such annual renewals would promote safety

[[Page 21854]]

and soundness for the same reasons. As such, the Commission believes it 
is consistent with promoting safety and soundness as contemplated in 
Section 805(b) of the Clearing Supervision Act.\39\
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

    In addition, the Commission believes that the proposal contained in 
the Advance Notices is consistent with reducing systemic risks and 
promoting the stability of the broader financial system. As mentioned 
above, allowing the Clearing Agencies to enter into the currently 
proposed credit facility would enable the Clearing Agencies, each of 
which has been designated a systemically important financial market 
utility,\40\ to maintain an additional liquidity resource that the 
Clearing Agencies may access to help manage a Member default. In 
addition, because the Evergreen provisions would ensure that any annual 
renewals entered into without filing an advance notice would be on 
substantially similar terms to the currently proposed credit facility, 
such future renewals also would enable the Clearing Agencies to 
maintain an additional liquidity resource that the Clearing Agencies 
may access to help manage a Member default. Moreover, allowing the 
annual renewal of the credit facility under the proposed Evergreen 
provisions without filing an additional advance notice would reduce the 
risk of gaps in availability of this liquidity resource. Further, 
allowing renewal without an advance notice in these specific 
circumstances would also provide heightened certainty and stability for 
the Clearing Agencies and market participants regarding the 
availability of this liquidity risk management resource on an ongoing 
basis. Accordingly, the Commission believes that the proposal would 
help to reduce the systemic risk of the Clearing Agencies, which in 
turn would help to support the stability of the broader financial 
system, consistent with Section 805(b) of the Clearing Supervision Act 
\41\
---------------------------------------------------------------------------

    \40\ 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.
    \41\ Id.
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(7)

    The Commission believes that the changes proposed by the Advance 
Notices are consistent with the requirements of Rules 17Ad-22(e)(7) 
under the Act.\42\ Rule 17Ad-22(e)(7) requires the Clearing Agencies to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage liquidity risk that arises in or is borne by the Clearing 
Agencies, including measuring, monitoring, and managing its settlement 
and funding flows on an ongoing and timely basis, and its use of 
intraday liquidity, as specified in the rule.\43\
---------------------------------------------------------------------------

    \42\ 17 CFR 240.17Ad-22(e)(7).
    \43\ Id.
---------------------------------------------------------------------------

    In particular, Rule 17Ad-22(e)(7)(i) under the Act \44\ requires 
that registered clearing agencies to establish, implement, maintain and 
enforce written policies and procedures reasonably designed to 
``effectively measure, monitor, and manage the liquidity risk that 
arises in or is borne by [it], including measuring, monitoring, and 
managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity by . . . [m]aintaining 
sufficient liquid resources at the minimum in all relevant currencies 
to effect same-day . . . settlement of payment obligations with a high 
degree of confidence under a wide range of foreseeable stress scenarios 
that includes, but is not limited to, the default of the participant 
family that would generate the largest aggregate payment of obligation 
for [each Clearing Agency] in extreme but plausible conditions.''
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    As described above, the currently proposed credit facility would 
provide the Clearing Agencies with a readily available liquidity 
resource that would 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. Additionally, because the Evergreen provisions would ensure 
that any annual renewals would be substantially similar to the 
currently proposed credit facility, such renewals also would provide 
the Clearing Agencies with a readily available liquidity resource that 
would 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. Moreover, 
allowing the Clearing Agencies annually to renew the credit facility 
pursuant to the proposed Evergreen provisions without filing an 
additional advance notice would reduce the risk of gaps in liquidity 
coverage and better allow the Clearing Agencies to continually maintain 
sufficient liquidity resources. Therefore, the Commission believes that 
the proposal is consistent with Rule 17Ad-22(e)(7)(i).
    Rule 17Ad-22(e)(7)(ii) under the Act requires the Clearing Agencies 
to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to hold qualifying liquid resources 
sufficient to satisfy payment obligations owed to clearing members.\45\ 
Rule 17Ad-22(a)(14) of the Act defines ``qualifying liquid resources'' 
to include, among other things, lines of credit without material 
adverse change provisions, that are readily available and convertible 
into cash.\46\ As described above, the currently proposed credit 
facility would permit the Clearing Agencies to enter into a single 
credit facility designed to help ensure that the Clearing Agencies have 
sufficient, readily-available qualifying liquid resources to meet the 
cash settlement obligations of their largest family of affiliated 
members. Similarly, because the Evergreen provisions would ensure that 
any annual renewals would be substantially similar to the currently 
proposed credit facility, such renewals also would permit the Clearing 
Agencies to enter into a single credit facility designed to help ensure 
that the Clearing Agencies have sufficient, readily-available 
qualifying liquid resources to meet the cash settlement obligations of 
their largest family of affiliated members. Therefore, the Commission 
believes that the proposal is consistent with Rule 17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------

    \45\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \46\ 17 CFR 240.17Ad-22(a)(14).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\47\ that the Commission does not object to 
the Advance Notices SR-DTC-2017-802 and SR-NSCC-2017-802 and that DTC 
and NSCC be and hereby are authorized to implement the change as of the 
date of this notice.
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09459 Filed 5-9-17; 8:45 am]
BILLING CODE 8011-01-P