[Federal Register Volume 83, Number 154 (Thursday, August 9, 2018)]
[Notices]
[Pages 39481-39483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17007]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83774; File No. SR-NSCC-2018-005]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Provide for the Delivery of Certain Transaction Data 
Relating to Variable Annuity and Variable Life Insurance Subaccounts 
and Implement Fees Associated With This Proposed Feature

August 3, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on July 26, 2018, 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. NSCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A) \3\ of the Act and subparagraphs (f)(2) \4\ and 
(f)(4) \5\ of Rule 19b-4 thereunder. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
    \5\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to NSCC's Rules 
& Procedures (``Rules'') in order to reflect proposed enhancements to 
NSCC's Insurance and Retirement Processing Services (``I&RS''). The 
proposed rule change would enhance existing I&RS services to provide 
for the delivery of certain transaction data relating to variable 
annuity and variable life insurance subaccounts (``variable product 
subaccounts'') and implement fees associated with this proposed 
feature, as described in greater detail below.\6\
---------------------------------------------------------------------------

    \6\ Capitalized terms used herein and not otherwise defined 
shall have the meaning assigned to such terms in, available at 
http://dtcc.com/~/media/Files/Downloads/legal/rules/nscc_rules.pdf.
---------------------------------------------------------------------------

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
    The proposed rule change consists of modifications to the Rules in 
order to reflect proposed enhancements to I&RS services. The proposed 
rule change would enhance existing I&RS services to provide for the 
delivery of certain transaction data relating to variable product 
subaccounts and implement fees associated with this proposed feature, 
as described in greater detail below.
(i) Variable Product Subaccounts
    An annuity is a contract between a holder and an insurance carrier 
pursuant to which the holder makes an upfront payment to an insurance 
carrier and the insurance carrier agrees to pay the holder periodic 
payments at a future date. A variable annuity is a type of annuity that 
allows the holder to choose from a selection of investment options, or 
``subaccounts,'' within the annuity and the periodic payments paid by 
the insurance carrier are determined, in part, by the performance of 
the subaccounts selected by the holder. A variable life insurance 
contract operates in a similar manner. The variable life insurance 
carries a ``cash value'' and the purchaser can choose from a selection 
of investment subaccounts to invest the cash value. The subaccounts for 
variable

[[Page 39482]]

products are frequently structured to be similar to mutual funds and 
are managed by mutual fund asset managers.
    Historically asset managers have received certain information 
relating to the affiliated subaccounts they manage on an aggregate 
basis from insurance carriers rather than on an individual 
transactional basis with respect to each subaccount. For instance, an 
insurance carrier will send settlement amounts to the asset manager 
reflecting the aggregate amounts invested in each subaccount at any 
given time but will not send any individual transactional data relating 
to how those amounts were invested in each subaccount. As an example, 
if two clients each invested in a subaccount in one day and another 
client transfers funds from the subaccount on the same day, the 
insurance carrier would provide the asset manager the aggregate amount 
of funds remaining in the subaccount at the end of the day and will not 
specify that two of its clients invested in the subaccount and one 
client removed funds from the subaccount or any details relating to the 
individual transactions.
    Asset managers would like access to the information specific to the 
individual transactions for the subaccounts that they manage to get a 
better understanding of the business of the subaccounts. The subaccount 
transaction-specific information that the asset managers would like to 
receive with respect to each subaccount transaction includes the name 
of the insurance carrier, the date of the transaction, the broker-
dealer named on the transaction, the individual advisor listed on the 
transaction, the type of transaction (e.g., new purchase, death claim, 
rebalance, subaccount transfer to or from the subaccount, etc.) and the 
amount of the transaction. Asset managers get this information, as 
applicable, with respect to retail mutual funds that they manage and 
such information is useful to indicate the investment advisors that are 
working with clients purchasing their subaccounts, activities between 
mutual funds that they manage such as transfers by clients between 
mutual funds that they manage, individual transaction amounts and the 
reason funds are being moved from or to a particular account. Such 
information provides asset managers with a better understanding of the 
accounts that they manage and the reason that clients are investing 
within certain products. This understanding allows asset managers to 
better serve clients by providing products to address their 
requirements. Asset managers have indicated that such transaction-
specific information does not need to include individual client 
information with respect to the transactions, such as the identity of 
the underlying clients.
    This daily subaccount transactional information is currently 
included within the file that insurance carriers send to distributors 
as part of the I&RS Financial Activity Reporting (``FAR'') service.\7\ 
FAR enables insurance carriers to provide distributors with daily 
individual and group annuity and life insurance financial transaction 
information, including information relating to subaccounts. 
Distributors use this information, including the subaccount 
transactional information, to manage their client's accounts.
---------------------------------------------------------------------------

    \7\ Section 8 of Rule 57, supra note 6. FAR enables Insurance 
Carrier/Retirement Services Members to transmit IPS Data regarding 
financial transactions and related activity specific to an IPS 
Eligible Product to Members, Mutual Fund/Insurance Services Members 
and Data Services Only Members. Id.
---------------------------------------------------------------------------

    NSCC is proposing to take the transaction-specific subaccount data 
that it receives within the FAR files and make it available to asset 
managers that sign up for the feature. In connection with sending the 
transaction-specific subaccount data, NSCC may send the data to third 
party service providers who have been engaged by the asset managers to 
take the data from NSCC and organize it on behalf of the asset managers 
and/or provide a central repository pursuant to which asset managers 
may retrieve such information from NSCC. NSCC may enter into a contract 
with such service providers to ensure among other things that the data 
is being used as contemplated by the Rules and that there are proper 
safeguards to ensure data security.
    NSCC is proposing to charge the asset managers that sign up for the 
feature and gain access to the subaccount data a monthly fee of $2,500. 
Asset managers that are not Members or Limited Members would also be 
required to enter into an agreement relating to the payment of the fees 
and such other conditions as determined by NSCC to gain access to the 
subaccount data, including system requirements.
(ii) Proposed Rule Changes
    The proposed rule change would amend Rule 57 to provide that NSCC 
would make available transaction-specific subaccount data to asset 
managers and service providers engaged by them to process the 
applicable data. The proposed rule change would also provide that asset 
managers which are not Members or Limited Members would be required to 
enter into such agreements with the NSCC as determined by NSCC to gain 
access to the subaccount data which agreements would include an 
agreement to pay the fees set forth in in the Rules to access the data 
and to set up any system requirements necessary to access the data. The 
proposed rule change would also provide that service providers 
receiving the subaccount data on behalf of asset managers would also be 
required to enter into such agreements as determined by the Corporation 
in order to gain access to such subaccount data on behalf of such asset 
managers to ensure the data is being sent to asset managers as 
contemplated in the Rules and that there are proper safeguards by the 
service provider to ensure data security
    In addition, NSCC would amend Addendum A of the NSCC Rules to 
include the fees for subscription for the subaccount data feature.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \8\ requires, in part, that the 
Rules be designed to foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities transactions. The 
proposed rule change would enhance insurance carriers' ability to send, 
and asset managers' ability to access and retrieve, daily transaction-
specific subaccount data relating to the assets and funds that such 
asset managers manage that are within variable annuities and variable 
life insurance contracts. Currently, there is not a structured method 
of providing transaction-specific subaccount information to asset 
managers, and insurance carriers historically have not consistently 
provided such information to asset managers. The proposed rule change 
would allow the transaction-specific subaccount information to be 
shared by insurance carriers with asset managers in a standardized 
format. As such, NSCC believes that the proposed rule change would 
foster cooperation and coordination among persons engaged in the 
clearance and settlement of securities, consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ Id.
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act \10\ requires that the Rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its participants. NSCC believes that the proposed 
rule change to Addendum A is consistent with this provision of the Act 
because the proposed fees would

[[Page 39483]]

align with the cost of delivering the proposed subaccount data feature, 
and such fees would be allocated equitably among the entities that 
subscribe for access to the subaccount data. Specifically, the costs to 
NSCC for providing the feature would include building the capability to 
separate the subaccount data from the FAR files sent by insurance 
carriers, segregating such data by asset manager, drafting and 
negotiating agreements with asset managers relating to receiving the 
data and drafting and negotiating agreements with service providers who 
are receiving and distributing subaccount data on behalf of asset 
managers. NSCC believes that the costs for adding and operating the 
feature on behalf of asset managers would be approximately equal to the 
fees anticipated to be received by NSCC from the asset managers for use 
of this feature. In addition, such fees would be charged only to those 
asset managers that choose to subscribe to the feature. Therefore, by 
establishing fees that align with the cost of delivery of this feature 
and allocating those fees equitably among the subscribing asset 
managers, the proposed rule change would provide for the equitable 
allocation of reasonable dues, fees and other charges among its 
participants consistent with the requirements of Section 17A(b)(3)(D) 
of the Act.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(D).
    \11\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change would have any 
adverse impact, or impose any burden, on competition because the 
proposed rule change would add an optional feature to NSCC's services 
that would provide access by asset managers to transaction-specific 
subaccount data that is included within the FAR files. As an optional 
feature available for subscription, the proposed rule change would not 
disproportionally impact any NSCC participants.
    Moreover, because the proposed rule change would allow asset 
managers to receive transaction-specific subaccount data and use that 
information to better service the funds and assets within variable 
products, NSCC believes the proposed rule change would have a positive 
effect on competition among asset managers. The proposed feature would 
provide these firms with a method of receiving transaction-specific 
subaccount data similar to the information that such asset managers 
currently receive with respect to retail mutual funds. Receiving 
transaction-specific subaccount information with respect to variable 
products would provide asset managers a better understanding of client 
requirements and allow asset managers to adjust their products so that 
they are better suited for clients of variable annuities and variable 
life insurance contracts. NSCC believes this would enhance competition 
among asset managers by enabling each to more quickly provide competing 
products meeting client requirements.

(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. 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \12\ of the Act and subparagraphs (f)(2) \13\ and (f)(4) 
\14\ of Rule 19b-4 thereunder. At any time within 60 days of the filing 
of the proposed rule change, the Commission summarily may temporarily 
suspend such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \12\ 15 U.S.C 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(2).
    \14\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

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-2018-005 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-NSCC-2018-005. 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 (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 website 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 NSCC and on DTCC's website 
(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-NSCC-2018-005 and should be submitted on 
or before August 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17007 Filed 8-8-18; 8:45 am]
 BILLING CODE 8011-01-P