[Federal Register Volume 83, Number 240 (Friday, December 14, 2018)]
[Notices]
[Pages 64374-64380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27080]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84770; File No. SR-NSCC-2018-011]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Amend Certain Fees and Make Other Changes
December 10, 2018.
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 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) of
the Act \3\ and Rules 19b-4(f)(2) and (f)(4) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
[[Page 64375]]
proposed rule change from interested persons.
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\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) and (f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would amend Addendum A (Fee Structure) of
the NSCC Rules & Procedures (``Rules'') \5\ with respect to certain
fees as well as make other changes, as described in greater detail
below.
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\5\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Addendum A
(Fee Structure) of the Rules with respect to certain fees and make
other changes in order to (i) reduce complexity and increase
transparency, (ii) better align fees with the costs of services
provided by NSCC, and (iii) encourage Member practices that promote
efficient market behavior. The proposed rule change would also make
technical and conforming changes. Taken collectively, the proposed rule
changes would reduce NSCC's revenue by approximately 4%.
In order to accomplish these objectives, NSCC is proposing to (i)
remove fees with little or no activity, (ii) group fees for related or
similar services under one fee, (iii) modify certain fees, and (iv)
remove fees that relate to settlement of certain transaction activity.
(i) Background
NSCC provides clearance and settlement services for trades executed
by its Members in the U.S. equity, corporate and municipal bond, and
unit investment trust markets.
Members are assessed fees in accordance with Addendum A (Fee
Structure). The current Fee Structure covers a multitude of fees that
are assessed on Members based upon their activities and the services
utilized. The number of fees and the methods by which they are
calculated make the current Fee Structure unnecessarily complex. In
addition, certain fees in the current Fee Structure have over time
become misaligned with the costs of services provided by NSCC.
NSCC has undertaken a strategic review of its pricing structure,
and developed a revenue and pricing strategy with the goals of reducing
pricing complexity, aligning pricing with costs of providing the
services, and encouraging Member practices that promote efficient
market behavior.\6\
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\6\ NSCC is also proposing changes to fees for NSCC's Mutual
Fund Services and Insurance and Retirement Processing Services in a
separate proposal. In addition, NSCC's affiliates, The Depository
Trust Company (``DTC'') and Fixed Income Clearing Corporation, are
proposing changes to their respective fees.
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A. Pricing Overly Complex
The number of fees and the methods by which they are calculated
make the current Fee Structure difficult for Members to understand and
reconcile. In fact, Members and market participants have often
indicated to NSCC that the current Fee Structure is too complex and
difficult to understand.
In order to streamline the Fee Structure, the proposal would
include changes to standardize fees and remove fees that have little
activity or no activity. The proposed changes would also eliminate fees
that relate to delivery of certain securities outside of NSCC. In
addition, in order to reduce the complexity of pricing, the proposed
changes would group fees for similar services into one fee. By
simplifying and updating the Fee Structure, these proposed changes
would improve the transparency of the Rules.
B. Pricing Misalignment With Costs of Services
Certain fees in the current Fee Structure have over time become
misaligned with NSCC's costs of providing the services. As such, the
revenue from these fees no longer cover the costs of such services.
NSCC believes it is reasonable and appropriate to assess Members fees
that are commensurate with the costs of services provided to Members.
Accordingly, the proposed changes would adjust certain fees so that
revenue for NSCC would better align with the costs of the services.
C. Promote Efficient Market Behavior
The proposed changes would adjust certain fees in order to
encourage Member practices that promote efficient market behavior.
(ii) Proposed Fee Changes
Based upon feedback from Members and market participants as well as
a review of current fees conducted by NSCC as described above, NSCC is
proposing to modify the Fee Structure to (i) reduce complexity and
increase transparency, (ii) better align fees with the costs of
services provided by NSCC, and (iii) encourage Member practices that
promote efficient market behavior.
In that respect, the proposed Fee Structure would consolidate 28
fees, modify 2 existing fees and eliminate 8 fees, each as further
described below.
NSCC is proposing to consolidate the following fee groupings--
Bond Correction Fee for supplemental input on T+1
Bond Correction Fee for supplemental input on T+2
Bond Correction Fee for supplemental input after T+2
Trade Rejection Fee
Obligation Warehouse Fee to close an obligation and send to
Continuous Net Settlement (``CNS'')
Clearance Activity Fee--the component that is calculated based on
the number of sides processed monthly by NSCC
Clearance Activity Fee--``value into the net'' component
Fee for Flip Trades
Obligation Warehouse Fee to withhold an obligation from being
closed and send to the CNS
Obligation Warehouse Fee for each obligation closed due to
Reconfirmation and Pricing Service (``RECAPS'') (charged per RECAPS
cycle)
Clearance Activity Fee--``value out of the net'' component
Fee for Foreign Securities Transactions (Netted)
Fee for Index Creation and Redemption Units instruction
submitted for regular way (T+2) settlement
Fee for Index Creation and Redemption Units instruction submitted
for shortened settlement
Fee for Failure to Deliver to CNS (Short-In CNS) per item
short in CNS for 31 to 60 days at close of business
Fee for Failure to Deliver to CNS (Short-In CNS) per item short in
CNS for 61 to 90 days at close of business
[[Page 64376]]
Fee for Failure to Deliver to CNS (Short-In CNS) per item short in
CNS for more than 90 days at close of business
Fee for CNS Stock Dividend Payment (Long)
Fee for CNS Cash Dividend and Interest Payment (Long)
Fee for CNS Stock Dividend Payment (Short)
Fee for CNS Cash and Interest Payment (Short)
Automated Customer Account Transfer Service (``ACATS'') fee
for Standard Transfer Initiation Form
ACATS fee for Non-Standard Transfer Initiation Form
ACATS fee for Recording Asset Delivers
ACATS fee for Corrections--asset additions, deletions, or changes
ACATS fee for Insurance Registrations
ACATS fee for adjustment of customer account number
ACATS fee for Account Transfer Rejects
NSCC is proposing to modify the following fees--
Trade recording fee for each side of foreign security trades
entered for settlement, but not compared by NSCC
Fee in connection with New York State Transfer Taxes
NSCC is proposing to eliminate the following fees--
Bond Correction Fee for Trades Deleted on T+1
Bond Correction Fee for Trades Deleted on T+2
Bond Correction Fee for Trades Deleted after T+2
Obligation Warehouse Fee for each obligation closed due to
Pair Off (charged per obligation side)
Fee for day deliveries to CNS to cover short value positions
Fee for research on invalid CNS dividend or interest claim
Monthly Participant Fees for trade input, either (a) as a
Service Bureau or (b) by an affiliated Service Bureau
Special Service Fees for DTC Sponsored Accounts--available to
each CNS participant who is not also a participant of DTC
The foregoing proposed fee changes would address pricing
complexity, pricing misalignment with costs of services, and encourage
member practices that promote efficient market behavior, as further
described in the discussion below.
A. Fee Changes To Address Pricing Complexity Section I of Addendum A
(Trade Comparison and Recording Service Fees)
In Section I.B.2.a., NSCC is proposing to group three Bond
Correction Fees currently assessed to the submitter for all
supplemental input on T+1 ($0.60), T+2 ($0.90), and after T+2 ($1.50),
along with the Trade Rejection Fee ($.50 per bond reject) from Section
I.B.3., into one single fee. Based on a blended average \7\ of the four
fees using 2017 volume numbers, NSCC is proposing a fee of $0.95 to the
submitter that would apply to all bond correction supplemental input
after T. NSCC would accomplish this by deleting the four fees and
revising the lead-in sentence to remove the exception language and add
in $0.95 as the fee applicable to the submitter.
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\7\ NSCC calculates the blended average by dividing the portion
of 2017 revenue attributed to the relevant fee groups by the
applicable 2017 volume numbers. The blended average is then used by
NSCC as the resulting consolidated fee, with adjustments in some
instances to achieve a round number. NSCC believes using this
blended average approach would minimize impact to Members. For
example, assume NSCC is grouping Fee A and Fee B into one fee using
the blended average approach. If the 2017 revenue from these two
fees was $400,000 and these fees were collectively assessed 2,000
times during 2017, the resulting consolidated fee based on a blended
average would be $200 ($400,000/2,000).
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In Section I.B.2.b., NSCC is proposing to remove three Bond
Correction Fees currently assessed to both sides for trades deleted on
T+1 ($0.60), T+2 ($0.90), and after T+2 ($1.50). These fees currently
have little or no activity, and NSCC is proposing to delete them.
In Section I.C.2., NSCC is proposing to change the trade recording
fee charged for a foreign security trade entered for settlement, but
not compared by NSCC, from $0.75 to $0.85 per side. NSCC is proposing
this change in order to standardize the trade recording fees so that
they would be the same for bonds as well as foreign security trades.
NSCC believes having a standard trade recording fee regardless of the
types of securities would help to reduce complexity of pricing and
streamline the Fee Structure.
In Section I.D., NSCC is proposing to group the $0.35 Obligation
Warehouse Fee to close an obligation and send it to CNS, along with
other fees, into the ``value into the net'' component of the Clearance
Activity Fee in Section II.A., given that these fees all relate to
activities going into the netting process.\8\ Similarly, NSCC is
proposing to group two Obligation Warehouse Fees, (i) the $0.05 fee to
withhold an obligation from being closed and send to the CNS and (ii)
the $0.35 fee for each obligation closed due to RECAPS (charged per
RECAPS cycle), along with the Fee for Foreign Securities Transactions
(Netted) ($.50 per item) from Section II.I., into the ``value out of
the net'' component of the Clearance Activity Fee in Section II.A.,
given that these fees all relate to activities exiting the netting
process. NSCC is also proposing to eliminate the Obligation Warehouse
Fee for each obligation closed due to Pair Off that is charged per
obligation side. This fee currently has little or no activity, and NSCC
is proposing to delete it.
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\8\ In addition to the Obligation Warehouse Fee to close an
obligation and send it to CNS, NSCC is also proposing to group (i)
the component of the Clearance Activity Fee that is calculated based
on the number of sides processed monthly by the CNS ($0.021593 per
side for zero to 35,000 monthly sides, $0.001197 per side for 35,001
to 42,000,000 monthly sides, and $0.000628 per side for over
42,000,000 monthly sides) from Section II.A. and (ii) the Fee for
Flip Trades ($.00060 per side) from Section II.D., into the ``value
into the net'' component of the Clearance Activity Fee.
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In Section I.E., NSCC is proposing to group the two fees for Index
Creation and Redemption Units instructions into one fee based on a
blended average \9\ of the two fees using 2017 volume numbers.
Specifically, NSCC is grouping the $30 fee assessed on each side of
each Index Creation and Redemption Units instruction submitted for
regular way (T+2) settlement and the $50 fee assessed on each side of
each Index Creation and Redemption Units instruction submitted for
shortened settlement into a single $35 fee assessed on each side of
each Index Creation and Redemption Units instruction submitted.
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\9\ See supra note 7.
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Section II of Addendum A (Trade Clearance Fees)
In Section II.A., NSCC is proposing to group the component of the
Clearance Activity Fee that is calculated based on the number of sides
processed monthly by CNS, along with other fees as discussed above,
into the ``value into the net'' component of the Clearance Activity
Fee.\10\ After the proposed consolidation, the ``value into the net''
component of the Clearance Activity Fee would increase from
$0.331940430 to $0.47 per million of processed value.
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\10\ See supra note 8.
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As discussed above, NSCC is proposing to group the two Obligation
Warehouse Fees from Section I.D.5 and 9 with the ``value out of the
net'' component of the Clearance Activity Fee in Section II.A., along
with the Fee for Foreign Securities Transactions (Netted) ($.50 per
item) from Section II.I. After the proposed consolidation,
[[Page 64377]]
the ``value out of the net'' component of the Clearance Activity Fee
would decrease from $2.36844405 to $2.12 per million of settling value.
NSCC is proposing to eliminate the fee for day deliveries to CNS to
cover short valued positions ($.40 per delivery) from Section II.B.
This proposed change would simplify the Fee Structure by removing fees
that relate to delivery of certain securities outside of NSCC.
In renumbered Section II.B., NSCC is proposing to group the three
Fees for Failure to Deliver to CNS (Short-In CNS) ($.50 per item short
in CNS for 31 to 60 days at close of business; $.75 per item short in
CNS for 61 to 90 days at close of business; and $1.00 per item short in
CNS for more than 90 days at close of business) into a single fee, and
increase it to $3.00 \11\ for each item short in CNS for more than 30
days at close of business. NSCC is proposing these changes not only in
order to reduce pricing complexity but also to encourage Member
practices that promote efficient market behavior, i.e., disincentivize
Members to have CNS fails for more than 30 days. NSCC believes
encouraging Members to address CNS fails that are more than 30 days
would promote efficient market behavior because securities would be
delivered to CNS on a more timely basis.
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\11\ Based on discussion with clients, NSCC believes that
imposing a $3.00 fee per day for each item short in CNS for more
than 30 days is an appropriate amount that would serve as an
effective deterrent to Members having CNS fails for more than 30
days (i.e., Members would be incentivized to deliver securities to
CNS within 30 days of the settlement date so that they would not be
assessed this daily fee).
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As discussed above, NSCC is proposing to group (i) the Fee for Flip
Trades ($.00060 per side) from Section II.D., along with other fees,
into the ``value into the net'' component of the Clearance Activity Fee
\12\ and (ii) the Fee for Foreign Securities Transactions (Netted)
($.50 per item) from Section II.I., along with two Obligation Warehouse
Fees, (x) the $0.05 fee to withhold an obligation from being closed and
send to the CNS and (y) the $0.35 fee for each obligation closed due to
RECAPS (charged per RECAPS cycle), into the ``value out of the net''
component of the Clearance Activity Fee.
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\12\ See supra note 8.
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In renumbered Section II.G., NSCC is proposing to group the four
fees relating to CNS stock dividend, cash dividend, and interest
payments (Fee for CNS Stock Dividend Payment (Long)-$12.00 per item;
Fee for CNS Cash Dividend and Interest Payment (Long)-$1.40 per item;
Fee for CNS Stock Dividend Payment (Short)-$12 per item; and Fee for
CNS Cash and Interest Payment (Short)-$1.40 per item) into one fee.
Based on a blended average \13\ of the four fees using 2017 volume
numbers, NSCC is proposing a fee of $1.85 for each CNS stock dividend,
cash dividend, and interest payment, including both long and short.
NSCC is also proposing to remove the fee for research on invalid CNS
dividend or interest claim ($70 per claim). This fee currently has
little or no activity, and NSCC is proposing to delete it.
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\13\ See supra note 7.
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Section IV of Addendum A (Other Service Fees)
In Section IV.F., NSCC is proposing to group seven fees relating to
ACATS into one single fee. Specifically, NSCC is proposing to group the
following ACATS fees: (i) The ACATS fee for Standard Transfer
Initiation Form ($.18 per submission), (ii) the ACATS fee for Non-
Standard Transfer Initiation Form ($.18 per submission), (iii) the
ACATS fee for Recording Asset Delivers ($.05 per asset which is
reported by the delivering firm), (iv) the ACATS fee for Corrections-
asset additions, deletions, or changes ($.06 per asset), (v) the ACATS
fee for Insurance Registrations ($.25 per insurance registration
submitted, to the receiver and the deliverer), (vi) the ACATS fee for
adjustment of customer account number ($.12 per adjustment), and (vii)
the ACATS fee for Account Transfer Rejects ($1.20 per full account
reject per side where both parties are required by their designated
examining authority or other regulatory body to use an automated
customer account transfer service), into a new proposed fee for account
transfers. Based on a blended average \14\ of the seven fees using 2017
volume numbers, NSCC is proposing an ACATS fee for Account Transfers of
$0.50 per transfer initiation.
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\14\ Id.
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Section V of Addendum A (Pass-Through and Other Fees)
NSCC is proposing to eliminate the Monthly Participant Fees for
trade input, either (a) as a Service Bureau or (b) by an affiliated
Service Bureau ($250.00 per month) from Section V.A.2. NSCC is also
proposing to eliminate the Special Service Fees for DTC Sponsored
Accounts (available to each CNS participant who is not also a
participant of DTC) that is currently in Section V.B.1. Both of these
fees currently have little or no activity, and NSCC is proposing to
delete them.
B. Fee Changes to Address Pricing Misalignment With Costs of Service
In Section III.B., NSCC is proposing to adjust the fee assessed for
services in connection with New York State (``NYS'') stock transfer
taxes from $1.00 per form to $175.00 per month.\15\ NSCC has not
increased this fee since 1990 \16\ even though the costs of providing
this service have increased. In addition, NSCC believes changing the
way this fee is charged from ``per form'' to ``per month'' would
simplify the fee reconciliation process for Members because they would
no longer need to ensure the number of forms they submitted is
consistent with fees charged. NSCC believes assessing Members a $175
monthly fee for this service is appropriate because doing so would not
only allow NSCC to cover the increased costs of providing this service
but also simplify the fee reconciliation process for Members that use
this service.
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\15\ This service is provided under Rule 14 (Transfer Taxes) to
facilitate Members' compliance with the NYS stock transfer tax,
which is imposed on the sale or transfer of certain securities
within New York. See supra note 5. In 2017, this service was
utilized by approximately 14 Members, all of whom were either large
or medium-size firms. On average, each Member submitted
approximately 20 forms per month.
\16\ See Securities Exchange Act Release No. 28085 (June 1,
1990), 55 FR 23495 (June 8, 1990) (SR-NSCC-89-18).
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C. Fee Changes To Promote Efficient Market Behavior
As discussed above, in renumbered Section II.B., NSCC is proposing
to group the current three fees for failure to deliver to CNS ($.50 per
item short in CNS for 31 to 60 days at close of business; $.75 per item
short in CNS for 61 to 90 days at close of business; and $1.00 per item
short in CNS for more than 90 days at close of business) into one
single fee of $3.00 \17\ per item short in CNS for more than 30 days at
close of business. In addition to reduce pricing complexity, these
changes are being proposed in order to encourage Member practices that
promote efficient market behavior (i.e., encourage Members to address
CNS fails that are more than 30 days). NSCC believes encouraging
Members to address CNS fails that are more than 30 days would promote
efficient market behavior because securities would be delivered to CNS
on a more timely basis.
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\17\ See supra note 11.
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[[Page 64378]]
D. Technical and Conforming Changes
NSCC is proposing a number of technical and conforming changes.
Specifically, due to the grouping and/or removal of certain fees as
described above, NSCC is proposing to renumber or re-letter, as
applicable, current Fee Structure Sections I.D.6 to 8 and 11; II.A.(c),
C., E. to H., and J.; IV.F.; V.A.3 to 4; and V.B.2 to 7.
Additionally, NSCC is proposing to update the format of (i) the
$.40 Listed Equity System Correction Fees to $0.40 in Section I.B.1.,
(ii) the Fails to Deliver to CNS (Short-In CNS) $.25 fee per item short
in CNS for 1 to 30 days at close of business to $0.25 in re-lettered
Section II.B., (iii) the $.40 per item fee for security orders
generated to $0.40 in re-lettered Section II.C., (iv) the $.75 per item
fee for Clearing Interface Exemption or Inclusion Instruction to NSCC
to $0.75 in re-lettered Section II.E., (v) the $.06 ACATS fee for
Recording Asset Receives to $0.06 in Section IV.F.2., and (vi) the $.12
ACATS fee for Non-CNS Receive/Deliver Orders issued to $0.12 in re-
numbered Section IV.F.3.
NSCC is also proposing to delete the word ``withhold'' and replace
it with ``reversal'' in the parenthetical portion within the lead-in
sentence of Section I.B.2.a. This change is being proposed in order to
conform with the recent revisions to simplify, clarify, and improve the
description of the rules regarding submission and processing of
syndicate takedown trades and syndicate takedown reversals in Procedure
II, Section D.2(A)(2)(g) of the Rules.\18\
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\18\ See Securities Exchange Act Release 83397 (June 8, 2018),
83 FR 27802 (June 14, 2018) (SR-NSCC-2018-002).
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(iii) Expected Member Impact
In general, NSCC anticipates that the proposal would result in fee
reductions for approximately 127 Members (41%) and fee increases for
approximately 35 Members (11%). Of the 35 Members that may have their
fees increased, 20 would have an increase of less than $1,000 per year,
7 would have an increase between $1,000 to $10,000 per year, 3 would
have an increase of $27,000 to $40,000 per year, and 5 would have an
increase of $100,000 to $200,000 per year. These estimates are
calculated based on 2017 volume numbers.
(iv) Member Outreach
Beginning in June 2018, NSCC has conducted ongoing outreach to
Members in order to provide them with notice of the proposed changes to
the affected fees. As of the date of this filing, no written comments
relating to the proposed changes have been received in response to this
outreach. The Commission will be notified of any written comments
received.
(v) Implementation Timeframe
NSCC would implement this proposal on January 1, 2019. As proposed,
a legend would be added to the Fee Structure stating there are changes
that became effective upon filing with the Commission but have not yet
been implemented. The proposed legend also would include a date on
which such changes would be implemented and the file number of this
proposal, and state that, once this proposal is implemented, the legend
would automatically be removed from the Fee Structure.
2. Statutory Basis
NSCC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, NSCC believes this proposal
is consistent with Sections 17A(b)(3)(D) \19\ and 17A(b)(3)(F) \20\ of
the Act and Rule 17Ad-22(e)(23)(ii),\21\ as promulgated under the Act,
for the reasons described below.
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\19\ 15 U.S.C. 78q-1(b)(3)(D).
\20\ 15 U.S.C. 78q-1(b)(3)(F).
\21\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act requires that the Rules provide for
the equitable allocation of reasonable dues, fees, and other charges
among its participants.\22\ NSCC believes the proposed rule changes to
the Fee Structure, described in detail in Item II(A)(1)(ii)(A) above
(entitled ``Fee Changes to Address Pricing Complexity''), to reduce the
complexity of the Fee Structure would provide for the equitable
allocation of reasonable fees. NSCC believes the proposed changes to
address pricing complexity are equitable because they would apply
uniformly to all Members that use the applicable services. NSCC
believes these proposed changes are reasonable because they are
designed to reduce complexity and increase transparency of the Fee
Structure with minimal client impact. Therefore, NSCC believes the
proposed rule changes described in detail in Item II(A)(1)(ii)(A) above
to reduce the complexity of the Fee Structure are consistent with
Section 17A(b)(3)(D) of the Act.
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\22\ 15 U.S.C. 78q-1(b)(3)(D).
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NSCC believes the proposed rule changes to the Fee Structure,
described in detail in Item II(A)(1)(ii)(B) above (entitled ``Fee
Changes to Address Pricing Misalignment with Costs of Service''), to
better align pricing with costs of services would provide for the
equitable allocation of reasonable fees. The proposed changes would
modify the fee assessed for services in connection with NYS stock
transfer taxes from $1.00 per form to a monthly fee of $175 in order to
better align with the increased costs of providing the services. NSCC
believes the proposed changes to the rate as well as the method of
charging this fee are equitable because they are designed to simplify
the fee reconciliation process for Members and would apply uniformly to
all Members that utilize the services. NSCC believes the proposed
changes are reasonable because they would be commensurate with the
costs of resources allocated by NSCC in providing such services.
Therefore, NSCC believes the proposed rule changes to the Fee Structure
described in detail in Item II(A)(1)(ii)(B) above to better align
pricing with costs of services are consistent with Section 17A(b)(3)(D)
of the Act.
NSCC also believes the proposed rule changes to the Fee Structure,
described in detail in Item II(A)(1)(ii)(C) above (entitled ``Fee
Changes to Promote Efficient Market Behavior''), to encourage Member
practices that promote efficient market behavior would provide for the
equitable allocation of reasonable fees. The proposed change would
assess Members a daily $3 fee per item short in CNS that are more than
30 days at close of business. NSCC believes the proposed changes are
equitable because they would apply uniformly to all Members that have
CNS fails that are more than 30 days. NSCC believes the proposed
changes are reasonable because they are designed to encourage Members
to address CNS fails that are more than 30 days in order to promote
efficient market behavior. Therefore, NSCC believes the proposed rule
changes to the Fee Structure described in detail in Item
II(A)(1)(ii)(C) above to encourage Member practices that promote
efficient market behavior are consistent with Section 17A(b)(3)(D) of
the Act.
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\23\ The proposed rule changes to promote
efficient market behavior, as described in Item II(A)(1)(ii)(C) above
(entitled ``Fee Changes to Promote Efficient Market Behavior''), are
designed to encourage Members to address CNS fails that are
[[Page 64379]]
more than 30 days. In this respect, the proposal would encourage Member
practices that would reduce the number of CNS fails that are more than
30 days and thereby promote the prompt and accurate clearance and
settlement of securities transactions. As such, NSCC believes the
proposed rule changes to promote efficient market behavior are
consistent with Section 17A(b)(3)(F) of the Act.
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed rule changes to make technical and conforming changes,
as described in Item II(A)(1)(ii)(D) above (entitled ``Technical and
Conforming Changes''), would help ensure that the Rules, including the
Fee Structure, remain accurate and clear to Members. Having accurate
and clear Rules would help Members to better understand their rights
and obligations regarding NSCC's clearance and settlement services.
NSCC believes that when Members better understand their rights and
obligations regarding NSCC's clearance and settlement services, they
can act in accordance with the Rules. NSCC believes that better
enabling Members to comply with the Rules would promote the prompt and
accurate clearance and settlement of securities transactions by NSCC.
As such, NSCC believes the proposed rule changes to make technical and
conforming changes are consistent with Section 17A(b)(3)(F) of the Act.
Rule 17Ad-22(e)(23)(ii) under the Act requires NSCC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide sufficient information to enable
participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency.\24\ NSCC believes that the proposed rule changes to reduce the
complexity of the Fee Structure, as described in Item II(A)(1)(ii)(A)
above (entitled ``Fee Changes to Address Pricing Complexity''), and to
make technical and conforming changes, as described in Item
II(A)(1)(ii)(D) above (entitled ``Technical and Conforming Changes''),
would help ensure that the Fee Structure is transparent and clear to
Members. Having a transparent and clear Fee Structure would help
Members, NSCC believes, to better understand NSCC's fees and help
provide Members with increased predictability and certainty regarding
the fees they incur by participating in NSCC. As such, NSCC believes
the proposed rule changes to reduce the complexity of the Fee Structure
and to make technical and conforming changes are consistent with Rule
17Ad-22(e)(23)(ii) under the Act.
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\24\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
NSCC believes the proposed rule changes to modify (i) the trade
recording fee for foreign security trades and (ii) the fee assessed for
services in connection with NYS stock transfer taxes, may have an
impact on competition because these changes would likely increase the
fees of those Members that utilize these services when compared to
their fees under the current Fee Structure. NSCC believes these
proposed rule changes could burden competition by negatively affecting
such Members' operating costs. While these Members may experience
increases in their fees when compared to their fees under the current
Fee Structure, NSCC does not believe such change in fees would in and
of itself mean that the burden on competition is significant. This is
because even though the amount of the fee increase may seem significant
in some instances (e.g., going from $1 per form to $175 per month),
NSCC believes the increase in fees would similarly affect all Members
that utilize the services, and therefore the burden on competition
would not be significant.
Regardless of whether the burden on competition is deemed
significant, NSCC believes any burden on competition that is created by
these proposed rule changes would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\25\
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\25\ 15 U.S.C. 78q-1(b)(3)(I).
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The proposed rule changes to modify (i) the trade recording fee for
foreign security trades and (ii) the fee assessed for services in
connection with NYS stock transfer taxes, would be necessary in
furtherance of the purposes of the Act because the Rules must provide
for the equitable allocation of reasonable dues, fees, and other
charges among its participants.\26\ As described above, NSCC believes
that the proposed rule changes would result in fees that are equitably
allocated (by applying uniformly to all Members that use the applicable
services) and would result in reasonable fees (by reducing the
complexity of the Fee Structure with minimal client impact and by
aligning with costs, respectively). As such, NSCC believes these
proposed rule changes would be necessary in furtherance of the purposes
of the Act, as permitted by Section 17A(b)(3)(I) of the Act.\27\
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\26\ 15 U.S.C. 78q-1(b)(3)(D).
\27\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC believes any burden on competition that is created by the
proposed rule changes to modify (i) the trade recording fee for foreign
security trades and (ii) the fee assessed for services in connection
with NYS stock transfer taxes, would also be appropriate in furtherance
of the purposes of the Act. The proposed rule changes to modify the
trade recording fee for foreign security trades would provide NSCC with
the ability to assess a standard trade recording fee regardless of the
types of securities and thereby help to reduce complexity of pricing
and streamline the Fee Structure. The proposed rule changes to modify
the fee for the NYS stock transfer tax service would allow NSCC to
cover increased costs of providing the service as well as simplify the
fee reconciliation process for Members that use this service. Having
the ability to assess fees that are (i) standard regardless of the
types of securities and (ii) commensurate with NSCC's costs of
providing the services, would help NSCC to (x) reduce complexity of
pricing as well as streamline the Fee Structure and (y) continue
providing dependable and stable clearance and settlement services to
its Members. As such, NSCC believes these proposed rule changes would
be appropriate in furtherance of the purposes of the Act, as permitted
by Section 17A(b)(3)(I) of the Act.\28\
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\28\ Id.
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NSCC believes the proposed rule changes to promote efficient market
behavior, as discussed above in Item II(A)(1)(ii)(C), may have an
impact on competition because these changes would likely increase the
fees of those Members with CNS fails that are more than 30 days. NSCC
believes these proposed rule changes could burden competition by
negatively affecting such Members' operating costs. While these Members
may experience increases in their fees when compared to their fees
under the current Fee Structure, NSCC does not believe such change in
fees would in and of itself mean that the burden on competition is
significant. This is because even though the amount of the fee increase
may be significant (with a maximum increase of $2.50 for each fail over
30 days), NSCC believes the increase in fees would similarly affect all
Members that have CNS fails that are more than 30 days and therefore
the burden on competition would not be significant. Regardless of
whether the burden on competition is deemed significant, NSCC believes
any burden
[[Page 64380]]
on competition that is created by the proposed rule changes to the fees
associated with CNS fails that are more than 30 days would be necessary
and appropriate in furtherance of the purposes of the Act, as permitted
by Section 17A(b)(3)(I) of the Act.\29\
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\29\ Id.
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NSCC believes that the proposed rule changes to promote efficient
market behavior would be necessary in furtherance of the purposes of
the Act because the Rules must provide for the equitable allocation of
reasonable dues, fees, and other charges among its participants.\30\ As
described above, NSCC believes that the proposed rule changes would
result in fees that are equitably allocated (by imposing the fees on
all Members with CNS fails more than 30 days) and would result in
reasonable fees (by increasing fees to the extent they would serve as
meaningful deterrents to Members having CNS fails that are more than 30
days). As such, NSCC believes the proposed rule changes to promote
efficient market behavior would be necessary in furtherance of the
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the
Act.\31\
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\30\ 15 U.S.C. 78q-1(b)(3)(D).
\31\ 15 U.S.C. 78q-1(b)(3)(I).
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NSCC believes any burden on competition that is created by the
proposed rule changes to promote efficient market behavior would also
be appropriate in furtherance of the purposes of the Act. NSCC believes
that the proposed rule changes would encourage Members to address CNS
fails that are more than 30 days. Reducing the number of CNS fails that
are more than 30 days would, NSCC believes, promote the prompt and
accurate clearance and settlement of securities transactions. As such,
NSCC believes the proposed rule changes to promote efficient market
behavior would be appropriate in furtherance of the purposes of the
Act, as permitted by Section 17A(b)(3)(I) of the Act.\32\
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\32\ Id.
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NSCC does not believe the proposed rule changes to reduce the
complexity of the Fee Structure (other than the proposed rule change to
modify the trade recording fee for foreign security trades) and make
technical and conforming changes, as discussed above in Items
II(A)(1)(ii)(A) and (D), respectively, would impact competition.\33\
These changes would apply equally to all Members and would not affect
Members' rights and obligations. As such, NSCC believes these proposed
rule changes would not have any impact on competition.
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\33\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to this proposed rule change have not
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \34\ and paragraph (f) of Rule 19b-4
thereunder.\35\ 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.
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 17 CFR 240.19b-4(f).
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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-2018-011 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-2018-011. 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2018-011 and should be submitted on
or before January 4, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27080 Filed 12-13-18; 8:45 am]
BILLING CODE 8011-01-P