[Federal Register Volume 87, Number 138 (Wednesday, July 20, 2022)]
[Notices]
[Pages 43349-43351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15443]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95278; File No. SR-NSCC-2022-010]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Adopt Fees for the Securities Financing Transaction
Clearing Service
July 14, 2022.
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 July 8, 2022, 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
Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to Addendum A (Fee
Structure) (``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to
adopt fees for NSCC's securities financing transaction (``SFT'')
clearing service (``SFT Clearing Service''), as described below.\5\
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\5\ Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Rules,
available at http://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
Overview of the Proposed Rule Change
The purpose of this proposed rule change is to adopt fees for
NSCC's new SFT Clearing Service.\6\ The SFT Clearing Service provides
central clearing for SFTs, which are, broadly speaking, transactions
where the parties exchange equity securities against cash and
simultaneously agree to exchange the same securities and cash, plus or
minus a rate payment, on a future date. The SFT Clearing Service
established new membership categories and requirements for Sponsoring
Members and Sponsored Members whereby existing Members would be
permitted to sponsor certain institutional firms into membership.\7\
The SFT Clearing Service also established a new membership category and
requirements for Agent Clearing Members whereby existing Members would
be permitted to submit, on behalf of their customers, transactions to
NSCC for novation.\8\ The SFT Clearing Service is available for SFTs
entered into between (i) a Member and another Member, (ii) a Sponsoring
Member and its Sponsored Member (``Sponsored Member Transaction''), and
(iii) an Agent Clearing Member acting on behalf of a Customer and
either (x) a Member or (y) the same or another Agent Clearing Member
acting on behalf of a Customer.\9\
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\6\ See Securities Exchange Act Release No. 95011 (May 31,
2022), 87 FR 34339 (June 6, 2022) (SR-NSCC-2022-003) (Order
Approving Proposed Rule Change to Introduce Central Clearing for
Securities Financing Transaction Clearing Service). NSCC also filed
the proposal as advance notice SR-NSCC-2022-801. See Securities
Exchange Act Release No. 94998 (May 27, 2022), 87 FR 33528 (June 2,
2022) (SR-NSCC-2022-801) (Notice of No Objection to Advance Notice
to Introduce Central Clearing for Securities Financing Transaction
Clearing Service).
\7\ See id. and Rule 2C, supra note 5.
\8\ See supra note 6 and Rule 2D, supra note 5.
\9\ See supra note 6 and Section 1 of Rule 56, supra note 5.
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In connection with the SFT Clearing Service, NSCC would establish
two new fees for the clearance of SFT transactions: (i) a fee of $1.00
per side of each new SFT submitted (excluding any Linked SFT \10\ and
Sponsored Member Transactions) and (ii) a fee of $0.14 per million of
outstanding SFT notional balance.\11\ Under the proposed fee structure,
Sponsoring Members would be liable for any fees and charges arising
from Sponsored Member Transactions.
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\10\ A ``Linked SFT'' is an SFT entered into by the pre-novation
SFT Member parties to an SFT that has been previously novated by
NSCC, the Final Settlement of which is scheduled to occur on that
Business Day (``Settling SFT''), and has the same Transferor,
Transferee and subject SFT Securities (including CUSIP) as the
Settling SFT. See Rule 1, supra note 5.
\11\ For purposes of determining the proposed outstanding SFT
notional balance fee, the outstanding SFT notional balance would be
calculated using the settlement value of the SFT.
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In general, fee levels for NSCC are set by NSCC after periodic
reviews of a number of factors, including revenues, operating costs,
and potential service enhancements. In the case of fees associated with
new services such as SFT, however, there are no current or historical
data points to use in the analysis. Fees for such services are
determined based on an evaluation of the costs associated with
developing the service, the projected costs of operating the service on
an ongoing basis, and the projected revenues for the service over time
under various assumptions.\12\ In determining the proposed SFT Clearing
Service fees, NSCC attempted to balance a combination of factors, which
included maintaining a competitive market level price while also
factoring in the enhanced value that the SFT Clearing Service offered
to Members (e.g., multiple models for clearing SFTs for Members and
their clients, and the associated balance sheet and capital efficiency
opportunities) and the ability to achieve the payback of NSCC's
investment costs within an appropriate timeframe. The proposed SFT
Clearing Service fees are designed to be risk-based in that open
interest would be charged to the lender and borrower at a
[[Page 43350]]
rate that is designed to be competitive in the cleared equity SFT
marketplace. The proposed fee schedule would also include a per side
fee for each new SFT submitted where the SFT has a full-service Member
(i.e., a Member acting in a proprietary capacity, a Sponsoring Member,
or an Agent Clearing Member) on each side of the trade (excluding any
Linked SFTs) to account for the creation of new loans. To evaluate the
proposed SFT Clearing Service fees, NSCC considered the expected
investment costs to develop the SFT Clearing Service and projected
annual costs to run the service (including both technology and non-
technology run costs) and analyzed projected revenues based on
assumptions of growth rates for the service and the associated
timeframes for recovering investment and operating costs.\13\
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\12\ NSCC has in place procedures to control costs and to
regularly review pricing levels against costs of operation. NSCC's
fees are generally cost-based plus a markup as approved by its Board
of Directors. This markup is applied to recover development costs
and operating expenses and to accumulate capital sufficient to meet
regulatory and economic requirements. The SFT Clearing Service and
proposed associated fees, once implemented, would be reviewed and
re-evaluated regularly under this framework. See NSCC Disclosure
Framework for Covered Clearing Agencies and Financial Market
Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf,
at 120.
\13\ NSCC has included details of its analysis in confidential
Exhibit 3 of filing SR-NSCC-2022-010.
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Proposed Change to Addendum A
To effectuate the proposed SFT Clearing Service fees, Section II of
Addendum A concerning Trade Clearance Fees would be updated to include
a new subsection for SFT fees, which would include: (i) a fee of $1.00
per side of each new SFT submitted (excluding any Linked SFT and
Sponsored Member Transactions) and (ii) a fee of $0.14 per million of
outstanding SFT notional balance. NSCC would also add a new Section IX
to Addendum A stating that a Sponsoring Member shall be liable for fees
and charges arising from Sponsored Member Transactions, the data on
which it, or its Sponsored Member(s), has submitted to NSCC.
2. Statutory Basis
NSCC believes the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, NSCC believes
the proposed rule change is consistent with Section 17A(b)(3)(D) of the
Act \14\ and Rule 17Ad-22(e)(23)(ii),\15\ as promulgated under the Act,
for the reasons set forth below.
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\14\ 15 U.S.C. 78q-1(b)(3)(D).
\15\ 17 CFR 240.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act \16\ requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges among its participants. NSCC believes the
proposed fees would be allocated equitably among its full-service
Members that transact in SFTs. NSCC would apply a fee of $1.00 per side
for each new SFT submitted where the SFT has a full-service Member
(i.e., a Member acting in a proprietary capacity, a Sponsoring Member,
or an Agent Clearing Member) on each side of the trade (excluding any
Linked SFTs) to account for the creation of new loans. In addition,
NSCC would impose a fee of $0.14 per million of outstanding SFT
notional balance in each account maintained by a Member holding SFTs
(i.e., a Member's account holding proprietary SFTs, a Sponsoring
Member's Sponsored Member Sub-Account(s), and/or an Agent Clearing
Member's Agent Clearing Member Customer Omnibus Account(s)) to account
for the ongoing operational and risk management activities associated
with the maintenance of outstanding SFT positions. NSCC believes that
the proposed fee changes are reasonable because they carefully consider
the expected investment costs to develop the SFT Clearing Service, the
projected annual costs to run the service (including both technology
and non-technology run costs), and projected revenues for the service
and are intended to achieve an appropriate timeframe for recovering
such investment and operating costs.\17\ NSCC notes that once the
proposed SFT Clearing Services fees are implemented, the SFT Clearing
Services fees would be periodically reviewed under NSCC's procedures to
control costs and to regularly review pricing levels against costs of
operation.\18\
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\16\ 15 U.S.C. 78q-1(b)(3)(D).
\17\ See supra note 13 and associated text.
\18\ See supra note 12.
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Rule 17Ad-22(e)(23)(ii) under the Act \19\ 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. The proposed SFT Clearing Service Fees would be clearly and
transparently published in Addendum A of the Rules, which are available
on a public website,\20\ thereby enabling Members to identify the fees
associated with participating in the SFT Clearing Service. As such,
NSCC believes the proposed rule change is consistent with Rule 17Ad-
22(e)(23)(ii) under the Act.\21\
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\19\ 17 CFR 240.17Ad-22(e)(23)(ii).
\20\ See supra note 5.
\21\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe the proposed rule change would impose any
burden, or have any impact, on competition. The proposed fees would
apply equally to all Members, Sponsoring Members, and Agent Clearing
Members clearing SFTs at NSCC. NSCC believes that the proposed SFT
Clearing Service fees would not advantage or disadvantage any
particular member or user of the SFT Clearing Service or unfairly
inhibit access to the SFT Clearing Service. NSCC notes that members may
continue to engage in securities lending on a bilateral basis if they
choose.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has conducted outreach to Members to provide them with notice
of the proposed fees.
NSCC has not received or solicited any written comments relating to
this proposal. If any written comments are received by NSCC, they will
be publicly filed as an Exhibit 2 to this filing, as required by Form
19b-4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
[email protected] or 202-551-5777.
NSCC reserves the right not to respond to any comments received.
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 \22\ and paragraph (f) of Rule 19b-4
thereunder.\23\ At any time within
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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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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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-2022-010 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-2022-010. 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-2022-010 and should be submitted on
or before August 10, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15443 Filed 7-19-22; 8:45 am]
BILLING CODE 8011-01-P