[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55058-55060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95656; File No. SR-NSCC-2022-005]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Revise the Excess 
Capital Premium Charge

September 1, 2022.

I. Introduction

    On May 20, 2022, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2022-005 (the ``Proposed 
Rule Change'') pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The Proposed 
Rule Change was published for comment in the Federal Register on June 
8, 2022,\3\ and the Commission has received comments regarding the 
changes proposed in the Proposed Rule Change.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 95026 (June 2, 2022), 87 
FR 34913 (June 8, 2022) (File No. SR-NSCC-2022-005). The Notice 
referred to an incorrect filing date of May 30, 2022; however, the 
proposal was filed on May 20, 2022, as indicated here.
    \4\ Comments are available at https://www.sec.gov/comments/sr-nscc-2022-005/srnscc2022005.htm.
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    On July 11, 2022, pursuant to Section 19(b)(2) of the Act,\5\ the 
Commission designated a longer period within which to approve, 
disapprove, or institute proceedings to determine whether to approve or 
disapprove the Proposed Rule Change.\6\ This order institutes 
proceedings, pursuant to Section 19(b)(2)(B) of the Act,\7\ to 
determine whether to approve or disapprove the Proposed Rule Change.
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    \5\ 15 U.S.C. 78s(b)(2).
    \6\ Securities Exchange Act Release No. 95245 (July 11, 2022), 
87 FR 42523 (July 15, 2022) (SR-NSCC-2022-005).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

    A key tool that NSCC uses to manage its respective credit exposures 
to its members is the daily collection of margin from each member, 
which is referred to as each member's Required Fund Deposit. The 
aggregated amount of all members' margin constitutes the Clearing Fund, 
which NSCC would access should a defaulted member's own margin be 
insufficient to satisfy losses to NSCC caused by the liquidation of 
that member's portfolio.
    The Excess Capital Premium (ECP) charge is a component of the 
Clearing Fund that is designed to mitigate the heightened default risk 
a member could pose to NSCC if it operates with lower capital levels 
relative to its margin requirements. Each Business Day, NSCC determines 
if a member may be subject to the ECP charge by first determining its 
Calculated Amount. The Calculated Amount is a portion of a member's 
Required Fund Deposit designed to represent its margin requirements to 
NSCC.
    As described in the Notice, NSCC proposes to modify Procedure XV 
(Clearing Fund Formula and Other Matters) of NSCC's Rules & Procedures 
(``Rules'') to revise the ECP charge by enhancing the methodology for 
calculating the charge to (1) compare a member's applicable capital 
amounts with the amount it contributes to the Clearing Fund that 
represents its volatility charge, (2) for members that are broker-
dealers, use net capital amounts rather than excess net capital amounts 
in the calculation of the ECP charge; and for all other members, use 
equity capital in the calculation of the ECP charge, and (3) establish 
a cap of 2.0 for the Excess Capital Ratio that is used in calculating a 
member's ECP

[[Page 55059]]

charge.\8\ In addition, NSCC proposes to make additional changes 
directed at the transparency of the Rules regarding the ECP charge, 
including (1) clarifying the capital amounts that are used in the 
calculation of the charge by introducing new defined terms, (2) 
removing NSCC's discretion to waive or reduce the charge, and (3) 
providing that NSCC may calculate the charge based on updated capital 
information.
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    \8\ The description of the Proposed Rule Change is based on the 
statements prepared by NSCC in the Notice. See Notice, supra note 3. 
Capitalized terms used herein and not otherwise defined herein are 
defined in the Rules, available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf.
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    First, NSCC proposes to revise the ECP Charge to use the members' 
Volatility Component \9\ as the Calculated Amount. Specifically, it 
proposes to replace the Calculated Amount with the amount collected as 
that member's volatility component as determined pursuant to Sections 
I(A)(1)(a)(i)-(iii) and (2)(a)(i)-(iii) of Procedure XV of the Rules.
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    \9\ The volatility component is designed to capture the market 
price risk associated with each member's portfolio at a 99th 
percentile level of confidence. NSCC has two methodologies for 
calculating the volatility component--a model-based volatility-at-
risk, or VaR, charge and a haircut-based calculation, for certain 
positions that are excluded from the VaR charge calculation. The 
charge that is applied to a member's Required Fund Deposit with 
respect to the volatility component is referred to as the volatility 
charge and is the sum of the applicable VaR charge and the haircut-
based calculation. Amounts calculated pursuant to Sections 
I(A)(1)(a)(iv) and (2)(a)(iv) of Procedure XV with respect to long 
positions in Net Unsettled Positions in Family-Issued Securities are 
designed to address wrong-way risk presented by these positions, not 
volatility risks, and, as such, are not a part of a member's 
volatility charge. See Sections I(A)(1)(a) and (2)(a) of Procedure 
XV, supra note 3.
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    Second, NSCC proposes to make changes to the calculation of the ECP 
charge based on whether or not a member is a broker-dealer. 
Specifically, for broker-dealer members, it would revise the capital 
measure used to calculate the ECP charge to replace excess net capital 
with net capital. In addition, it would revise the calculation of the 
ECP charge for members that are not broker-dealers by using equity 
capital rather than different measures that are based on other 
membership requirements.
    Third, NSCC proposes to set a maximum amount of Excess Capital 
Ratio that is used in calculating members' ECP charge to 2.0.
    Finally, NSCC proposes certain changes directed at improving 
transparency regarding the Excess Capital Premium. Specifically, the 
proposed changes would eliminate NSCC's discretion to waive or reduce 
the ECP charge. In addition, the proposed changes would add new 
definitions to its Rules to clarify the description of the capital 
amounts that NSCC uses in the calculation of the ECP charge and provide 
that NSCC may calculate the charge based on updated capital 
information.

III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \10\ to determine whether the Proposed Rule 
Change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the Proposed Rule Change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
providing the Commission with arguments to support the Commission's 
analysis as to whether to approve or disapprove the Proposed Rule 
Change.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\11\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the Proposed 
Rule Change's consistency with Section 17A of the Act,\12\ and the 
rules thereunder, including the following provisions:
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    \11\ Id.
    \12\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Act,\13\ which requires, among 
other things, that the rules of a clearing agency must be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions, to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible, and to protect investors and the public interest; and
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(4)(i) of the Act, \14\ which requires that 
a covered clearing agency establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to effectively 
identify, measure, monitor, and manage its credit exposures to 
participants and those arising from its payment, clearing, and 
settlement processes, including by maintaining sufficient financial 
resources to cover its credit exposure to each participant fully with a 
high degree of confidence.
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    \14\ 17 CFR 240.17Ad-22(e)(4)(i).
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     Rule 17Ad-22(e)(6)(i) of the Act,\15\ which requires that 
a covered clearing agency establish, implement, maintain, and enforce 
written policies and procedures reasonably designed to cover, if the 
covered clearing agency provides central counterparty services, its 
credit exposures to its participants by establishing a risk-based 
margin system that, at a minimum, considers, and produces margin levels 
commensurate with, the risks and particular attributes of each relevant 
product, portfolio, and market.
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    \15\ 17 CFR 240.17Ad-22(e)(6)(i).
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     Rule 17Ad-22(e)(23)(ii) of the Act \16\ which requires 
that a covered clearing agency 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.
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    \16\ 17 CFR 240.17Ad-22(e)(23)(ii).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act,\17\ and 
Rules 17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii) of the Act,\18\ or 
any other provision of the Act, or the rules and regulations 
thereunder.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i) and (e)(23)(ii).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by September 29, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 13, 2022.
    The Commission asks that commenters address the sufficiency of 
NSCC's statements in support of the Proposed Rule Change, which are set 
forth in the Notice,\19\ in addition to any other comments they may 
wish to submit about the Proposed Rule Change.
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    \19\ See Notice, supra note 3.
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    Comments may be submitted by any of the following methods:

[[Page 55060]]

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-2022-005 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2022-005. 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. 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-2022-005 and should be submitted on 
or before September 29, 2022. Rebuttal comments should be submitted by 
October 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(31).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19346 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P