[Federal Register Volume 87, Number 224 (Tuesday, November 22, 2022)]
[Notices]
[Pages 71379-71381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25352]



[[Page 71379]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96327; File No. SR-NSCC-2022-014]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Make Certain Changes To Addendum A To Adopt Fees for the 
AIP Document Transfer Service as Part of AIP Attachments

November 16, 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 November 14, 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) \3\ 
of the Act and subparagraph (f)(2) \4\ 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).
---------------------------------------------------------------------------

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

    The proposed rule change of NSCC consists of modifications to 
Addendum A (Fee Structure) (``Addendum A'') of NSCC's Rules & 
Procedures (``Rules'') to adopt fees for the AIP document transfer 
service (``Document Transfer'') as part of AIP Attachments set forth in 
the Alternative Investment Product services (``AIP''), as described in 
greater detail below.\5\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 
Document Transfer. Document Transfer is a result of enhancements of the 
AIP Attachments service. The proposed fees will be $1 per item, per 
side, as discussed below, and is designed to be consistent with NSCC's 
cost-based plus markup fee model.\6\
---------------------------------------------------------------------------

    \6\ NSCC has in place procedures to control costs and to 
regularly review pricing levels against costs of operation. NSCC's 
fees are 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. 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 121.
---------------------------------------------------------------------------

Background
    AIP, which was established in 2007, is a standardized, trading and 
reporting platform that links the alternative investments industry to 
securely and efficiently exchange data and money relating to 
alternative investment products, including hedge funds, funds of funds, 
private equity, non-traded real estate investment trusts, managed 
futures and limited partnerships.\7\ One of the services offered within 
AIP is a document transmission service, referred to as AIP Attachments 
in the Rules, which enables AIP Members to electronically transmit 
imaged documents, signatures and forms relating to alternative 
investment products.\8\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 57813 (May 12, 
2008), 73 FR 28539 (May 16, 2008) (SR-NSCC-2007-12) (Order Granting 
Approval of a Proposed Rule Change To Provide a New Alternative 
Investments Products Service) (``Initial Filing'').
    \8\ See id. See also Section 8 of Rule 53, supra note 5.
---------------------------------------------------------------------------

    AIP Attachments has been in the Rules since the inception of AIP 
but has not been used by AIP Members in production, and fees for AIP 
Attachments have previously not been developed or placed in the Rules. 
Initially, the service was marketed with the name ``paper workflow'' 
and was a basic document facility designed to automate the transmission 
of imaged hard-copy documents between AIP Manufacturers and AIP 
Distributors.\9\ Certain AIP Members did test the capability of paper 
workflow, but the service was not used by AIP Members in production, 
and fees were not developed for the service.
---------------------------------------------------------------------------

    \9\ See Initial Filing, supra note 7.
---------------------------------------------------------------------------

    In 2018, NSCC enhanced AIP Attachments to, among other things, 
provide that documents that were transmitted pursuant to AIP 
Attachments would be tied to specific transactions, and the re-designed 
AIP Attachments was marketed as ``E-Doc.'' Like paper workflow, 
however, AIP Members tested the capability of E-Doc, but the service 
was not used by AIP Members in production, and fees were not developed 
for the service.
    During the COVID-19 pandemic, new challenges were presented to AIP 
Members relating to the transfer of paper documents as a result of work 
from home requirements for employees of AIP Members and the inability 
of AIP Members to use certain industry services that had been used to 
transmit paper documents prior to the pandemic. As a result, NSCC began 
discussions again with AIP Members about enhancing AIP Attachments to 
fulfill the needs of AIP Members with respect to the transfer of 
documents. As a result of those discussions, NSCC enhanced AIP 
Attachments to, among other things, make the requirements for the use 
of AIP Attachments more user friendly. In addition, AIP Attachments has 
been enhanced to provide the ability of AIP Members to transfer 
documents that are tied to specific AIP transactions and to transfer 
standalone documents that are not tied to specific AIP transactions. 
NSCC would market the new enhanced AIP Attachments as ``Document 
Transfer.''
    In order to offset the costs of building the enhancements, NSCC is 
proposing to add fees for the service via a simple billing structure of 
$1 per item, per side. NSCC believes this billing structure will align 
the fees with the costs of services provided by NSCC by setting the 
fees so that the revenue received by NSCC would be sufficient to 
recover the costs of building the service.
Proposed Change to Addendum A
    To effectuate the proposed Document Transfer fees, Section IV.L. of 
Addendum A would be updated to include a new subsection 4. for fees 
relating to Document Transfer, which would be $1.00 per item, per side.
Expected Member/NSCC Impact
    The proposed fee changes would impact all users of the service. The 
fees are intended to cover the costs of developing Document Transfer in 
accordance with NSCC's cost-based plus

[[Page 71380]]

markup fee model \10\ and expected client volumes based on discussions 
with AIP Members. Following implementation of the fees, assuming 
revenues and expenses remain constant,\11\ NSCC anticipates recouping 
the costs of enhancing AIP Attachments for Document Transfer within 
approximately three years of implementing the fees and expects to have 
a positive operating margin with respect to Document Transfer 
thereafter.
---------------------------------------------------------------------------

    \10\ See supra note 6.
    \11\ It is not certain that revenues and expenses will remain 
constant. Costs of providing the service may change, for instance, 
if AIP Members request service enhancements or NSCC's technology 
costs change. In addition, revenues may change depending on the 
number of users of the service. NSCC regularly reviews pricing 
levels against costs of operation. As with its other services, if 
NSCC determines that its operating margin is too high or too low, 
NSCC would propose changes to pricing levels accordingly.
---------------------------------------------------------------------------

Implementation Timeline
    NSCC expects to implement the proposed rule changes on November 17, 
2022. As proposed, a legend would be added to Addendum A stating there 
are changes that became effective upon filing with the Commission but 
have not yet been implemented. The proposed legend also would include 
November 17, 2022 as the 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 be automatically removed 
from Addendum A.
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 \12\ and Rule 17Ad-22(e)(23)(ii),\13\ as promulgated under the Act, 
for the reasons set forth below.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1(b)(3)(D).
    \13\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act \14\ 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 AIP Members that use 
Document Transfer. NSCC would apply a fee of $1.00 per side for each 
item submitted. NSCC believes that the proposed fee changes are 
reasonable because they were developed in consideration of the expected 
investment costs to develop the Document Transfer enhancements, the 
projected annual costs to run the service (including both technology 
and non-technology run costs), and projected revenues for the service, 
and are expected to recover such investment and operating costs in an 
appropriate timeframe. NSCC notes that once the proposed Document 
Transfer fees are implemented, the Document Transfer fees would be 
periodically reviewed under NSCC's procedures to determine whether it 
is continuing to appropriately control its costs and to regularly 
review pricing levels against costs of operation.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(D).
    \15\ See supra note 6.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(ii) under the Act \16\ 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 fees for Document Transfer would be clearly and 
transparently published in Addendum A of the Rules, which are available 
on a public website,\17\ thereby enabling Members to identify the fees 
associated with participating in the Document Transfer service. As 
such, NSCC believes the proposed rule change is consistent with Rule 
17Ad-22(e)(23)(ii) under the Act.\18\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \17\ See supra note 5.
    \18\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

(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 AIP Members that use Document Transfer. NSCC 
believes that the proposed Document Transfer fees would not advantage 
or disadvantage any particular member or user of Document Transfer, or 
unfairly inhibit access to Document Transfer. NSCC notes that members 
may continue to engage in document transmission outside of Document 
Transfer 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 AIP 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) \19\ of the Act and paragraph (f) \20\ 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2022-014 on the subject line.

[[Page 71381]]

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-2022-014. 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 
(https://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-2022-014 and should be submitted on 
or before December 13, 2022.
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25352 Filed 11-21-22; 8:45 am]
BILLING CODE 8011-01-P