[Federal Register Volume 89, Number 56 (Thursday, March 21, 2024)]
[Notices]
[Pages 20267-20274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05951]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99750; File No. SR-NSCC-2024-002]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Accommodate a 
Shorter Standard Settlement Cycle and Make Other Changes

March 15, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 8, 2024, National Securities Clearing 
Corporation (``NSCC'' or ``Corporation'') 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. 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.
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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 the NSCC Rules & 
Procedures (``Rules'') to ensure that the Rules are consistent with the 
anticipated industry-wide move to a shorter standard settlement cycle 
for certain securities from the second business day after the trade 
date (``T+2'') to the first business day after the trade date (``T+1'') 
(``Shortened Settlement Cycle''), as described in greater detail 
below.\3\ The proposed rule change would become effective on May 28, 
2024, or such later date as may be announced by the Commission for 
compliance with Exchange Act Rules 15c6-1 and 15c6-2.
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    \3\ Capitalized terms not defined herein shall have the meaning 
assigned to such terms in the Rules, available at www.dtcc.com/legal/rules-and-procedures.

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[[Page 20268]]

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 the proposed rule change is to modify the NSCC Rules 
to ensure that the Rules are consistent with the anticipated industry-
wide move to a T+1 standard settlement cycle. The proposed rule change 
is discussed in detail below.
(i) Background
    The current standard settlement cycle of T+2 has been in place 
since 2017, when the Commission amended Exchange Act Rule 15c6-1(a) \4\ 
to shorten the standard settlement cycle from three business days after 
the trade date to two business days after the trade date in an effort 
to reduce credit, market, and liquidity risk, and as a result, reduce 
systemic risk for U.S. market participants.\5\ In an effort to further 
reduce market and counterparty risk, decrease clearing capital 
requirements, reduce liquidity demands, and strengthen and modernize 
securities settlement in the U.S. financial markets, the financial 
services industry has been working on further shortening the standard 
settlement cycle from T+2 to T+1. In connection therewith, the 
Commission has adopted a rule change to shorten the standard settlement 
cycle to T+1.\6\
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    \4\ Exchange Act Rule 15c6-1(a), as amended in 2017, required, 
with certain exceptions, that a broker or dealer shall not effect or 
enter into a contract for the purchase or sale of a security (other 
than an exempted security, government security, municipal security, 
commercial paper, bankers' acceptances, or commercial bills) that 
provides for payment of funds and delivery of securities later than 
the second business day after the date of the contract unless 
otherwise expressly agreed to by the parties at the time of the 
transaction. See 17 CFR 240.15c6-1(a).
    \5\ See Securities Exchange Act Release No. 80295 (Mar. 22, 
2017), 82 FR 15564 (Mar. 29, 2017).
    \6\ See Securities Exchange Act Release No. 96930 (Feb. 15, 
2023), 88 FR 13872 (Mar. 6, 2023) (S7-05-22) (Shortening the 
Securities Transaction Settlement Cycle) (``T+1 Adopting Release'').
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    The NSCC Rules currently consider ``regular way'' settlement as 
occurring on T+2 and, as such, would need to be amended in connection 
with the Shortened Settlement Cycle. Further, certain timeframes or 
cutoff times in the Rules key off the current standard settlement date 
of T+2, either expressly or indirectly. In such cases, these timeframes 
and cutoff times would also need to be amended in connection with the 
Shortened Settlement Cycle. NSCC therefore proposes to make certain 
amendments to the Rules to facilitate the anticipated industry-wide 
move to the Shortened Settlement Cycle.
(ii) Proposed Changes to the Rules
    The primary purpose of the proposed rule change is to modify the 
Rules to accommodate the anticipated industry-wide move to the 
Shortened Settlement Cycle. While the core functions of NSCC will 
generally continue to operate in the same way in the Shortened 
Settlement Cycle, NSCC has determined that the move to T+1 would 
necessitate certain amendments to the Rules because currently the Rules 
are designed to accommodate a T+2 settlement cycle. In particular, NSCC 
has identified and is proposing to change (i) rules that have 
timeframes and/or cutoff times that are tied to the standard settlement 
cycle and (ii) rules affected by process changes relating to the 
Shortened Settlement Cycle. In general, these are provisions that (i) 
directly track the timeframe and/or Settlement Date of the standard 
settlement cycle, (ii) address non-standard settlement cycles or (iii) 
provide for timeframes and/or cutoff times that are connected to or are 
affected by the timing of the standard settlement cycle and would need 
to be changed to accommodate the Shortened Settlement Cycle.
    For example, the Rules contain certain provisions that refer to 
``T+2'' as the timeframe and Settlement Date of the standard settlement 
cycle. These provisions would be updated to reflect ``T+1'' in 
conformance with the Shortened Settlement Cycle. Similarly, a number of 
provisions in the Rules refer to timeframes and Settlement Dates that 
are intended to be shorter/earlier or later, as applicable, than the 
timeframe and/or Settlement Date of the standard settlement cycle. 
These provisions also must be changed to accommodate the Shortened 
Settlement Cycle. Likewise, the length and timing of certain cutoff 
times are based on either a standard settlement cycle or a non-standard 
settlement cycle. Therefore, when the timeframe and Settlement Date of 
the standard settlement cycle and nonstandard settlement cycle are 
changed, these cutoff times would also need to be revised accordingly.
    The proposed changes to accommodate the Shortened Settlement Cycle 
would impact NSCC's Rules regarding: (i) Definitions; (ii) Supplemental 
Liquidity Deposits; (iii) Trade Comparison and Recording; (iv) the 
Special Representative Service; (v) the Continuous Net Settlement 
(``CNS'') System and CNS Accounting Operation; (vi) the Balance Order 
Accounting Operation; (vii) the Foreign Security Accounting Operation; 
(viii) the ACATS Settlement Accounting Operation; and (ix) the NSCC 
guaranty. NSCC would also make other technical, clarifying changes and 
corrections to these Rules. The proposed changes are discussed in 
detail below.
A. Definitions (Rule 1 and Procedure XIII)
    NSCC proposes to add to Rule 1 a new definition of the term 
``Regular Way'' to mean ``settlement in accordance with the standard 
settlement cycle set forth in Rule 15c6-1(a) of the Exchange Act.'' \7\ 
The term Regular Way is used throughout the NSCC Rules to refer to 
settlement of transactions in accordance with settlement cycle set 
forth in Rule 15c6-1(a), and NSCC therefore believes that adding this 
definition will provide additional clarity and certainty in its Rules. 
NSCC would also revise the definition of ``T'' in Procedure XIII to 
state that T+1 is normally the Settlement Date (as opposed to T+1 being 
the next Business Date and T+2 being the Settlement Date).
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    \7\ See supra note 3 and associated text.
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B. Supplemental Liquidity Deposits (Rule 4A)
    NSCC Rule 4A sets forth NSCC's requirements regarding Supplemental 
Liquidity Deposits, which are additional cash deposits designed to 
cover the heightened liquidity exposure presented by those Members 
whose activity would pose the largest liquidity exposure to NSCC. NSCC 
proposes to modify Rule 4A to more accurately define certain terms and 
definitions used with respect to Supplemental Liquidity Deposits under 
the Shortened Settlement Cycle.
    NSCC proposes to revise the definition of ``Options Expiration 
Activity Period'' to delete references to the ``second Settlement Day'' 
and replace them with references to the ``Settlement Date'' to align 
with the Shortened Settlement Cycle for the equity options it accepts 
from The Options Clearing Corporation (``OCC'') under the Stock Options 
and Futures

[[Page 20269]]

Settlement Agreement, dated August 5, 2017, between NSCC and OCC.\8\
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    \8\ See Securities Exchange Act Release Nos. 81266, 81260 (Jul. 
31, 2017) (File Nos. SR-NSCC-2017-007; SR-OCC-2017-013), 82 FR 36484 
(Aug. 4, 2017).
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    NSCC also proposes to revise the definition of ``Daily Liquidity 
Need'' to provide additional clarity for the Supplemental Liquidity 
Deposit process more generally. Specifically, NSCC would reframe the 
definition of ``Daily Liquidity Need'' in the context of NSCC's 
projected payment obligations as opposed to the amount of resources 
needed. The revised definition would also remove references to the 
``three day settlement cycle'' and more accurately define ``Daily 
Liquidity Need'' to mean, on any Business Day, the payment obligations 
of NSCC as a central counterparty, as calculated and determined by 
NSCC, for all projected same day, intraday and multiday settlement 
activity (where appropriate), assuming the default on that day of an 
Unaffiliated Member or Affiliated Family. The proposed changes would 
not impact the actual determination of the Daily Liquidity Need amount. 
Rather, the proposed changes are intended to more accurately describe 
NSCC's daily liquidity ``need.'' NSCC thinks it is more appropriate to 
describe this definition in terms of NSCC's ``payment obligations'' and 
not as an ``amount of resources.'' In addition, the proposed changes 
would more closely reflect the language and requirements of Exchange 
Act Rule 17Ad-22(e)(7)(i).\9\
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    \9\ Exchange Act Rule 17Ad-22(e)(7)(i) requires that each 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to effectively 
measure, monitor, and manage the liquidity risk that arises in or is 
borne by the covered clearing agency, including measuring, 
monitoring, and managing its settlement and funding flows on an 
ongoing and timely basis, and its use of intraday liquidity by 
maintaining sufficient liquid resources at the minimum in all 
relevant currencies to effect same-day and, where appropriate, 
intraday and multiday settlement of payment obligations with a high 
degree of confidence under a wide range of foreseeable stress 
scenarios that includes, but is not limited to, the default of the 
participant family that would generate the largest aggregate payment 
obligation for the covered clearing agency in extreme but plausible 
market conditions. See 17 CFR 240.17Ad-22(e)(7)(i).
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C. Trade Comparison and Recording (Procedure II)
    NSCC offers trade comparison and recording services for eligible 
equity and debt securities. NSCC proposes several changes to its trade 
comparison and recording procedures in connection with the move to the 
Shortened Settlement Cycle.
Procedure II.B.--Equity and Listed Debt Securities--Locked-In Trade 
Input
    NSCC proposes to modify several sections of Procedure II concerning 
the recording of equity securities transactions. Specifically, NSCC 
would remove references to ``next day'' trades from the procedures for 
recording of non-Regular Way transactions because next day trades will 
be Regular Way transactions under the Shortened Settlement Cycle. NSCC 
would also revise procedural requirements for certain trades that will 
be processed on a trade-for-trade basis to remove a reference to trades 
``scheduled to settle between a dividend ex-date and record date'' and 
replace it with a reference to trades ``where the trade date and 
Settlement Date (which is a cash trade) are the same date as a dividend 
ex-date and record date,'' as the dividend ex-date will be the same day 
as record date under the Shortened Settlement Cycle. Additionally, NSCC 
would relocate a statement concerning the treatment of next day as-of 
trades with modifications to clarify that such trades would be 
``Regular Way as-of-trades'' under the Shortened Settlement Cycle. NSCC 
would also make a technical clean up change to capitalize the defined 
term CNS Accounting Operation.
Procedure II.C.--Debt Securities
    NSCC proposes to update its procedures for debt security trade 
input and comparison and the resolution of uncompared Regular Way debt 
securities. Specifically, NSCC would remove Section C.1(o) of Procedure 
II concerning the trade input and comparison of transactions for T+1 
settlement because such transactions would be addressed by the 
procedures for Regular Way transactions under the Shortened Settlement 
Cycle and renumber the following sections of Section C.1. to reflect 
the removal of this provision. NSCC would also remove a reference to 
``Balance Order processing'' from Section C.2(h) of Procedure II 
concerning transactions compared after certain cut-off times because 
Balance Orders submitted after the cutoff time would not be assigned a 
new date (only CNS-eligible transactions and trade-for-trade Special 
Trades).
Procedure II.F.--Index Receipts (Exchange-Traded Funds)
    NSCC proposes to amend its creation/redemption input and settlement 
procedures for exchange-traded funds (``ETF(s),'' also referred to as 
``index receipts'' in the Rules). The proposed changes would (i) 
reflect that T+1 would be Regular Way settlement under the Shortened 
Settlement Cycle; (ii) allow for the creation and redemption of index 
receipts on a same-day basis; and (iii) make other clarifications to 
the procedures.
    NSCC would amend Section F of Procedure II to remove the reference 
to ``T+1 or later'' settlement and instead state that Index Receipt 
Agents may elect ``same day, Regular Way or extended settlement'' for 
index receipts. The proposed rule change would reflect that T+1 would 
be Regular Way settlement under the Shortened Settlement Cycle and add 
a new election for same-day settlement of index receipts.
    NSCC also proposes additional amendments concerning the creation 
and redemption of index receipts for same-day settlement. NSCC would 
add new rule language to permit Index Receipt Agents to include an 
additional cash collateral amount (``Index Receipt Cash Collateral 
Amount'') for same-day settling index receipts, which would be subject 
to limits established by NSCC from time to time. Changes to the Index 
Receipt Cash Collateral Amount limits would be announced to Members by 
Important Notice. NSCC would also report any necessary adjustments to 
the Index Receipt Cash Collateral Amount based on end of day values 
(``Collateral Cash Adjustments'') for non-guaranteed payment order or 
money settlement between the Members on the next business day. In 
addition, NSCC would amend the procedure to provide that any creation 
and redemption instructions for same-day settling index receipts that 
exceed the Index Receipt Cash Collateral Amount limitations established 
by NSCC would be rejected. NSCC would also require that same-day 
settling index receipts, like other index receipts, be received by the 
cut-off time as designated by the NSCC from time to time.\10\
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    \10\ NSCC processing and cut-off times can be found in the DTCC 
Learning Center (e.g., ETF timelines are currently available at 
https://dtcclearning.com/products-and-services/equities-clearing/etf-processing/etf-timeline.html#heading-0), in various Member user 
guides and requirements documents, and for T+1 specifically, in the 
T+1 settlement documentation available on the DTCC website 
(available at https://www.dtcc.com/ust1/documentation). Changes to 
standard CNS and ETF create/redeem cut-off times are generally 
announced to Members through Important Notices.
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    The adoption of rules for same-day creation/redemption is designed 
to allow Authorized Participants to cover short positions in ETF 
shares. NSCC's rules currently allow Index Receipt Agents to elect a 
Settlement Date of T+1 or later for ETFs. Under the current T+2 
settlement cycle, Authorized

[[Page 20270]]

Participants may address short positions through the submission of 
creations/redemptions for next-day settlement (i.e., T+1). However, 
under the Shortened Settlement Cycle, Authorized Participants would 
need to submit creations/redemptions on a same-day basis to cover short 
positions scheduled for settlement on T+1.\11\ In the absence of the 
proposed same-day cycle, Authorized Participants would need to process 
this activity on an ex-clearing basis, which would result in excess 
capital expenses. The proposed rule change would also provide Index 
Receipt Agents with the option to require an additional Index Receipt 
Cash Collateral Amount as part of the creation or redemption to account 
for potential market moves in the ETF or underlying components between 
the submission of the creation or redemption earlier in the day, which 
would be based on the prior day's (i.e., T-1) closing price which 
aligns with net asset value, and the settlement of such obligations at 
the end of the day (i.e., T) during NSCC's end-of-day settlement cycle. 
This ``buffer'' amount would be subject to limits established by NSCC 
from time to time.\12\ NSCC would also report and facilitate Collateral 
Cash Adjustments amounts based on end of day values to be settled 
between Members on the following business day to ``true-up'' the Index 
Receipt Cash Collateral Amount amounts.
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    \11\ Currently, NSCC allows for same-day settling cash trades in 
the secondary market, even in the T+2 environment. The proposed rule 
change would allow same-day settling trades in the primary market.
    \12\ NSCC would initially establish this limit at 3% of the 
contract settlement amount of the order, which would be priced based 
on the prior night's net asset value. NSCC will monitor the use and 
overall collateral buffer amounts over time and may adjust this 
threshold as needed.
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    NSCC would also clarify in its ETF settlement procedures that 
component securities of index receipts would be netted with all other 
CNS and Non-CNS securities and entered into the CNS Accounting 
Operation or the Balance Order Accounting Operation for trade-for-trade 
settlement, as applicable. The proposed change is not required to 
accommodate the move to the Shortened Settlement Cycle but would 
provide additional clarity and accuracy in the Rules.
Procedure II.G.--Reports and Output
    NSCC would also update its procedures for issuing trade reports and 
output to align with the Shortened Settlement Cycle. Specifically, NSCC 
proposes to replace references to ``T+1'' with ``T'' and references to 
``T+2'' with ``T+1'' to reflect the change in cutoff timeframes 
resulting from a one day shortening of the standard settlement cycle.
Procedure II.H.--Consolidated Trade Summaries
    NSCC's Consolidated Trade Summary System defines the expected 
settlement path for each transaction received by the Universal Trade 
Capture (``UTC'') service as CNS or non-CNS eligible. NSCC proposes to 
update its procedures concerning the Consolidated Trade Summaries to 
reflect anticipated processes under the Shortened Settlement Cycle and 
make other clarifying and clean-up changes to the Rules. Specifically, 
NSCC would make clarifying changes regarding the reporting of Balance 
Order transactions under the Shortened Settlement Cycle to state, more 
generally, that each Consolidated Trade Summary would include Receive 
and Deliver instructions to each Member to settle directly with its 
counterparties. The proposed change is intended to reflect that the 
three Consolidated Trade Summaries made available by NSCC will not 
include the same information on all three reports (e.g., the first two 
cycles would report next-day settling Balance Order transactions while 
the third cycle would report same-day settling Balance Order 
transactions trades). In addition, NSCC would clarify that, to 
facilitate settlement of Balance Order transactions that are trade-for-
trade items, NSCC may aggregate and net Receive and Deliver 
instructions for trade-for-trade items between counterparties such that 
a Member may have only one net buy obligation or sell obligation, where 
applicable, in a particular security on a given day with a given 
counterparty. NSCC would also remove a redundant reference to ``trade-
for-trade'' transactions in the first sentence of Section H because 
``trade-for-trade'' transactions are a subset of Balance Order 
transactions. NSCC would also make a typographical correction to the 
procedure.
D. Special Representative Service (Procedure IV)
    NSCC's Special Representative Service allows Members that are 
authorized by one or more other persons to act on their behalf to 
submit transactions in securities to NSCC. As part of this service, 
NSCC permits Members to clear and settle transactions executed for them 
by other Members acting as their Special Representative to accommodate 
(i) a Member with multiple affiliate accounts who wishes to move a 
position resulting from an ``original trade'' in the process of 
clearance from one affiliate account to another and (ii) a Member that 
relies on its Special Representative to execute a trade in any market 
on its behalf to enable the resulting position to be moved from the 
Special Representative to that Member (the ``Correspondent Clearing 
Service'').
    NSCC proposes to delete a procedural provision related to the 
Correspondent Clearing Service, which states that transactions (other 
than cash, or next day fixed-income transactions, or cash equity 
transactions received after the Corporation's designated cut-off time) 
which are accepted by NSCC are then entered into the Balance Order 
Accounting Operation or CNS Accounting Operation which, when processed 
through the Balance Order Accounting Operation or CNS Accounting 
Operation, effectively net the Special Representative out of the 
original trade. NSCC proposes to delete this statement because (i) 
under the Shortened Settlement Cycle, there will no longer be next day 
fixed-income transactions (i.e., such transactions will be Regular Way) 
and (ii) the statement, more generally, is not a rule or procedural 
requirement concerning the Correspondent Clearing Service, but rather, 
is simply a description of an expected outcome of the service.
E. Continuous Net Settlement System (Rule 11 and Procedure VII)
    Rule 11 sets forth requirements for NSCC's CNS system, which is 
NSCC's core netting, allotting and fail-control engine. Within CNS, 
each security is netted to one position per Member, with NSCC as its 
central counterparty. Procedure VII sets forth additional procedural 
requirements for the CNS Accounting Operation. NSCC proposes several 
changes to Rule 11 and Procedure VII to align certain CNS requirements 
with the Shortened Settlement Cycle and make other clarifying and 
technical changes to the Rules.
Rule 11--CNS System
    NSCC proposes to revise Section 4 of Rule 11 concerning projection 
reports to remove rule text related to positions or obligations due to 
settle on ``the next settlement day.'' Under the Shortened Settlement 
Cycle, the CNS projection report that will be issued on each Settlement 
Date will no longer include next day settling positions because it will 
only cover obligations for a one-day settlement cycle and will be 
issued during early morning hours on the Settlement Date.
    NSCC also proposes to revise Section 8(d) of Rule 11 concerning the 
treatment

[[Page 20271]]

of ``as of'' trades \13\ subject to corporate actions to replace 
references to ``two settlement days'' with ``one settlement day'' and 
to replace ``at least one settlement day prior to the Due Bill 
Redemption Date'' with ``prior to or on the Due Bill Redemption Date'' 
to reflect the move to a one-day settlement cycle. Further, NSCC would 
update language concerning the cutoff time for ``as of'' trades being 
accorded dividend protection in CNS to replace a reference to ``less 
than two settlement days or one Business Day, as the case may be, prior 
to the payable date or the Due Bill Redemption Date'' with a more 
general statement referring to the timeframes specified within Section 
8(d) of Rule 11.
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    \13\ ``As of'' trades are trades that do not fit standard 
industry conventions due to either the trade being submitted after 
the trade date or the settlement date being adjusted because it is 
past the stated contractual settlement date on the trade.
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Procedure VII.B.--CNS Accounting Operation--Consolidated Trade Summary
    As noted above, NSCC's Consolidated Trade Summary System defines 
the expected settlement path for each transaction received by the UTC 
service as CNS or non-CNS eligible. NSCC proposes to update its 
procedures concerning the Consolidated Trade Summary reports to reflect 
anticipated CNS processes under the Shortened Settlement Cycle.
    NSCC proposes to revise Section B of Procedure VII concerning the 
Consolidated Trade Summary reports made available to Members to replace 
references to ``T+2'' with ``T+1.'' NSCC would also remove reference to 
``T+1 and older as-of trades and next day settling trades not 
previously reported on the prior Consolidated Trade Summary'' and 
replace that with a statement regarding ``trades compared or recorded 
through the Corporation's cutoff time with respect to trades due to 
settle on the same settlement day'' because there will no longer be a 
distinct concept of ``next day settling trades'' under the Shortened 
Settlement Cycle. NSCC also proposes to remove certain descriptive 
examples (e.g., references to actions occurring on specific days of the 
week) because these provisions (i) would no longer be accurate for the 
Shortened Settlement Cycle and (ii) do not constitute rules or 
procedural requirements for Consolidated Trade Summaries (rather, they 
are only examples of potential occurrences). NSCC would also remove a 
sentence stating that each Consolidated Trade Summary issued on each 
settlement day reports activity compared or recorded, including cash 
trades which are due to settle on that same day for the period 
beginning after the cutoff time for the prior Consolidated Trade 
Summary and ending on the Corporation's cutoff time for such 
Consolidated Trade Summary, because NSCC believes that the timing for 
compared and recorded trades to be included on the Consolidated Trade 
Summaries would now be adequately summarized by revised provisions 
discussed above.
    Additionally, NSCC proposes several clean up changes to Procedure 
VII.B, which are not required to accommodate the move to the Shortened 
Settlement Cycle but would provide additional clarity and accuracy in 
the Rules. NSCC would update incorrect references to other NSCC 
Procedures, which are currently referred to as ``Section'' II, III and 
IV, to clarify that these are references to ``Procedure'' II, III and 
IV. NSCC also proposes to remove statements regarding the formatting of 
the Consolidated Trade Summaries (i.e., that trade information is 
provided in CUSIP order, reported as broad buys and sells by 
marketplace or source, netted by issue, quantity and money) because the 
Consolidated Trade Summaries are currently made available to Members 
through a dashboard in a web-based portal, which is searchable in 
multiple formats, rather than provided in one standardized format.
Procedure VII.D.--CNS Accounting Operation--Controlling Deliveries to 
CNS
    NSCC proposes to modify Section D of Procedure VII, which describes 
the process for Members to control the delivery of securities to 
satisfy short positions in CNS. Section D of Procedure VII currently 
states that Members are required to provide instructions to exempt from 
delivery any transaction ``compared or received on SD-1 or thereafter, 
including cash or next day transactions, which are processed for next 
day or same day settlement'' \14\ and which create or increase a short 
position. NSCC would revise this statement to clarify that, under the 
Shortened Settlement Cycle, Members must provide instructions to exempt 
from delivery any transactions ``compared or received on Settlement 
Date,'' which are processed for ``same day settlement'' and which 
create or increase a short position. NSCC would also revise the 
introductory paragraph of Section D of Procedure VII to clarify that 
such instructions are the ``standing'' instructions provided by Members 
and make conforming changes throughout the procedure to reflect that 
such an exemption would now be referred to as the ``Same Day Settling 
Exemption'' (as opposed to the ``One Day Settling Exemption'').
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    \14\ ``SD-1'' refers to the date prior to the Settlement Date.
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    NSCC also proposes to delete subsection D.1. of Procedure VII 
concerning the CNS projection report and other references to projected 
positions and the projection report throughout Procedure VII. Under the 
Shortened Settlement Cycle, the CNS projection file would no longer be 
used for the exemption process because it will be distributed at 2:00AM 
ET on Settlement Date, after the night cycle completes. However, NSCC 
would clarify in newly renumbered Section D.1(a) that Members may use 
other position reporting made available by NSCC to set exemptions and 
control deliveries.
    In addition, NSCC proposes to modify subsection D.2. of Procedure 
VII (newly proposed Section D.1) concerning exemptions. NSCC would 
update the exemption override procedures to remove a reference to ``one 
day'' settling transactions and make additional conforming changes to 
replace references to the ``One Day Settling Exemption'' with the 
``Same Day Settling Exemption.'' NSCC would also revise current 
subsection D.2(b) of Procedure VII (to be renumbered as subsection 
D.1(b)) to replace an incorrect reference to ``four'' types of 
qualified activity with ``three'' types of qualified activity and 
correct an error in the numbering of the circumstances in which 
Standing Exemption instructions would govern all of the Member's short 
positions.
Procedure VII.G.--CNS Accounting Operation--CNS Dividend Accounting
    NSCC proposes to modify subsection G.2. of Procedure VII concerning 
the Dividend Activity Report to update the submission cutoff time for 
``as of'' trades being included in the payment calculation from ``two 
days prior to payable date'' to ``one Settlement Date prior to payable 
date'' to align with the Shortened Settlement Cycle. NSCC also proposes 
to revise subsection G.3 of Procedure VII regarding Due Bill Accounting 
to reflect that, in the case of stock splits, the Current Market Price 
would be adjusted by the rate of the split on the Due Bill Redemption 
Date under the Shortened Settlement Cycle as opposed to during the one 
day prior to the Due Bill Redemption Date under the current T+2 
settlement cycle.

[[Page 20272]]

Procedure VII.H.--CNS Accounting Operation--Miscellaneous CNS Activity
    Section H of Procedure VII describes the timeline of actions that 
must occur in connection with the processing of eligible corporate 
reorganization events. The processing of mandatory reorganizations 
occurs automatically; however, the processing of voluntary 
reorganizations through the CNS Reorganization Processing System 
requires certain actions to be taken by both NSCC and by Members with 
positions in the subject security during the period of time leading up 
to and following the expiration of the event. This period of time is 
referred to in the Rules as the ``protect period'' and is defined by 
reference to the expiration date, or ``E,'' of a voluntary 
reorganization (e.g., ``E+1'' is one day past the expiration date of 
the event). NSCC proposes a number of updates to the Corporate 
Reorganization rules in subsection H.4. of Procedure VII to align the 
Procedures with the Shortened Settlement Cycle.
    NSCC would remove references to the current standard two business 
day protect period and replace them with references to the one business 
day protect period anticipated under the Shortened Settlement Cycle. 
NSCC also proposes to update the processing timeframes for voluntary 
reorganizations to reflect the new timeframes under the Shortened 
Settlement Cycle. Specifically, the following timeframes will be 
changed for T+1.
     The time for NSCC to advise Members with short positions 
of their potential liability will move from ``after the night cycle on 
E+1'' to ``on E, prior to the night cycle commencing for E+1.'' (NSCC 
would also clarify that any same day settling trade that is received 
for processing after the night cycle ``completes'' on E+1 will be 
designated a Special Trade.)
     The time for long position Members to instruct NSCC to 
move positions to a CNS Reorganization Sub-Account will move from ``on 
E+1'' to ``on E, prior to the night cycle commencing for E+1.''
     The time for Members to add, adjust, or delete long 
positions to be moved to the CNS Reorganization Sub-Account will move 
from ``E+2'' to ``E+1.'' (NSCC would also clarify that this time period 
is known as the ``CNS End Date'' and/or ``Protect Expiration Date'').
     The time at which (i) long positions for which proper 
instructions have been received are moved to a CNS Reorganization Sub-
Account and (ii) NSCC notifies Members with long positions of their 
final protection and Members with short positions of their final 
liability will move from ``after day cycle on E+2'' to ``after the day 
cycle completes on E+1.''
     The time at which short positions in the CNS 
Reorganization Sub-Account are marked from the Current Market Price to 
the voluntary offer price will move from E+3 to E+2.
F. Balance Order Accounting Operation (Procedure V)
    NSCC provides a Balance Order Accounting system for securities that 
are ineligible for processing in CNS. The Balance Oder Accounting 
Operation produces netted and allotted receive and deliver instructions 
for NSCC Members. NSCC does not become a counterparty to Balance Order 
transactions, but it does provide a trade guaranty to the receive and 
deliver parties, which remains effective through the close of business 
on the scheduled settlement date.
    NSCC proposes to revise Procedure V.B. regarding trade-for-trade 
Balance Orders to update the types of transactions that would be 
processed on a trade-for-trade basis under the Shortened Settlement 
Cycle. Specifically, NSCC would update the rule to reflect that those 
transactions compared or otherwise entered to the Balance Order 
Accounting Operation on Settlement Date (rather than those transactions 
compared or otherwise entered to the Balance Order Accounting Operation 
on SD-1 or thereafter) would be processed on a trade-for-trade basis as 
there will be no Balance Order netting on Settlement Date under the 
Shortened Settlement Cycle. NSCC would also remove next day 
transactions from the list because those transactions would be Regular 
Way trades under the Shortened Settlement Cycle.
    In addition, NSCC would modify Procedure V.E. regarding 
Consolidated Trade Summaries for Balance Order transactions to remove 
specific references to same day and next day settling Balance Order 
transactions and more generally state that any Balance Order 
transactions generated by the Corporation will be included on three 
separate Consolidated Trade Summaries made available to participants. 
Under the Shortened Settlement Cycle, each of the three Consolidated 
Trade Summaries would no longer contain information on both same day 
and next day settling Balance Orders.
    NSCC also proposes clean-up changes to Procedure V.A. to update 
incorrect references to other NSCC Procedures, which are currently 
referred to as ``Section'' II, III and IV, to clarify that these are 
references to ``Procedure'' II, III and IV.
G. Foreign Security Accounting Operation (Procedure VI)
    NSCC's Foreign Security Accounting Operation processes transactions 
in Foreign Securities and produces Foreign Security receive and deliver 
instructions, which identify the receive and deliver obligations of 
Members. NSCC would revise Procedure VI to remove a reference to ``SD-1 
or thereafter'' because, under the Shortened Settlement Cycle, 
transactions submitted on ``SD-1'' would generally be Regular Way 
transactions and transactions submitted on Settlement Date would not be 
accepted.
    NSCC would also revise Procedure VI to clarify that (i) Foreign 
Securities may be netted on a Member-to-Member basis or processed on a 
trade-for-trade basis; (ii) transactions in Foreign Securities which 
are ``submitted'' (as opposed to ``identified'') as Special Trades are 
processed on a trade-for-trade basis; and (iii) transactions in Foreign 
Securities that are designated by NSCC to be Special Trades may net 
only on a Member-to-Member basis. These proposed changes are not 
required to accommodate the move to the Shortened Settlement Cycle but 
would provide additional clarity and accuracy in the Rules.
H. ACATS Settlement Accounting Operation (Procedure XVIII)
    NSCC's Automated Customer Account Transfer Service (``ACATS'') 
enables Members and Qualified Securities Depositories (i.e., The 
Depository Trust Company), on behalf of their participants, to transfer 
accounts of their customers between themselves on an automated basis. 
Procedure XVIII sets forth the details of the ACATS Settlement 
Accounting Operation.
    As discussed in the CNS Accounting Operation procedure sections 
above, Members have the ability to elect to deliver all or part of any 
short position through the use of Exemptions. Such exemptions may also 
be utilized in the ACATS process. NSCC therefore proposes conforming 
changes to Procedure XVIII to replace a reference to the ``One Day 
Settling Exemption'' with the ``Same Day Settling Exemption'' to align 
with processes under the Shortened Settlement Cycle.
I. NSCC's Guaranty (Addendum K)
    Finally, Addendum K sets forth the timing for NSCC's assumption of 
liability for guaranteed transactions as a

[[Page 20273]]

central counterparty. Addendum K generally provides that CNS and 
Balance Order transactions are guaranteed as of the point they have (i) 
for bilateral submissions by Members, been validated and compared by 
NSCC and (ii) for locked-in submissions, been validated by NSCC. For 
Balance Order transactions, this guarantee remains effective through 
the close of business on the scheduled settlement date (currently 
specified as ``T+2'' in the Rules).
    NSCC proposes to update Addendum K concerning NSCC's guaranty for 
Balance Order transactions to remove a reference to the current T+2 
settlement cycle and replace it with a more general statement that 
Balance Order transactions would be guaranteed through the close of 
business on their contractual Settlement Date. NSCC would also remove a 
reference to ``same day or one day'' settling trades from a statement 
concerning the guaranty of transactions from interfacing clearing 
corporations because (i) one day settling trades would be Regular Way 
trades under the Shortened Settlement Cycle and (ii) this requirement 
would apply to transactions generally from an interfacing clearing 
corporation and not just same day or one day settling trades.
Implementation Timeframe
    The proposed rule change would not become effective until May 28, 
2024, or such later date as may be announced by the Commission for 
compliance for Exchange Act Rules 15c6-1 and 15c6-2.
2. Statutory Basis
    NSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Section 17A(b)(3)(F) of Act 
\15\ requires, in part, that the rules of a clearing agency be designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions and to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions. NSCC believes the proposed 
rule change is consistent with the requirements of Section 17A(b)(3)(F) 
of Act \16\ for the reasons set forth below.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ Id.
---------------------------------------------------------------------------

    The proposed rule change would update NSCC's Rules to accommodate 
anticipated processing timelines under a Shortened Settlement Cycle. 
The proposed rule change would modify the timeframes, cutoff times and/
or associated outputs for certain processes related to NSCC's clearance 
and settlement operations, including Rules related to: (i) Definitions; 
(ii) Supplemental Liquidity Deposits; (iii) Trade Comparison and 
Recording; (iv) the Special Representative Service; (v) the Continuous 
Net Settlement (``CNS'') System and CNS Accounting Operation; (vi) the 
Balance Order Accounting Operation; (vii) the Foreign Security 
Accounting Operation; (viii) the ACATS Settlement Accounting Operation; 
and (ix) the NSCC guaranty. These changes are necessary for NSCC to 
clear and settle transactions promptly and accurately under the 
Shortened Settlement Cycle. NSCC therefore believes the proposed rule 
change is designed to promote the prompt and accurate clearance and 
settlement of securities transactions and to remove impediments to and 
perfect the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.\17\
---------------------------------------------------------------------------

    \17\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of Act \18\ requires that the rules of a 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act. NSCC does not 
believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. While the anticipated industry-wide move to the 
Shortened Settlement Cycle would likely have an impact on competition 
because the cost of required system changes for individual firms to 
shift from a T+2 to T+1 settlement cycle may have a disproportionate 
impact on those firms with relatively smaller revenue bases, NSCC does 
not believe that the proposed rule changes themselves would have a 
significant impact on competition because they are operational in 
nature and consist of changes to processing timeframes and cutoff times 
for NSCC's services. Moreover, NSCC believes that the proposed rule 
changes are necessary because they are required to facilitate and 
accommodate the anticipated move to the Shortened Settlement Cycle and 
facilitate compliance with rules adopted in the T+1 Adopting Release 
and are appropriate in that they have been specifically tailored to 
conform with the requirements of the Shortened Settlement Cycle and 
rules in the T+1 Adopting Release.\19\ Therefore, NSCC does not believe 
that the proposed rule changes would impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1(b)(3)(I).
    \19\ See supra note 6 and related discussion.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 20274]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NSCC-2024-002 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-2024-002. 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 (https://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 
a.m. and 3 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 (dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-NSCC-2024-002 and should be submitted on or 
before April 11, 2024.
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05951 Filed 3-20-24; 8:45 am]
BILLING CODE 8011-01-P