[Federal Register Volume 89, Number 124 (Thursday, June 27, 2024)]
[Notices]
[Pages 53674-53676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14064]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100400; File Nos. SR-DTC-2024-003; SR-FICC-2024-006; 
SR-NSCC-2024-003]


Self-Regulatory Organizations; The Depository Trust Company; 
Fixed Income Clearing Corporation; National Securities Clearing 
Corporation; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Amend the Clearing 
Agency Risk Management Framework

June 21, 2024.

I. Introduction

    On March 11, 2024, The Depository Trust Company (``DTC''), Fixed 
Income Clearing Corporation (``FICC''), and National Securities 
Clearing Corporation (``NSCC,'' each a ``Clearing Agency,'' and 
collectively, the ``Clearing Agencies''), filed with the Securities and 
Exchange Commission (``Commission'') proposed rule changes SR-DTC-2024-
003, SR-FICC-2024-006, and SR-NSCC-2024-003, respectively (each, a 
``Proposed Rule Change, and collectively, the ``Proposed Rule 
Changes''), pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder.\2\ 
The Proposed Rule Changes were published for comment in the Federal 
Register on March 26, 2024.\3\ The Commission has received comments on 
the changes proposed.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99802 (Mar. 20, 
2024), 89 FR 21118 (Mar. 26, 2024) (File No. SR-DTC-2024-003) (``DTC 
Notice of Filing''); Securities Exchange Act Release No. 99805 (Mar. 
20, 2024), 89 FR 21068 (Mar. 26, 2024) (File No. SR-FICC-2024-006) 
(``FICC Notice of Filing''); Securities Exchange Act Release No. 
99803 (Mar. 20, 2024), 89 FR 21091 (Mar. 26, 2024) (File No. SR-
NSCC-2024-003)(``NSCC Notice of Filing'') (collectively, ``Notices 
of Filing'').
    \4\ Specifically, the Commission received comments on the FICC 
Notice of Filing, and the comments are available at https://www.sec.gov/comments/sr-ficc-2024-006/srficc2024006.htm.
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    On May 14, 2024, pursuant to Section 19(b)(2) of the Exchange 
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\ The Commission is 
instituting proceedings, pursuant to Section 19(b)(2)(B) of the 
Exchange 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\ See Notices of Filing, supra note 3.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

A. Background

    The Clearing Agency Risk Management Framework (``Framework'') 
provides an outline for, among other things, how each of the Clearing 
Agencies comprehensively manages the risks, including the legal, 
credit, liquidity, operational, general business, investment, custody, 
and other risks, that arise in or are borne by it.
    On December 13, 2023, the Commission adopted rules under the Act to 
amend the standards applicable to covered clearing agencies providing 
central counterparty services for transactions in U.S. Treasury 
securities to require policies and procedures be reasonably designed to 
ensure that the covered clearing agency has appropriate means to 
facilitate access to clearance and settlement services of all eligible 
secondary market transactions in U.S. Treasury securities, including 
those of indirect participants.\8\ The adopted rules also require that 
these policies and procedures be reviewed annually by the board of 
directors of such covered clearing agencies for U.S. Treasury 
securities.\9\ Currently, FICC is the only Clearing Agency providing 
clearance and settlement services to the U.S. Treasury securities 
market.
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    \8\ See Securities Exchange Act Release No. 99149 (Dec. 13, 
2023), 89 FR 2714 (Jan. 16, 2024) (S7-23-22) (Standards for Covered 
Clearing Agencies for U.S. Treasury Securities and Application of 
the Broker-Dealer Customer Protection Rule with Respect to U.S. 
Treasury Securities).
    \9\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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B. Proposed Rule Changes

    The Proposed Rule Changes would amend the Framework to: (i) 
describe generally Clearing Agency participant and industry stakeholder 
outreach in the development and evaluation of new programs or risk 
management practices; (ii) provide for the annual review of FICC's 
Government Securities Division (``GSD'') access models by FICC's Board 
of Directors; and (iii) make other conforming and clean up changes to 
the text of the Framework. Other than those described in (iii), these 
changes would be set forth in a new section 3.4 ``Solicitation of 
Participant and Stakeholder Views,'' consisting of two subsections 
described below.
    First, new subsection 3.4.1 (General Solicitation of Views) would 
codify an existing practice, that is, that the Clearing Agencies 
routinely solicit their participants' and other industry stakeholders' 
views when developing and evaluating products, services, or risk 
management practices so they may best meet the industry's needs.\10\ 
This new subsection would describe several ways that the Clearing 
Agencies may seek the views of participants and stakeholders, 
including, but not limited to, targeted outreach to firms expected to 
be impacted by a proposal, widely distributed surveys, ad hoc forums, 
and standing and temporary advisory councils assembled to consider 
issues relevant to a proposal. The subsection would also identify the 
stakeholders that may participate in such advisory councils, including 
for example, representatives from transfer agents, liquidity providers, 
market infrastructures, institutional and retail investors, customers 
of the Clearing Agencies' participants, securities issuers, and 
securities holders. The Clearing Agencies state that the proposed 
changes in sub-section 3.4.1 do not create any particular obligation 
for the Clearing Agencies to conduct such outreach in any 
circumstance.\11\
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    \10\ See DTC Notice of Filing, supra note 3, 89 FR at 21119; 
FICC Notice of Filing, supra note 3, 89 FR at 21069; NSCC Notice of 
Filing, supra note 3, 89 FR at 21092.
    \11\ Id.
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    Second, the Clearing Agencies proposed new sub-section 3.4.2 
(Required Solicitation of Views--Annual Review of GSD Access Models) in 
connection with the recently adopted requirement, noted above, that the 
Board of Directors of all covered clearing agencies serving the U.S. 
Treasury securities market conduct an annual review of their policies 
and

[[Page 53675]]

procedures to ensure that they have appropriate means to facilitate 
access to clearance and settlement services of all eligible secondary 
market transactions in U.S. Treasury securities, including those of 
indirect participants. To address the new requirement, the new 
subsection would provide that FICC would establish an advisory council 
which would assist in the annual review of GSD's access models. The 
advisory council will be comprised of participants, their customers, 
and other industry stakeholders. This annual advisory council review of 
GSD's access models would precede an annual review of GSD's access 
models by the FICC Board, which would also be required by this new 
subsection.\12\ The new subsection would require that the annual review 
include the following: (1) document any instance in which FICC treats 
transactions differently and confirm that any variation in treatment is 
both necessary and appropriate; (2) consider whether to enable GSD's 
Netting Members to submit eligible transactions for clearance and 
settlement that have been executed by two indirect participants of 
FICC/GSD (``done-away''); (3) consider the volumes and proportion of 
the markets that are being centrally cleared through different access 
models; and (4) consider whether it is appropriate to develop and 
propose an additional category or categories of Netting Members to the 
GSD Rules to reflect the types of legal entities that applied to be a 
Netting Member over the prior 12 months and did not fit into one of the 
existing Netting Member categories.
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    \12\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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i. Other Conforming and Clean Up Changes
    Third, the Proposed Rule Changes would make other conforming, non-
substantive changes to the release to reflect the inclusion of the new 
subsections described above and to remove the defined term ``Management 
Committee'' wherever referenced and replace it with ``senior management 
committee'' while maintaining the current makeup and responsibilities 
of the current Management Committee, as described in the Framework. The 
Clearing Agencies state that the Proposed Rule Changes would allow the 
Framework to continue to be accurate notwithstanding any future name 
changes to the committee.\13\ Other minor grammatical and clean up 
changes would also be made to the Framework.
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    \13\ See DTC Notice of Filing, supra note 3, 89 FR at 21120; 
FICC Notice of Filing, supra note 3, 89 FR at 21070; NSCC Notice of 
Filing, supra note 3, 89 FR at 21093.
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III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Dispproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the Proposed Rule 
Changes should be approved or disapproved.\14\ Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the Proposed Rule Changes. 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 Changes, 
which would provide the Commission with arguments to support the 
Commission's analysis as to whether to approve or disapprove the 
Proposed Rule Changes.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\15\ 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 Changes' consistency with Section 17A of the Exchange Act 
\16\ and the rules thereunder, including the following provisions:
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    \15\ Id.
    \16\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Exchange Act,\17\ which 
requires, among other things, that the rules of a clearing agency are 
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, as well as to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions; and to protect investors and the public 
interest;
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17ad-22(e)(2) under the Exchange Act,\18\ which 
requires that a covered clearing agency establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to 
provide for governance arrangements that: (i) are clear and 
transparent; (ii) clearly prioritize the safety and efficiency of the 
covered clearing agency; (iii) support the public interest requirements 
in Section 17A of the Exchange Act (15 U.S.C. 78q-1) applicable to 
clearing agencies, and the objectives of owners and participants; (iv) 
establish that the board of directors and senior management have 
appropriate experience and skills to discharge their duties and 
responsibilities; (v) specify clear and direct lines of responsibility; 
and (vi) consider the interests of participants' customers, securities 
issuers and holders, and other relevant stakeholders of the covered 
clearing agency;
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    \18\ 17 CFR 240.17ad-22(e)(2).
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     Rule 17ad-22(e)(3)(i) under the Exchange Act,\19\ which 
requires that a covered clearing agency establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to 
maintain a sound risk management framework for comprehensively managing 
legal, credit, liquidity, operational, general business, investment, 
custody, and other risks that arise in or are borne by the covered 
clearing agency, which includes risk management policies, procedures, 
and systems designed to identify, measure, monitor, and manage the 
range of risks that arise in or are borne by the covered clearing 
agency, that are subject to review on a specified periodic basis and 
approved by the board of directors annually;
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    \19\ 17 CFR 240.17ad-22(e)(3)(i).
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     Rule 17ad-22(e)(18)(iv)(C) under the Exchange Act,\20\ 
which requires that a covered clearing agency establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure that it has appropriate means to facilitate access 
to clearance and settlement services of all eligible secondary market 
transactions in U.S. Treasury securities, including those of indirect 
participants, which policies the U.S. Treasury securities covered 
clearing agency board of directors reviews annually; and,
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    \20\ 17 CFR 240.17ad-22(e)(18)(iv)(C).
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     Rule 17ad-25(j) of the Exchange Act,\21\ which requires 
each registered clearing agency establish, implement, maintain and 
enforce written policies and procedures reasonably designed to solicit, 
consider, and document its consideration of the views of participants 
and other relevant stakeholders of the registered clearing agency 
regarding material developments in its governance and operations on a 
recurring basis.
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    \21\ 17 CFR 240.17ad-25(j).

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[[Page 53676]]

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 Changes. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Changes are consistent with Section 17A(b)(3)(F) \22\ and Rules 
17ad-22(e)(2), 17ad-22(e)(3)(i), 17ad-22(e)(18)(iv)(C), and 17ad-25(j) 
\23\ of the Exchange Act, or any other provision of the Exchange Act, 
or the rules and regulations thereunder. Although there do not appear 
to be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4(g) under the Exchange 
Act,\24\ any request for an opportunity to make an oral 
presentation.\25\
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
    \23\ 17 CFR 240.17ad-22(e)(2), (e)(3)(i), and (e)(18)(iv)(C), 
and 17 CFR 240.17ad-25(j).
    \24\ 17 CFR 240.19b-4(g).
    \25\ Section 19(b)(2) of the Exchange Act grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency of 
FICC's statements in support of the Proposed Rule Changes, which are 
set forth in the Notices of Filing \26\ in addition to any other 
comments they may wish to submit about the Proposed Rule Changes.
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    \26\ See Notice of Filing, supra note 3.
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    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 numbers SR-DTC-2024-003; SR-FICC-2024-006; SR-FICC-2024-003 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 numbers SR-DTC-2024-003; SR-FICC-
2024-006; SR-FICC-2024-003. 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 Changes that are filed with the Commission, and all 
written communications relating to the Proposed Rule Changes 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 such filing also will be available for inspection and copying at the 
principal office of FICC and on FICC's website (www.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 Numbers SR-DTC-2024-003; SR-
FICC-2024-006; SR-FICC-2024-003 and should be submitted on or before 
July 18, 2024. Rebuttal comments should be submitted by August 1, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(31).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14064 Filed 6-26-24; 8:45 am]
BILLING CODE 8011-01-P