[Federal Register Volume 90, Number 79 (Friday, April 25, 2025)]
[Notices]
[Pages 17491-17497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-07103]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102893; File No. SR-NSCC-2025-005]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Concerning the
Collection of Intraday Margin
April 21, 2025.
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 April 15, 2025, 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. 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.
---------------------------------------------------------------------------
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 (``NSCC Rules'') to address recently adopted amendments to
the Commission's Standards for Covered Clearing Agencies (``CCAS
Rules'') concerning the collection of intraday margin.\3\
---------------------------------------------------------------------------
\3\ Capitalized terms not defined herein shall have the meaning
assigned to such terms in the NSCC Rules, available at www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------
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
Executive Summary of Proposed Changes
On October 25, 2024, the Commission adopted amendments to the CCAS
Rules to add new requirements related to the collection of intraday
margin by a covered clearing agency (``CCA'').\4\ Specifically, the
Commission amended Rule 17ad-22(e)(6)(ii) \5\ to establish new
requirements with respect to a CCA's policies and procedures regarding
the collection of intraday margin to: (i) include a new requirement to
monitor intraday exposures on an ongoing basis; (ii) modify the
preexisting reference to making intraday calls ``in defined
[[Page 17492]]
circumstances'' to making intraday calls ``as frequently as
circumstances warrant'' and identifying examples of such circumstances;
and (iii) require that a CCA document when it determines not to make an
intraday margin call pursuant to its written policies and
procedures.\6\ As described below, the proposed changes to the NSCC
Rules are primarily designed to facilitate compliance with these
requirements.
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 101446 (Oct. 25, 2024),
89 FR 91000 (Nov. 18, 2024) (File No. S7-10-23) (``Adopting
Release,'' and the intraday margin rules adopted therein referred to
herein as ``CCAS Margin Rules'').
\5\ 17 CFR 240.17ad-22(e)(6)(ii).
\6\ See Adopting Release, supra note 4 at 91000.
---------------------------------------------------------------------------
Background
NSCC is a clearing agency that provides clearing, settlement, risk
management, and central counterparty services for trades involving
equity securities, corporate and municipal debt, exchange traded funds
and unit investment trusts. NSCC manages its credit exposure to its
Members by determining the appropriate Required Fund Deposit to the
Clearing Fund for each Member and by monitoring the sufficiency of such
deposits, as provided for in the NSCC Rules.\7\
---------------------------------------------------------------------------
\7\ See NSCC Rule 4, supra note 3.
---------------------------------------------------------------------------
The objective of a Member's Required Fund Deposit is to mitigate
potential losses to NSCC associated with liquidating a Member's
portfolio in the event NSCC ceases to act for that Member (hereinafter
referred to as a ``default'').\8\ Required Fund Deposits operate,
individually, as the Member's margin, and the aggregate of all such
Members' deposits is referred to, collectively, as the Clearing Fund,
which operates as NSCC's default fund. NSCC would access the Clearing
Fund should a defaulting Member's own Required Fund Deposit be
insufficient to satisfy losses to NSCC caused by the liquidation of
that Member's portfolio.
---------------------------------------------------------------------------
\8\ The NSCC Rules identify when NSCC may cease to act for a
Member and the types of actions NSCC may take. See NSCC Rule 46
(Restrictions on Access to Services), supra note 3.
---------------------------------------------------------------------------
Each Member's Required Fund Deposit amount consists of a number of
applicable components, each of which is calculated to address specific
risks faced by NSCC, as identified within the Rules. The major
components of NSCC's Clearing Fund charges include, but are not limited
to: (i) volatility charges for securities based on asset type and
liquidity profile; (ii) mark-to-market charges; (iii) fail charges;
(iv) a charge for Family-Issued Securities to mitigate wrong way risk;
(v) a charge to mitigate day over day margin differentials; (vi) a
coverage component; (vii) a margin liquidity adjustment component;
(viii) a backtesting charge; and (iv) an excess capital premium
charge.\9\
---------------------------------------------------------------------------
\9\ See NSCC Procedure XV, supra note 3.
---------------------------------------------------------------------------
Overview of Intraday Monitoring and Margin Collection
NSCC Procedure XV describes NSCC's Clearing Fund formula and
methodology. NSCC calculates and collects Clearing Fund from its
Members (i.e., a Required Fund Deposit) on a daily basis using a risk-
based margin methodology.\10\ A Member's Required Fund Deposit may vary
daily and is generally based upon the Member's trading activity and
current unsettled positions. Required Fund Deposit deficits are due to
NSCC each business day, typically by 10:00 a.m. Eastern Time. In
addition, NSCC may call for additional margin on an intraday basis, as
needed.
---------------------------------------------------------------------------
\10\ Section 12 of NSCC Rule 56 describes the Clearing Fund
obligations associated with NSCC's Securities Financing Transaction
Clearing service. Section 12(c) of NSCC Rule 56 specifically
provides that NSCC calculates the amount of each SFT Member's
required deposit for its SFT Positions by applying the Clearing Fund
formula for CNS Transactions in Sections I.(A)(1) (a), (b), (c),
(e), (f), (g) of NSCC Procedure XV, as well as the additional
Clearing Fund formula in Section I.(B)(5) (Intraday Mark-to-Market
Charge) and (6) (Intraday Volatility Charge) of NSCC Procedure XV,
except as noted otherwise, in the same manner as such sections apply
to CNS Transactions submitted for regular way settlement. See
Section 12 of NSCC Rule 56, supra note 3.
---------------------------------------------------------------------------
Pursuant to Sections I.(B)(5) and (6) of NSCC Procedure XV,\11\
NSCC has discretionary authority to collect margin on an intraday basis
based on changes to a Member's intraday mark-to-market exposure
(``Intraday Mark-to-Market Charge'' or ``Intraday MTM Charge'') and
intraday volatility exposure (``Intraday Volatility Charge'')
(collectively, ``Intraday Margin Charges''). These procedures describe
the calculations for the Intraday MTM Charge and Intraday Volatility
Charge and the thresholds used to trigger the potential collection of
such charges.
---------------------------------------------------------------------------
\11\ See Sections I.(B)(5) and (6) of NSCC Procedure XV, supra
note 3.
---------------------------------------------------------------------------
The Intraday MTM Charge is based on the difference between the last
marked-to-market price of a Member's net CNS and Balance Order
positions (including CNS fails) and the most recently observed market
price for such positions.\12\ An Intraday MTM Charge may generally be
imposed if the difference of this calculation meets or exceeds 80
percent of the ``volatility charge'' component of the Member's start of
day Clearing Fund requirement.\13\ NSCC may reduce this threshold
during volatile market conditions if it determines that a reduction of
the threshold is appropriate to mitigate risks to NSCC.
---------------------------------------------------------------------------
\12\ See Section I.(B)(5) of NSCC Procedure XV, supra note 3.
\13\ The ``volatility charge'' component of each Member's
Required Fund Deposit is designed to measure market price volatility
of the start-of-day portfolio and is calculated for Members' net
unsettled positions. See NSCC Procedure XV, Section I.(A)(1)(a) for
CNS Transactions and Section I.(A)(2)(a) for Balance Order
Transactions, supra note 3.
---------------------------------------------------------------------------
The Intraday Volatility Charge is based on the difference between a
Member's start of day volatility charge and intraday volatility charges
calculated with respect to its net unsettled CNS and Balance Order
positions.\14\ An Intraday Volatility Charge may generally be imposed
if the difference of this calculation meets or exceeds 100 percent and
the amount that would be collected is greater than $250,000. NSCC may
reduce the 100 percent threshold, for example during volatile market
conditions or market events that cause increases in trading volumes, if
NSCC determines that a reduction of the threshold is appropriate to
mitigate risks to NSCC.
---------------------------------------------------------------------------
\14\ See Section I.(B)(6) of NSCC Procedure XV, supra note 3.
The amount of the charge is reduced by the portion of the margin
requirement differential charge that represents the volatility
component collected at the start of the day and excludes the amount
calculated for long positions in Family Issued Securities and shares
delivered to or received by the Member to satisfy all or any portion
of a short or long position.
---------------------------------------------------------------------------
Intraday market moves and positions are monitored by NSCC on an
ongoing basis. NSCC conducts intraday monitoring of its exposures for
purposes of Intraday Margin Charges at 15-minute intervals generally
between the hours of 10:00 a.m. to 4:30 p.m. Eastern Time, unless such
intervals are extended by NSCC to address operational or other delays.
NSCC reviews these intraday snapshots of each Member's portfolio to
determine whether the Member has experienced an adverse risk exposure
that warrants NSCC assessing Intraday MTM Charge and/or Intraday
Volatility Charge.
Through this filing, NSCC is providing additional clarity and
transparency in the Rules concerning NSCC's processes for the ongoing
monitoring, recalculation and collection of Intraday Margin Charges,
including circumstances in which NSCC may determine not to collect such
a charge, to facilitate compliance with the newly adopted CCAS Margin
Rules.\15\ The proposed changes are described in detail below.
---------------------------------------------------------------------------
\15\ See 17 CFR 240.17ad-22(e)(6)(ii) and supra note 4.
---------------------------------------------------------------------------
Proposed Changes to the NSCC Rules
NSCC proposes to amend Sections I.(B)(5) and I.(B)(6) of NSCC
Procedure XV to provide additional clarity and transparency in the NSCC
Rules concerning NSCC's processes for the
[[Page 17493]]
ongoing monitoring, recalculation and collection of Intraday MTM
Charges and Intraday Volatility Charges, including circumstances in
which NSCC may determine not collect such a charge, to facilitate
compliance with the newly adopted CCAS Margin Rules.\16\ In addition,
NSCC proposes to adopt new authority to reduce its intraday margin
thresholds for a given Member to require a Member to make additional
Intraday MTM or Intraday Volatility Charge payments if NSCC determines
it to be necessary to protect itself and its Members in response to
factors such as market conditions or financial or operational
capabilities affecting such Member. NSCC also proposes clarifying
changes in Section I.(A) of Procedure XV to note that it may use the
baseline calculation for the Margin Liquidity Adjustment (``MLA'')
charge for certain equity exchange-traded fund (``ETF'') positions to
address circumstances where certain data inputs needed for the
creation/redemption calculation for MLA are not available. Finally,
NSCC would make additional clarifying changes to add an introductory
paragraph in Procedure XV concerning the frequency of its Clearing Fund
calculations and the potential for extension of such actions. The
proposed changes are described in detail below.
---------------------------------------------------------------------------
\16\ See id.
---------------------------------------------------------------------------
Intraday Margin Charges Generally
Proposed Changes Concerning Ongoing Monitoring, Calculation and
Collection of Intraday Margin Charges
NSCC proposes to modify Section I.(B)(5) of NSCC Procedure XV to
provide additional clarity and transparency regarding NSCC's process
for the ongoing monitoring and recalculation of its intraday mark-to-
market and volatility exposures and the collection of Intraday Margin
Charges. First, NSCC proposes to consolidate its procedures for
Intraday Mark-to-Market Charges and Intraday Volatility Charges into
Section I.(B)(5) of Procedure XV and rename Section I.(B)(5) of
Procedure XV to reference Intraday Margin Charges generally, rather
than Intraday Mark-to-Market Charges specifically. NSCC would also add
a new introductory paragraph to the procedure to describe NSCC's
intraday monitoring process and general authority to make intraday
margin calls. The proposed rule would provide that NSCC shall establish
procedures for the ongoing monitoring and recalculation of its intraday
mark-to-market and volatility exposures, during such times and at such
frequency as set forth by NSCC, and that NSCC will communicate to
Members the timing and frequency with which NSCC monitors and re-
calculates its intraday mark-to-market and volatility exposures by
posting such information on NSCC's public website.\17\ The proposed
rule change would also state that NSCC may collect payments from
Members on an intraday basis based on intraday changes in its risk
exposures, defined generally as an ``Intraday Margin Charge,''
including when certain risk thresholds are breached or when the
products cleared or markets served display elevated volatility. The
proposed rule would further clarify that Intraday Margin Charges
include charges based on re-calculated mark-to-market exposures
(``Intraday Mark-to-Market Charge'') and volatility exposures
(``Intraday Volatility Charge'') for each Member, as further defined in
the Procedure. NSCC would also make a conforming change to Section
12(c) of NSCC Rule 56 regarding Clearing Fund obligations for SFT
Positions to reflect the consolidation of its procedures for Intraday
Mark-to-Market Charges and Intraday Volatility Charges into Section
I.(B)(5) of Procedure XV.\18\
---------------------------------------------------------------------------
\17\ As noted above, NSCC currently monitors and recalculates
its intraday mark-to-market and volatility exposures in 15-minute
intervals throughout the day.
\18\ See supra note 10.
---------------------------------------------------------------------------
The proposed change is intended to provide additional clarity and
transparency in the NSCC Rules concerning how NSCC facilities
compliance with requirements in the CCAS Margin Rules that each CCA
have policies and procedures reasonably designed to (i) monitor
intraday exposures on an ongoing basis and (ii) make intraday margin
calls, as frequently as circumstances warrant, including when risk
thresholds specified by NSCC are breached or when products cleared or
markets served display elevated volatility.\19\
---------------------------------------------------------------------------
\19\ See 17 CFR 240.17ad-22(e)(6)(ii)(B) and (C) and supra note
4.
---------------------------------------------------------------------------
Proposed Changes Concerning Determinations Not To Collect Intraday
Margin Charges
NSCC also proposes to amend Section I.(B)(5) of Procedure XV to
provide additional clarity and transparency around NSCC's process for
determining whether to collect Intraday Magin Charges. As described
above, NSCC monitors its intraday mark-to-market and volatility
exposures in 15-minute intervals throughout the day and has
discretionary authority to collect Intraday MTM Charges and/or Intraday
Volatility Charges based on changes to a Member's intraday mark-to-
market and volatility exposures. NSCC considers a number of factors
when determining whether to collect an Intraday Margin Charge based on
exposures that breach certain defined thresholds (discussed below) at
any given 15-minute interval. Accordingly, NSCC proposes to amend
Section I.(B)(5) of Procedure XV to describe this intraday margin
assessment process in the NSCC Rules.
NSCC proposes to add new rule text to the procedure to provide that
NSCC may determine not to collect an Intraday Margin Charge in
circumstances where NSCC determines that the intraday exposure of the
Member and/or breaches of certain thresholds do not accurately reflect
NSCC's risk exposure to the Member. The proposed rules would also
provide examples of circumstances that NSCC may consider with respect
to such a determination, which may include, but are not limited to: (i)
market conditions and/or portfolio composition result in the defined
thresholds not being breached on a consistent or persistent basis; (ii)
trades will be offset by trades submitted later in the day; (iii) the
defined threshold was met due to the submission of erroneous trades
that are being corrected; or (iv) the defined threshold was met due to
erroneous data inputs.
Additionally, NSCC would adopt new rules stating that any reduction
or determination not to collect an Intraday Margin Charge, or any
waiver of an Intraday Volatility Charge (as discussed below), shall be
approved, documented and reviewed on a regular basis pursuant to NSCC's
procedures. Pursuant to NSCC's market risk management procedures,
NSCC's Market Risk Management team monitors Members' open positions and
exposures on a 15-minute basis throughout the day and identifies
accounts that exceed certain pre-established thresholds. These
thresholds trigger research, review and escalation actions, including
recommendations for making an Intraday Marign Call. If a recommendation
to collect an Intraday Margin Call is made, this is escalated to more
senior members of Market Risk Management in accordance with specified
escalation procedures. If an Intraday Margin Call is not recommended or
reduced (or with respect to an Intraday Volatility Charge, waived), a
member of the Market Risk Management team documents this determination
in accordance with NSCC's market risk management procedures.
The proposed change is intended to provide additional clarity and
transparency in the NSCC Rules
[[Page 17494]]
concerning NSCC's Intraday Margin Call determination process and how
NSCC facilitates compliance with requirements in the CCAS Margin Rules
that each CCA have policies and procedures reasonably designed to
document when NSCC determines not to make an intraday call pursuant to
its written policies and procedures.\20\
---------------------------------------------------------------------------
\20\ See 17 CFR 240.17ad-22(e)(6)(ii)(D) and supra note 4.
---------------------------------------------------------------------------
Intraday Mark-to-Market Charges
NSCC proposes clarifying changes to existing procedures in Section
I.(B)(5) of NSCC Procedure XV concerning the calculation of Intraday
MTM Charges. First, NSCC would create new sub-paragraph (a) of Section
I.(B)(5) of Procedure XV to specifically address Intraday MTM Charges.
NSCC would make non-substantive cleanup changes to the procedure to
describe the existing charge and clarify that the charge reflects the
difference between the most recent NSCC ``marked''-to-market price and
most recently observed market price of a Member's positions. NSCC would
also add a new defined term, ``Intraday Mark-to-Market Threshold,'' to
represent the existing 80 percent threshold for Intraday Mark-to-Market
Charges.
In addition, NSCC would remove a clause stating that NSCC may
reduce the Intraday Mark-to-Market Threshold during volatile market
conditions ``by accelerating the collection of anticipated additional
margin from Members whose portfolios may present relatively greater
risks to [NSCC] on an overnight basis.'' NSCC believes that the revised
rule text would more accurately reflect the circumstances in which NSCC
may reduce the threshold because the collection of an Intraday MTM
Charge would not be limited to addressing risk that may arise on an
overnight basis but may also be needed to address mark-to-market risk
exposures on an intraday basis. NSCC would also amend the rules to
provide examples of market conditions that NSCC may consider with
respect to reducing the Intraday Mark-to-Market Threshold, which
include, but are not limited to, the occurrence of large price changes
in a major benchmark equity index.
NSCC also proposes to add new rule authority to permit NSCC to
reduce the Intraday Mark-to-Market Threshold for a given Member if NSCC
determines it to be necessary to protect itself and its Members in
response to factors such as market conditions or financial or
operational capabilities affecting such Member. The proposed rule
change would effectively allow NSCC to lower the Intraday MTM Threshold
for individual Members or certain groups of Members to address market
conditions or financial or operational capabilities specifically
impacting those Members without requiring NSCC to lower the threshold
across all Members.
The proposed change is intended to provide additional clarity and
transparency in the NSCC Rules concerning how NSCC facilities
compliance with requirements in the CCAS Margin Rules that each CCA
have policies and procedures reasonably designed to make intraday
margin calls, as frequently as circumstances warrant, including when
risk thresholds specified by NSCC are breached or when products cleared
or markets served display elevated volatility.\21\
---------------------------------------------------------------------------
\21\ See 17 CFR 240.17ad-22(e)(6)(ii)(C) and supra note 4.
---------------------------------------------------------------------------
Intraday Volatility Charges
NSCC proposes clarifying and cleanup changes to the existing
procedure language concerning the calculation of the Intraday
Volatility Charge. First, NSCC would create new sub-paragraph (b) of
Section I.(B)(5) of NSCC Procedure XV to specifically address Intraday
Volatility Charges. NSCC would make non-substantive cleanup changes to
the procedure to describe the existing charge. NSCC would also add a
new defined term, ``Intraday Volatility Threshold,'' to represent the
100 percent threshold for Intraday Volatility Charges.
Additionally, NSCC proposes to remove existing rule text stating
that NSCC would not collect an Intraday Volatility Charge if (a) trades
submitted later in the day would offset trades submitted earlier in the
day, such that the thresholds would not have been met if such activity
had been submitted earlier in the day, or (b) the threshold was met due
to the submission of an erroneous trade that can be corrected. This
procedure language would be replaced by the proposed rules discussed
above, which would provide an enhanced explanation of NSCC's process
for determining whether to collect an Intraday Margin Charge, which
includes the aforementioned scenarios for determining whether to
collect an Intraday Volatility Charge.
In addition, NSCC would remove a clause stating that NSCC may
reduce the Intraday Volatility Threshold during volatile market
conditions or market events that cause increases in trading volumes
``by accelerating the collection of anticipated additional margin from
those Members whose portfolios may present relatively larger risks to
[NSCC] on an overnight basis.'' NSCC believes that the revised rule
text would more accurately reflect circumstances in which NSCC may
reduce the threshold because the collection of an Intraday Volatility
Charge would not be limited to addressing risk that may arise on an
overnight basis but may also be needed to address volatility risk
exposures on an intraday basis. NSCC would also amend the rules to
provide examples of market conditions that NSCC may consider with
respect reducing the Intraday Volatility Threshold, which include, but
are not limited to, ETF index rebalancing periods or the occurrence of
large price changes in a major benchmark equity index.
NSCC also proposes to add new rule authority to permit NSCC to
reduce the Intraday Volatility Threshold for a given Member if NSCC
determines it to be necessary to protect itself and its Members in
response to factors such as market conditions or financial or
operational capabilities affecting such Member. The proposed rule
change would effectively allow NSCC to lower the Intraday Volatility
Threshold for individual Members or certain groups of Members to
address market conditions or financial or operational capabilities
specifically impacting those Members without requiring NSCC to lower
the threshold across all Members.
NSCC would also adopt new rules concerning NSCC's authority to
waive, in exigent circumstances, an Intraday Volatility Charge that it
may otherwise ordinarily collect. Specifically, the proposed rule
change would provide that NSCC may waive the collection of an Intraday
Volatility Charge in exigent circumstances if NSCC determines (i) that
such a waiver is necessary to protect NSCC, its participants, investors
and the public interest or (ii) that NSCC can effectively address the
risk exposure presented by the Member without the collection of such
charge.
The proposed change is intended to provide additional clarity and
transparency in the NSCC Rules concerning how NSCC facilities
compliance with requirements in the CCAS Margin Rules that each CCA
have policies and procedures reasonably designed to make intraday
margin calls, as frequently as circumstances warrant, including when
risk thresholds specified by NSCC are breached or when products cleared
or markets served display elevated volatility.\22\
---------------------------------------------------------------------------
\22\ Id.
---------------------------------------------------------------------------
[[Page 17495]]
Other Proposed Changes to NSCC Rules
Proposed Clarifications Concerning the Frequency of Clearing Fund
Calculations
NSCC proposes to amend the introductory section of NSCC Procedure
XV to rename the Procedure and provide additional context regarding the
frequency of NSCC's Clearing Fund calculations. Specifically, the
proposed rule change would relocate a footnote to the introductory
section of Procedure XV stating that NSCC performs all Clearing Fund
calculations daily or on a more frequent basis if NSCC deems it
appropriate. NSCC also proposes to add additional clarifying language
to this section noting that times all may be extended as needed by NSCC
to (i) address operational or other delays that would reasonably
prevent members or NSCC from meeting the deadline or timeframe, as
applicable, or (ii) allow NSCC time to operationally exercise its
existing rights under the NSCC Rules and Procedures. In addition, the
proposed rules would clarify that all times applicable to NSCC are
standards and not deadlines; actual processing times may vary slightly,
as necessary.
Proposed Clarifications Concerning MLA Charge Calculation for Certain
Equity ETFs
NSCC also proposes to amend Sections I.(A)(1)(g) and I.(A)(2)(f) of
NSCC Procedure XV to make certain clarifications regarding the
calculation of the MLA charge for CNS and Balance Order transactions,
respectively.\23\ As noted above, one of the primary components of
NSCC's Clearing Fund calculation is the MLA charge, which applies to a
Member's Net Unsettled Positions, other than long Net Unsettled
Positions in Family-Issued Securities. For ETFs with in-kind baskets,
NSCC runs two separate calculations to compare and determine the
``impact cost'' of liquidating the ETF. NSCC runs (i) a baseline
calculation to simulate all the ETF positions being liquidated in the
secondary market (the ``Baseline Calculation'') with the impact cost
calculation being at the security level (i.e., the ETF shares) and (ii)
an alternative calculation (``Create/Redeem Calculation'') to simulate
the ETF positions being liquidated in the primary market using the
creation/redemption process.\24\ NSCC then uses the smaller calculated
impact costs of either the Baseline Calculation or the Create/Redeem
Calculation for purposes of calculating the MLA charge.
---------------------------------------------------------------------------
\23\ NSCC notes that the MLA charge is also applied to SFT
Positions. See NSCC Rule 56, Section 12, supra note 3.
\24\ The impact costs for the Create/Redeem Calculation are
calculated by decomposing the ETFs into their underlying securities
and calculating the impact costs of such underlying securities
utilizing the equity asset subgroup calculations. See NSCC Procedure
XV, Sections I.(A)(1)(g) and I.(A)(2)(f), supra note 3.
---------------------------------------------------------------------------
NSCC proposes to modify Sections I.(A)(1)(g) and I.(A)(2)(f) of
Procedure XV to clarify that, if certain data inputs needed to
determine ETF decomposition for the Create/Redeem Calculation are
unavailable or unreliable, NSCC may use the Baseline Calculation for
purposes of calculating the MLA charge for ETFs. The proposed rule
change is intended to address limited scenarios where NSCC may be
unable to perform both calculations for comparison. In such a scenario,
NSCC believes it may be appropriate to use the Baseline Calculation to
determine the impact cost and resulting MLA charge for the ETF(s) in
question. NSCC is not proposing any changes to the manner in which it
would calculate the Baseline Calculation or the Create/Redeem
Calculation or the manner in which NSCC would determine the impact cost
when both calculations are available and reliable.
Implementation Timeframe
NSCC expects to implement the proposed rule change by no later than
December 15, 2025, and would announce the effective date of the
proposed changes by an Important Notice posted to NSCC's website.
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. Specifically, NSCC believes
that the proposed changes are consistent with Section 17A(b)(3)(F) of
the Act \25\ and Rule 17ad-22(e)(6) thereunder \26\ for the reasons set
forth below.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78q-1(b)(3)(F).
\26\ 17 CFR 240.17ad-22(e)(6).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of Act \27\ requires, in part, that the rules
of a clearing agency 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, in
general, to protect investors and the public interest. The proposed
rule change would enhance the clarity and transparency of NSCC's Rules
regarding the ongoing monitoring, calculation and collection of
Intraday Margin Charges. Specifically, the proposed rule change would
enhance Procedure XV of the NSCC Rules to more clearly describe how
NSCC: (i) monitors its intraday mark-to-market and volatility exposures
each day on an ongoing basis; (ii) makes intraday calls for Intraday
Margin Charges, as frequently as circumstances warrant, including when
certain risk thresholds are breached or when the products cleared or
markets served display elevated volatility; and (iii) determines
whether to make an Intraday Margin Call and documents when it
determines to waive, reduce or not make an Intraday Margin Call
pursuant to its written policies and procedures. The proposed rule
change would also introduce authority for NSCC to lower its intraday
margin call thresholds for individual Members or certain groups of
Members to address market conditions or financial or operational
capabilities specifically impacting those Members without requiring
NSCC to lower the threshold across all Members. NSCC believes that
providing this additional transparency and clarity in the NSCC Rules
would promote the understanding of NSCC's intraday margin processes by
NSCC's Members, market participants and the public. This, in turn,
would help Members understand their potential obligations to NSCC,
particularly with respect to Intraday Margin Charges, so that they are
better equipped and able to satisfy such obligations when due. NSCC
uses the margin and Clearing Fund it collects to mitigate potential
losses to NSCC (and through loss allocation, to its Members) associated
with liquidating a defaulting Member's portfolio and to continue to
effect the prompt and accurate clearance and settlement of securities
transactions in the event NSCC ceases to act for a Member. As a result,
NSCC believes the proposed rule change is 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 NSCC or for which it is responsible
and, in general, to protect investors and the public interest in
accordance with the requirements of Section 17A(b)(3)(F) of Act.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The proposed rule change would also provide clarity in the NSCC
Rules to allow NSCC to use the Baseline Calculation for determining the
impact costs for certain equity ETFs in the MLA charge when certain
data inputs required for the Create/Redeem Calculation are not
available. NSCC believes that using the existing, conservative Baseline
Calculation for determining the impact costs of
[[Page 17496]]
liquidating certain equity ETFs in such a scenario would appropriately
address risks presented to NSCC. As noted above, NSCC uses the margin
and Clearing Fund it collects to mitigate potential losses to NSCC and
its Members and to continue to effect the prompt and accurate clearance
and settlement of securities transactions in the event NSCC ceases to
act for a Member. As a result, NSCC believes the proposed changes 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 NSCC or for which it is
responsible and, in general, to protect investors and the public
interest in accordance with the requirements of Section 17A(b)(3)(F) of
the Act.
Exchange Act Rule 17ad-22(e)(6)(ii) \28\ requires that a CCA
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, among
other things, (i) monitors intraday exposures on an ongoing basis; (ii)
includes the authority and operational capacity to make intraday margin
calls, as frequently as circumstances warrant, including the following
circumstances: (1) when risk thresholds specified by the CCA are
breached; or (2) when the products cleared or markets served display
elevated volatility; and (iii) documents when the CCA determines not to
make an intraday call pursuant to its written policies and procedures.
The proposed rule change would enhance the clarity and transparency of
NSCC's Rules regarding the ongoing monitoring, calculation and
collection of Intraday Margin Charges. Specifically, the proposed rule
change would enhance Procedure XV of the NSCC Rules to more clearly
describe how NSCC: (i) monitors its intraday mark-to-market and
volatility exposures each day on an ongoing basis; (ii) makes intraday
calls for Intraday Margin Charges, as frequently as circumstances
warrant, including when certain risk thresholds are breached or when
the products cleared or markets served display elevated volatility; and
(iii) determines whether to make an Intraday Margin Call and documents
when it determines to waive, reduce or not make an Intraday Margin Call
pursuant to its written policies and procedures. Accordingly, NSCC
believes the proposed changes to the NSCC Rules are reasonably designed
to facilitate compliance with the requirements of Exchange Act Rule
17ad-22(e)(6)(ii).
---------------------------------------------------------------------------
\28\ 17 CFR 240.17ad-22(e)(6)(ii).
---------------------------------------------------------------------------
Exchange Act Rule 17ad-22(e)(6)(i) \29\ requires that a CCA
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to establish a risk-based margin system
that, among other things, considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market. As discussed above, the proposed rule
change would also provide clarity in the NSCC Rules to allow NSCC to
use the Baseline Calculation for determining impact costs for certain
equity ETFs in the MLA charge when certain data inputs required for the
Create/Redeem Calculation are not available.\30\ The proposed changes
would enable NSCC to use its existing, conservative Baseline
Calculation for determining the impact costs of liquidating certain
equity ETFs to generate Clearing Fund requirements that appropriately
address risks presented to NSCC. NSCC believes that these proposed
changes are reasonably designed to allow NSCC to consider, and produce
margin levels commensurate with, the risks and particular attributes of
relevant products, portfolios, and markets in accordance with Exchange
Act Rule 17ad-22(e)(6)(i).
---------------------------------------------------------------------------
\29\ 17 CFR 240.17ad-22(e)(6)(i).
\30\ Rule 17ad-22(e)(6)(iv) under the Act requires each CCA that
is a central counterparty to establish, implement, maintain and
enforce written policies and procedures reasonably designed to cover
its credit exposures to its participants by establishing a risk-
based margin system that, at a minimum, uses reliable sources of
timely price data and other substantive inputs, and uses procedures
(and, with respect to price data, sound valuation models) for
addressing circumstances in which price data or other substantive
inputs are not readily available or reliable, to ensure that the CCA
can continue to meet its obligations under Rule 17ad-22(e)(6). Such
policies and procedures must include either (i) the use of price
data or substantive inputs from an alternate source; or (ii) if it
does not use an alternate source, the use of a risk-based margin
system that does not rely on substantive inputs that are unavailable
or unreliable. See 17 CFR 240.17ad-22(e)(6)(iv). NSCC has not at
this time determined the data inputs required for the Create/Redeem
Calculation to be ``substantive inputs'' for purposes of Rule 17ad-
22(e)(6)(iv); however, NSCC still believes that it is appropriate to
allow NSCC to use its existing alternative Baseline Calculation for
the MLA charge, which do not rely on those inputs, if the data
inputs for the Create/Redeem Calculation are not available.
---------------------------------------------------------------------------
For the reasons set forth above, NSCC believes the proposed rule
change is consistent with Section 17A(b)(3)(F) of the Act \31\ and Rule
17ad-22(e)(6) thereunder.\32\
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78q-1(b)(3)(F).
\32\ 17 CFR 240.17ad-22(e)(6).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of Act \33\ 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 the proposed rule change would present any burden or have a
material impact on competition. The proposed rule change is primarily
designed to ensure that the NSCC Rules remain transparent, accurate and
clear, particularly concerning NSCC's existing processes for the
ongoing monitoring, recalculation and collection of Intraday Margin
Charges. To the extent that NSCC is introducing new authority in its
Rules, such as the potential use of the Baseline Calculation for MLA
charges when the Create/Redeem Calculation is not available or adopting
authority to lower Intraday Margin Call thresholds for individual
Members, these Rules would apply equally to all Members and would not
inhibit access to NSCC's services or favor any particular Member over
another. With respect to individual Member margin call thresholds, this
authority would only be utilized in the event that circumstances
require NSCC to address market conditions or financial or operational
capabilities specifically impacting unique Members or groups of Members
and broader market conditions do not warrant lowering the threshold
across all Members. NSCC believes the proposed change is necessary and
appropriate to facilitate NSCC's compliance with requirements of the
Act and the rules and regulations thereunder applicable to a registered
clearing agency, specifically NSCC's obligations to effectively
identify, measure, monitor, and manage its credit exposures to
participants under Rules 17ad-22(e)(4) and (6).\34\ Therefore, 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.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78q-1(b)(3)(I).
\34\ 17 CFR 240.17ad-22(e)(4) and (6).
---------------------------------------------------------------------------
(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.
[[Page 17497]]
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 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.
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-2025-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2025-005. 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 (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
10:00 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://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 Number SR-NSCC-2025-005 and should be
submitted on or before May 16, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
---------------------------------------------------------------------------
\35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-07103 Filed 4-24-25; 8:45 am]
BILLING CODE 8011-01-P