[Federal Register Volume 90, Number 88 (Thursday, May 8, 2025)]
[Notices]
[Pages 19543-19546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-07991]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102984; File No. SR-NSCC-2025-009]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend the Rules Relating to the Legal Entity Identifier
Requirement
May 2, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 25, 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. NSCC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(4) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(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'') in order to require (i) each applicant applying
to become a Member or a Limited Member to obtain and provide a Legal
Entity Identifier (``LEI'') to NSCC as part of its membership
application, (ii) each Member and Limited Member to have a current LEI
on file with NSCC at all times, (iii) each Sponsoring Member to provide
NSCC with an LEI for each of their current Sponsored Members and for
each newly added Sponsored Member going forward, and (iv) CDS Clearing
and Depository Services Inc. (``CDS'') to provide NSCC with an LEI for
each current participant of CDS (``CDS Participant'') for which CDS
[[Page 19544]]
maintains a subaccount at NSCC and for each newly added CDS Participant
going forward.5 6
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\5\ CDS, the Canadian central securities depository and central
counterparty, is a Member of NSCC. The relationship between NSCC and
CDS enables CDS Participants to clear and settle trades with NSCC
Members through subaccounts at NSCC maintained by CDS on behalf of
CDS Participants.
\6\ Terms not defined herein are defined in the Rules, available
at www.dtcc.com/legal/rules-and-procedures.
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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 amend the Rules in
order to require (i) each applicant applying to become a Member or a
Limited Member to obtain and provide a Legal Entity Identifier
(``LEI'') to NSCC as part of its membership application, (ii) each
Member and Limited Member to have a current LEI on file with NSCC at
all times, (iii) each Sponsoring Member to provide NSCC with an LEI for
each of their current Sponsored Members and for each newly added
Sponsored Member going forward, and (iv) CDS to provide NSCC with an
LEI for each current CDS Participant for which CDS maintains a
subaccount at NSCC and for each newly added CDS Participant going
forward.\7\
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\7\ Supra note 5.
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Background
LEI Background
An LEI is a 20-character reference code to uniquely identify
legally distinct entities that engage in financial transactions.\8\ The
LEI system was developed by the Financial Stability Board \9\ together
with finance ministers and central bank governors represented in the
Group of 20 in the wake of the 2008 financial crisis.\10\ The Financial
Stability Board established GLEIF in June 2014 to support the
implementation and use of LEIs.\11\ The Regulatory Oversight Committee
(``ROC''), a group of public authorities from around the globe,
oversees GLEIF and the global LEI system.\12\
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\8\ See www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei. The LEI is based on the ISO 17442 standard developed
by the International Organization for Standardization and satisfies
the standards implemented by the Global Legal Entity Identifier
Foundation (``GLEIF''). See www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei.
\9\ The Financial Stability Board is an international body that
monitors and makes recommendations about the global financial
system. See www.fsb.org.
\10\ See www.gleif.org/en/about/history.
\11\ See supra note 8. See also www.gleif.org/en/about/this-is-gleif.
\12\ The ROC is a group of public authorities from around the
globe established in January 2013 to coordinate and oversee the
global LEI system. See www.gleif.org/en/about/governance/regulatory-oversight-committee-roc.
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LEIs are issued by entities called Local Operating Units (``LOUs'')
that are accredited by GLEIF to issue LEIs within certain
jurisdictions.\13\ LOUs validate information about an entity and issue
a unique LEI for that entity. An LEI provides information about legal
entities, including the official legal name, registered address,
country of incorporation, registration authority and the entities'
ownership structure, including parent and child organizations.
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\13\ See www.gleif.org/en/about-lei/get-an-lei-find-lei-issuing-organizations.
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Adding the LEI Requirement for NSCC
NSCC's parent entity, The Depository Trust & Clearing Corporation
(``DTCC''),\14\ provides technology resources and support services to
NSCC and DTCC's other subsidiaries, including providing support for
onboarding, lifecycle management and risk management of the
subsidiaries' applicants and members. Certain of DTCC's subsidiaries
currently require that its applicants and members obtain and provide an
LEI. However, this requirement is not consistent across DTCC's other
subsidiaries, including NSCC.
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\14\ DTCC is a non-public holding company that owns three
registered clearing agencies and related businesses. In addition to
NSCC, DTCC also owns the following registered clearing agencies: The
Depository Trust Company and the Fixed Income Clearing Corporation
(``FICC''). FICC has two divisions: the Government Securities
Division and the Mortgage-Backed Securities Division.
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NSCC is proposing to add a requirement that its applicants and
members obtain and provide an LEI to NSCC similar to the requirement
currently in place for its affiliate, FICC, which requires LEIs for
members of its Government Securities Division.\15\ NSCC believes that
requiring that its applicants and members obtain and provide an LEI to
NSCC would improve the quality of data that is collected from its
participants as well as the process for collecting that data, including
providing the following benefits:
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\15\ FICC implemented LEI requirements for its Government
Securities Division in compliance with a rule adopted by the Office
of Financial Research of the U.S. Department of Treasury
establishing a data collection requirement covering centrally
cleared transactions in the U.S. repurchase market. See Securities
Exchange Act Release No. 88557 (Apr. 3, 2020), 85 FR 19979 (Apr. 9,
2020) (SR-FICC-2020-002).
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Simplify Operational Processes--LEIs would help simplify
and expedite due diligence and know your customer (``KYC'')
verification of participants enabling NSCC to do business with
participants faster and safer.
Enhance Risk Management--LEIs provide information about
counterparty relationships and hierarchies within and between financial
entities, improving counterparty risk assessment and management.
Leverage Existing Capabilities--The use of LEIs would
allow NSCC to leverage existing DTCC technology and data to create
automatic upfront validations to support participant onboarding and
lifecycle management for NSCC and DTCC's other subsidiaries.
Reliable Data Source--The LEI system is supported by a
trusted method of verifying the identity of the legal entity in
question and would provide a reliable data source. This is supported by
the LOUs maintenance of all respective reference and identification
data and the overall global LEI system which is coordinated and
overseen by ROC.
Reduction in Record Duplication--The use of LEIs would
reduce overlap and duplication of data within databases, helps
streamline data reconciliations and reduce data errors by decreasing
the requirements for manual comparison of different databases.
Implementing an LEI requirement is also intended to improve DTCC's
ability to manage data across its subsidiaries, including NSCC. Many
participants are shared among NSCC and its affiliates. Currently, there
is no consistent requirement for submission of an industry identifier
by NSCC and DTCC's other subsidiaries. This has impacted DTCC's ability
to profile its subsidiaries' participants quickly and efficiently
across all the subsidiaries' products and services. DTCC's other
subsidiaries are also implementing an LEI requirement consistent with
the LEI requirements being proposed for NSCC.
[[Page 19545]]
Member Impact
Based on an analysis by NSCC, approximately 88% of Members, 48% of
Limited Members, and 100% of CDS Participants currently have an
LEI.\16\ Adding the LEI requirement would require the Members and
Limited Members that have not obtained an LEI to select an LOU,\17\
apply for an LEI, and once obtained provide the LEI to NSCC. In
addition, Sponsoring Members and CDS would be required to obtain LEIs
from their respective Sponsored Members and CDS Participants. The
Members, Limited Members, Sponsored Members and CDS Participants would
also need to renew the LEI periodically. The expense of obtaining and
renewing an LEI is minimal, and it can usually be obtained within a few
days once the entity provides the necessary information to the LOU.\18\
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\16\ There are currently no Sponsored Members at NSCC.
\17\ Only entities that are accredited by GLEIF may issue LEIs.
A list of accredited LOUs can be found on the GLEIF website:
www.gleif.org/en/about-lei/get-an-lei-find-lei-issuing-organizations.
\18\ Based on a review by DTCC, the average cost for registering
a new LEI is approximately $71, the average cost for maintenance is
approximately $62, and the application processing time is typically
24-48 business hours.
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Failure to adhere to the LEI requirement could result in a fine in
accordance with the Rules.\19\
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\19\ See Rule 48, supra note 6 (provides that NSCC may
discipline any Member or Limited Member for violations of the Rules,
including but not limited to a fine).
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Rule Changes
LEI Requirement
In order to add the requirement that participants obtain and
provide an LEI, NSCC is proposing to make the following changes.
(i) Defined Term
NSCC would add a new defined term, LEI, to Rule 1. NSCC would use
the terminology of the GLEIF for the definition.\20\
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\20\ See supra note 8.
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(ii) Applicants
NSCC would amend Section 1.C. of Rule 2A to require each NSCC
applicant to obtain and provide an LEI to NSCC as part of its
membership application.
(iii) Members and Limited Members
NSCC would amend Section 2.A. of Rule 2B to require that each
Member and Limited Member always has a current LEI on file with NSCC.
NSCC would also require CDS to provide NSCC with an LEI for each CDS
Participant such that NSCC would have a current LEI for each CDS
Participant at all times. NSCC is proposing to add a footnote in that
section which states that Members, Limited Members and CDS shall have
60 calendar days from the date they are notified by Important Notice to
submit the requisite LEIs. The footnote would provide that it would
sunset at the end of the 60-calendar day period.
(iv) Sponsoring Members and Sponsored Members
NSCC would amend Section 2(g) of Rule 2C to require that each
Sponsoring Member submit the LEIs of its Sponsored Member applicants.
The proposed rule change would also add language to Section 2(g) of
Rule 2C to require that each Sponsoring Member provide NSCC with an LEI
for each of its existing Sponsored Members such that NSCC has a current
LEI for each such Sponsored Member at all times. NSCC is proposing to
add a footnote in that section which states such Sponsoring Members
shall have 60 calendar days from the date they are notified by
Important Notice to submit LEIs for each of their respective Sponsored
Members. The footnote would provide that it would sunset at the end of
the 60-calendar day period.
In order to cover new Sponsored Members, NSCC would amend Section
3(b) of Rule 2C to add that the Sponsoring Member must provide the LEI
of each Person it wishes to sponsor into membership as a Sponsored
Member.
Implementation Timeframe
DTCC is determining a framework relating to the adoption of the
selected LEI option across all DTCC subsidiaries and product lines,
including an approach to managing the implementation of the LEI
requirement for both existing and new clients of NSCC. NSCC would
provide notice to existing Members, Limited Members, Sponsoring Members
and CDS including by Important Notice, advising them of the LEI
requirements for NSCC and notifying them of the dates by which they are
expected to have obtained and provided the requisite LEIs to NSCC. NSCC
would give Members, Limited Members, Sponsoring Members and CDS that do
not currently have the requisite LEIs, 60-calendar days from the date
of the notice to obtain and provide the LEIs to NSCC. NSCC considers
60-calendar days to be sufficient for obtaining an LEI, as it can
typically be acquired within a few days once the entity provides the
necessary entity information to the LOU.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act, requires, that the Rules be
designed to, among other things, promote the prompt and accurate
clearance and settlement of securities transactions.\21\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
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NSCC believes that the proposed changes to add an LEI requirement
are consistent with this provision because the proposed revisions would
improve the quality of data that is collected from NSCC's participants
as well as the process for collecting that data including (i)
simplifying and expediting certain operational processes, including due
diligence and KYC, by utilizing an efficient and accurate method to
verify identity of NSCC participants, (ii) enhancing counterparty risk
assessment and management of NSCC participants by improving information
about counterparty relationships and hierarchies within and between
NSCC participants, (iii) creating efficiencies relating to onboarding
and lifecycle management for NSCC and DTCC's other subsidiaries that
share participants, (iv) obtaining reliable data from the standardized
global LEI system, a dependable source of verified data, and (v)
reducing overlap and duplication of data within databases and helping
to streamline data reconciliations and reduce data errors. NSCC
believes that creating efficiencies in operational processes,
onboarding and lifecycle management and improving risk management by
improving the quality of verified data that is collected from NSCC's
participants as well as the process for collecting that data would
promote the prompt and accurate clearance and settlement of securities
transactions by NSCC. As such, NSCC believes the proposed rule changes
are consistent with Section 17A(b)(3)(F) of the Act.\22\
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\22\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC believes that the proposed changes to add an LEI requirement
could impose a burden on competition because these changes would impose
a cost on firms that currently do not have an LEI to obtain and
maintain them. NSCC does not believe that any burden on competition
imposed by the proposed rule change would be significant because the
cost to obtain and maintain an LEI is relatively small,\23\ and NSCC
understands that
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many of its members already maintain LEIs for other purposes.
Regardless of whether the potential burden on competition is deemed
significant, NSCC believes the proposed rule change is both necessary
and appropriate in furtherance of the purposes of the Act.
Specifically, NSCC believes that any burden on competition that is
created by the proposed changes would be necessary in furtherance of
the purposes of the Act \24\ because creating efficiencies in
operational processes, onboarding and lifecycle management and
improving risk management by improving the quality of verified data
that is collected from NSCC's participants as well as the process for
collecting that data would promote the prompt and accurate clearance
and settlement of securities transactions by NSCC. NSCC also believes
that any burden that is created by the proposed rule change would be
appropriate in furtherance of the purposes of the Act \25\ because the
proposed changes would be limited to requiring an LEI that is easily
obtained through the established global LEI system at a relatively
minor cost.
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\23\ As noted above, based on a review by DTCC, the average cost
for registering a new LEI is approximately $71 and the average cost
for maintenance is approximately $62.
\24\ 15 U.S.C. 78q-1(b)(3)(I).
\25\ Id.
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(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 a Comment, 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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 (www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NSCC-2025-009 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-2025-009. 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 (https://dtcc.com/legal/sec-rule-filings.aspx). 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-2025-009 and should be submitted on
or before May 29, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-07991 Filed 5-7-25; 8:45 am]
BILLING CODE 8011-01-P