[Federal Register Volume 90, Number 114 (Monday, June 16, 2025)]
[Notices]
[Pages 25414-25419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10877]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103221; File Nos. SR-DTC-2025-007; SR-FICC-2025-010;
SR-NSCC-2025-007]
Self-Regulatory Organizations; The Depository Trust Company;
Fixed Income Clearing Corporation; National Securities Corporation;
Order Approving a Proposed Rule Changes To Amend the Recovery and Wind-
Down Plan To Satisfy the Requirements of Exchange Act Rule 17ad-26
June 10, 2025.
On April 16, 2025, the Depository Trust Company (``DTC''), Fixed
Income Clearing Corporation (``FICC''), and National Securities
Clearing Corporation (``NSCC,'' each a subsidiary of The Depository
Trust & Clearing Corporation (``DTCC'') and each a ``Clearing Agency,''
and collectively, the ``Clearing Agencies'') filed with the Securities
and Exchange Commission (``Commission'') proposed rule changes SR-DTC-
2025-007, SR-FICC-2025-010, and SR-NSCC-2025-007 (``Proposed Rule
Changes'') pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder \2\
to amend the Clearing Agencies' recovery and wind-down plans (``R&W
Plans''). The Proposed Rule Changes were published for comment in the
Federal Register on April 28 and April 29, 2025.\3\ The Commission did
not receive any comments on the Proposed Rule Changes. For the reasons
discussed below, the Commission is approving the Proposed Rule Changes.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release Nos. 102908 (Apr. 22, 2025),
90 FR 17669 (Apr. 28, 2025) (SR-DTC-2025-007) (``DTC Notice of
Filing''); 102910 (Apr. 22, 2025), 90 FR 17644 (Apr. 28, 2025) (SR-
FICC-2025-007) (``FICC Notice of Filing''); 102919 (Apr. 23, 2025),
90 FR 17840 (Apr. 29, 2025) (SR-NSCC-2025-007) (``NSCC Notice of
Filing'').
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I. Background
The Clearing Agencies adopted the R&W Plans in August 2018 and have
amended them over time to reflect changes since adoption.\4\ The
Clearing Agencies state that they maintain the R&W Plans for compliance
with Rule 17ad-22(e)(3)(ii) under the Act.\5\ This rule requires
covered clearing agencies to 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, among other things, includes plans for the recovery and orderly
wind-down of covered clearing agencies necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The Clearing Agencies state that the R&W Plans are intended for
use by the Board and the Clearing Agencies' management when the
Clearing Agencies encounter scenarios that could potentially prevent it
from being able to provide its critical services to the marketplace as
a going concern.\6\
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\4\ See DTC Notice of Filing, supra note 3, at 17669 n.4; FICC
Notice of Filing, supra note 3, at 17644 n.4; NSCC Notice of Filing,
supra note 3, at 17840 n.4.
\5\ See DTC Notice of Filing, supra note 3, at 17669; FICC
Notice of Filing, supra note 3, at 17644; NSCC Notice of Filing,
supra note 3, at 17840. 17 CFR 240.17ad-22(e)(3)(ii). Each of the
Clearing Agencies is a ``covered clearing agency'' as defined in
Rule 17ad-22(a)(5) under the Act and must comply with paragraph (e)
of Rule 17ad-22. In 2012, each of the Clearing Agencies was
designated a systemically important financial market utility
(``SIFMU'') by the Financial Stability Oversight Council.
\6\ See DTC Notice of Filing, supra note 3, at 17669-70; FICC
Notice of Filing, supra note 3, at 17644; NSCC Notice of Filing,
supra note 3, at 17840.
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Each Clearing Agency's R&W Plan is comprised of two primary
sections: (i) the ``Recovery Plan,'' which sets out the tools and
strategies to enable the Clearing Agency to recover when experiencing
losses that exceed its prefunded resources, and (ii) the ``Wind-down
Plan,'' which describes the tools and strategies for conducting an
orderly wind-down of the Clearing Agency's business in a manner
designed to permit the continuation of its critical services if
recovery efforts are not successful.
The Clearing Agencies state that these Proposed Rule Changes amend
the R&W Plans to satisfy the requirements of new Exchange Act Rule
17ad-26 \7\ (``Rule
[[Page 25415]]
17ad-26''), which codifies the definitions of ``Recovery'' \8\ and
``Orderly wind-down,'' \9\ and requires that plans for the recovery and
orderly wind-down of a covered clearing agency, such as the Clearing
Agencies, identify and include certain specific elements.\10\ In
addition to incorporating the required elements into the R&W Plans, the
Proposed Rule Changes make conforming updates and technical revisions
consistent with Rule 17ad-26, including incorporating key terms as
defined in the Rule. The Clearing Agencies state that the Proposed Rule
Changes will help ensure that during extreme market stress, the R&W
Plans will help ensure continuity of the Clearing Agencies' critical
services and enable Members, Participants, and Pledgees to maintain
access to the Clearing Agencies' services through membership transfer
if one of the Clearing Agencies defaults or the Wind-down Plan is
triggered.\11\
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\7\ See Covered Clearing Agency Resilience and Recovery and
Orderly Wind-down Plan, Exchange Act Release No. 101446 (Oct. 25,
2024), 89 FR 91000 (Nov. 18, 2024) (S7-10-23).
\8\ Id. Pursuant to Rule 17ad-26, ``Recovery'' means ``the
actions of a covered clearing agency, consistent with its rules,
procedures, and other ex ante contractual arrangements, to address
any uncovered loss, liquidity shortfall, or capital inadequacy,
whether arising from member or participant default or other causes
(such as business, operational, or other structural weaknesses),
including actions to replenish any depleted prefunded financial
resources and liquidity arrangements, as necessary to maintain the
covered clearing agency's viability as a going concern and to
continue its provision of core services, as identified by the
covered clearing agency pursuant to (a)(1) of this section.''
\9\ Id. Pursuant to Rule 17ad-26, ``Orderly wind-down'' means
``the actions of a covered clearing agency to effect the permanent
cessation, sale, or transfer of one or more of its core services, as
identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section, in a manner that would not increase the risk
of significant liquidity, credit, or operational problems spreading
among financial institutions or markets and thereby threaten the
stability of the U.S. financial system.''
\10\ DTC Notice of Filing, supra note 3, at 17670; FICC Notice
of Filing, supra note 3, at 17644-45; NSCC Notice of Filing, supra
note 3, at 17840. Rule 17ad-26 identifies the elements that a
covered clearing agency's RWP must contain, including: (i) elements
related to planning, including the identification and use of
scenarios, triggers, tools, staffing and services providers, and
(ii) testing and board approval of the plans.
\11\ See DTC Notice of Filing, supra note 3, at 17670; FICC
Notice of Filing, supra note 3, at 17645; NSCC Notice of Filing,
supra note 3, at 17840.
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II. Description of the Proposed Rule Change
A. Proposed Changes To Reflect the Requirements of Rule 17ad-26
The Clearing Agencies propose changes to incorporate a series of
attachments addressing the Rule 17ad-26 requirements that are not
otherwise covered by the current R&W Plan.\12\ The Clearing Agencies
would also add Section 9 (Compliance with SEC Rule 17ad-26: Recovery
and Orderly Wind-down Plans of Covered Clearing Agencies) describing
each of the attachments.
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\12\ The Clearing Agencies filed the R&W Plans as confidential
exhibits to the Proposed Rule Changes, pursuant to 17 CFR 240.24-b2.
The material aspects of the Clearing Agencies' R&W Plans are
described in this approval order and in the Clearing Agencies'
Proposed Rule Changes. See DTC Notice of Filing, supra note 3, at
17671-73; FICC Notice of Filing, supra note 3, at 17645-48; NSCC
Notice of Filing, supra note 3, at 17841-44.
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The following are the required elements of Rule 17ad-26 with
descriptions of the proposed new attachments to the R&W Plans or, where
applicable, the relevant section of the R&W Plans in which the element
is already addressed.
Rule 17ad-26(a)(1) (Core Services): This element of Rule 17ad-26
requires, among other things, that the covered clearing agency identify
and describe its core payment, clearing, and settlement services.\13\
The Clearing Agencies' current R&W Plans already include the necessary
information. Therefore, other than the relevant name changes needed to
replace the term ``Critical'' with ``Core,'' consistent with Rule 17ad-
26,\14\ the Proposed Rule Changes would not amend this portion of the
R&W Plans. Section 3 (Critical Services) would continue to define the
criteria for classifying certain Clearing Agency services as
``critical,'' and identify such critical services and the rationale for
their classification. Table 3-B (Critical Services) would continue to
list each of the services, functions or activities that each Clearing
Agency has identified as ``critical'' based on the applicability of the
criteria.\15\
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\13\ 17 CFR 240.17ad-26(a)(1).
\14\ Supra note 8.
\15\ See DTC Notice of Filing, supra note 3, at 17671 n.21; FICC
Notice of Filing, supra note 3, at 17646 n.21; NSCC Notice of
Filing, supra note 3, at 17841 n.21.
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Rule 17ad-26(a)(1)(i) (Staffing): Attachment A-1 to the R&W Plans
would address the Rule 17ad-26(a)(1)(i) requirement that covered
clearing agencies identify the staffing roles necessary to support
their core services during recovery and orderly wind-down.\16\
Attachment A-1 would include an Excel spreadsheet identifying core
services and the staffing roles necessary to support those core
services during a recovery and orderly wind-down. The necessary
staffing roles would be broken out by the number of managers and
performers required within the relevant department (for example,
Operations, IT). It would also include whether the number of roles
would be equal to the current business as usual staffing or less and
explain why.
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\16\ 17 CFR 240.17ad-26(a)(1)(i).
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Rule 17ad-26(a)(1)(ii) (Staffing Analysis): Attachment A-2 would
address the requirement in Rule 17ad-26(a)(1)(ii) \17\ that covered
clearing agencies analyze how the staffing roles necessary to support
the core services would continue during a recovery and orderly wind-
down. It would include an analysis identifying potential staff
retention challenges during a recovery or wind-down event and
mitigation strategies to address those challenges so that the core
services can continue uninterrupted. The attachment would also clarify
that, while DTCC cannot guarantee staff retention since retaining staff
can be particularly challenging during recovery or orderly wind-down
periods, the Clearing Agencies have developed tools to mitigate
potential challenges, including succession planning, retention
agreements, and cross-training.
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\17\ 17 CFR 240.17ad-26(a)(1)(ii).
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Rule 17ad-26(a)(2)(i) (Service Providers for Core Services):
Attachment B-1 would address the Rule 17ad-26(a)(2)(i) requirements
that covered clearing agencies identify and describe any service
providers for core services (``CSPs'') \18\ and specify which core
services each service provider supports. Attachment B-1 would include a
table identifying each third-party service provider for core service(s)
(``TCSP''), describing the service performed by the TCSP, and
describing the relevant Clearing Agency core service(s) which the TCSP
supports. The Rule 17ad-26 requirement that the Clearing Agencies
identify and describe its affiliated service providers of core services
is already addressed in the current R&W Plans in the section covering
``Intercompany Arrangements.'' \19\
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\18\ Supra note 8. Pursuant to Rule 17ad-26(b) (Definitions),
``Service provider for core services'' means any person, including
an affiliate or a third party, that, through a written agreement for
services provided to or on behalf of the covered clearing agency, on
an ongoing basis, directly supports the delivery of core services,
as identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section.''
\19\ Section 2.4 of the R&W Plans (Intercompany Arrangements)
describes how each of the Clearing Agencies receives the majority of
its shared or corporate support services from DTCC through
intercompany agreements. It describes that services are provided by
DTCC, DTCC Europe Limited, DTCC Enterprise Services India Private
Limited, and DTCC Singapore Pte. Ltd. The services generally cover
enterprise-wide support, including human resources, finance,
information technology, credit and quantitative risk, audit, legal,
marketing and other services.
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Rule 17ad-26(a)(2)(ii) (Ensure Continued Performance of Service
[[Page 25416]]
Providers for Core Services): Attachment B-2 would address Rule 17ad-
26(a)(2)(ii) \20\ requirements that covered clearing agencies address
how they would ensure that CSPs continue performing during a recovery
and orderly wind-down, including consideration of written agreements
with such service providers and whether the obligations under those
agreements would be subject to alteration or termination as a result of
initiation of the recovery and orderly wind-down plan. Attachment B-2
would describe, among other things, that by the Rule 17ad-26 compliance
date,\21\ the Clearing Agencies would review the written agreements
with TCSPs that govern the services provided to the Clearing Agencies
\22\ and evaluate the terms and conditions covering termination and
alteration of performance in the event of initiation of the R&W Plan,
and the ability of the Clearing Agencies to provide the services to a
Transferee in the event of a wind-down.\23\ Attachment B-2 would
further provide that the Clearing Agencies would endeavor to amend such
written agreements, if necessary, to ensure continued performance from
such TCSPs.
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\20\ 17 CFR 240.17ad-26(a)(2)(ii).
\21\ The compliance date by which the Proposed Rule Changes must
be effective is December 15, 2025. Supra note 8.
\22\ DTCC operates on a shared service model with respect to
DTC, NSCC, and FICC. Most corporate functions are established and
managed on an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that provides relevant
services to the Clearing Agencies. As set forth in Section 8.4.2 of
the R&W Plans (Critical Services and Clearing Agency Link
Arrangements), the Clearing Agencies utilize a shared service model
in which services are centralized in DTCC, which provides
enterprise-wide shared services, staffing, infrastructure and
operational support. As a result, the Clearing Agencies are not
typically the party to the written agreements with TCSPs. Rather,
these are primarily entered into by DTCC with the TCSP agreeing to
provide services to DTCC and/or one or more of its affiliates,
including the Clearing Agencies. Therefore, in general, the TCSP
does not have a basis to terminate or suspend the performance under
the written agreement based on a change in condition in respect of a
Clearing Agency, especially when DTCC continues to satisfy its
payment obligations for the services.
\23\ As described in Section 8.1 of the Plan (Introduction and
Executive Summary) and in Clearing Agencies' Rules, in the event the
Board determines that a Clearing Agency will initiate the wind-down
Plan, a ``Transferee'' means an entity to which the Business of the
Corporation is transferred pursuant to the Wind-down Plan, and may
include (i) a failover entity established by DTCC, (ii) a then-
existing or newly-established third party entity, or (iii) a bridge
entity formed to operate the business on an interim basis.
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For affiliated CSPs, each of the relevant written agreements would
continue to be designated in the existing R&W Plans. Attachment B-2
would also provide that the Clearing Agencies would work with internal
stakeholders to amend the applicable intercompany agreements to include
terms and conditions that address a recovery and orderly wind-down
scenario similar to those described above covering TCSPs.
Rule 17ad-26(a)(3) (Scenarios): Attachment C would address the Rule
17ad-26(a)(3) requirement that covered clearing agencies identify and
describe scenarios that may potentially prevent it from being able to
provide its core services as identified in the R&W Plans as a going
concern. Attachment C identifies three of these scenarios: uncovered
credit losses, uncovered liquidity shortfalls and general business
losses. For example, there is a multi-Member or -Participant default
scenario, a scenario involving a significant internal operational
incident, and a third-party failure scenario. For each scenario,
proposed Attachment C would describe, among other things, (i) the
scenario type (e.g., uncovered credit loss, uncovered liquidity loss,
general business loss), (ii) the cause of the circumstances, and (iii)
the severely adverse market conditions associated with or resulting
from the scenario.
Rule 17ad-26(a)(4) (Triggers): The Clearing Agencies' current R&W
Plans already include the necessary information to satisfy this aspect
of Rule 17ad-26, which requires covered clearing agencies to identify
and describe the criteria that could trigger implementation of the R&W
Plans and the process used to monitor and determine whether the
criteria have been met.\24\ The Proposed Rule Changes would move
existing language in the R&W Plans that describe the criteria for the
Clearing Agencies' entry into the Recovery Phase \25\ and
implementation of the Recovery Plan and move it into new Section 5.3
(The Recovery Plan Trigger) of the R&W Plans.\26\ In addition, with
respect to the trigger for an orderly wind-down of the Clearing
Agencies, current Section 8.4.3 (Triggers for Implementing Wind-down)
as well as the Clearing Agencies' Rules concerning the wind-down of the
Clearing Agencies describe the trigger for implementation of the Wind-
down Plan and the associated Board governance process.\27\
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\24\ 17 CFR 240.17ad-26(a)(4).
\25\ Pursuant to Section 5.2.4 of the R&W Plans (Recovery
Corridor and Recovery Phase), the ``Recovery Phase'' relates to the
actions taken by the Clearing Agencies to restore their financial
resources and avoid wind-down.
\26\ Section 5.3 (The Recovery Trigger) would state that the
criteria that would trigger each Clearing Agency's entry into the
Recovery Phase and thus the implementation of the Recovery Plan is
the date that it issues the first Loss Allocation Notice of the
second loss allocation round with respect to a given Event Period.
(As provided in the Clearing Agencies' Rules, the first Loss
Allocation Notice in a second or subsequent round will specify that
a second (or subsequent) round has commenced).
\27\ See DTC Notice of Filing, supra note 3, at 17672 n.33; FICC
Notice of Filing, supra note 3, at 17647 n.33; NSCC Notice of
Filing, supra note 3, at 17842 n.33.
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Rule 17ad-26(a)(5) and Rule 17ad-26(a)(6) (Rules, Policies,
Procedures, and Tools): Attachment D would address the Rule 17ad-
26(a)(5) and Rule 17ad-26(a)(6) \28\ requirements that covered clearing
agencies (i) identify and describe the rules, policies, procedures and
any other tools or resources on which the covered clearing agency would
rely in a recovery or orderly wind-down, and (ii) address how such
rules, policies, procedures and any other tools or resources would
ensure timely implementation of the R&W Plan. Attachment D would be a
two-part table that would include the following column headings: (i)
``Tools and Resources,'' (ii) ``Relevant Rules, Policies and
Procedures,'' and (iii) ``Responsible Body/Personnel'' necessary for
their governance and implementation. Each row of the table would
include this information for each Clearing Agency's loss allocation
waterfall tools (Part 1 of the table) and for each Clearing Agency's
liquidity resources (Part 2 of the table).\29\ Because the R&W Plans
already include tables that describe the Clearing Agencies' loss
waterfall tools (Table 5-B) \30\ and liquidity tools (Table 5-C),\31\
Attachment D would expand upon the information included in Table 5-B
and Table 5-C to incorporate the additional information set forth
above.
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\28\ 17 CFR 240.17ad-26(a)(5) and (a)(6).
\29\ Each Clearing Agency's liquidity risk management strategy,
including the manner in which the Clearing Agency would deploy
liquidity tools as well as its intraday use of liquidity, is
described in each Clearing Agency's Liquidity Risk Management
Framework. See DTC Notice of Filing, supra note 3, at 17672 n.35;
FICC Notice of Filing, supra note 3, at 17647 n.35; NSCC Notice of
Filing, supra note 3, at 17843 n.35.
\30\ The Loss Waterfall tools set out in Table 5-B of the R&W
Plans are the ``Corporate Contribution'' and ``Loss Allocation.''
See also DTC Rule 4 (Participants Fund and Participants Investment);
GSD Rule 4 and MBSD Rule 4 (Clearing Fund and Loss Allocation); NSCC
Rule 4 (Clearing Fund).
\31\ Liquidity tools identified in Table 5-C of the R&W Plans
for DTC include (i) Increase the speed of portfolio asset sales,
(ii) Credit Facility, and (iii) Net Credit Reductions. For FICC,
they include (i) Increase the speed of portfolio asset sales, (ii)
Execute dollar rolls or coupon swaps for mortgage-backed positions
in GSD and MBSD, (iii) Utilize MRAs with GSD CCIT Members, and (iv)
Access non-qualifying liquid resources. For NSCC, they include (i)
Utilize short-settling liquidating trades, (ii) Increase the speed
of portfolio asset sales, (iii) Credit Facility, (iv) Unissued
Commercial Paper, and (v) Non-Qualifying Liquid Resources.
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Rule 17ad-26(a)(7) (Notification to the Commission): Attachment E
would address the Rule 17ad-26(a)(7)
[[Page 25417]]
requirement that covered clearing agencies inform the Commission as
soon as practicable when it is considering implementing a recovery or
orderly wind-down.\32\ For a recovery, Attachment E would state that as
set forth in Section 5.2.4 of the R&W Plans (Recovery Corridor and
Recovery Phase), the Clearing Agencies would monitor, during a
``Recovery Corridor,'' the early warning indicators that could indicate
that the Clearing Agencies may transition into recovery. The Clearing
Agencies would notify the SEC \33\ at the time a determination is made
by the Executive Committee that the Clearing Agencies have entered the
Recovery Corridor, which means that either a market event, including a
Member or Participant default or a non-default event, may result in
uncovered losses, liquidity shortfalls or general business losses
following end-of-day settlement. As further described in this section
of the R&W Plan, the Clearing Agencies' entry into the Recovery
Corridor indicates that the Clearing Agencies are considering
implementing the Recovery Plan. Therefore, the timing of this
notification would provide the SEC with advance notice that the
Clearing Agencies are considering implementing its Recovery Plan and
coincide with the Clearing Agencies' monitoring of both the adequacy of
its resources and the actual and expected timing of resource
replenishment.
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\32\ 17 CFR 240.17ad-26(a)(7).
\33\ Attachment E would state that each Clearing Agency would
provide this notification to its regular supervisory contacts at the
SEC, either verbally and/or in writing.
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For an orderly wind-down, as set forth in Section 8.2.2 of the R&W
Plans (Wind-down Indicators), Attachment E would state that the
Clearing Agencies would expect that a significant inability to
replenish the Clearing or Participants Fund and/or other liquidity
resources (principally its Credit Facility) could lead the Clearing
Agencies to remain in the Recovery Phase \34\ for an extended period or
potentially consider wind-down. If the various options set forth in the
Recovery Plan are not deemed feasible or readily available, the
Clearing Agencies would enter wind-down following a Runway Period.\35\
The Clearing Agencies would notify the SEC \36\ at the time a
determination is made by the Executive Committee that the Clearing
Agencies have entered the Runway Period. The length of the Runway
Period would vary based on the severity of the market stress or other
event and the ability of the Clearing Agencies to replenish its
resources in a timely manner. However, in all scenarios, a Runway
Period would occur before the Clearing Agencies would need to implement
the Wind-down Plan. Thus, proposed Attachment E would state that the
timing of this notification would provide the SEC with advance notice
of the fact that the Clearing Agencies are considering implementing the
Wind-down Plan. It would note further that because of the Clearing
Agencies' prior notification to the SEC that it is considering
implementing the Recovery Plan, the SEC would already be actively
engaged with the Clearing Agencies as they proceed through each stage
of the Crisis Continuum, including prior to the Clearing Agencies'
entry into the Runway Period.
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\34\ The Recovery Plan describes the recovery phase of the
Crisis Continuum, which would begin on the date that the Clearing
Agency issues the first Loss Allocation Notice of the second loss
allocation round with respect to a given Event Period.
\35\ The Wind-down Plan identifies the time period leading up to
a decision to wind-down the Clearing Agency as the ``Runway
Period.''
\36\ Supra note 34.
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Rule 17ad-26(a)(8) (Testing): Attachment F would address the Rule
17ad-26(a)(8) \37\ requirement that the R&W Plans include procedures
for testing the ability of a covered clearing agency to implement the
recovery and orderly wind-down plan at least every 12 months.
Attachment F would describe each Clearing Agency's procedures for
testing its ability to implement its R&W Plan at least every 12 months,
including describing the requirement that certain Members or
Participants participate in the testing based on specified criteria
\38\ and, when practicable, other stakeholders.
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\37\ 17 CFR 240.17ad-26(a)(8).
\38\ Proposed Attachment F would state that the R&R Team would
identify the Member(s) or Participant(s) required to participate in
the simulation and that considerations for the Member or Participant
selection may include, but are not limited to, (i) account
structure, (ii) affiliated family structure, (iii) business model,
(iv) operational details, and (v) Participant size in terms of
trading and settlement activity.
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Rule 17ad-26(a)(9) (Board Approval): Attachment G would address the
Rule 17ad-26(a)(9) requirement that R&W Plans include procedures
requiring review and approval of the plans by the board of directors at
least every 12 months or following material changes to the covered
clearing agency's operations that would significantly affect the
viability or execution of the plans, with review informed, as
appropriate, by the covered clearing agency's testing of the plans.\39\
Attachment G would clarify that the Office of Recovery & Resolution
Planning (the ``R&R Team'') of the Clearing Agencies' parent company,
DTCC would provide updates to the Executive Committee and the Board of
each Clearing Agency with regard to changes and enhancements to the R&W
Plans. It would also require approval of each R&W Plan at least every
12 months or following material changes to each Clearing Agency's
operations that would significantly affect the viability or execution
of its R&W Plan. The review by the board is informed, as appropriate,
by the Clearing Agencies' testing of the R&W Plans as described in
Attachment F (Testing) to the R&W Plans. It would further describe that
the board reviews the R&W Plans through formal and ad hoc board
meetings, receiving any necessary interim updates as determined by the
Executive Committee. It would identify that the policy and procedures
that describe the process for the review and approval of the R&W Plans
by the board are set forth in the following: (i) Office of Recovery and
Resolution Planning Procedures and (ii) Office of Recovery and
Resolution Planning Policy. In addition, it would provide that the
Charter of the board would be amended to include the obligation that
the board review and approve the R&W Plans at least every 12 months or
following material changes to the Clearing Agencies' operations that
would significantly affect the viability or execution of the R&W Plans.
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\39\ 17 CFR 240.17ad-26(a)(9).
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B. Addition of Section 9 (Compliance With Rule 17ad-26)
The Clearing Agencies are also proposing to add a new Section 9
entitled ``Compliance with Rule 17ad-26: Recovery and Orderly Wind-down
Plans of Covered Clearing Agencies'' to address each of the elements
required by 17ad-26 in one section of the R&W Plans. This section would
describe each of the attachments addressing the required elements of
Rule 17ad-26.
C. Other Conforming Updates and Technical Revisions
Finally, the Clearing Agencies are proposing conforming updates and
technical revisions to the R&W Plans for consistency with Rule 17ad-26.
Accordingly, the Clearing Agencies would include the following defined
terms included in Rule 17ad-26 for ``Recovery,'' ``Orderly wind-down,''
and ``Service provider for core services.'' \40\ These technical
revisions would also replace the name of the defined term ``Critical
Services'' in the R&W Plans to ``Core Services'' to align with Rule
17ad-26 without changing the substantive statements being revised. The
Clearing Agencies state that the proposed updates and technical
[[Page 25418]]
revisions would improve the clarity and accuracy of the R&W Plans and,
therefore, would help facilitate the execution of R&W Plans, if
necessary.\41\
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\40\ Supra note 8, 17ad-26(b) (Definitions).
\41\ See DTC Notice of Filing, supra note 3, at 17673; FICC
Notice of Filing, supra note 3, at 17648; NSCC Notice of Filing,
supra note 3, at 17844.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act \42\ directs the Commission
to approve a proposed rule change of a self-regulatory organization if
it finds that such proposed rule change is consistent with the
requirements of the Exchange Act and rules and regulations thereunder
applicable to such organization. After carefully considering the
Proposed Rule Changes, the Commission finds that the Proposed Rule
Changes are consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to the Clearing
Agencies. In particular, the Commission finds that the Proposed Rule
Changes are consistent with Section 17A(b)(3)(F) of the Exchange Act
\43\ and Rules 17ad-22(e)(3)(ii) and 17ad-26 thereunder.\44\
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\42\ 15 U.S.C. 78s(b)(2)(C).
\43\ 15 U.S.C. 78q-1(b)(3)(F).
\44\ 17 CFR 240.17ad-22(e)(3)(ii) and 17 CFR 240.17ad-26.
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Exchange Act \45\ requires the rules of
a clearing agency to, among other things, promote the prompt and
accurate clearance and settlement of securities transactions and assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.
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\45\ 15 U.S.C. 78q-1(b)(3)(F).
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As described above in Sections II.A. and II.B., the Proposed Rule
Changes will update the Clearing Agencies' R&W Plans to identify and
describe staffing roles and service providers for core services,
scenarios that could prevent the Clearing Agencies from being able to
provide its core services as a going concern, steps the Clearing
Agencies would take to ensure that such staffing roles and service
providers would continue to perform in the event of a recovery and
during an orderly wind-down, rules, policies, procedures, tools, and
resources that the Clearing Agencies would rely on in a recovery or
orderly wind-down, as well as procedures for annual testing of the R&W
Plans, Board approval of the R&W Plans, and notification to the
Commission when a Clearing Agency is considering implemented a recovery
or orderly wind-down. These changes should help ensure the continuity
of the Clearing Agencies' core services during a recovery or orderly
wind-down, thereby promoting the prompt and accurate clearance and
settlement of securities transactions and the safeguarding of
securities and funds.
As the Commission previously stated, based on its supervisory
experience, the Commission has observed that covered clearing agencies
rely upon some service providers to deliver core services and for those
service providers that are necessary for the provision of core
services, the failure of those service providers to perform could pose
significant operational risks and have substantial effects on the
covered clearing agency's ability to provide core services.\46\ In a
recovery or orderly wind-down, the continued performance of a service
provider would be essential for the continuity of core services.\47\ By
identifying the Clearing Agencies' core service providers and steps it
would take to ensure that such service providers would continue to
perform in the event of a recovery and during an orderly wind-down, the
Proposed Rule Changes should help ensure that necessary core service
providers continue to support access to and continuity of the Clearing
Agencies' core services. This, in turn, should help ensure the Clearing
Agencies able to promptly and accurately clear and settle transactions
during recovery and, if necessary, conduct an orderly wind-down.
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\46\ Supra note 8, at 91018.
\47\ Id.
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Similarly, the Proposed Rule Changes will identify the staffing
roles necessary to support each Clearing Agency's core services in the
event of a recovery and during an orderly wind-down, potential
challenges of retaining those staffing roles during a recovery or wind-
down event and methods to address those challenges so that the core
services can continue uninterrupted. By identifying the necessary
staffing roles to support the Clearing Agencies' core services and the
tools to retain staff in the event of a recovery and during an orderly
wind-down, the Proposed Rule Changes should help ensure that the
Clearing Agencies have the necessary staff to support access to and
continuity of core services during such events so that the Clearing
Agencies can continue to promptly and accurately clear and settle
trades and safeguard of securities and funds which are in its custody
or control.
Moreover, the Proposed Rule Changes will identify and describe
scenarios that may potentially prevent the Clearing Agencies from being
able to provide core services. Identification and description of
scenarios should help the Clearing Agencies evaluate what is necessary
to achieve a recovery of the clearing agency and, if recovery fails,
help ensure the orderly wind-down of the Clearing Agencies and transfer
of critical services to a new entity. Identifying the scenarios should
also help the Clearing Agencies make the reasonable and appropriate
preparations to achieve a recovery or, if recovery fails, avoid a
disorderly wind-down arising from those scenarios that could transmit
risk through the U.S. securities markets and the broader financial
system, which should help support the prompt and accurate clearance and
settlement of securities transactions and safeguarding of securities
and funds.\48\
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\48\ See Proposing Release, Covered Clearing Agency Resilience
and Recovery and Orderly Wind-down Plan, Exchange Act Release No.
97516 (May 17, 2023), 88 FR 34708, 34720 (May 30, 2023) (S7-10-23).
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Further, the Proposed Rule Changes will clearly define tools,
resources, rules, policies, and procedures that the Clearing Agencies
would rely upon during a recovery or orderly wind-down, as well as make
other technical and conforming changes described in Section III.C.
Identifying and clearly defining the specific recovery tools, such as
loss allocation waterfalls or liquidity resources and making other
technical and conforming changes in the R&W Plans should help improve
the clarity of the R&W Plans and allow participants to understand the
potential tools and resources that could be used and provides a
structured framework that should help Clearing Agencies avoid
unexpected actions that could undermine the clearance and settlement of
securities transactions and safeguarding of securities and funds, which
should help the Clearing Agencies promptly and accurately clear and
settle securities transactions and safeguard of securities and funds in
periods of market stress.\49\
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\49\ Id. at 34722.
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Accordingly, the Proposed Rule Changes to update the Clearing
Agencies' R&W Plans to identify and describe staffing roles and service
providers for core services, scenarios that could prevent the Clearing
Agencies from being able to provide core services, steps the Clearing
Agencies would take to ensure that such staffing roles and service
providers would continue to perform in the event of a recovery and
during an orderly
[[Page 25419]]
wind-down, rules, policies, procedures, tools, and resources that the
Clearing Agencies would rely on in a recovery or orderly wind-down, as
well as testing, Board approval, and Commission notification procedures
would promote the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and funds,
consistent with Section 17A(b)(3)(F) of the Exchange Act.\50\
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\50\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17ad-22(e)(3)(ii)
Rule 17ad-22(e)(3)(ii) requires a covered clearing agency to
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 plans for the recovery and orderly wind-down of the covered
clearing agency necessitated by credit losses, liquidity shortfalls,
losses from general business risk, or any other losses.\51\
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\51\ 17 CFR 240.17Ad-22(e)(3)(ii).
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The proposed changes described above would support the Clearing
Agencies' maintenance of plans for the recovery and orderly wind-down
of the Clearing Agencies by helping ensure that the R&W Plans are
updated with current, accurate operational, personnel, and procedural
information. As described above, the R&W Plans outline the Clearing
Agencies' plans to recover from, or wind-down its operations, as a
result of severe stress brought about by credit losses, liquidity
shortfalls, losses from general business risk or other losses,
including losses from operational disruption. The proposed
modifications to the R&W Plans evaluate, among other things, how the
Clearing Agencies would continue to provide core services during a
recovery or wind-down and analyze, from a staffing perspective, how
staffing roles necessary to support the Clearing Agencies' core
services would continue in a recovery or during a wind-down.
Additionally, the proposed modifications identify the Clearing
Agencies' service providers necessary to ensure the continued delivery
of core services throughout a recovery or wind-down. Further, the
Proposed Rule Changes describe the Clearing Agencies' process for
testing the R&W Plans and the roles and responsibilities for reviewing
the testing results. These proposed updates enhance the Clearing
Agencies' existing R&W Plans and codify its existing elements to ensure
that those elements remain in the R&W Plans over time. By adding this
information to the R&W Plans and ensuring that material provisions of
the R&W Plans are current, clear, and correct, the Proposed Rule
Changes help ensure that those using the R&W Plans have the appropriate
information and an accurate understanding of the potential resources
available for recovery or an orderly wind-down. Accordingly, the
Proposed Rule Changes are consistent with Rule 17ad-22(e)(3)(ii).\52\
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\52\ Id.
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C. Consistency With Rule 17ad-26
Rule 17ad-26 requires the plans for recovery and orderly wind-down
of covered clearing agencies to identify and address certain
information that is pertinent to the R&W Plan.\53\ The Proposed Rule
Changes would add the various elements required by Rule 17ad-26.
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\53\ 17 CFR 240.17ad-26.
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As described above, the modifications to the Clearing Agencies' R&W
Plans evaluate, among other things, how the Clearing Agencies continues
to provide core services during a recovery or wind-down and analyze,
from a staffing perspective, how staffing roles necessary to support
the Clearing Agencies' core services would continue in a recovery or
during a wind-down, consistent with Rule 17ad-26(a)(1). Moreover,
modifications to identify the Clearing Agencies' service providers
necessary to ensure the continued delivery of its core services
throughout a recovery or wind-down and provide additional information
concerning the tools and resources that would be relied upon in a
recovery or orderly wind-down and how such tools and resources would
ensure timely implementation of the R&W Plans are consistent with Rules
17ad-26(a)(2), (a)(5), and (a)(6), respectively. Further, the
modifications to identify and describe scenarios that may potentially
prevent the Clearing Agencies from being able to provide core services
as identified in the R&W Plans as a going concern are consistent with
Rule 17ad-26(a)(3). The modifications describing the Clearing Agencies'
process for testing the R&W Plans and the roles and responsibilities
for reviewing the testing results are consistent with Rule 17ad-
26(a)(8). Finally, the R&W Plans clarify that the Clearing Agencies
will notify the Commission as soon as practicable when considering
implementing a recovery or orderly wind-down and will review and
approval of the R&W Plans by the Clearing Agencies' Board of Directors,
consistent with Rules 17ad-26(a)(7) and (a)(9). By adding these
elements to the R&W Plans, the Proposed Rule Changes help the Clearing
Agencies maintain the R&W Plans in a way that is consistent with Rule
17ad-26.\54\
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\54\ 17 CFR 240.17ad-26.
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Changes are consistent with the requirements of the
Exchange Act and in particular with the requirements of Section 17A of
the Exchange Act \55\ and the rules and regulations promulgated
thereunder.
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\55\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act \56\ that proposed rule changes SR-DTC-2025-007, SR-FICC-
2025-010, and SR-NSCC-2025-007, be, and hereby are, approved.\57\
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\56\ 15 U.S.C. 78s(b)(2).
\57\ In approving the Proposed Rule Changes, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-10877 Filed 6-13-25; 8:45 am]
BILLING CODE 8011-01-P