[Federal Register Volume 91, Number 93 (Thursday, May 14, 2026)]
[Notices]
[Pages 27475-27478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-09589]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105427; File No. SR-NSCC-2026-007]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Facilitate the Exchange of a Mutual Fund Share to an
Exchange-Traded Fund Share, Shorten the Settlement Time for Certain
Networking Payments, and Clarify Certain Fees
May 11, 2026.
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 May 1, 2026, 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 \5\ consists of amendments to the NSCC
Rules to (i) update Fund/SERV[supreg] \6\ to facilitate the exchange of
a mutual fund share to an exchange-traded fund (``ETF'') share class,
(ii) shorten the settlement time for certain Networking Payments to the
same day NSCC is notified of the payment and (iii) clarify the Fund/
SERV transaction fees charged to NSCC Members.\7\
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\5\ Terms not defined herein are defined in the NSCC Rules &
Procedures (``Rules''), available at www.dtcc.com/legal/rules-and-procedures.
\6\ See Rule 52, Part A, supra note 5.
\7\ For purposes of this filing, ``NSCC Members'' refers to the
Members and Limited Members of NSCC that are entitled to use the
services set forth in Rule 52.
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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
NSCC is proposing to change the NSCC Rules to (i) update Fund/SERV
to facilitate the exchange of a mutual fund share to an ETF share
class, (ii) shorten the settlement time for certain Networking Payments
to the same day NSCC is notified of the payment and (iii) clarify the
Fund/SERV transaction fees charged to NSCC Members.
Background
Dual-Share-Class Structures
ETFs continue to grow in market adoption due to their intra-day
liquidity, tax efficiency, and generally lower operating costs relative
to traditional mutual funds. ETFs are market traded securities designed
to track indices, commodities, bonds, or other baskets of assets, and
are bought and sold throughout the trading day like any other exchange-
listed security.
An increasing number of mutual funds (``Funds'') are now
introducing ETF share classes within the same portfolio as their
existing mutual fund share classes. This trend follows the expiration
of a patent originally obtained by The Vanguard Group, Inc.
(``Vanguard'') relating to a dual share class structure, which
previously prevented other Funds from offering ETF and mutual fund
share classes within a single fund without exemptive relief. Under the
Investment Company Act of 1940, a Fund may not operate both mutual fund
and ETF share classes in a single portfolio unless it first obtains
exemptive relief from the Commission. Vanguard secured such exemptive
relief in 2000 and patented the structure in 2003. While the patent
remained effective, other asset managers could not rely on a similar
structure. Since the patent's expiration in 2023, other Funds have
begun applying for--and the Commission has begun granting--exemptive
relief to permit the operation of dual share class structures.\8\
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\8\ As of March 17, 2026, approximately, 100 Funds have sought
exemptive relief to offer a dual-share-class structure. See
Securities Exchange Act Release No. 105028 (Mar.17,2026), 91 FR
13675 (Mar. 20, 2026) (granting conditional exemptive relief under
Section11(d)(1) of the Act for ETF share classes of multi-class
funds).
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The exemptive relief sought generally includes authorization for
Funds to offer both mutual fund shares and ETF shares within the same
portfolio and, in certain cases, also includes permission to provide an
``exchange privilege'' allowing mutual fund shareholders to exchange
their mutual fund shares for ETF shares under specified conditions.\9\
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\9\ See, e.g., DFA Investment Dimensions Group Inc., et al.,
Investment Company Act Release No. 35770 (Sept. 29, 2025), 90 FR
47412 (Oct. 1, 2025) (File No. 812-15484).
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To support this developing industry model and to facilitate the
operational processing of mutual fund to ETF share class exchanges,
NSCC proposes to amend its Rules governing Fund/SERV.\10\ The proposed
amendments
[[Page 27476]]
would permit Funds \11\ and ETF agents (``ETF Agents'')--which
facilitate the creation and redemption processes for ETFs--that are
NSCC Members to transmit ETF exchange data through Fund/SERV for
purposes of supporting an exchange from a mutual fund share class to an
ETF share class. This enhancement to Fund/SERV is intended to provide a
standardized and automated mechanism for communicating the ETF exchange
details necessary to complete such transactions and to ensure that both
Funds and ETF Agents can rely on existing NSCC infrastructure for these
newly permitted dual share class operations. Fund/SERV does not
currently have data fields or a process in place specifically for
mutual fund to ETF share class exchanges, and processing of ETF
exchange data is done manually outside of Fund/SERV.
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\10\ Fund/SERV is NSCC's automated platform for processing
mutual fund transactions, including purchases, redemptions, and
conversions. See Rule 52, Part A, supra note 5.
\11\ Under Rule 52, the entities processing data on behalf of
mutual funds are Fund Members or Mutual Fund Processors.
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Networking Activity Settlement
NSCC proposes to amend its Rules to modify the settlement timing
for Networking Payments, which will include residual cash amounts
arising from fractional share differences when mutual fund shares are
converted into ETF share class shares. Networking is an NSCC service
that facilitates the communication of customer account data and the
settlement of certain payment obligations between NSCC Members.\12\ In
certain transactions in which mutual fund shares are converted into ETF
share class shares, residual cash amounts may arise as a result of
fractional share differences. NSCC Members have indicated a preference
to settle such residual cash amounts as Networking Payments and to
accelerate the settlement of all Networking Payments.
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\12\ See Rule 52, Part B, supra note 5. Networking Payments are
Fund/SERV Eligible Fund payments, other than payments settled
through Fund/SERV or DTCC Payment aXis. Id.
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Under the current Rules, Networking Payments settle on the Business
Day (``Debit Day'') following the day on which NSCC is notified of the
applicable dollar amounts to be debited (``Other Payable
Amounts'').\13\ NSCC receives notification of the Other Payable Amounts
one Business Day following the transaction date. As a result,
settlement generally occurs two Business Days after the transaction
date. Although a ``Business Day'' is defined as any day NSCC is open
for business, NSCC does not process payments of money, including
Networking Payments, on days when banks in New York are closed.\14\ In
addition, current NSCC procedures require NSCC Members to notify NSCC
of Networking Payment Other Payable Amounts between 1:00 a.m. ET and
5:00 a.m. ET, Monday through Saturday, with Debit Day occurring Monday
through Friday on Business Days on days when banks in New York are
open. Accordingly, the Debit Day is at least one Business Day after
notice of the Other Payable Amounts have been submitted to NSCC and at
least two Business Days following the transaction date.
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\13\ See Rule 52, Part B, Section 3(b), supra note 5 (outlines
timing of processing Other Payable Amounts).
\14\ See definition of ``Business Day'', Rule 1, and Section
3(b) of Rule 52, Part B, supra note 5.
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NSCC Members have requested the ability to accelerate this process
so that Debit Day be the same day that NSCC is notified of the Other
Payable Amounts and one Business Day after the transaction date,
provided that (i) the Debit Day is a Business Day, (ii) banks in New
York are open, and (iii) NSCC receives notice of the Other Payable
Amounts during the time period specified by NSCC (currently between
1:00 a.m. ET and 5:00 a.m. ET).
Accordingly, NSCC is proposing to amend its Rules to provide for
settlement of Networking Payments on the same Business Day that NSCC is
notified when these conditions are satisfied. NSCC believes that this
change will improve operational efficiency, better align settlement
timing with NSCC Member needs, and support timely and accurate
processing of Networking Payments, including residual cash associated
with mutual fund-to-ETF share class conversions.
Fund/SERV Transaction Fee
NSCC charges a transaction fee of $0.06 per side, per order or
transfer request settling through NSCC for Fund/SERV transactions.\15\
NSCC is proposing to update the description of this fee to specify that
records associated with ETF exchange details are included within the
scope of this charge. NSCC would also revise the description to provide
additional clarity regarding what constitutes a ``side'' for purposes
of the fee and to identify, with greater specificity, (i) the record
types to which the transaction fee applies and (ii) when the fee is
charged upon submission and receipt, thereby providing NSCC Members
with a more accurate understanding of when the fee will be assessed.
Other than reflecting that the charge would apply to the new ETF
exchange detail records, the proposed changes would not modify how the
transaction fee is currently assessed by NSCC.
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\15\ See Section IV.G.1.b. of Addendum A, supra note 5.
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Proposed Rule Changes
Rule 52, Part A--Mutual Fund to ETF Share Class Exchange Details
NSCC is proposing to update Section 3 of Rule 52, Part A to
incorporate the ability to include ETF exchange details in records
processed through Fund/SERV. Specifically, NSCC would add a provision
providing that, where an order relates to the exchange or conversion of
a Fund/SERV Eligible Fund with an exchange-traded fund share class (an
``ETF Exchange''), NSCC would transmit order data to Members that (i)
have subscribed to receive ETF Exchange order data and (ii) have been
identified as the ETF Agent with respect to the ETF share class
involved in the exchange. In addition, an ETF Agent would be required
to contact NSCC if it does not receive order data for an ETF Exchange,
and the ETF Agent would be able to request that NSCC transmit summary
data relating to such order, in a manner similar to the existing right
available to Funds.
NSCC is also proposing to update Section 4 of Rule 52, Part A to
provide that, if a Fund does not reject an order relating to an ETF
Exchange, the Fund would transmit relevant share class exchange
information (``ETF Exchange Details'') to the ETF Agent through Fund/
SERV. The proposed change would further provide ETF Agents with the
ability to transmit data back to the Funds as necessary to facilitate
the ETF Exchange.
Rule 52, Part B--Same Day Networking Settlement
NSCC proposes an amendment to Rule 52, Part B, stipulating that the
Debit Day for Other Payable Amounts shall be the date on which Funds
notify NSCC of the Other Payable Amounts, provided such submission
occurs within the timeframe specified by NSCC and on a Business Day on
which banks in New York are open for business. If notice of the Other
Payable Amounts is not submitted within the timeframe specified by
NSCC, or on a day that is not a Business Day on which banks in New York
are open for business, the Rules will provide that Debit Day would be
the next Business Day.
Addendum A--Revise Fund/SERV Transaction Fee Description
NSCC would update Section IV.G.1.b of Addendum A to reflect that
the Fund/SERV transaction fee of $0.06 would apply to records
associated with ETF
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Exchanges. NSCC would also revise the description to clarify when the
transaction fee is assessed and to identify, with greater specificity,
the record types to which the fee applies, including delineating when
the NSCC Member is charged as the submitter of a record and when it is
charged as the recipient of a record.
Implementation Date
NSCC would implement the proposed changes to Rule 52, Part A and to
Addendum A on May 18, 2026. NSCC would implement the proposed rule
changes to Rule 52, Part B on July 13, 2026.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\16\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
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NSCC believes that the proposed changes to (i) update Rule 52, Part
A to add provisions within Fund/SERV to facilitate the exchange of
mutual fund shares for ETF share classes and (ii) update Rule 52, Part
B to shorten the settlement time for certain Networking Payments to the
same business day on which NSCC is notified of the applicable Other
Payable Amounts are consistent with Section 17A(b)(3)(F) of the
Act.\17\ These changes would enhance NSCC Members' ability to
efficiently process ETF Exchange transactions and reduce settlement
timeframes for Networking Payments, including residual cash associated
with ETF Exchanges. By improving the efficiency, timeliness, and
accuracy of these processes, the proposed changes would promote the
prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.
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\17\ Id.
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In addition, NSCC believes that the proposed changes to clarify the
Fund/SERV transaction fees charged to NSCC Members, as set forth in
Addendum A of the Rules, are also consistent with Section 17A(b)(3)(F)
of the Act. The proposed fee clarifications would enhance the clarity
and transparency of the Rules, thereby enabling NSCC Members to more
efficiently understand and apply the applicable fee structure when
conducting activity through Fund/SERV. NSCC believes that increased
clarity and transparency in the Rules supports more efficient NSCC
Member operations and, in turn, promotes the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.
Rule 17ad-22(e)(21) \18\ under the Act requires that each covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to, among other things, be
efficient and effective in meeting the requirements of its participants
and the markets it serves. NSCC believes that the proposed changes to
(i) update Rule 52, Part A to add provisions within Fund/SERV to
facilitate the exchange of mutual fund shares for ETF share classes and
(ii) update Rule 52, Part B to shorten the settlement time for certain
Networking Payments to the same business day on which NSCC is notified
of the applicable Other Payable Amounts are consistent with Rule 17ad-
22(e)(21).\19\ As discussed above, these changes would provide NSCC
Members the ability to efficiently process ETF Exchange transactions
and reduce settlement timeframes for Networking Payments, including
residual cash associated with ETF Exchanges. Accordingly, NSCC believes
the proposed rule change is reasonably designed to meet the
requirements of its participants and the markets it serves, consistent
with Rule 17ad-22(e)(21) under the Act.
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\18\ 17 CFR 240.17ad-22(e)(21).
\19\ Id.
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Rule 17ad-22(e)(23)(ii) \20\ under the Act requires each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to provide sufficient
information to enable participants to identify and evaluate the risks,
fees, and other material costs they incur by participating in the
covered clearing agency. NSCC believes that the proposed changes to
clarify the Fund/SERV transaction fees charged to NSCC Members, as set
forth in Addendum A of the Rules, are consistent with Rule 17ad-
22(e)(23)(ii).\21\ The proposed changes would identify, with greater
specificity, (i) the record types to which the transaction fee applies
and (ii) when the fee is assessed upon submission and receipt, thereby
providing NSCC Members with a more accurate understanding of when the
fee will be charged. These fee-related provisions would be publicly set
forth in the NSCC Rules. Accordingly, NSCC believes the proposed rule
change is reasonably designed to provide sufficient information for
participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in NSCC, consistent with
Rule 17ad-22(e)(23)(ii) under the Act.
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\20\ 17 CFR 240.17ad-22(e)(23)(ii).
\21\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would have an
adverse impact, or impose a burden, on competition. The proposed
changes would help NSCC Members process ETF Exchanges, send Networking
Payments, and clarify the Rules without adding new obligations for
those already using NSCC's services. As such, the proposed changes
would not impede any NSCC Members from engaging in the services or have
an adverse impact on any NSCC Members.
(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 by NSCC, 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 Securities and Exchange Commission
(``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/rules-regulations/how-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 to not 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 \22\ and paragraph (f) of Rule 19b-4
thereunder.\23\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may
[[Page 27478]]
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.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f).
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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-2026-007 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-2026-007. 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 (www.sec.gov/rules/sro.shtml). Copies
of the filing will be available for inspection and copying at the
principal office of NSCC and on DTCC's website (www.dtcc.com/legal/sec-rule-filings). Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to File Number SR-NSCC-2026-
007 and should be submitted on or before June 4, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-09589 Filed 5-13-26; 8:45 am]
BILLING CODE 8011-01-P