80 FR 46072 - Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Establish a Prefunded Liquidity Program as Part of NSCC's Liquidity Risk Management

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 148 (August 3, 2015)

Page Range		46072-46074
FR Document		2015-18905

Federal Register, Volume 80 Issue 148 (Monday, August 3, 2015)

[Federal Register Volume 80, Number 148 (Monday, August 3, 2015)]
[Notices]
[Pages 46072-46074]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-18905]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75541; File No. SR-NSCC-2015-802]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Advance Notice To Establish a
Prefunded Liquidity Program as Part of NSCC's Liquidity Risk Management

July 28, 2015.
Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010 \1\ (``Clearing
Supervision Act'') and Rule 19b-4(n)(1)(i) \2\ under the Securities
Exchange Act of 1934, notice is hereby given that on June 26, 2015,
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the advance notice
SR-NSCC-2015-802 (``Advance Notice'') as described in Items I and II,
which Items have been prepared by NSCC. The Commission is publishing
this notice to solicit comments on the Advance Notice from interested
persons.
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\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice

This Advance Notice is filed by NSCC in connection with a proposed
liquidity program to raise prefunded liquidity through the issuance and
private placement of short-term, unsecured notes (``Prefunded Liquidity
Program''), which will consist of a combination of commercial paper
notes and extendible notes. The Prefunded Liquidity Program would
supplement NSCC's existing default liquidity risk management resources.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

In its filing with the Commission, NSCC included statements
concerning the purpose of and basis for the Advance Notice and
discussed any comments it received on the Advance Notice. The text of
these statements may be examined at the places specified in Item IV
below. NSCC has prepared summaries, set forth in sections (A) and (B)
below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants, or Others

Written comments on the Advance Notice have not been solicited or
received. NSCC will notify the Commission of any written comments
received by NSCC.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Payment,
Clearing and Settlement Supervision Act

Description of Change
NSCC proposes to establish the Prefunded Liquidity Program in order
to raise prefunded liquidity and diversify its liquidity resources
through the private placement of unsecured debt, consisting of a
combination of short-term promissory notes (``Commercial Paper
Notes''), and extendible-term promissory notes (``Extendible Notes'',
together with the Commercial Paper Notes, ``Notes''), to institutional
investors in an aggregate amount not to exceed $5 billion. The proceeds
from the Prefunded Liquidity Program would supplement NSCC's existing
liquidity resources, which collectively provide NSCC with liquidity to
complete end-of-day settlement in the event of the default of an NSCC
Member.\3\
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\3\ Terms not defined herein are defined in NSCC's Rules and
Procedures (``Rules'') available at http://dtcc.com/~/media/Files/
Downloads/legal/rules/nscc_rules.pdf. The events that constitute a
Member default are specified in NSCC's Rule 46 (Restrictions on
Access to Services), which provides that NSCC's Board of Directors
may suspend a Member or prohibit or limit a Member's access to
NSCC's services in enumerated circumstances; this includes default
in delivering funds or securities to NSCC, or a Member's
experiencing such financial or operational difficulties that NSCC
determines, in its discretion, that restriction on access to
services is necessary for its protection and for the protection of
its membership.
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Terms of the Prefunded Liquidity Program. NSCC has engaged an
issuing and paying agent, as well as certain placement agent dealers,
to develop a program to issue the Notes. The Notes would be issued to
institutional investors through a private placement and offered in
reliance on an exemption from registration under Section 4(a)(2) of the
Securities Act of 1933.\4\ NSCC would be party to certain transaction
documents required to establish the Prefunded Liquidity Program,
including an issuing and paying agent agreement, and a dealer agreement
with each of the placement agent dealers. The dealer agreements would
each be based on the standard form of dealer agreement for commercial
paper programs, which is published by the Securities Industry and
Financial Markets Association. The material terms and conditions of the
Prefunded Liquidity Program are summarized below.
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\4\ 15 U.S.C. 77d(4)(a)(2) [sic].
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The Prefunded Liquidity Program would be established as a
combination of both Commercial Paper Notes, which typically have
shorter maturities, and Extendible Notes, which typically have longer
maturities, in order to facilitate the staggering of the maturities of
the issued Notes. NSCC intends to structure the Prefunded Liquidity
Program such that the maturities of the issued Notes are staggered to
avoid concentrations of maturing liabilities. The average maturity of
the aggregate Notes outstanding issued under the Prefunded Liquidity
Program is broadly estimated to range between three and six months. The
Commercial Paper Notes and the Extendible Notes would be represented by
one or more master notes issued in the name of The Depository Trust
Company (``DTC''), or its nominee. The Notes would be issued only
through the

[[Page 46073]]

book-entry system of DTC and would not be certificated.
The Commercial Paper Notes would either be interest bearing or be
sold at a discount from their face amount, and the Extendible Notes
would be interest bearing. Interest payable on the Notes would be at
market rates customary for such type of debt and reflective of the
creditworthiness of NSCC. The Commercial Paper Notes would have a
maturity not to exceed 397 calendar days from the date of issue, and
would not be redeemable by NSCC prior to maturity, nor would they
contain any provision for extension, renewal, automatic rollover or
voluntary prepayment. The Extendible Notes would have an initial
maturity of 397 calendar days from the date of issue. However, each
month following the date of issue, the holder of an Extendible Note
would be permitted to elect to extend the maturity of all or a portion
of the principal amount of such Extendible Note for an additional 30
calendar days. A holder of an Extendible Note would be permitted to
continue to extend its Extendible Note up to the final maturity date,
which is expected to be a maximum of six years from the date of issue.
If a holder of an Extendible Note fails to exercise its right to extend
the maturity of all or a portion of the Extendible Note, such portion
of the Extendible Note would be deemed to be represented by a new note
(``Non-Extended Note''), and NSCC would have the option to redeem any
Non-Extended Note in whole, but not in part, at any time prior to the
maturity date of that Non-Extended Note, which would be 12 months from
the date on which they opted not to extend.
NSCC would hold the proceeds from the issuance of the Notes in a
cash deposit account at the Federal Reserve Bank of New York
(``FRBNY'').\5\ Pending the establishment of NSCC's account at the
FRBNY, however, such proceeds would be maintained in accounts with
creditworthy financial institutions in accordance with DTCC's
Investment Policy.\6\ NSCC currently invests its Clearing Fund deposits
in the same manner, and acceptable investments under DTCC's Investment
Policy include reverse repurchase agreements, money market mutual fund
investments, bank deposits and commercial paper bank sweep deposits. In
all cases, these amounts would be available to draw to complete
settlement as needed.
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\5\ Pursuant to Section 806(a) under Title VIII of the Clearing
Supervision Act, and Section 234.6 of the Federal Reserve Regulation
HH promulgated thereunder, NSCC, as a designated systemically
important financial market utility (``SIFMU'') under the Clearing
Supervision Act, has applied for a cash deposit account at the
FRBNY, as well as subscription to ancillary FRBNY services that will
facilitate the use of the requested cash deposit account. See 12
U.S.C. 5465(a); 12 CFR 234.6. The application is pending with the
FRBNY as of the date of this filing.
\6\ NSCC manages investment risk, including the custody and
overnight investment of Clearing Fund cash, through the corporate
Investment Policy, which establishes credit and concentration
exposure limits on NSCC's investment counterparties and governs
NSCC's investments of cash, including the custody and overnight
investment of Clearing Fund cash.
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NSCC Liquidity Risk Management. As a central counterparty
(``CCP''), NSCC occupies an important role in the securities settlement
system by interposing itself between counterparties to financial
transactions, thereby reducing the risk faced by its Members and
contributing to global financial stability. NSCC's liquidity risk
management framework plays an integral part in NSCC's ability to
perform this role, and is designed to ensure that NSCC maintains
sufficient liquid resources to timely meet its payment (principally
settlement) obligations with a high degree of confidence.
NSCC's liquidity needs are driven by the requirement to complete
end-of-day settlement, on an ongoing basis, in the event of Member
default. If an NSCC Member defaults, as a CCP for the cash markets,
NSCC will need to complete settlement of guaranteed transactions on the
failing Member's behalf from the date of default through the remainder
of the settlement cycle (currently three days for securities that
settle on a regular way basis in the U.S. equities markets).
NSCC measures and manages its liquidity risk by performing daily
simulations that measure the amount of liquidity that would be required
by NSCC in a number of scenarios, including amounts required over the
settlement cycle in the event that the Member or Member family to which
NSCC has the largest aggregate liquidity exposure defaults. NSCC seeks
to maintain qualified liquidity resources in an amount sufficient to
meet this requirement. NSCC's existing liquidity resources include: (1)
The cash in NSCC's Clearing Fund; (2) the cash that would be obtained
by drawing upon NSCC's committed 364-day credit facility with a
consortium of banks; and (3) additional cash deposits, known as
``Supplemental Liquidity Deposits'', designed to cover the heightened
liquidity exposure arising around monthly option expiry periods,
required from those Members whose activity would pose the largest
liquidity exposure to NSCC.\7\ The proceeds from the Prefunded
Liquidity Program would supplement these liquidity resources. Further,
NSCC would consider the proceeds from the Prefunded Liquidity Program
to be qualifying liquidity resources under NSCC's Rule 4A.
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\7\ Supplemental Liquidity Deposits are described in NSCC Rule
4A, supra Note 1 [sic].
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By providing NSCC with additional, prefunded, and readily available
liquidity resources to be used to complete end-of-day settlement as
needed in the event of a Member default, the proposed Prefunded
Liquidity Program would provide additional certainty, stability, and
safety to NSCC, its Members, and the U.S. equities market that it
serves. The Prefunded Liquidity Program is also designed to reduce
NSCC's concentration risk with respect to its liquidity resources since
it is anticipated that many of the potential institutional investors
who would be purchasers of the Notes are not currently providing
liquidity resources to NSCC.
The Prefunded Liquidity Program was developed in coordination with
a standing advisory group, the Clearing Agency Liquidity Council
(``CALC''), which includes representatives of NSCC's Members and
participants of NSCC's affiliate, the Fixed Income Clearing
Corporation. The CALC was established in 2013 in order to facilitate
dialogue between these clearing agencies and their participants
regarding liquidity initiatives.\8\
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\8\ Reference to the establishment of the CALC was made in the
Commission's order approving the proposed rule changes implementing
the Supplemental Liquidity Deposits. Securities Exchange Act Release
No. 70999 (December 5, 2013), 78 FR 75413 (December 11, 2013) (File
No. SR-NSCC-2013-02).
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Anticipated Effect on and Management of Risk
NSCC's consistent ability to timely complete settlement is a key
part of NSCC's role as a CCP and allows NSCC to mitigate counterparty
risk within the U.S. markets. In order to sufficiently perform this key
role in promoting market stability, it is critical that NSCC has access
to liquidity resources to enable it to complete end-of-day settlement,
notwithstanding the default of a Member. NSCC believes that the overall
impact of the Prefunded Liquidity Program on risks presented by NSCC
would be to reduce the liquidity risks associated with NSCC's operation
as a CCP by providing it with an additional source of liquidity to
complete end-of-day settlement in the event of a Member default. NSCC

[[Page 46074]]

further believes that a reduction in its liquidity risk would reduce
systemic risk and would have a positive impact on the safety and
soundness of the clearing system.
While the Prefunded Liquidity Program, like any liquidity resource,
would involve certain risks, most of these risks are standard in any
commercial paper or extendible note program. One risk associated with
the Prefunded Liquidity Program would be the risk that NSCC does not
have sufficient funds to repay issued Notes when they mature. NSCC
believes that this risk is extremely remote, as the proceeds of the
Prefunded Liquidity Program would be used only in the event of a Member
default, and NSCC would replenish that cash, as it would replenish any
of its liquidity resources that are used to facilitate settlement in
the event of a Member default, with the proceeds of the close out of
that defaulted Member's portfolio. This notwithstanding, in the event
that proceeds from the close out are insufficient to fully repay a
liquidity borrowing, then NSCC would look to its loss waterfall to
repay any outstanding liquidity borrowings. NSCC would further mitigate
this risk by structuring the Prefunded Liquidity Program so that the
maturity dates of the issued Notes are sufficiently staggered, which
would provide NSCC with time to complete the close out of a defaulted
Member's portfolio. A second risk is that NSCC may be unable to issue
new Notes as issued Notes mature. This risk is mitigated by the fact
that NSCC maintains a number of different liquidity resources,
described above, and would not depend on the Prefunded Liquidity
Program as its sole source of liquidity. As such, NSCC believes that
the significant systemic risk mitigation benefits of providing NSCC
with additional, prefunded liquidity resources outweigh these risks.
Consistency with Clearing Supervision Act. By supplementing NSCC's
existing liquidity resources with prefunded liquidity, the proposed
Prefunded Liquidity Program would contribute to NSCC's goal of assuring
that NSCC has adequate liquidity resources to meet its settlement
obligations notwithstanding the default of any of its Members. As such,
the proposed Prefunded Liquidity Program is consistent with Section
805(b)(1) of the Clearing Supervision Act, the objectives and
principles of which specify the promotion of robust risk management,
promotion of safety and soundness, reduction of systemic risks and
support of the stability of the broader financial system.\9\
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\9\ 12 U.S.C. 5464(b)(1).
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III. Date of Effectiveness of the Advance Notice, and Timing for
Commission Action

The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date that the proposed change was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received. NSCC shall not implement the proposed change if the
Commission has any objection to the proposed change.
The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing NSCC with prompt written notice of the
extension. The proposed change may be implemented in less than 60 days
from the date the Advance Notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies NSCC in writing that it does not object to the proposed change
and authorizes NSCC to implement the proposed change on an earlier
date, subject to any conditions imposed by the Commission.
NSCC shall post notice on its Web site of proposed changes that are
implemented.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the Advance
Notice is consistent with the Clearing Supervision Act. Comments may be
submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NSCC-2015-802 on the subject line.

Paper Comments

Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2015-802. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the Advance Notice that are filed
with the Commission, and all written communications relating to the
Advance Notice 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 Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on NSCC's Web site
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2015-802 and should be submitted on
or before August 18, 2015.

By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-18905 Filed 7-31-15; 8:45 am]
BILLING CODE 8011-01-P

46072 Federal Register / Vol. 80, No. 148 / Monday, August 3, 2015 / Notices

By the Commission. Exchange Act of 1934, notice is hereby investors in an aggregate amount not to
Ruth Ann Abrams, given that on June 26, 2015, National exceed $5 billion. The proceeds from
Acting Secretary. Securities Clearing Corporation the Prefunded Liquidity Program would
[FR Doc. 2015–18862 Filed 7–31–15; 8:45 am] (‘‘NSCC’’) filed with the Securities and supplement NSCC’s existing liquidity
BILLING CODE 7710–FW–P
Exchange Commission (‘‘Commission’’) resources, which collectively provide
the advance notice SR–NSCC–2015–802 NSCC with liquidity to complete end-of-
(‘‘Advance Notice’’) as described in day settlement in the event of the
Items I and II, which Items have been default of an NSCC Member.3
POSTAL SERVICE prepared by NSCC. The Commission is Terms of the Prefunded Liquidity
Product Change—Priority Mail and publishing this notice to solicit Program. NSCC has engaged an issuing
First-Class Package Service comments on the Advance Notice from and paying agent, as well as certain
Negotiated Service Agreement interested persons. placement agent dealers, to develop a
I. Clearing Agency’s Statement of the program to issue the Notes. The Notes
AGENCY: Postal ServiceTM. would be issued to institutional
Terms of Substance of the Advance
ACTION: Notice. Notice investors through a private placement
and offered in reliance on an exemption
SUMMARY: The Postal Service gives This Advance Notice is filed by NSCC from registration under Section 4(a)(2)
notice of filing a request with the Postal in connection with a proposed liquidity of the Securities Act of 1933.4 NSCC
Regulatory Commission to add a program to raise prefunded liquidity would be party to certain transaction
domestic shipping services contract to through the issuance and private documents required to establish the
the list of Negotiated Service placement of short-term, unsecured Prefunded Liquidity Program, including
Agreements in the Mail Classification notes (‘‘Prefunded Liquidity Program’’), an issuing and paying agent agreement,
Schedule’s Competitive Products List. which will consist of a combination of and a dealer agreement with each of the
DATES: Effective date: August 3, 2015.
commercial paper notes and extendible placement agent dealers. The dealer
notes. The Prefunded Liquidity Program agreements would each be based on the
FOR FURTHER INFORMATION CONTACT: would supplement NSCC’s existing
Elizabeth A. Reed, 202–268–3179. standard form of dealer agreement for
default liquidity risk management commercial paper programs, which is
SUPPLEMENTARY INFORMATION: The resources.
United States Postal Service® hereby published by the Securities Industry
gives notice that, pursuant to 39 U.S.C. II. Clearing Agency’s Statement of the and Financial Markets Association. The
3642 and 3632(b)(3), on July 27, 2015, Purpose of, and Statutory Basis for, the material terms and conditions of the
it filed with the Postal Regulatory Advance Notice Prefunded Liquidity Program are
Commission a Request of the United In its filing with the Commission, summarized below.
States Postal Service to Add Priority NSCC included statements concerning The Prefunded Liquidity Program
Mail & First-Class Package Service the purpose of and basis for the would be established as a combination
Contract 6 to Competitive Product List. Advance Notice and discussed any of both Commercial Paper Notes, which
Documents are available at comments it received on the Advance typically have shorter maturities, and
www.prc.gov, Docket Nos. MC2015–75, Notice. The text of these statements may Extendible Notes, which typically have
CP2015–114. be examined at the places specified in longer maturities, in order to facilitate
Item IV below. NSCC has prepared the staggering of the maturities of the
Stanley F. Mires, summaries, set forth in sections (A) and issued Notes. NSCC intends to structure
Attorney, Federal Compliance. (B) below, of the most significant the Prefunded Liquidity Program such
[FR Doc. 2015–18889 Filed 7–31–15; 8:45 am] aspects of these statements. that the maturities of the issued Notes
BILLING CODE 7710–12–P are staggered to avoid concentrations of
(A) Clearing Agency’s Statement on maturing liabilities. The average
Comments on the Advance Notice maturity of the aggregate Notes
Received From Members, Participants, outstanding issued under the Prefunded
SECURITIES AND EXCHANGE or Others
COMMISSION Liquidity Program is broadly estimated
Written comments on the Advance to range between three and six months.
[Release No. 34–75541; File No. SR–NSCC– Notice have not been solicited or The Commercial Paper Notes and the
2015–802] received. NSCC will notify the Extendible Notes would be represented
Commission of any written comments by one or more master notes issued in
Self-Regulatory Organizations; received by NSCC. the name of The Depository Trust
National Securities Clearing Company (‘‘DTC’’), or its nominee. The
Corporation; Notice of Filing of (B) Advance Notice Filed Pursuant to
Section 806(e) of the Payment, Clearing Notes would be issued only through the
Advance Notice To Establish a
Prefunded Liquidity Program as Part of and Settlement Supervision Act
3 Terms not defined herein are defined in NSCC’s
NSCC’s Liquidity Risk Management Description of Change Rules and Procedures (‘‘Rules’’) available at
http://dtcc.com/∼/media/Files/Downloads/legal/
July 28, 2015. NSCC proposes to establish the rules/nscc_rules.pdf. The events that constitute a
Pursuant to Section 806(e)(1) of Title Prefunded Liquidity Program in order to Member default are specified in NSCC’s Rule 46
VIII of the Dodd-Frank Wall Street raise prefunded liquidity and diversify (Restrictions on Access to Services), which provides
that NSCC’s Board of Directors may suspend a
mstockstill on DSK4VPTVN1PROD with NOTICES

Reform and Consumer Protection Act its liquidity resources through the
Member or prohibit or limit a Member’s access to
entitled the Payment, Clearing, and private placement of unsecured debt, NSCC’s services in enumerated circumstances; this
Settlement Supervision Act of 2010 1 consisting of a combination of short- includes default in delivering funds or securities to
(‘‘Clearing Supervision Act’’) and Rule term promissory notes (‘‘Commercial NSCC, or a Member’s experiencing such financial
Paper Notes’’), and extendible-term or operational difficulties that NSCC determines, in
19b–4(n)(1)(i) 2 under the Securities its discretion, that restriction on access to services
promissory notes (‘‘Extendible Notes’’, is necessary for its protection and for the protection
1 12 U.S.C. 5465(e)(1). together with the Commercial Paper of its membership.
2 17 CFR 240.19b–4(n)(1)(i). Notes, ‘‘Notes’’), to institutional 4 15 U.S.C. 77d(4)(a)(2) [sic].

VerDate Sep<11>2014 18:35 Jul 31, 2015 Jkt 235001 PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 E:\FR\FM\03AUN1.SGM 03AUN1

Document Created: 2018-02-23 10:52:03
Document Modified: 2018-02-23 10:52:03

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 46072