81 FR 27181 - Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Notice of Filing of and No Objection to Advance Notices To Renew the Credit Facility
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 87 (May 5, 2016)
Federal Register Volume 81, Issue 87 (May 5, 2016)
| Page Range | 27181-27183 | |
| FR Document | 2016-10473 |
[Federal Register Volume 81, Number 87 (Thursday, May 5, 2016)] [Notices] [Pages 27181-27183] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-10473] [[Page 27181]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77750; File Nos. SR-DTC-2016-801; SR-NSCC-2016-801] Self-Regulatory Organizations; The Depository Trust Company; National Securities Clearing Corporation; Notice of Filing of and No Objection to Advance Notices To Renew the Credit Facility April 29, 2016. 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 (``Clearing Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on April 15, 2016, The Depository Trust Company (``DTC'') and National Securities Clearing Corporation (``NSCC,'' together with DTC, ``Clearing Agencies'') filed with the Securities and Exchange Commission (``Commission'') the advance notices SR-DTC-2016-801 and SR- NSCC-2016-801 (``Advance Notices'') as described in Items I, II and III below, which Items have been prepared primarily by the Clearing Agencies. The Commission is publishing this notice to solicit comments on the Advance Notices from interested persons and providing notice that the Commission does not object to the Advance Notices. --------------------------------------------------------------------------- \1\ 12 U.S.C. 5465(e)(1). \2\ 17 CFR 240.19b-4(n)(1)(i). --------------------------------------------------------------------------- I. Clearing Agencies' Statement of the Terms of Substance of the Advance Notices The Advance Notices are filed by the Clearing Agencies in connection with the proposed renewal (the ``Renewal'') of the Clearing Agencies' 364-day committed revolving credit facility (the ``Credit Facility''). The Renewal is described in greater detail below.\3\ --------------------------------------------------------------------------- \3\ Terms not defined herein are defined in NSCC's Rules and Procedures (``NSCC Rules''), available at www.dtcc.com/~/media/ Files/Downloads/legal/rules/nscc_rules.pdf or DTC's Rules, available at www.dtcc.com/~/media/Files/Downloads/legal/rules/dtc_rules.pdf. --------------------------------------------------------------------------- II. Clearing Agencies' Statement of the Purpose of, and Statutory Basis for, the Advance Notices In their filings with the Commission, the Clearing Agencies included statements concerning the purpose of and basis for the Advance Notices and discussed any comments they received on the Advance Notices. The text of these statements may be examined at the places specified in Item IV below. The Clearing Agencies have prepared summaries, set forth in sections A and B below, of the most significant aspects of such statements. (A) Clearing Agencies' Statement on Comments on the Advance Notices Received From Members, Participants, or Others The Clearing Agencies have not solicited or received any written comments relating to these proposals. The Clearing Agencies will notify the Commission of any written comments received by the Clearing Agencies. (B) Advance Notices Filed Pursuant to Section 806(e) of the Payment, Clearing and Settlement Supervision Act Description of the Proposed Change As part of their liquidity risk management regime, the Clearing Agencies maintain a 364-day committed revolving line of credit with a syndicate of commercial lenders, which is renewed every year. The terms and conditions of the current Renewal would be specified in the Fifteenth Amended and Restated Revolving Credit Agreement, to be dated as of May 10, 2016 (``Renewal Agreement''), among the Clearing Agencies,\4\ the lenders party thereto, the administrative agent and the collateral agent, and are substantially the same as the terms and conditions of the existing credit agreement, dated as of May 12, 2015, as heretofore amended (``Existing Agreement''),\5\ except that pricing and the amount of the aggregate commitment for NSCC may change. The substantive terms of the Renewal Agreement are set forth in the Summary of Indicative Principal Terms and Conditions, dated March 24, 2016, which is not a public document. The aggregate commitments being sought under the Renewal would be for an amount up to $14 billion for NSCC and DTC together, of which all but a $1.9 billion commitment would be the aggregate commitment to NSCC as borrower as is provided in the Existing Agreement. --------------------------------------------------------------------------- \4\ The Renewal Agreement would provide for both DTC and NSCC as borrowers, with an aggregate commitment of $1.9 billion for DTC and the amount of any excess aggregate commitment for NSCC. The borrowers are not jointly and severally liable and each lender has a ratable commitment to each borrower. DTC and NSCC provide separate collateral to secure their respective borrowings. \5\ See Securities Exchange Act Release No. 74906 (May 7, 2015), 80 FR 27714 (May 14, 2015) (SR-DTC-2015-801; SR-NSCC-2015-801). --------------------------------------------------------------------------- Expected Effect on Risks to the Clearing Agencies, Their Participants, and the Market The Renewal would continue to promote the reduction of risks to the Clearing Agencies, their members, and the securities market in general because it would (1) help DTC maintain sufficient liquidity resources to complete system-wide settlement on each business day, with a high degree of confidence and notwithstanding the failure-to-settle of the Participant, or affiliated family of Participants, with the largest net settlement obligation; and (2) help NSCC maintain sufficient liquidity resources to timely meet its settlement obligations with a high degree of confidence. The Renewal Agreement and its substantially similar predecessor agreements have been in place since the introduction of same day funds settlement at the Clearing Agencies. Management of Identified Risks The Clearing Agencies require same day liquidity resources to cover the failure-to-settle of NSCC's Member, or affiliated family of Members, with the largest aggregate liquidity exposure, or of DTC's Participant, or affiliated family of Participants, with the largest net settlement obligation. If an NSCC Member defaults or a DTC Participant fails to satisfy its end-of-day net settlement obligation, each Clearing Agency may borrow under its line of credit to enable it, if necessary, to fund settlement among non-defaulting Members or DTC Participants. Any NSCC borrowing would be secured principally by (i) securities deposited by Members in NSCC's Clearing Fund \6\ (i.e., the Eligible Clearing Fund Securities, as defined in NSCC's Rules, pledged by Members to NSCC in lieu of cash Clearing Fund deposits) and (ii) securities cleared through NSCC's Continuous Net Settlement System that were intended for delivery to the defaulting Member upon payment of its net settlement obligation. In addition to the Credit Facility and the Clearing Fund, NSCC has diversified its liquidity resources by implementing a commercial paper and extendible-term note facility.\7\ As integral parts of NSCC's risk management structure, the Credit [[Page 27182]] Facility, the commercial paper and extendible-term note facility and the Clearing Fund, together, provide NSCC liquidity to complete end-of- day net funds settlement. --------------------------------------------------------------------------- \6\ NSCC's Clearing Fund (which operates as its default fund) addresses potential exposure through a number of risk-based component charges calculated and assessed daily and includes additional liquidity deposits by certain Members pursuant to NSCC's Supplemental Liquidity Deposits rule (NSCC's Rule 4(A), supra note 3). \7\ See Securities Exchange Act Release No. 75730 (August 19, 2015), 80 FR 51638 (August 25, 2015) (SR-NSCC-2015-802). --------------------------------------------------------------------------- Any DTC borrowing would be secured principally by securities that were intended to be delivered to the defaulting Participant upon payment of its net settlement obligation and securities previously designated by the defaulting Participant as collateral. The Credit Facility is built into DTC's primary risk management controls, the Net Debit Cap \8\ and Collateral Monitor,\9\ which together require that the end-of-day net funds settlement obligation of a Participant cannot exceed DTC's liquidity resources and is fully collateralized. --------------------------------------------------------------------------- \8\ The Net Debit Cap risk control is designed so that DTC may complete settlement among non-defaulting Participants, even if the Participant or affiliated family of Participants with the largest settlement obligation that day fails to settle. Before completing a transaction in which a Participant is the receiver, DTC calculates the effect the transaction would have on such Participant's Settlement Account, and determines whether any resulting Net Debit Balance would exceed the Participant's Net Debit Cap. Any transaction that would cause the Net Debit Balance to exceed the Net Debit Cap is placed on a pending (recycling) queue until the Net Debit Cap will not be exceeded by processing the transaction. \9\ DTC tracks Collateral in a Participant's account through the Collateral Monitor. At all times, the Collateral Monitor reflects the amount by which the Collateral Value in the account exceeds the Net Debit Balance in the account. When processing a transaction, DTC verifies that the Collateral Monitor of each of the deliverer and receiver will not become negative when the transaction is processed. If the transaction would cause either party's Settlement Account to have insufficient collateral to support its net settlement obligation, the transaction will recycle until the deficient account has sufficient Collateral to proceed or until the applicable cutoff time occurs. --------------------------------------------------------------------------- The Credit Facility is a cornerstone of each of the Clearing Agencies' risk management, and this Renewal is critical to each of the Clearing Agencies' risk management infrastructure. Because the Renewal Agreement would preserve substantially similar terms and conditions to the Existing Agreement, the Clearing Agencies believe that the Renewal would not otherwise affect or alter the management of risk at the Clearing Agencies. Consistency With the Clearing Supervision Act The Clearing Agencies believe the Renewal is consistent with section 805(b) of the Clearing Supervision Act.\10\ The objectives and principles of section 805(b) of the Clearing Supervision Act are 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.\11\ The Clearing Agencies believe that the Renewal would promote these objectives and principles because it would provide a continuing source of committed liquidity for NSCC to meet its settlement obligations and for DTC to complete net funds settlement among non-defaulting Participants, thus mitigating liquidity risk. --------------------------------------------------------------------------- \10\ 12 U.S.C. 5464(b). \11\ Id. --------------------------------------------------------------------------- The Clearing Agencies believe the Renewal also is consistent with Clearing Agency Standards, in particular, Commission Rule 17Ad-22(b)(3) \12\ and Rule 17Ad-22(d)(11).\13\ Commission Rule 17Ad-22(b)(3) \14\ requires a central counterparty, like NSCC, to ``establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [m]aintain sufficient financial resources to withstand, at a minimum, a default by the participant family to which it has the largest exposure in extreme but plausible market conditions . . . .'' The Clearing Agencies believe the Renewal is consistent with Rule 17Ad-22(b)(3) \15\ because it would help NSCC maintain sufficient financial resources to withstand, at a minimum, a default by a Member to which NSCC has the largest exposure. --------------------------------------------------------------------------- \12\ 17 CFR 240.17Ad-22(b)(3). \13\ 17 CFR 240.17Ad-22(d)(11). \14\ 17 CFR 240.17Ad-22(b)(3). \15\ Id. --------------------------------------------------------------------------- Commission Rule 17Ad-22(d)(11) \16\ requires that registered clearing agencies, like NSCC and DTC, ``establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable . . . establish default procedures that ensure that the clearing agency can take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the event of a participant default.'' The Clearing Agencies believe that the Renewal is consistent with Rule 17Ad-22(d)(11) \17\ because it would provide the Clearing Agencies with a readily available liquidity resource that would enable the Clearing Agencies to continue to meet their obligations in a timely fashion, in the event of a Member default at NSCC or Participant default at DTC, thereby helping to contain losses and liquidity pressures from that default. --------------------------------------------------------------------------- \16\ 17 CFR 240.17Ad-22(d)(11). \17\ Id. --------------------------------------------------------------------------- III. Date of Effectiveness of the Advance Notices 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. The Clearing Agencies 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 the Clearing Agencies with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the Advance Notices are filed, or the date further information requested by the Commission is received, if the Commission notifies the Clearing Agencies in writing that it does not object to the proposed change and authorizes the Clearing Agencies to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. The Clearing Agencies shall post notice on their 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 Notices are consistent with the Clearing Supervision Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-DTC-2016-801 or SR-NSCC-2016-801 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-DTC-2016-801 or SR-NSCC- 2016-801. One of these file numbers 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 [[Page 27183]] 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 Notices that are filed with the Commission, and all written communications relating to the Advance Notices 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 filings also will be available for inspection and copying at the principal office of the Clearing Agencies and on DTCC'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-DTC-2016-801 or SR-NSCC-2016-801 and should be submitted on or before May 26, 2016. V. Commission Findings and Notice of No Objection Although the Clearing Supervision Act does not specify a standard of review for an advance notice, its stated purpose is instructive.\18\ The stated purpose is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities (``FMUs'') and strengthening the liquidity of systemically important FMUs.\19\ Section 805(a)(2) of the Clearing Supervision Act authorizes the Commission to prescribe risk management standards for the payment, clearing, and settlement activities of designated clearing entities and financial institutions engaged in designated activities for which it is the Supervisory Agency or the appropriate financial regulator.\20\ Section 805(b) of the Clearing Supervision Act states that the objectives and principles for the risk management standards prescribed under section 805(a) shall be to: --------------------------------------------------------------------------- \18\ See 12 U.S.C. 5461(b). \19\ Id. \20\ 12 U.S.C. 5464(a)(2). --------------------------------------------------------------------------- Promote robust risk management; promote safety and soundness; reduce systemic risks; and support the stability of the broader financial system.\21\ --------------------------------------------------------------------------- \21\ 12 U.S.C. 5464(b). --------------------------------------------------------------------------- The Commission has adopted risk management standards under section 805(a)(2) of the Clearing Supervision Act and the Act (``Clearing Agency Standards'').\22\ The Clearing Agency Standards require registered clearing agencies to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.\23\ Therefore, it is appropriate for the Commission to review advance notices against these Clearing Agency Standards and the objectives and principles of these risk management standards as described in section 805(b) of the Clearing Supervision Act.\24\ --------------------------------------------------------------------------- \22\ See 17 CFR 240.17Ad-22; Securities Exchange Act Release No. 68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11). \23\ Id. \24\ 12 U.S.C. 5464(b). --------------------------------------------------------------------------- The Commission believes that the proposal in the Advance Notices is consistent with Clearing Agency Standards, in particular, Rule 17Ad- 22(d)(11) of the Act \25\ for NSCC and DTC, and Rule 17Ad-22(b)(3) of the Act \26\ for NSCC. Rule 17Ad-22(d)(11) requires that registered clearing agencies ``establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable . . . establish default procedures that ensure that the clearing agency can take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the event of a participant default.'' \27\ The Commission believes that the proposal is consistent with Rule 17Ad-22(d)(11) because the renewed Credit Facility will provide the Clearing Agencies with a readily available liquidity resource that will enable them to continue to meet their respective obligations in a timely fashion, in the event of a member default, thereby helping to contain losses and liquidity pressures from that default. --------------------------------------------------------------------------- \25\ 17 CFR 240.17Ad-22(d)(11). \26\ 17 CFR 240.17Ad-22(b)(3). \27\ 17 CFR 240.17Ad-22(d)(11). --------------------------------------------------------------------------- Rule 17Ad-22(b)(3) of the Act requires a central counterparty, like NSCC, to ``establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . [m]aintain sufficient financial resources to withstand, at a minimum, a default by the participant family to which it has the largest exposure in extreme but plausible market conditions . . . .'' \28\ The Commission believes that the proposal is consistent with Rule 17Ad-22(b)(3) because the renewed credit facility will continue to provide NSCC with a readily available liquidity resource that helps NSCC maintain sufficient financial resources to withstand, at a minimum, a default by an NSCC member to which NSCC has the largest exposure. --------------------------------------------------------------------------- \28\ 17 CFR 240.17Ad-22(b)(3). --------------------------------------------------------------------------- For these reasons, the Commission believes the Advance Notices are consistent with the objectives and principles described in section 805(b) of the Clearing Supervision Act,\29\ including that they reduce systemic risks and support the stability of the broader financial system. As discussed above, the renewal of the Credit Facility will provide the Clearing Agencies needed liquidity if they experience severe liquidity pressure from a member default. Given that the Clearing Agencies have been designated as systemically important FMUs, the Clearing Agencies' ability to provide their clearing services during such an event contributes to reducing systemic risks and supporting the stability of the broader financial system. --------------------------------------------------------------------------- \29\ 12 U.S.C. 5464(b). --------------------------------------------------------------------------- For the reasons stated above, the Commission does not object to the Advance Notices. VI. Conclusion It is therefore noticed, pursuant to section 806(e)(1)(I) of the Clearing Supervision Act,\30\ that the Commission does not object to the Advance Notices SR-DTC-2016-801 and SR-NSCC-2016-801 and that DTC and NSCC be and hereby are authorized to implement the change as of the date of this notice. --------------------------------------------------------------------------- \30\ 12 U.S.C. 5465(e)(1)(I). By the Commission. Brent J. Fields, Secretary. [FR Doc. 2016-10473 Filed 5-4-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices 27181
SECURITIES AND EXCHANGE The Clearing Agencies have prepared Expected Effect on Risks to the Clearing
COMMISSION summaries, set forth in sections A and Agencies, Their Participants, and the
B below, of the most significant aspects Market
[Release No. 34–77750; File Nos. SR–DTC–
2016–801; SR–NSCC–2016–801] of such statements. The Renewal would continue to
(A) Clearing Agencies’ Statement on promote the reduction of risks to the
Self-Regulatory Organizations; The Clearing Agencies, their members, and
Comments on the Advance Notices
Depository Trust Company; National the securities market in general because
Securities Clearing Corporation; Received From Members, Participants,
it would (1) help DTC maintain
Notice of Filing of and No Objection to or Others sufficient liquidity resources to
Advance Notices To Renew the Credit The Clearing Agencies have not complete system-wide settlement on
Facility solicited or received any written each business day, with a high degree of
comments relating to these proposals. confidence and notwithstanding the
April 29, 2016.
The Clearing Agencies will notify the failure-to-settle of the Participant, or
Pursuant to section 806(e)(1) of title affiliated family of Participants, with the
VIII of the Dodd-Frank Wall Street Commission of any written comments
largest net settlement obligation; and (2)
Reform and Consumer Protection Act received by the Clearing Agencies.
help NSCC maintain sufficient liquidity
entitled the Payment, Clearing, and resources to timely meet its settlement
(B) Advance Notices Filed Pursuant to
Settlement Supervision Act of 2010 obligations with a high degree of
Section 806(e) of the Payment, Clearing
(‘‘Clearing Supervision Act’’) 1 and Rule confidence. The Renewal Agreement
19b–4(n)(1)(i) under the Securities and Settlement Supervision Act
and its substantially similar predecessor
Exchange Act of 1934 (‘‘Act’’),2 notice is Description of the Proposed Change agreements have been in place since the
hereby given that on April 15, 2016, The introduction of same day funds
Depository Trust Company (‘‘DTC’’) and As part of their liquidity risk
settlement at the Clearing Agencies.
National Securities Clearing Corporation management regime, the Clearing
(‘‘NSCC,’’ together with DTC, ‘‘Clearing Agencies maintain a 364-day committed Management of Identified Risks
Agencies’’) filed with the Securities and revolving line of credit with a syndicate The Clearing Agencies require same
Exchange Commission (‘‘Commission’’) of commercial lenders, which is day liquidity resources to cover the
the advance notices SR–DTC–2016–801 renewed every year. The terms and failure-to-settle of NSCC’s Member, or
and SR–NSCC–2016–801 (‘‘Advance conditions of the current Renewal affiliated family of Members, with the
Notices’’) as described in Items I, II and would be specified in the Fifteenth largest aggregate liquidity exposure, or
III below, which Items have been Amended and Restated Revolving Credit of DTC’s Participant, or affiliated family
prepared primarily by the Clearing Agreement, to be dated as of May 10, of Participants, with the largest net
Agencies. The Commission is 2016 (‘‘Renewal Agreement’’), among settlement obligation. If an NSCC
publishing this notice to solicit the Clearing Agencies,4 the lenders Member defaults or a DTC Participant
comments on the Advance Notices from party thereto, the administrative agent fails to satisfy its end-of-day net
interested persons and providing notice and the collateral agent, and are settlement obligation, each Clearing
that the Commission does not object to substantially the same as the terms and Agency may borrow under its line of
the Advance Notices. credit to enable it, if necessary, to fund
conditions of the existing credit
I. Clearing Agencies’ Statement of the agreement, dated as of May 12, 2015, as settlement among non-defaulting
Terms of Substance of the Advance heretofore amended (‘‘Existing Members or DTC Participants.
Notices Any NSCC borrowing would be
Agreement’’),5 except that pricing and
secured principally by (i) securities
The Advance Notices are filed by the the amount of the aggregate
deposited by Members in NSCC’s
Clearing Agencies in connection with commitment for NSCC may change. The
Clearing Fund 6 (i.e., the Eligible
the proposed renewal (the ‘‘Renewal’’) substantive terms of the Renewal Clearing Fund Securities, as defined in
of the Clearing Agencies’ 364-day Agreement are set forth in the Summary NSCC’s Rules, pledged by Members to
committed revolving credit facility (the of Indicative Principal Terms and NSCC in lieu of cash Clearing Fund
‘‘Credit Facility’’). The Renewal is Conditions, dated March 24, 2016, deposits) and (ii) securities cleared
described in greater detail below.3 which is not a public document. The through NSCC’s Continuous Net
II. Clearing Agencies’ Statement of the aggregate commitments being sought Settlement System that were intended
Purpose of, and Statutory Basis for, the under the Renewal would be for an for delivery to the defaulting Member
Advance Notices amount up to $14 billion for NSCC and upon payment of its net settlement
DTC together, of which all but a $1.9 obligation. In addition to the Credit
In their filings with the Commission,
billion commitment would be the Facility and the Clearing Fund, NSCC
the Clearing Agencies included
aggregate commitment to NSCC as has diversified its liquidity resources by
statements concerning the purpose of
borrower as is provided in the Existing implementing a commercial paper and
and basis for the Advance Notices and
Agreement. extendible-term note facility.7 As
discussed any comments they received
integral parts of NSCC’s risk
on the Advance Notices. The text of
4 The Renewal Agreement would provide for both management structure, the Credit
these statements may be examined at
the places specified in Item IV below. DTC and NSCC as borrowers, with an aggregate
6 NSCC’s Clearing Fund (which operates as its
commitment of $1.9 billion for DTC and the amount
mstockstill on DSK3G9T082PROD with NOTICES
of any excess aggregate commitment for NSCC. The default fund) addresses potential exposure through
1 12 U.S.C. 5465(e)(1).
borrowers are not jointly and severally liable and a number of risk-based component charges
2 17 CFR 240.19b–4(n)(1)(i). calculated and assessed daily and includes
each lender has a ratable commitment to each
3 Terms not defined herein are defined in NSCC’s additional liquidity deposits by certain Members
borrower. DTC and NSCC provide separate pursuant to NSCC’s Supplemental Liquidity
Rules and Procedures (‘‘NSCC Rules’’), available at
www.dtcc.com/∼/media/Files/Downloads/legal/ collateral to secure their respective borrowings. Deposits rule (NSCC’s Rule 4(A), supra note 3).
5 See Securities Exchange Act Release No. 74906
rules/nscc_rules.pdf or DTC’s Rules, available at 7 See Securities Exchange Act Release No. 75730
www.dtcc.com/∼/media/Files/Downloads/legal/ (May 7, 2015), 80 FR 27714 (May 14, 2015) (SR– (August 19, 2015), 80 FR 51638 (August 25, 2015)
rules/dtc_rules.pdf. DTC–2015–801; SR–NSCC–2015–801). (SR–NSCC–2015–802).
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![27182 Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices
Facility, the commercial paper and systemic risks, and support of the III. Date of Effectiveness of the Advance
extendible-term note facility and the stability of the broader financial Notices and Timing for Commission
Clearing Fund, together, provide NSCC system.11 The Clearing Agencies believe Action
liquidity to complete end-of-day net that the Renewal would promote these The proposed change may be
funds settlement. objectives and principles because it implemented if the Commission does
Any DTC borrowing would be secured would provide a continuing source of not object to the proposed change
principally by securities that were committed liquidity for NSCC to meet within 60 days of the later of (i) the date
intended to be delivered to the its settlement obligations and for DTC to that the proposed change was filed with
defaulting Participant upon payment of complete net funds settlement among the Commission or (ii) the date that any
its net settlement obligation and non-defaulting Participants, thus additional information requested by the
securities previously designated by the mitigating liquidity risk. Commission is received. The Clearing
defaulting Participant as collateral. The Agencies shall not implement the
Credit Facility is built into DTC’s The Clearing Agencies believe the
Renewal also is consistent with Clearing proposed change if the Commission has
primary risk management controls, the any objection to the proposed change.
Net Debit Cap 8 and Collateral Monitor,9 Agency Standards, in particular,
The Commission may extend the
which together require that the end-of- Commission Rule 17Ad–22(b)(3) 12 and
period for review by an additional 60
day net funds settlement obligation of a Rule 17Ad–22(d)(11).13 Commission
days if the proposed change raises novel
Participant cannot exceed DTC’s Rule 17Ad–22(b)(3) 14 requires a central or complex issues, subject to the
liquidity resources and is fully counterparty, like NSCC, to ‘‘establish, Commission providing the Clearing
collateralized. implement, maintain and enforce Agencies with prompt written notice of
The Credit Facility is a cornerstone of written policies and procedures the extension. A proposed change may
each of the Clearing Agencies’ risk reasonably designed to . . . [m]aintain be implemented in less than 60 days
management, and this Renewal is sufficient financial resources to from the date the Advance Notices are
critical to each of the Clearing Agencies’ withstand, at a minimum, a default by filed, or the date further information
risk management infrastructure. Because the participant family to which it has requested by the Commission is
the Renewal Agreement would preserve the largest exposure in extreme but received, if the Commission notifies the
substantially similar terms and plausible market conditions . . . .’’ The Clearing Agencies in writing that it does
conditions to the Existing Agreement, Clearing Agencies believe the Renewal not object to the proposed change and
the Clearing Agencies believe that the is consistent with Rule 17Ad–22(b)(3) 15 authorizes the Clearing Agencies to
Renewal would not otherwise affect or because it would help NSCC maintain implement the proposed change on an
alter the management of risk at the sufficient financial resources to earlier date, subject to any conditions
Clearing Agencies. imposed by the Commission.
withstand, at a minimum, a default by
Consistency With the Clearing a Member to which NSCC has the The Clearing Agencies shall post
Supervision Act largest exposure. notice on their Web site of proposed
changes that are implemented.
The Clearing Agencies believe the Commission Rule 17Ad–22(d)(11) 16
Renewal is consistent with section requires that registered clearing IV. Solicitation of Comments
805(b) of the Clearing Supervision agencies, like NSCC and DTC, Interested persons are invited to
Act.10 The objectives and principles of ‘‘establish, implement, maintain and submit written data, views and
section 805(b) of the Clearing enforce written policies and procedures arguments concerning the foregoing,
Supervision Act are the promotion of reasonably designed to, as applicable including whether the Advance Notices
robust risk management, promotion of . . . establish default procedures that are consistent with the Clearing
safety and soundness, reduction of ensure that the clearing agency can take Supervision Act. Comments may be
8 The Net Debit Cap risk control is designed so
timely action to contain losses and submitted by any of the following
that DTC may complete settlement among non- liquidity pressures and to continue methods:
defaulting Participants, even if the Participant or meeting its obligations in the event of a
Electronic Comments
affiliated family of Participants with the largest participant default.’’ The Clearing
settlement obligation that day fails to settle. Before
Agencies believe that the Renewal is • Use the Commission’s Internet
completing a transaction in which a Participant is comment form (http://www.sec.gov/
the receiver, DTC calculates the effect the consistent with Rule 17Ad–22(d)(11) 17
transaction would have on such Participant’s because it would provide the Clearing rules/sro.shtml); or
Settlement Account, and determines whether any Agencies with a readily available • Send an email to rule-comments@
resulting Net Debit Balance would exceed the
liquidity resource that would enable the sec.gov. Please include File Number SR–
Participant’s Net Debit Cap. Any transaction that DTC–2016–801 or SR–NSCC–2016–801
would cause the Net Debit Balance to exceed the Clearing Agencies to continue to meet
Net Debit Cap is placed on a pending (recycling) on the subject line.
their obligations in a timely fashion, in
queue until the Net Debit Cap will not be exceeded
by processing the transaction. the event of a Member default at NSCC Paper Comments
9 DTC tracks Collateral in a Participant’s account or Participant default at DTC, thereby • Send paper comments in triplicate
through the Collateral Monitor. At all times, the helping to contain losses and liquidity to Secretary, Securities and Exchange
Collateral Monitor reflects the amount by which the pressures from that default.
Collateral Value in the account exceeds the Net Commission, 100 F Street NE.,
Debit Balance in the account. When processing a Washington, DC 20549.
transaction, DTC verifies that the Collateral Monitor All submissions should refer to File
mstockstill on DSK3G9T082PROD with NOTICES
of each of the deliverer and receiver will not
become negative when the transaction is processed.
11 Id. Number SR–DTC–2016–801 or SR–
If the transaction would cause either party’s 12 17 CFR 240.17Ad–22(b)(3). NSCC–2016–801. One of these file
Settlement Account to have insufficient collateral to 13 17 CFR 240.17Ad–22(d)(11). numbers should be included on the
support its net settlement obligation, the transaction 14 17 CFR 240.17Ad–22(b)(3). subject line if email is used. To help the
will recycle until the deficient account has
sufficient Collateral to proceed or until the
15 Id. Commission process and review your
applicable cutoff time occurs. 16 17 CFR 240.17Ad–22(d)(11). comments more efficiently, please use
10 12 U.S.C. 5464(b). 17 Id. only one method. The Commission will
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![Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices 27183
post all comments on the Commission’s • reduce systemic risks; and extreme but plausible market conditions
Internet Web site (http://www.sec.gov/ • support the stability of the broader . . . .’’ 28 The Commission believes that
rules/sro.shtml). Copies of the financial system.21 the proposal is consistent with Rule
submission, all subsequent The Commission has adopted risk 17Ad–22(b)(3) because the renewed
amendments, all written statements management standards under section credit facility will continue to provide
with respect to the Advance Notices that 805(a)(2) of the Clearing Supervision NSCC with a readily available liquidity
are filed with the Commission, and all Act and the Act (‘‘Clearing Agency resource that helps NSCC maintain
written communications relating to the Standards’’).22 The Clearing Agency
sufficient financial resources to
Advance Notices between the Standards require registered clearing
agencies to establish, implement, withstand, at a minimum, a default by
Commission and any person, other than
maintain, and enforce written policies an NSCC member to which NSCC has
those that may be withheld from the
and procedures that are reasonably the largest exposure.
public in accordance with the
provisions of 5 U.S.C. 552, will be designed to meet certain minimum For these reasons, the Commission
available for Web site viewing and requirements for their operations and believes the Advance Notices are
printing in the Commission’s Public risk management practices on an consistent with the objectives and
Reference Room, 100 F Street NE., ongoing basis.23 Therefore, it is principles described in section 805(b) of
Washington, DC 20549 on official appropriate for the Commission to the Clearing Supervision Act,29
business days between the hours of review advance notices against these including that they reduce systemic
10:00 a.m. and 3:00 p.m. Copies of the Clearing Agency Standards and the risks and support the stability of the
filings also will be available for objectives and principles of these risk broader financial system. As discussed
inspection and copying at the principal management standards as described in above, the renewal of the Credit Facility
office of the Clearing Agencies and on section 805(b) of the Clearing will provide the Clearing Agencies
DTCC’s Web site (http://dtcc.com/legal/ Supervision Act.24
The Commission believes that the needed liquidity if they experience
sec-rule-filings.aspx). All comments severe liquidity pressure from a member
received will be posted without change; proposal in the Advance Notices is
consistent with Clearing Agency default. Given that the Clearing
the Commission does not edit personal Agencies have been designated as
identifying information from Standards, in particular, Rule 17Ad–
22(d)(11) of the Act 25 for NSCC and systemically important FMUs, the
submissions. You should submit only
DTC, and Rule 17Ad–22(b)(3) of the Clearing Agencies’ ability to provide
information that you wish to make
available publicly. All submissions Act 26 for NSCC. Rule 17Ad–22(d)(11) their clearing services during such an
should refer to File Number SR–DTC– requires that registered clearing agencies event contributes to reducing systemic
2016–801 or SR–NSCC–2016–801 and ‘‘establish, implement, maintain and risks and supporting the stability of the
should be submitted on or before May enforce written policies and procedures broader financial system.
26, 2016. reasonably designed to, as applicable For the reasons stated above, the
. . . establish default procedures that Commission does not object to the
V. Commission Findings and Notice of ensure that the clearing agency can take
No Objection Advance Notices.
timely action to contain losses and
Although the Clearing Supervision liquidity pressures and to continue VI. Conclusion
Act does not specify a standard of meeting its obligations in the event of a
review for an advance notice, its stated participant default.’’ 27 The Commission It is therefore noticed, pursuant to
purpose is instructive.18 The stated believes that the proposal is consistent section 806(e)(1)(I) of the Clearing
purpose is to mitigate systemic risk in with Rule 17Ad–22(d)(11) because the Supervision Act,30 that the Commission
the financial system and promote renewed Credit Facility will provide the does not object to the Advance Notices
financial stability by, among other Clearing Agencies with a readily SR–DTC–2016–801 and SR–NSCC–
things, promoting uniform risk available liquidity resource that will 2016–801 and that DTC and NSCC be
management standards for systemically enable them to continue to meet their and hereby are authorized to implement
important financial market utilities respective obligations in a timely the change as of the date of this notice.
(‘‘FMUs’’) and strengthening the fashion, in the event of a member
By the Commission.
liquidity of systemically important default, thereby helping to contain
losses and liquidity pressures from that Brent J. Fields,
FMUs.19 Section 805(a)(2) of the
default. Secretary.
Clearing Supervision Act authorizes the
Commission to prescribe risk Rule 17Ad–22(b)(3) of the Act [FR Doc. 2016–10473 Filed 5–4–16; 8:45 am]
management standards for the payment, requires a central counterparty, like BILLING CODE 8011–01–P
clearing, and settlement activities of NSCC, to ‘‘establish, implement,
designated clearing entities and maintain and enforce written policies
financial institutions engaged in and procedures reasonably designed to
designated activities for which it is the . . . [m]aintain sufficient financial
Supervisory Agency or the appropriate resources to withstand, at a minimum,
financial regulator.20 Section 805(b) of a default by the participant family to
the Clearing Supervision Act states that which it has the largest exposure in
the objectives and principles for the risk
mstockstill on DSK3G9T082PROD with NOTICES
21 12 U.S.C. 5464(b).
management standards prescribed under 22 See 17 CFR 240.17Ad–22; Securities Exchange
section 805(a) shall be to: Act Release No. 68080 (October 22, 2012), 77 FR
• Promote robust risk management; 66220 (November 2, 2012) (S7–08–11).
• promote safety and soundness; 23 Id.
24 12 U.S.C. 5464(b).
18 See 28 17 CFR 240.17Ad–22(b)(3).
12 U.S.C. 5461(b). 25 17 CFR 240.17Ad–22(d)(11).
19 Id. 26 17 CFR 240.17Ad–22(b)(3). 29 12 U.S.C. 5464(b).
20 12 U.S.C. 5464(a)(2). 27 17 CFR 240.17Ad–22(d)(11). 30 12 U.S.C. 5465(e)(1)(I).
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Document Created: 2016-05-05 01:15:30
Document Modified: 2016-05-05 01:15:30
| 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 | 81 FR 27181 |
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