81 FR 54146 - Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add a Clearing Fund Maintenance Fee

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 157 (August 15, 2016)

[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Notices]
[Pages 54146-54147]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-19326]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78525; File No. SR-NSCC-2016-002]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Add a Clearing Fund Maintenance Fee

August 9, 2016.
    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 July 29, 2016, 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)(2) thereunder.\4\ The proposed rule change was effective 
upon filing with the Commission. 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to the Addendum 
A (Fee Structure) of the Rules and Procedures (``Rules'') of NSCC in 
order to add a new fee that will be charged to Members and certain 
Limited Members \5\ in connection with the maintenance of the Clearing 
Fund, as described in greater detail below.\6\ Members and applicable 
Limited Members are collectively referred to herein as ``members.''
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    \5\ The proposed new fee will be imposed on Limited Members that 
are required to make deposits to the Clearing Fund. Currently, those 
Limited Members are Mutual Fund/Insurance Services Members and Fund 
Members organized under the laws of the Republic of Ireland.
    \6\ Capitalized terms not defined herein are defined in the 
Rules, available at www.dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change will add a fee that will be charged to 
members in connection with the maintenance of the Clearing Fund.
Clearing Fund Maintenance Fee
    Pursuant to the proposed rule change, NSCC proposes to introduce a 
new fee, to be known as the Clearing Fund Maintenance Fee, which will 
be charged to members in arrears on a monthly basis.
    The proposed rule change will (i) diversify NSCC's revenue sources 
and mitigate NSCC's dependence on revenues driven by trading volumes 
and (ii) add a stable revenue source that will contribute to NSCC's 
operating margin by offsetting increasing costs and expenses, as 
further described below.
Diversify Revenue Sources
    NSCC's current revenues are highly variable due to the nature of 
the clearing services, which are primarily driven by trading volumes, 
but, as a utility, NSCC's expenses are largely fixed. The combination 
of fixed costs and variable revenues represents a financial risk for 
NSCC. To mitigate such financial risk, NSCC is seeking to diversify its 
variable revenue base with the proposed new fee, which will introduce a 
revenue source that is not dependent on trading volumes. The Clearing 
Fund Maintenance Fee will be ratably based on the member's Clearing 
Fund average cash deposit.
Offset Increasing Costs and Expenses
    NSCC seeks to achieve a target operating margin to cover operating 
expenses and fund capital expenditures as well as investments in its 
clearing services and risk management infrastructure; however, NSCC 
faces continued increasing risk management costs as well as regulatory 
and compliance-related expenses that need to be offset by revenue 
growth in order to meet the target operating margin. Such increased 
costs and expenses, if not offset by revenue growth, could weaken 
NSCC's financial position over time. As such, NSCC is seeking to 
implement the Clearing Fund Maintenance Fee to add an additional 
revenue source to offset increasing costs and expenses.
    Proceeds of the Clearing Fund Maintenance Fee will be used 
primarily to offset risk management costs, regulatory and compliance 
expenses and for general operating expenses.
Calculation
    The amount of the monthly Clearing Fund Maintenance Fee for a 
member will be calculated monthly, in arrears, as the product of 0.25% 
and the average of the member's actual cash deposit to the Clearing 
Fund as of the end of each day of the month, multiplied by the number 
of days in that month and divided by 360; provided that, the investment 
rate of return on investment by NSCC of cash in the Clearing Fund for 
that month is equal to or greater than 0.25%. No fee will be charged to 
any member for a month in which the monthly rate of return on 
investment of cash in the Clearing Fund is less than 0.25%.
    Based on the 2015 average actual cash deposits to the Clearing 
Fund, the expected annual revenue to be generated by the Clearing Fund 
Maintenance Fee is approximately $16 million.
Member Impact
    The proposed rule change will impose the Clearing Fund Maintenance 
Fee on all members that are required to make deposits to the Clearing 
Fund.
    The Clearing Fund Maintenance Fee is a monthly fee based ratably 
upon the amount of the member's daily actual cash deposited to the 
Clearing Fund; it

[[Page 54147]]

is applicable when the monthly rate of return on investment of cash in 
the Clearing Fund is equal to or greater than 0.25%.
    Because the Clearing Fund Maintenance Fee per member is 
proportional to the average monthly cash deposit of the member to the 
Clearing Fund, members that generate higher levels of activity and make 
greater use of NSCC's services will generally be subject to a higher 
fee, because such members typically maintain higher Clearing Fund 
deposits pursuant to the Rules.
    NSCC views the proposed implementation of the Clearing Fund 
Maintenance Fee as a prudent way to minimize the magnitude of, and 
mitigate the need for, potential future increases in other fees.
    The proposed change will take effect on August 1, 2016.
2. Statutory Basis
    Section 17A(b)(3)(D) of the Act \7\ requires that NSCC's Rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its participants. The proposed fee is equitably 
allocated among members because it is based on each member's 
utilization of NSCC's services, as measured by their Clearing Fund 
deposits. In addition, NSCC believes that the proposed fee is 
reasonable because it will enable NSCC to better align its revenue with 
the costs and expenses required for NSCC to provide services to its 
members with a nominal impact on members. Therefore, NSCC believes the 
proposed rule change is consistent with Section 17A(b)(3)(D).\8\
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    \7\ 15 U.S.C. 78q-1(b)(3)(D).
    \8\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change will impose a 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, because the proposed fee will 
be equitably allocated among members based on each member's utilization 
of NSCC's services. Members that have a higher level of activities and 
greater use of NSCC's services will generally be subject to a higher 
Clearing Fund Maintenance Fee and members with lower usage will pay 
less.

(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. NSCC will notify the Commission of any written comments 
received by NSCC.

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) \9\ of the Act and paragraph (f) of Rule 19b-4 \10\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2016-002 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-2016-002. 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 proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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 
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-NSCC-2016-002 and should be 
submitted on or before September 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19326 Filed 8-12-16; 8:45 am]
 BILLING CODE 8011-01-P