82 FR 37141 - Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Expand the Application of the Family-Issued Securities Charge
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 151 (August 8, 2017)
Federal Register Volume 82, Issue 151 (August 8, 2017)
| Page Range | 37141-37144 | |
| FR Document | 2017-16631 |
[Federal Register Volume 82, Number 151 (Tuesday, August 8, 2017)] [Notices] [Pages 37141-37144] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-16631] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81286; File No. SR-NSCC-2017-804] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Expand the Application of the Family-Issued Securities Charge August 2, 2017. 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 July 10, 2017, National Securities Clearing Corporation (``NSCC'') filed with the Securities and Exchange Commission (``Commission'') the advance notice SR-NSCC-2017-804 (``Advance Notice'') as described in Items I, II and III below, which Items have been prepared by the clearing agency.\3\ The Commission is publishing this notice to solicit comments on the Advance Notice from interested persons. --------------------------------------------------------------------------- \1\ 12 U.S.C. 5465(e)(1). \2\ 17 CFR 240.19b-4(n)(1)(i). \3\ On July 10, 2017, NSCC filed this Advance Notice as a proposed rule change (SR-NSCC-2017-010) with the Commission pursuant to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4, 17 CFR 240.19b-4. A copy of the proposed rule change is available at http://www.dtcc.com/legal/sec-rule-filings.aspx. --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Advance Notice The Advance Notice consists of amendments to the NSCC Rules and Procedures (``Rules'') \4\ in order to (i) expand the application of NSCC's existing family-issued securities charge \5\ to apply to all Members, as described below, and (ii) include a definition of ``Family- Issued Security'' as a security that was issued by a Member or by an affiliate of that Member, as described in greater detail below. --------------------------------------------------------------------------- \4\ Terms not defined herein are defined in the Rules, available at www.dtcc.com/~/media/Files/Downloads/legal/rules/nscc_rules.pdf. \5\ The family-issued securities charge is currently described in Procedure XV, Section I.(B)(1) of the Rules, supra note 4. --------------------------------------------------------------------------- II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, the clearing agency 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. 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 on Comments on the Advance Notice 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. (B) Advance Notice Filed Pursuant to Section 806(e) of the Payment, Clearing, and Settlement Supervision Act Description of Proposed Changes Currently, in calculating its Members' required deposits to the Clearing Fund, NSCC excludes positions in Family-Issued Securities of certain Members from its parametric volatility Clearing Fund component (``VaR Charge''), and instead charges an amount calculated by multiplying the absolute value of the long, net unsettled positions in that Member's Family-Issued Securities by a percentage that is no less than 40 percent (``FIS Charge''). The FIS Charge is currently only applied to Members that are rated 5, 6, or 7 on the Credit Risk Rating Matrix (``CRRM''). The proposed change would expand the application of the FIS Charge to the positions in Family-Issued Securities of all Members to help NSCC cover the specific wrong-way risk posed by Family- Issued Securities, as described further below.\6\ Therefore, NSCC is proposing to amend (i) Rule 1 (Definitions and Descriptions) to add a definition of ``Family-Issued Security,'' and (ii) Procedure XV (Clearing Fund Formula and Other Matters) to expand the application of the FIS Charge to all Members by moving the description of FIS Charge from Section I.(B)(1) to Sections I.(A)(1) and I.(A)(2) in order to make clear that the FIS Charge would be included as a component of the Clearing Fund formula calculated for all Members. --------------------------------------------------------------------------- \6\ Members that do not trade in Family-Issued Securities would not be subject to the FIS Charge. --------------------------------------------------------------------------- As a central counterparty, NSCC occupies an important role in the securities settlement system by interposing itself between counterparties to financial transactions and thereby reducing the risk faced by participants and contributing to global financial stability. The effectiveness of a central counterparty's risk controls and the adequacy of its financial resources are critical to achieving these risk-reducing goals. In that context, NSCC continuously reviews its margining methodology in order to ensure the reliability of its margining in achieving the desired coverage. In order to be most effective, NSCC must take into consideration the risk characteristics specific to certain securities when margining those securities. Among the various risks that NSCC considers when evaluating the effectiveness of its margining methodology are its counterparty risks and identification and mitigation of ``wrong-way'' risk, particularly specific wrong-way risk, defined as the risk that an exposure to a counterparty is highly likely to increase when the creditworthiness of that counterparty deteriorates. \7\ NSCC has identified an exposure to specific wrong-way risk when it acts as central counterparty to a Member with respect to positions in Family-Issued Securities. In the event that a Member with unsettled long positions in Family-Issued Securities defaults, NSCC would close out those positions following a likely drop in the credit-worthiness of the issuer, possibly resulting in a loss to NSCC. --------------------------------------------------------------------------- \7\ See Principles for financial market infrastructures, issued by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions 47 n.65 (April 2012), available at http://www.bis.org/publ/cpss101a.pdf. --------------------------------------------------------------------------- In 2015, NSCC proposed to address its exposure to specific wrong- way risk in two ways.\8\ First, NSCC proposed to apply the FIS Charge to its Members that are rated a 5, 6, or 7 on the CRRM (i.e., Members on the Watch List).\9\ [[Page 37142]] Today, following implementation of the FIS Phase 1 Rule Change, the FIS Charge is applied by excluding positions in Family-Issued Securities of those Members from NSCC's VaR Charge, and instead charging an amount calculated by multiplying the absolute value of the long net unsettled positions in that Member's Family-Issued Securities by a percentage.\10\ That percentage is no less than 40 percent and up to 100 percent, and is determined by NSCC based on the Member's rating on the CRRM and on the type of Family-Issued Securities submitted to NSCC. As such, under Procedure XV (1) fixed income securities that are Family-Issued Securities are charged a haircut rate of no less than 80 percent for Members that are rated 6 or 7 on the CRRM, and no less than 40 percent for Members rated 5 on the CRRM; and (2) equity securities that are Family-Issued Securities are charged a haircut rate of 100 percent for Members that are rated 6 or 7 on the CRRM, and no less than 50 percent for Members that are rated 5 on the CRRM. Members that have a rating on the CRRM of 1 through 4 are not currently subject to the FIS Charge. As stated above, Family-Issued Securities present NSCC with specific wrong-way risk such that, in the event that a Member with unsettled long positions in Family-Issued Securities defaults, NSCC would close out those positions following a likely drop in the credit- worthiness of the issuer, possibly resulting in a loss to NSCC. Therefore, the FIS Charge is applied to the unsettled long positions in Family-Issued Securities, which are the positions that NSCC would close out following a Member default, as opposed to the short positions in net unsettled securities. The haircut rates were calibrated based on historical corporate issue recovery rate data, and address the risk that the Family-Issued Securities of a Member would be devalued in the event of that Member's default. --------------------------------------------------------------------------- \8\ See Securities Exchange Act Release No. 76077 (October 5, 2015), 80 FR 61256 (October 9, 2015), (SR-NSCC-2015-003) (``FIS Phase 1 Rule Change''). \9\ As part of its ongoing monitoring of its membership, NSCC utilizes the CRRM to rate its risk exposures to its Members based on a scale from 1 (the strongest) to 7 (the weakest). Members that fall within the higher risk rating categories (i.e., 5, 6, and 7) are placed on NSCC's ``Watch List,'' and may be subject to enhanced surveillance or additional margin charges, as permitted under the Rules. See Rule 2B, Section 4 and Procedure XV, Section I.(B)(1) of the Rules, supra note 4. See also Securities Exchange Act Release No. 80734 (May 19, 2017), 82 FR 24174 (May 25, 2017), (SR-DTC-2017- 002, SR-FICC-2017-006, SR-NSCC-2017-002) (approving proposed changes to the CRRM methodology). \10\ Procedure XV (Clearing Fund Formula and Other Matters), Section I.(B)(1), supra note 4. --------------------------------------------------------------------------- The FIS Charge is currently applied only to Members on the Watch List because these Members present a heightened credit risk to NSCC or have demonstrated higher risk related to their ability to meet settlement, and, as such, at the time the FIS Phase 1 Rule Change was proposed, NSCC believed there was a clear and more urgent need to address NSCC's exposure to specific wrong-way risk presented by these Members' positions in Family-Issued Securities. Second, NSCC proposed to further evaluate its exposure to wrong-way risk presented by positions in Family-Issued Securities by reviewing the impact of expanding the application of the FIS Charge to positions in Family-Issued Securities of all Members.\11\ Following its evaluation, NSCC has determined that the risk characteristics to be considered when margining Family-Issued Securities extend beyond Members' creditworthiness. More specifically, exposure to specific wrong-way risk is based on the correlation to the default of the issuer Member, and NSCC may face this risk with respect to positions in Family-Issued Securities of all of its Members, not only those Members on the Watch List. As such, in order to more effectively mitigate its exposure to specific wrong-way risk, NSCC is proposing to apply the FIS Charge to positions in Family-Issued Securities of all Members. --------------------------------------------------------------------------- \11\ FIS Phase 1 Rule Change, supra note 8. --------------------------------------------------------------------------- In order to implement this proposal, NSCC would amend Procedure XV to move the FIS Charge from Section I.(B)(1), where it is currently described as an additional deposit for Members on surveillance, to Sections I.(A)(1) and (2), to include the FIS Charge as a component of the Clearing Fund formula that is calculated for each Member.\12\ Under the proposed change, the calculation of the FIS Charge would not change as applied to Members that are rated 5, 6, or 7 on the CRRM. NSCC is proposing to revise the description of the FIS Charge to include Members that are rated 1 through 4 on the CRRM.\13\ Specifically, NSCC is proposing to amend the description of the FIS Charge in Procedure XV such that (1) fixed-income securities that are Family-Issued Securities would be charged a haircut rate of no less than 80 percent for Members that are rated 6 or 7 on the CRRM, and no less than 40 percent for Members that are rated 1 through 5 on the CRRM; and (2) equities that are Family-Issued Securities would be charged a haircut rate of 100 percent for Members rated 6 or 7 on the CRRM, and no less than 50 percent for Members that are rated 1 through 5 on the CRRM. --------------------------------------------------------------------------- \12\ Procedure XV, Sections I.(A)(1) and (2) and I.(B), supra note 4. \13\ Members that are not rated on the CRRM are not subject to the FIS Charge and would not be subject to the FIS Charge under the proposed change. --------------------------------------------------------------------------- The proposed change would also amend NSCC Rule 1 (Definitions and Descriptions) to include a definition of Family-Issued Securities in order to provide more clarity to the Rules. Under the proposed change, ``Family-Issued Security'' would be defined as a security that was issued by a Member or an affiliate of that Member. Expected Effect on and Management of Risk By expanding the application of the FIS Charge to all Members, the proposed change would more allow NSCC to more effectively mitigate its exposure to specific wrong-way risk as posed by Family-Issued Securities. As described above, Family-Issued Securities present NSCC with specific wrong-way risk such that, in the event that a Member with unsettled long positions in Family-Issued Securities defaults, NSCC would close out those positions following a likely drop in the credit- worthiness of the issuer, possibly resulting in a loss to NSCC. The FIS Charge addresses this risk by using haircut rates that are calibrated based on historical corporate issue recovery rate data, and address the risk that the Family-Issued Securities of a Member would be devalued in the event of that Member's default. Because NSCC may face specific wrong-way risk with respect to positions in Family-Issued Securities of all of its Members, the proposed change to expand the FIS Charge to all Members would reduce NSCC's exposure to specific wrong-way risk. By mitigating specific wrong-way risk for NSCC as described above, the proposed change would also mitigate risk for Members because lowering the risk profile for NSCC would in turn lower the risk exposure that Members may have with respect to NSCC in its role as a central counterparty. Consistency With the Clearing Supervision Act The stated purpose of Title VIII of the Clearing Supervision Act 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 and strengthening the liquidity of systemically important financial market utilities.\14\ Section 805(a)(2) of the Clearing Supervision Act \15\ also authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like NSCC, for which the Commission is the supervisory agency. Section 805(b) of the Clearing Supervision Act \16\ states that the objectives and principles for risk management standards prescribed under Section 805(a) shall be to, among [[Page 37143]] other things, promote robust risk management. --------------------------------------------------------------------------- \14\ 12 U.S.C. 5461(b). \15\ 12 U.S.C. 5464(a)(2). \16\ 12 U.S.C. 5464(b). --------------------------------------------------------------------------- NSCC believes that the proposed change is consistent with Section 805(b) of the Clearing Supervision Act because it is designed to promote robust risk management. By enhancing the margin methodology applied to Family-Issued Securities of all Members, the proposal would assist NSCC in collecting margin that more accurately reflects NSCC's exposure to a Member that clears Family-Issued Securities and would assist NSCC in its continuous efforts to improve the reliability and effectiveness of its risk-based margining methodology by taking into account specific wrong-way risk. By assisting NSCC in more effectively mitigating its exposure to specific wrong-way risk, the proposal is designed to promote robust risk management, consistent with Section 805(b) of the Clearing Supervision Act.\17\ --------------------------------------------------------------------------- \17\ Id. --------------------------------------------------------------------------- The Commission has adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act \18\ and Section 17A of the Act.\19\ Rule 17Ad-22 requires 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.\20\ For the reasons set forth below, NSCC believes the proposed change is consistent with Rules 17Ad-22(e)(4)(i), and (e)(6)(i) and (v), each promulgated under the Act.\21\ --------------------------------------------------------------------------- \18\ 12 U.S.C. 5464(a)(2). \19\ 17 CFR 240.17Ad-22 (``Rule 17Ad-22''). \20\ Id. \21\ 17 CFR 240.17Ad-22(e)(4) and (e)(6). --------------------------------------------------------------------------- Rule 17Ad-22(e)(4)(i) under the Act requires, in part, that each covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.\22\ The specific wrong-way risk presented by Family-Issued Securities is the risk that, in the event that a Member with unsettled long positions in Family-Issued Securities defaults, NSCC would close out those positions following a likely drop in the credit-worthiness of the issuer, possibly resulting in a loss to NSCC. The haircut rates of the FIS Charge more accurately reflect this risk because they were calibrated based on historical corporate issue recovery rate data, and, therefore, address the risk that the Family- Issued Securities of a Member would be devalued in the event of that Member's default. In this way, NSCC has determined that the margining methodology used in calculating the FIS Charge more accurately reflects the risk characteristics of Family-Issued Securities than applying its VaR Charge, and would permit NSCC to more accurately identify, measure, monitor and manage its credit exposures to those Members with positions in Family-Issued Securities. Further, by expanding the application of the FIS Charge to all Members, the proposed change would assist NSCC in collecting and maintaining financial resources that reflect its credit exposures to those Members. Therefore, NSCC believes the proposed change is consistent with Rule 17Ad-22(e)(4)(i). --------------------------------------------------------------------------- \22\ 17 CFR 240.17Ad-22(e)(4)(i). --------------------------------------------------------------------------- Rule 17Ad-22(e)(6)(i) under the Act requires, in part, that each covered clearing agency that provides central counterparty services establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.\23\ Rule 17Ad-22(e)(6)(v) under the Act requires, in part, that each covered clearing agency that provides central counterparty services establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.\24\ --------------------------------------------------------------------------- \23\ 17 CFR 240.17Ad-22(e)(6)(i). \24\ 17 CFR 240.17Ad-22(e)(6)(v). --------------------------------------------------------------------------- As stated above, Family-Issued Securities present NSCC with specific wrong-way risk that, in the event that a Member with unsettled long positions in Family-Issued Securities defaults, NSCC would close out those positions following a likely drop in the credit-worthiness of the issuer, possibly resulting in a loss to NSCC. Therefore, the haircut rates were calibrated based on historical corporate issue recovery rate data, and address the risk that the Family-Issued Securities of a Member would be devalued in the event of that Member's default, and would more accurately reflect the risk characteristics of Family-Issued Securities than applying its VaR Charge. In this way, the proposal would assist NSCC in maintaining a risk-based margin system that considers, and produces margin levels commensurate with, the risks and particular attributes of Family-Issued Securities. Additionally, NSCC believes application of the FIS Charge to positions in Family- Issued Securities of all Members is an appropriate method for measuring its credit exposures, because the FIS Charge accounts for the risk factors presented by these securities, i.e. the risk that these securities would be devalued in the event of a Member default. Therefore, NSCC believes the proposed change is consistent with Rule 17Ad-22(e)(6)(i) and (v). 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. The clearing agency 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 agency with prompt written notice of the extension. A 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 the clearing agency in writing that it does not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. The clearing agency shall post notice on its Web site of proposed changes that are implemented. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the Advance Notice [[Page 37144]] is 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-NSCC-2017-804 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-2017-804. 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 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-2017-804 and should be submitted on or before August 23, 2017. By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-16631 Filed 8-7-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 151 / Tuesday, August 8, 2017 / Notices 37141
For the Commission, by the Division of that was issued by a Member or by an Fund formula calculated for all
Trading and Markets, pursuant to delegated affiliate of that Member, as described in Members.
authority.32 greater detail below. As a central counterparty, NSCC
Eduardo A. Aleman, occupies an important role in the
Assistant Secretary.
II. Clearing Agency’s Statement of the securities settlement system by
Purpose of, and Statutory Basis for, the interposing itself between
[FR Doc. 2017–16639 Filed 8–7–17; 8:45 am]
Advance Notice counterparties to financial transactions
BILLING CODE 8011–01–P
In its filing with the Commission, the and thereby reducing the risk faced by
clearing agency included statements participants and contributing to global
SECURITIES AND EXCHANGE concerning the purpose of and basis for financial stability. The effectiveness of a
COMMISSION the Advance Notice and discussed any central counterparty’s risk controls and
comments it received on the Advance the adequacy of its financial resources
[Release No. 34–81286; File No. SR–NSCC– Notice. The text of these statements may are critical to achieving these risk-
2017–804] be examined at the places specified in reducing goals. In that context, NSCC
Item IV below. The clearing agency has continuously reviews its margining
Self-Regulatory Organizations;
prepared summaries, set forth in methodology in order to ensure the
National Securities Clearing
sections A, B, and C below, of the most reliability of its margining in achieving
Corporation; Notice of Filing of
significant aspects of such statements. the desired coverage. In order to be most
Advance Notice To Expand the
Application of the Family-Issued (A) Clearing Agency’s Statement on effective, NSCC must take into
Securities Charge Comments on the Advance Notice consideration the risk characteristics
Received From Members, Participants, specific to certain securities when
August 2, 2017. or Others margining those securities.
Pursuant to Section 806(e)(1) of Title Among the various risks that NSCC
VIII of the Dodd-Frank Wall Street NSCC has not received or solicited considers when evaluating the
Reform and Consumer Protection Act any written comments relating to this effectiveness of its margining
entitled the Payment, Clearing, and proposal. NSCC will notify the methodology are its counterparty risks
Commission of any written comments and identification and mitigation of
Settlement Supervision Act of 2010
received by NSCC. ‘‘wrong-way’’ risk, particularly specific
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) under the Securities (B) Advance Notice Filed Pursuant to wrong-way risk, defined as the risk that
Exchange Act of 1934 (‘‘Act’’),2 notice is Section 806(e) of the Payment, Clearing, an exposure to a counterparty is highly
hereby given that on July 10, 2017, and Settlement Supervision Act likely to increase when the
National Securities Clearing Corporation creditworthiness of that counterparty
Description of Proposed Changes deteriorates. 7 NSCC has identified an
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’) Currently, in calculating its Members’ exposure to specific wrong-way risk
the advance notice SR–NSCC–2017–804 required deposits to the Clearing Fund, when it acts as central counterparty to
(‘‘Advance Notice’’) as described in NSCC excludes positions in Family- a Member with respect to positions in
Items I, II and III below, which Items Issued Securities of certain Members Family-Issued Securities. In the event
have been prepared by the clearing from its parametric volatility Clearing that a Member with unsettled long
agency.3 The Commission is publishing Fund component (‘‘VaR Charge’’), and positions in Family-Issued Securities
this notice to solicit comments on the instead charges an amount calculated by defaults, NSCC would close out those
Advance Notice from interested multiplying the absolute value of the positions following a likely drop in the
persons. long, net unsettled positions in that credit-worthiness of the issuer, possibly
Member’s Family-Issued Securities by a resulting in a loss to NSCC.
I. Clearing Agency’s Statement of the percentage that is no less than 40 In 2015, NSCC proposed to address its
Terms of Substance of the Advance percent (‘‘FIS Charge’’). The FIS Charge exposure to specific wrong-way risk in
Notice is currently only applied to Members two ways.8 First, NSCC proposed to
The Advance Notice consists of that are rated 5, 6, or 7 on the Credit apply the FIS Charge to its Members
amendments to the NSCC Rules and Risk Rating Matrix (‘‘CRRM’’). The that are rated a 5, 6, or 7 on the CRRM
Procedures (‘‘Rules’’) 4 in order to (i) proposed change would expand the (i.e., Members on the Watch List).9
expand the application of NSCC’s application of the FIS Charge to the
existing family-issued securities charge 5 positions in Family-Issued Securities of 7 See Principles for financial market
all Members to help NSCC cover the infrastructures, issued by the Committee on
to apply to all Members, as described Payment and Settlement Systems and the Technical
below, and (ii) include a definition of specific wrong-way risk posed by Committee of the International Organization of
‘‘Family-Issued Security’’ as a security Family-Issued Securities, as described Securities Commissions 47 n.65 (April 2012),
further below.6 Therefore, NSCC is available at http://www.bis.org/publ/cpss101a.pdf.
8 See Securities Exchange Act Release No. 76077
32 17 CFR 200.30–3(a)(12). proposing to amend (i) Rule 1
(October 5, 2015), 80 FR 61256 (October 9, 2015),
1 12 U.S.C. 5465(e)(1). (Definitions and Descriptions) to add a (SR–NSCC–2015–003) (‘‘FIS Phase 1 Rule Change’’).
2 17 CFR 240.19b–4(n)(1)(i). definition of ‘‘Family-Issued Security,’’ 9 As part of its ongoing monitoring of its
3 On July 10, 2017, NSCC filed this Advance
and (ii) Procedure XV (Clearing Fund membership, NSCC utilizes the CRRM to rate its
Notice as a proposed rule change (SR–NSCC–2017– Formula and Other Matters) to expand risk exposures to its Members based on a scale from
010) with the Commission pursuant to Section
asabaliauskas on DSKBBXCHB2PROD with NOTICES
the application of the FIS Charge to all 1 (the strongest) to 7 (the weakest). Members that
19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule fall within the higher risk rating categories (i.e., 5,
19b–4, 17 CFR 240.19b–4. A copy of the proposed Members by moving the description of 6, and 7) are placed on NSCC’s ‘‘Watch List,’’ and
rule change is available at http://www.dtcc.com/ FIS Charge from Section I.(B)(1) to may be subject to enhanced surveillance or
legal/sec-rule-filings.aspx. Sections I.(A)(1) and I.(A)(2) in order to additional margin charges, as permitted under the
4 Terms not defined herein are defined in the
make clear that the FIS Charge would be Rules. See Rule 2B, Section 4 and Procedure XV,
Rules, available at www.dtcc.com/∼/media/Files/ Section I.(B)(1) of the Rules, supra note 4. See also
Downloads/legal/rules/nscc_rules.pdf. included as a component of the Clearing Securities Exchange Act Release No. 80734 (May
5 The family-issued securities charge is currently 19, 2017), 82 FR 24174 (May 25, 2017), (SR–DTC–
described in Procedure XV, Section I.(B)(1) of the 6 Members that do not trade in Family-Issued 2017–002, SR–FICC–2017–006, SR–NSCC–2017–
Rules, supra note 4. Securities would not be subject to the FIS Charge. Continued
VerDate Sep<11>2014 21:16 Aug 07, 2017 Jkt 241001 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 E:\FR\FM\08AUN1.SGM 08AUN1](https://thefederalregister.org/doc/82_FR_37292/page/1.svg)
![37144 Federal Register / Vol. 82, No. 151 / Tuesday, August 8, 2017 / Notices
is consistent with the Clearing SECURITIES AND EXCHANGE five additional comment letters.8 On
Supervision Act. Comments may be COMMISSION May 17, 2017, the Exchange filed
submitted by any of the following Amendment No. 2 to the proposed rule
methods: [Release No. 34–81292; File No. SR–BOX– change, which replaced and superseded
2016–48] the original filing, as modified by
Electronic Comments Amendment No.1, in its entirety.9 On
Self-Regulatory Organizations; BOX May 18, 2016, the Commission extended
• Use the Commission’s Internet Options Exchange LLC; Order the time period for Commission action
comment form (http://www.sec.gov/ Approving a Proposed Rule Change, on the proceedings to determine
rules/sro.shtml); or as Modified by Amendment Nos. 1 and whether to disapprove the proposed
• Send an email to rule-comments@ 2, To Adopt Rules for an Open-Outcry rule change to August 2, 2017.10
sec.gov. Please include File Number SR– Trading Floor Amendment No. 2 was published for
NSCC–2017–804 on the subject line. comment in the Federal Register on
August 2, 2017.
May 23, 2017.11 On May 25, 2017, the
Paper Comments I. Introduction Commission received a second response
• Send paper comments in triplicate letter from the Exchange.12 The
On November 16, 2016, BOX Options
to Secretary, Securities and Exchange Commission received two comment
Exchange LLC (the ‘‘Exchange’’ or
letters in response to the publication of
Commission, 100 F Street NE., ‘‘BOX’’) filed with the Securities and
Amendment No. 2.13 On July 14, 2017,
Washington, DC 20549. Exchange Commission (‘‘Commission’’),
the Commission received a third
pursuant to Section 19(b)(1) of the
All submissions should refer to File response letter from the Exchange.14
Securities Exchange Act of 1934
Number SR–NSCC–2017–804. This file This order approves the proposed rule
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
number should be included on the change, as modified by Amendment
proposed rule change to adopt rules for
subject line if email is used. To help the Nos. 1 and 2.
an open-outcry trading floor. The
Commission process and review your proposed rule change was published for II. Description of the Proposed Rule
comments more efficiently, please use comment in the Federal Register on Change, as Modified by Amendment
only one method. The Commission will December 05, 2016.3 The Commission Nos. 1 and 2
post all comments on the Commission’s received three comment letters on the The Exchange proposes to adopt rules
Internet Web site (http://www.sec.gov/ proposed rule change.4 On January 10, that would allow for open-outcry
rules/sro.shtml). Copies of the 2017, the Commission extended the trading on BOX’s physical trading floor,
submission, all subsequent time period within which to approve, located in Chicago (‘‘Trading Floor’’) as
amendments, all written statements disapprove the proposed rule change, or described below.15
with respect to the Advance Notice that institute proceedings to determine
are filed with the Commission, and all whether to approve or disapprove the A. BOX Floor Procedure
written communications relating to the proposed rule change to March 05, The Exchange proposes to allow two
Advance Notice between the 2017.5 On February 21, 2017, the categories of market participants (‘‘Floor
Commission and any person, other than Commission received a response letter Participants’’) 16 to transact business on
those that may be withheld from the from the Exchange, as well as the Trading Floor.17 One of these
public in accordance with the Amendment No. 1 to the proposed rule categories of market participants
provisions of 5 U.S.C. 552, will be change.6 On March 1, 2017, the
available for Web site viewing and Commission instituted proceedings to 8 See letters to Brent J. Fields, Secretary,
determine whether to approve or Commission, from Angelo Evangelou, Deputy
printing in the Commission’s Public General Counsel, CBOE, dated April 21, 2017
Reference Room, 100 F Street NE., disapprove the proposed rule change, as (‘‘CBOE Letter II’’); Steve Crutchfield, Head of
modified by Amendment No. 1.7 In Market Structure, CTC Trading, dated April 13,
Washington, DC 20549 on official
response to the Order Instituting 2017 (‘‘CTC Letter II’’); John Kinahan, CEO, Group
business days between the hours of One Trading, LP, dated April 11, 2017 (‘‘Group One
Proceedings, the Commission received
10:00 a.m. and 3:00 p.m. Copies of the Letter’’); Elizabeth King, General Counsel and
Corporate Secretary, New York Stock Exchange,
filing also will be available for 1 15 dated March 28, 2017 (‘‘NYSE Letter’’); and Joan C.
U.S.C. 78s(b)(1).
inspection and copying at the principal 2 17 CFR 240.19b–4. Conley, Senior Vice President and Corporate
office of NSCC and on DTCC’s Web site 3 See Securities Exchange Act Release No. 79421 Secretary, Nasdaq, dated March 27, 2017 (‘‘Nasdaq
(http://dtcc.com/legal/sec-rule- (November 29, 2016), 81 FR 87607 (‘‘Notice’’). Letter II’’).
9 See Amendment No. 2, dated May 17, 2017.
4 See letters to Brent J. Fields, Secretary,
filings.aspx). All comments received 10 See Securities Exchange Act Release No. 80719,
Commission, from Angelo Evangelou, Deputy
will be posted without change; the General Counsel, The Chicago Board Options 82 FR 23935 (May 24, 2017).
Commission does not edit personal Exchange, Inc. (‘‘CBOE’’), dated January 10, 2017 11 See Securities Exchange Act Release No. 80720
identifying information from (‘‘CBOE Letter I’’); Steve Crutchfield, Head of (May 18, 2017), 82 FR 23657 (‘‘Notice of
Market Structure, CTC Trading Group, LLC (‘‘CTC Amendment No. 2’’).
submissions. You should submit only 12 See letter to Brent J. Fields, Secretary,
Trading’’), dated December 31, 2016 (‘‘CTC Letter
information that you wish to make I’’); and Joan C. Conley, Senior Vice President and Commission, from Lisa J. Fall, President, Exchange,
available publicly. All submissions Corporate Secretary, The Nasdaq Stock Market LLC received May 25, 2017 (‘‘BOX Response Letter II’’).
should refer to File Number SR–NSCC– (‘‘Nasdaq’’), dated December 22, 2016 (‘‘Nasdaq 13 See letters to Brent J. Fields, Secretary,
Letter I’’). Commission, from Steve Crutchfield, Head of
asabaliauskas on DSKBBXCHB2PROD with NOTICES
2017–804 and should be submitted on 5 See Securities Exchange Act Release No. 79768, Market Structure, CTC Trading, dated July 10, 2017
or before August 23, 2017. 82 FR 4956 (January 17, 2017). (‘‘CTC Letter III’’); and Joan C. Conley, Senior Vice
6 See letter to Brent J. Fields, Secretary, President and Corporate Secretary, Nasdaq, dated
By the Commission. July 6, 2017 (‘‘Nasdaq Letter III’’).
Commission, from Lisa J. Fall, President, Exchange,
Eduardo A. Aleman, received February 21, 2017 (‘‘BOX Response Letter 14 See letter to Brent J. Fields, Secretary,
I’’), and Amendment No. 1, dated February 21, Commission, from Lisa J. Fall, President, Exchange,
Assistant Secretary. received July 14, 2017 (‘‘BOX Response Letter III’’).
2017.
[FR Doc. 2017–16631 Filed 8–7–17; 8:45 am] 7 See Securities Exchange Act Release No. 80134, 15 See proposed BOX Rule 100(a)(67).
16 See proposed BOX Rule 100(a)(26).
BILLING CODE 8011–01–P 82 FR 12864 (March 7, 2017) (‘‘Order Instituting
Proceedings’’). 17 See proposed BOX Rule 100(a)(67).
VerDate Sep<11>2014 21:16 Aug 07, 2017 Jkt 241001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 E:\FR\FM\08AUN1.SGM 08AUN1](https://thefederalregister.org/doc/82_FR_37292/page/4.svg)
Document Created: 2017-08-08 00:18:02
Document Modified: 2017-08-08 00:18:02
| 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 | 82 FR 37141 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR