83 FR 9039 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Securities Trader (Series 57) Examination
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 42 (March 2, 2018)
Federal Register Volume 83, Issue 42 (March 2, 2018)
| Page Range | 9039-9042 | |
| FR Document | 2018-04209 |
[Federal Register Volume 83, Number 42 (Friday, March 2, 2018)] [Notices] [Pages 9039-9042] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-04209] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82772; File No. SR-FINRA-2018-010] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Securities Trader (Series 57) Examination February 26, 2018. 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 February 12, 2018, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as ``constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule'' under Section 19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A)(i). \4\ 17 CFR 240.19b-4(f)(1). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing revisions to the content outline and selection specifications for the Securities Trader (Series 57) examination as part of the restructuring of the representative-level examination program.\5\ In addition, FINRA is proposing to make changes to the format of the content outline. FINRA is not proposing any textual changes to the By-Laws, Schedules to the By-Laws or Rules of FINRA. --------------------------------------------------------------------------- \5\ FINRA also is proposing corresponding revisions to the Series 57 question bank. Based on instruction from SEC staff, FINRA is submitting this filing for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1) thereunder, and is not filing the question bank. See Letter to Alden S. Adkins, Senior Vice President and General Counsel, NASD Regulation, from Belinda Blaine, Associate Director, Division of Market Regulation, SEC, dated July 24, 2000. The question bank is available for SEC review. --------------------------------------------------------------------------- The revised Series 57 content outline is attached.\6\ The revised Series 57 selection specifications have been submitted to the Commission under separate cover with a request for confidential treatment pursuant to SEA Rule 24b-2.\7\ --------------------------------------------------------------------------- \6\ The Commission notes that the content outline is attached to the filing, not to this Notice. \7\ 17 CFR 240.24b-2. --------------------------------------------------------------------------- The text of the proposed rule change is available on FINRA's website at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room.[sic] II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Section 15A(g)(3) of the Act \8\ authorizes FINRA to prescribe standards of training, experience, and competence for persons associated with FINRA members. In accordance with that provision, FINRA has developed [[Page 9040]] examinations that are designed to establish that persons associated with FINRA members have attained specified levels of competence and knowledge, consistent with applicable registration requirements under FINRA rules. FINRA periodically reviews the content of the examinations to determine whether revisions are necessary or appropriate in view of changes pertaining to the subject matter covered by the examinations. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78o-3(g)(3). --------------------------------------------------------------------------- The SEC recently approved a proposed rule change to restructure the FINRA representative-level qualification examination program.\9\ The rule change, which will become effective on October 1, 2018,\10\ restructures the examination program into a new format whereby all new representative-level applicants will be required to take a general knowledge examination (the Securities Industry Essentials or SIETM) and a tailored, specialized knowledge examination (a revised representative-level qualification examination) for their particular registered role. --------------------------------------------------------------------------- \9\ See Securities Exchange Act Release No. 81098 (July 7, 2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR- FINRA-2017-007). \10\ See Regulatory Notice 17-30 (SEC Approves Consolidated FINRA Registration Rules, Restructured Representative-Level Qualification Examinations and Changes to Continuing Education Requirements) (October 2017). --------------------------------------------------------------------------- The restructured program eliminates duplicative testing of general securities knowledge on the current representative-level qualification examinations by moving such content into the SIE examination.\11\ The SIE examination will test fundamental securities-related knowledge, including knowledge of basic products, the structure and function of the securities industry, the regulatory agencies and their functions and regulated and prohibited practices, whereas the revised representative-level qualification examinations will test knowledge relevant to day-to-day activities, responsibilities and job functions of representatives.\12\ --------------------------------------------------------------------------- \11\ Each of the current representative-level examinations covers general securities knowledge, with the exception of the Research Analyst (Series 86 and 87) examinations. \12\ FINRA filed the SIE content outline with the SEC for immediate effectiveness. See Securities Exchange Act Release No. 82578 (January 24, 2018), 83 FR 4375 (January 30, 2018) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2018-002). In addition to the proposed rule change relating to the revised Series 57 examination, FINRA is filing with the Commission for immediate effectiveness the content outlines for the other revised representative-level qualification examinations. --------------------------------------------------------------------------- As part of the restructuring process and in consultation with a committee of industry representatives, FINRA undertook a review of the Securities Trader (Series 57) examination to remove the general securities knowledge currently covered on the examination and to create a tailored examination to test knowledge relevant to the day-to-day activities, responsibilities and job functions of a Securities Trader. In addition, FINRA is proposing to make changes to the format of the Series 57 content outline. Beginning on October 1, 2018, new applicants seeking to register as Securities Traders must pass the SIE examination and the revised Securities Trader (Series 57) examination. Current Content Outline The current Series 57 content outline is divided into four major job functions that are performed by a Securities Trader. The following are the four major job functions, denoted Function 1 through 4, with the associated number of questions: Function 1: Market Overview and Products, 22 questions; Function 2: Engaging in Professional Conduct and Adhering to Regulatory Requirements, 12 questions; Function 3: Trading Activities, 79 questions; and Function 4: Maintaining Books and Records and Trade Reporting, 12 questions. Each function also includes specific tasks describing activities associated with performing that function. There are three tasks (1.1- 1.3) associated with Function 1; two tasks (2.1-2.2) associated with Function 2; three tasks (3.1-3.3) associated with Function 3; and two tasks (4.1-4.2) associated with Function 4. For example, one such task (Task 4.2) relates to creating, retaining, and reporting required records of orders and transactions. Further, the content outline lists the knowledge required to perform each function and associated tasks (e.g., in connection with Task 4.2, large trader ID and related reporting and monitoring requirements and order execution and routing information). In addition, where applicable, the content outline lists the laws, rules and regulations a candidate is expected to know to perform each function and associated tasks. These include applicable federal securities laws, as well as FINRA and other self-regulatory organization rules and regulations. The content outline also includes a preface (e.g., table of contents, details regarding the purpose of the examination and eligibility requirements), sample questions and reference materials. Revised Content Outline As noted above, FINRA is proposing to move the general securities knowledge currently covered on the Series 57 examination to the SIE examination. For example, FINRA Rule 3220 (Influencing or Rewarding Employees of Others) (the Gifts Rule) will now be tested on the SIE examination, rather than on the Series 57 examination. As a result, the revised Series 57 examination will test knowledge specific to the day- to-day activities, responsibilities and job functions of a Securities Trader. Further, FINRA is proposing to make changes to the major job functions that are performed by a Securities Trader. The following are the revised job functions, denoted Function 1 and Function 2, with the associated number of questions: Function 1: Trading Activities, 41 questions; and Function 2: Maintaining Books and Records, Trade Reporting and Clearance and Settlement, 9 questions. FINRA also is proposing to adjust the number of questions assigned to each major job function to ensure that the overall examination better reflects the key tasks performed by a Securities Trader. The questions on the revised Series 57 examination will place emphasis on tasks such as trading activities, trade reporting and related books and records. Further, FINRA is proposing to make changes to the specific tasks associated with performing each function. There are three tasks (1.1- 1.3) associated with Function 1 \13\ and three tasks (2.1-2.3) associated with Function 2.\14\ For example, one such task (Task 2.1) is reporting trades to the designated reporting facility.\15\ The content outline also lists the knowledge required to perform each revised function and associated tasks (e.g., distinctions among reporting facilities). In addition, where applicable, the content outline lists the laws, rules and regulations a candidate is expected to know to perform each revised function and associated tasks (e.g., SEA Rule 13h-1). --------------------------------------------------------------------------- \13\ See Exhibit 3a, Outline Pages 3-9. The outline is attached as Exhibit 3a to the 19b-4 form. \14\ See Exhibit 3a, Outline Pages 10-12. \15\ See Exhibit 3a, Outline Page 10. --------------------------------------------------------------------------- FINRA is proposing similar changes to the Series 57 selection specifications and question bank. Finally, FINRA is proposing to make changes to the format of the content outline, including to the preface, sample questions and reference materials.\16\ Among other changes, FINRA is proposing to: (1) Reduce the preface to one page of introductory information; [[Page 9041]] (2) streamline details regarding the purpose of the examination; (3) move the application procedures to FINRA's website; and (4) explain that the passing score is established using a standard setting procedure, and that a statistical adjustment process known as equating is used in scoring the examination.\17\ --------------------------------------------------------------------------- \16\ FINRA is proposing similar changes to the content outlines for other representative-level examinations. \17\ See Exhibit 3a, Outline Page 2. --------------------------------------------------------------------------- As a result of the proposed changes, the number of scored questions on the Series 57 examination will be reduced from 125 questions to 50 questions.\18\ Further, the test time, which is the amount of time candidates will have to complete the examination, will be reduced from three hours and 45 minutes to one hour and 45 minutes. Currently, a score of 70 percent is required to pass the examination. FINRA will publish the passing score of the revised Series 57 examination on its website, at www.finra.org, prior to its first administration. --------------------------------------------------------------------------- \18\ Consistent with FINRA's practice of including ``pretest'' questions on examinations, the Series 57 examination includes five additional, unidentified pretest questions that do not contribute towards the candidate's score. The pretest questions are designed to ensure that new examination questions meet acceptable testing standards prior to use for scoring purposes. Therefore, the Series 57 examination actually consists of 55 questions, 50 of which are scored. The five pretest questions are randomly distributed throughout the examination. --------------------------------------------------------------------------- Availability of Content Outline The current Series 57 content outline is available on FINRA's website. The revised Series 57 content outline will replace the current content outline on FINRA's website, and it will be made available on the website on the date of this filing. FINRA is filing the proposed rule change for immediate effectiveness. The implementation date will be October 1, 2018, to coincide with the implementation of the restructured representative- level examination program. FINRA will also announce the implementation date of the proposed rule change in a Regulatory Notice. 2. Statutory Basis FINRA believes that the proposed revisions to the Series 57 examination program are consistent with the provisions of Section 15A(b)(6) of the Act,\19\ which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and Section 15A(g)(3) of the Act,\20\ which authorizes FINRA to prescribe standards of training, experience, and competence for persons associated with FINRA members. The proposed rule change will improve the examination program, without compromising the qualification standards, by removing the general knowledge content currently covered on the Series 57 examination, since that content will be covered in the co-requisite SIE examination. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78o-3(b)(6). \20\ 15 U.S.C. 78o-3(g)(3). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The updated examination aligns with the functions and associated tasks currently performed by a Securities Trader and tests knowledge of the most current laws, rules, regulations and skills relevant to those functions and associated tasks. As such, the proposed revisions would make the examination more effective. FINRA also provided a detailed economic impact assessment regarding the introduction of the SIE examination and the restructuring of the representative-level examinations as part of the proposed rule change to restructure the FINRA representative-level qualification examination program.\21\ --------------------------------------------------------------------------- \21\ See Securities Exchange Act Release No. 80371 (April 4, 2017), 82 FR 17336 (April 10, 2017) (Notice of Filing of File No. SR-FINRA-2017-007). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \22\ and paragraph (f)(1) of Rule 19-4 thereunder.\23\ 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. --------------------------------------------------------------------------- \22\ 15 U.S.C. 78s(b)(3)(A). \23\ 17 CFR 240.19b-4(f)(1). --------------------------------------------------------------------------- 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 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-FINRA-2018-010 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-FINRA-2018-010. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (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 website 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 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR- FINRA-2018-010 and should be submitted on or before March 23, 2018. [[Page 9042]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-04209 Filed 3-1-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 42 / Friday, March 2, 2018 / Notices 9039
Notice are consistent with Rule 17Ad– consistent with Rules 17Ad–22(e)(6)(i) I. Self-Regulatory Organization’s
22(e)(6)(i) under the Exchange Act, and (v) under the Exchange Act.71 Statement of the Terms of Substance of
which requires that NSCC establish, the Proposed Rule Change
III. Conclusion
implement, maintain and enforce FINRA is proposing revisions to the
written policies and procedures It is therefore noticed, pursuant to content outline and selection
reasonably designed to cover its credit Section 806(e)(1)(I) of the Clearing specifications for the Securities Trader
exposures to its participants by Supervision Act,72 that the Commission (Series 57) examination as part of the
establishing a risk-based margin system does not object to advance notice SR– restructuring of the representative-level
that, at a minimum considers, and NSCC–2017–808 and that NSCC is examination program.5 In addition,
produces margin levels commensurate authorized to implement the proposed FINRA is proposing to make changes to
with, the risks and particular attributes change as of the date of this notice or the format of the content outline. FINRA
of each relevant product, portfolio, and the date of an order by the Commission is not proposing any textual changes to
market.69 Furthermore, the Commission approving proposed rule change SR– the By-Laws, Schedules to the By-Laws
believes that the changes proposed in NSCC–2017–020 that reflects rule or Rules of FINRA.
the Advance Notice are consistent with changes that are consistent with this The revised Series 57 content outline
Rule 17Ad–22(e)(6)(v) under the Advance Notice, whichever is later. is attached.6 The revised Series 57
Exchange Act, which requires that selection specifications have been
By the Commission.
NSCC establish, implement, maintain submitted to the Commission under
Brent J. Fields,
and enforce written policies and separate cover with a request for
procedures reasonably designed to use Secretary.
confidential treatment pursuant to SEA
an appropriate method for measuring [FR Doc. 2018–04237 Filed 3–1–18; 8:45 am] Rule 24b–2.7
credit exposure that accounts for BILLING CODE 8011–01–P The text of the proposed rule change
relevant product risk factors and is available on FINRA’s website at
portfolio effects across products.70 http://www.finra.org, at the principal
As described above, the Commission SECURITIES AND EXCHANGE office of FINRA and at the
believes the proposed VaR calculation COMMISSION Commission’s Public Reference
based on an evenly-weighted volatility Room.[sic]
estimation would enable NSCC to better [Release No. 34–82772; File No. SR–FINRA–
2018–010]
II. Self-Regulatory Organization’s
manage its credit exposure to Members Statement of the Purpose of, and
in certain market conditions with a Statutory Basis for, the Proposed Rule
Self-Regulatory Organizations;
rapid decrease in market price volatility Change
Financial Industry Regulatory
levels; the proposed Gap Risk Measure
Authority, Inc.; Notice of Filing and In its filing with the Commission,
would enable NSCC to better manage its
Immediate Effectiveness of a Proposed FINRA included statements concerning
credit exposure to Member portfolios
Rule Change To Revise the Securities the purpose of and basis for the
that are more susceptible to Gap Risk
Trader (Series 57) Examination proposed rule change and discussed any
Events; and the proposed Portfolio
Margin Floor would enable NSCC to comments it received on the proposed
February 26, 2018.
better manage its credit exposure to rule change. The text of these statements
Pursuant to Section 19(b)(1) of the may be examined at the places specified
Members in certain scenarios, such as
Securities Exchange Act of 1934 in Item IV below. FINRA has prepared
low market price volatility when a
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 summaries, set forth in sections A, B,
Member’s portfolio holds either large
notice is hereby given that on February and C below, of the most significant
gross market values or large net
12, 2018, Financial Industry Regulatory aspects of such statements.
directional market values and market
Authority, Inc. (‘‘FINRA’’) filed with the
prices exhibit low volatility. Moreover, A. Self-Regulatory Organization’s
Securities and Exchange Commission
NSCC would assess a Member the Statement of the Purpose of, and
(‘‘SEC’’ or ‘‘Commission’’) the proposed
largest of these three calculations as the Statutory Basis for, the Proposed Rule
rule change as described in Items I, II, Change
Member’s volatility component to its
and III below, which Items have been
Required Deposit. 1. Purpose
prepared by FINRA. FINRA has
These three proposed volatility designated the proposed rule change as
component calculations are designed to Section 15A(g)(3) of the Act 8
‘‘constituting a stated policy, practice, authorizes FINRA to prescribe standards
help improve NSCC’s risk-based margin or interpretation with respect to the
system by enabling NSCC to produce of training, experience, and competence
meaning, administration, or for persons associated with FINRA
margin levels that are more enforcement of an existing rule’’ under
commensurate with the risks and members. In accordance with that
Section 19(b)(3)(A)(i) of the Act 3 and provision, FINRA has developed
particular attributes of the relevant Rule 19b–4(f)(1) thereunder,4 which
products, portfolios, and markets that renders the proposal effective upon 5 FINRA also is proposing corresponding
NSCC serves. Additionally, as described receipt of this filing by the Commission. revisions to the Series 57 question bank. Based on
above, the three proposed volatility The Commission is publishing this instruction from SEC staff, FINRA is submitting this
component calculations are designed to notice to solicit comments on the
filing for immediate effectiveness pursuant to
use methods that are more appropriately Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(1)
proposed rule change from interested thereunder, and is not filing the question bank. See
tailored for measuring credit exposure persons. Letter to Alden S. Adkins, Senior Vice President
daltland on DSKBBV9HB2PROD with NOTICES
that account for specific risk factors and and General Counsel, NASD Regulation, from
portfolio effects. Therefore, the 71 17
Belinda Blaine, Associate Director, Division of
CFR 240.17Ad–22(e)(6)(i) and (v). Market Regulation, SEC, dated July 24, 2000. The
Commission finds that the changes 72 12 U.S.C. 5465(e)(1)(I). question bank is available for SEC review.
proposed in the Advance Notice are 1 15 U.S.C. 78s(b)(1). 6 The Commission notes that the content outline
2 17 CFR 240.19b–4. is attached to the filing, not to this Notice.
69 17 CFR 240.17Ad–22(e)(6)(i). 3 15 U.S.C. 78s(b)(3)(A)(i). 7 17 CFR 240.24b–2.
70 17 CFR 240.17Ad–22(e)(6)(v). 4 17 CFR 240.19b–4(f)(1). 8 15 U.S.C. 78o–3(g)(3).
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![9042 Federal Register / Vol. 83, No. 42 / Friday, March 2, 2018 / Notices
For the Commission, by the Division of I. Description of the Proposed Rule parametric Value-at-Risk (‘‘VaR’’)
Trading and Markets, pursuant to delegated Change model.15 NSCC’s current VaR
authority.24 calculation places more emphasis on
The Proposed Rule Change consists of
Eduardo A. Aleman, recent market observations (such as
changes to NSCC’s Rules & Procedures
Assistant Secretary. recent price history) for the purpose of
(‘‘Rules’’) 6 that would enhance NSCC’s
[FR Doc. 2018–04209 Filed 3–1–18; 8:45 am] method for calculating the daily margin estimating current market price
BILLING CODE 8011–01–P requirement for each NSCC member volatility levels, based on the
(‘‘Member’’).7 Specifically, NSCC assumption that the most recent price
proposes to (1) add three new ways to history is more relevant and accurate for
SECURITIES AND EXCHANGE calculate the volatility component of its measuring current market price
COMMISSION Members’ margin requirements, and (2) volatility levels (referred to as an
[Release No. 34–82781; File No. SR–NSCC– eliminate an outdated component of the ‘‘exponentially-weighted volatility
2017–020] margin calculation, as described more estimation’’).16 However, volatility in
fully below.8 NSCC states that the new the equity markets often rapidly reverts
Self-Regulatory Organizations; volatility component calculations would to more commonly observed levels,
National Securities Clearing enable NSCC to mitigate the credit risks followed by a subsequent spike.17 While
Corporation; Notice of Filing of presented by Member portfolios in a a VaR calculation that applies
Amendment No. 1 and Order Granting broader range of scenarios and market exclusively an exponentially-weighted
Accelerated Approval of a Proposed conditions than NSCC’s current volatility estimation can capture sudden
Rule Change, as Modified by volatility component calculation.9 increases in volatility, it may result in
Amendment No. 1, To Enhance the A key tool that NSCC uses to manage a swift decline in margin that does not
Calculation of the Volatility Component its credit exposures to Members is the adequately capture the risks related to a
of the Clearing Fund Formula That daily calculation and collection of rapid decrease in market price volatility
Utilizes a Parametric Value-at-Risk margin from each Member (‘‘Required levels.18 NSCC proposes to mitigate this
Model and Eliminate the Market Maker Deposit’’).10 NSCC collects Required shortcoming by adding another method
Domination Charge Deposits from Members to mitigate for computing the VaR calculation that
NSCC’s potential losses associated with does not diminish the value of older
February 26, 2018. market observations.19 Specifically,
the liquidation of a Member’s portfolio
National Securities Clearing should the Member default.11 The NSCC proposes to add a VaR calculation
Corporation (‘‘NSCC’’) filed with the aggregate of all Members’ Required that gives equal weight to all historical
U.S. Securities and Exchange Deposits constitutes NSCC’s Clearing volatility observations during a
Commission (‘‘Commission’’) on Fund, which NSCC can access should a specified look-back period (referred to
December 28, 2017 proposed rule defaulting Member’s own Required by NSCC as an ‘‘evenly-weighted
change SR–NSCC–2017–020 pursuant to Deposit be insufficient to satisfy NSCC’s volatility estimation’’),20 which could
Section 19b(1) of the Securities losses caused by the liquidation of the result in margin requirement amounts
Exchange Act of 1934 (‘‘Exchange Member’s portfolio.12 during non-volatile periods greater than
Act’’) 1 and Rule 19b–4 thereunder.2 The margin requirement amounts based
proposed rule change was published for A. Evenly-Weighted Volatility upon the exponentially-weighted
comment in the Federal Register on Estimation volatility estimation.21 Under the
January 19, 2018.3 The Commission did Each Member’s Required Deposit proposal, NSCC would calculate both
not receive any comments on the consists of several components.13 the exponentially-weighted volatility
proposed rule change. On January 10, Generally, the largest component of a estimation and the evenly-weighted
2018, NSCC filed Amendment No. 1 to Member’s Required Deposit is the volatility estimation, and the greater
the proposed rule change.4 The volatility component, which is designed result would represent the ‘‘Core
Commission is publishing this notice to to capture the market price risk Parametric Estimation.’’ 22
solicit comment on Amendment No. 1 associated with each Member’s portfolio B. Gap Risk Measure
from interested persons and is at a 99th percentile level of
approving the proposed rule change, as confidence.14 NSCC currently calculates In addition to the Core Parametric
modified by Amendment No. 1 the volatility component using a Estimation, NSCC proposes to add a
(hereinafter, the ‘‘Proposed Rule second method for determining the
Change’’), on an accelerated basis.5 and replace in its entirety the originally filed volatility component of a Member’s
confidential Exhibit 3a in order to remove Required Deposit.23 This second
24 17 references to a practice that was not intended for method, referred to as the Gap Risk
CFR 200.30–3(a)(12).
consideration as part of the filing. Notice of filing
1 15 U.S.C. 78s(b)(1). of the advance notice, as modified by Amendment
Measure, would help address risks that
2 17 CFR 240.19b–4.
No. 1 (‘‘Advance Notice’’), was published in the are unique to Member portfolios that
3 Securities Exchange Act Release No. 82494
Federal Register on February 8, 2018. Securities hold a concentrated position in a
(January 12, 2018), 83 FR 2828 (January 19, 2018) Exchange Act Release No. 82631 (February 5, 2018), specific security.24 More specifically,
(SR–NSCC–2017–020) (‘‘Notice’’). 83 FR 5658 (February 8, 2018) (SR–NSCC–2017–
4 In Amendment No. 1 to the proposed rule 808). The Commission did not receive any
when a Member’s portfolio holds a
change, NSCC amended and replaced in its entirety comments on the Advance Notice. concentrated position in a specific
the originally filed confidential Exhibit 3a with a 6 NSCC’s Rules, available at http://dtcc.com/∼/
new confidential Exhibit 3a in order to remove media/Files/Downloads/legal/rules/nscc_rules.pdf. 15 Id.
references to a practice that was not intended for 7 Notice, 83 FR at 2828–32. 16 Id.
daltland on DSKBBV9HB2PROD with NOTICES
consideration as part of the filing. 8 Id. 17 Id.
5 NSCC also filed the proposed rule change as
9 Id. 18 Id.
advance notice SR–NSCC–2017–808 pursuant to 10 Notice, 83 FR at 2828–29. 19 Notice, 83 FR at 2828–29.
Section 806(e)(1) of the Payment, Clearing, and 11 Id. 20 Id.
Settlement Supervision Act of 2010 and Rule 19b– 21 Id.
12 Id.
4(n)(1)(i) under the Exchange Act. 12 U.S.C.
13 See Procedure XV (Clearing Fund Formula and 22 Notice, 83 FR at 2829–30.
5465(e)(1) and 17 CFR 240.19b–4(n)(1)(i),
respectively. On January 10, 2018, NSCC filed Other Matters) of the Rules, supra note 6. 23 Notice, 83 FR at 2830–31.
Amendment No. 1 to the advance notice to amend 14 Notice, 83 FR at 2829. 24 Id.
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Document Created: 2018-03-01 23:56:35
Document Modified: 2018-03-01 23:56:35
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| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| FR Citation | 83 FR 9039 |
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