
[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28936-28938]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69557; File No. SR-NSCC-2013-803]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and No Objection To Advance Notice To 
Renew Its Existing Credit Facility

May 10, 2013.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 \1\ (``Clearing 
Supervision Act'') and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934,\2\ notice is hereby given that on April 22, 2013, 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') advance notice SR-
NSCC-2013-803 (``Advance Notice'') as described in Items I, II and III 
below, which Items have been prepared primarily by NSCC. This 
publication serves as solicitation of comments on the Advance Notice 
from interested persons and as notice of no objection to the Advance 
Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance for the 
Advance Notice

    NSCC is renewing its 364-day syndicated, revolving credit facility 
(``Renewal''), as described in additional detail below.

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

    In its filing with the Commission, NSCC included statements 
concerning the purpose of and basis for the Advance Notice and 
discussed any comments it received on the Advance Notice. The text of 
these statements may be examined at the places specified in Item IV 
below. NSCC has prepared summaries, set forth in sections A and B 
below, of the most significant aspects of such statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by NSCC.
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(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

Description of Change
    As part of its liquidity risk management regime, NSCC maintains a 
364-day committed, revolving line of credit with a syndicate of 
commercial lenders (``Credit Facility''), which is renewed every year. 
Under the existing Credit Facility, NSCC may borrow up to $7.43 billion 
of an aggregate commitment of $9.33 billion.\4\ The terms and 
conditions of the Renewal are specified in the Twelfth Amended and 
Restated Revolving Credit Agreement to be dated as of May 14, 2013, 
among NSCC, DTC, the lenders party thereto, and JPMorgan Chase Bank, 
N.A. as the administrative agent, and are substantially the same as the 
terms and conditions of the existing Credit Facility agreement dated as 
of May 15, 2012 among the same parties. However, the aggregate 
commitments being sought under the Renewal increased to $16 billion. As 
of April 19, 2013, NSCC and DTC had received aggregate commitments of 
$10.121 billion towards the Renewal, of which all but $1.9 billion 
would be the commitments to NSCC as a borrower.
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    \4\ The Credit Facility provides for both The Depository Trust 
Company (``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 have separate collateral to secure their 
separate borrowings.
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    This agreement and its substantially similar predecessor agreements 
have been in place since the introduction of same-day funds settlement 
at NSCC because NSCC requires same-day liquidity resources to cover the 
failure-to-settle of its largest Member or affiliated family of 
Members. If a Member defaults on its end-of-day settlement obligations, 
NSCC may borrow under the Credit Facility to enable it, if necessary, 
to fund settlement among non-defaulting Members. Any borrowing would be 
secured principally by (i) securities deposited by Members in NSCC's 
Clearing Fund (i.e., the Eligible Clearing Fund Securities, as defined 
in Rule 4 of NSCC Rules and Procedures,\5\ 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. 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. As integral parts of NSCC's risk 
management structure, NSCC believes that the Credit Facility and the 
Clearing Fund together help NSCC to have sufficient liquidity to 
complete end-of-day money settlement.
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    \5\ See NSCC Rules and Procedures, Rule 4 (http://dtcc.com/legal/rules_proc/nscc_rules.pdf).
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Anticipated Effect on and Management of Risk
    NSCC believes that the Credit Facility is a cornerstone of NSCC 
risk management, and its renewal is critical to the NSCC risk 
management infrastructure. The Renewal does not otherwise affect or 
alter the management of risk at NSCC.

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

    No written comments were solicited or received with respect to the 
Advance Notice.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The clearing agency may implement the proposed change pursuant to 
Section 806(e)(1)(G) of the Clearing Supervision Act if it has not 
received an objection to the proposed change within 60 days of the 
later of (i) the date that the Commission received the advance notice 
or (ii) the date the Commission receives any further information it 
requested for consideration of the notice.\6\ The clearing agency shall 
not implement the proposed change if the Commission has any objection 
to the proposed change.\7\
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    \6\ 12 U.S.C. 5465(e)(1)(G).
    \7\ 12 U.S.C. 5465(e)(1)(F).
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    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.\8\ A proposed change may be implemented in less than 
60 days from the date of receipt of the advance notice, or the date the 
Commission receives any further information it requested, 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.\9\ The

[[Page 28937]]

clearing agency shall post notice on its Web site of proposed changes 
that are implemented.\10\
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    \8\ 12 U.S.C. 5465(e)(1)(H).
    \9\ 12 U.S.C. 5465(e)(1)(I).
    \10\ 17 CFR 240.19b-4(n)(4)(i).
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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 advance 
notice is consistent with the Clearing Supervision Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NSCC-2013-803 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-NSCC-2013-803. 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 such filings also will be available for inspection 
and copying at the principal office of NSCC and on NSCC's Web site at 
http://dtcc.com/downloads/legal/rule_filings/2013/nscc/SR-NSCC-2013-803.pdf.
    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 No. SR-NSCC-2013-803 and 
should be submitted on or before June 6, 2013.

V. Commission Findings and Notice of No Objection

    Although Title VIII does not specify a standard of review for 
advance notices, the Commission believes that the stated purpose of 
Title VIII is instructive.\11\ The stated purpose of Title VIII 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 
(``FMU'') \12\ and providing an enhanced role for the Board of 
Governors of the Federal Reserve System (``Board of Governors'') in the 
supervision of risk management standards for systemically-important 
FMUs.\13\
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    \11\ 12 U.S.C. 5461(b).
    \12\ NSCC was designated as a systemically important FMU by the 
Financial Stability Oversight Council (``FSOC'') on July 18, 2012. 
FSOC 2012 Annual Report, Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
    \13\ 12 U.S.C. 5461(b).
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    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.\14\ 
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:
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    \14\ 12 U.S.C. 5464(a)(2).
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     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.\15\
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    \15\ 12 U.S.C. 5464(b).
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    The Commission adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act on October 22, 2012 
(``Clearing Agency Standards'').\16\ The Clearing Agency Standards 
became effective on January 2, 2013 and 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.\17\ As such, it is appropriate for the Commission 
to review advance notices against the objectives and principles for 
risk management standards as described in Section 805(b), as well as 
the applicable Clearing Agency Standards promulgated under Section 
805(a).
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    \16\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \17\ The Clearing Agency Standards are substantially similar to 
the risk management standards established by the Board of Governors 
governing the operations of designated FMUs that are not clearing 
entities and financial institutions engaged in designated activities 
for which the Commission or the Commodity Futures Trading Commission 
is the Supervisory Agency. See Financial Market Utilities, 77 FR 
45907 (Aug. 2, 2012).
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    The Advance Notice is a proposal to enter into a renewed Credit 
Facility, as described above, which is designed to help mitigate the 
risk that NSCC would be under collateralized in the event of a 
defaulting Member. Consistent with Section 805(b) of the Clearing 
Supervision Act,\18\ the Commission believes the proposal promotes 
robust risk management, as well as the safety and soundness of NSCC's 
operations, while reducing systemic risks and supporting the stability 
of the broader financial system, by maintaining a cornerstone to NSCC's 
risk management system in a line of credit, in preparation for a 
possible Member default.
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    \18\ See 12 U.S.C. 5464(b).
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    Additionally, Commission Rule 17Ad-22(d)(11) regarding default 
procedures,\19\ adopted as part of the Clearing Agency Standards,\20\ 
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.'' \21\ Here, as described above, 
the renewed Credit Facility should help NSCC continue to meet its 
respective obligations in a timely fashion, in the event of a Member 
default, thereby helping to contain losses and liquidity pressures from 
that default.
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    \19\ 17 CFR 240.17Ad-22(d)(11).
    \20\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \21\ 17 CFR 240.17Ad-22(d)(11).
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    Finally, Commission Rule 17Ad-22(b)(1) regarding measurement and 
management of credit exposure,\22\ also adopted as part of the Clearing 
Agency Standards,\23\ requires a central counterparty (``CCP''), of 
which NSCC is one, to establish, implement, maintain and enforce 
written policies and procedures reasonably designed to

[[Page 28938]]

measure its credit exposures to its participants at least once a day 
and limit its exposures to potential losses from defaults by its 
participants under normal market conditions so that the operations of 
the CCP would not be disrupted and non-defaulting participants would 
not be exposed to losses that they cannot anticipate or control.\24\ 
Here, as described above, NSCC's proposal to enter into a renewed 
Credit Facility should help to minimize disruption to its CCP 
operations, thereby limiting its and non-defaulting Members' exposures 
to potential losses from a defaulting Member.
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    \22\ 17 CFR 240.17Ad-22(b)(1).
    \23\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \24\ 17 CFR 240.17Ad-22(b)(1).
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    As described in Item III above, Section 806(e)(1)(G) of the 
Clearing Supervision Act provides that a designated FMU may implement a 
change contained in an advance notice if it has not received an 
objection to the proposed change within the applicable 60 day 
period.\25\ However, Section 806(e)(1)(I) allows the Commission to 
issue a non-objection prior to the 60th day.\26\ If the Commission 
chooses to issue a non-objection prior to the 60th day, it must notify 
the designated FMU in writing that it does not object and authorize 
implementation of the change on an earlier date.\27\ If the Commission 
chooses to object prior to the 60th day, it must similarly notify the 
designated FMU.\28\
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    \25\ See 12 U.S.C. 5465(e)(1)(G).
    \26\ 12 U.S.C. 5465(e)(1)(I).
    \27\ Id.
    \28\ 12. U.S.C. 5465(e)(1)(E).
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    In its filing with the Commission, NSCC requested that the 
Commission notify NSCC, under Section 806(e)(1)(I) of the Clearing 
Supervision Act, that the Commission has no objection to the Advance 
Notice no later than Friday, May 10, 2013, two business days before the 
existing Credit Facility is set to expire on Tuesday, May 14, 2013, to 
ensure that there is no period of time that NSCC operates without the 
Credit Facility.
    For the reasons stated above, the Commission does not object to the 
Advance Notice.

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\29\ that the Commission does not object to 
the change described in advance notice SR-NSCC-2013-803 and that NSCC 
be and hereby is authorized to implement the change as of the date of 
this notice.
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    \29\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11597 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P


