
[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Notices]
[Pages 27654-27657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11035]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72131; File No. SR-NSCC-2014-805]


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

May 8, 2014.
    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,\2\ notice is hereby given that on April 21, 2014, 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') advance notice SR-
NSCC-2014-805 (``Advance Notice'') as described in Items I, II and III 
below, which Items have been prepared primarily by NSCC. The Commission 
is publishing this notice to solicit comments on the Advance Notice 
from interested persons and provide notice that the Commission does not 
object 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 of the Advance 
Notice

    NSCC is renewing its 364-day syndicated revolving credit facility 
(``Renewal''), as more fully described 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), (B), and 
(C) below, of the most significant aspects of such statements.

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

1. Purpose
    As part of its liquidity risk management regime, NSCC maintains a 
364-day committed revolving line of credit with a syndicate of 
commercial lenders which is renewed every year.

[[Page 27655]]

The terms and conditions of the current Renewal will be specified in 
the Thirteenth Amended and Restated Revolving Credit Agreement, to be 
dated as of May 13, 2014 (``Renewal Agreement''), among The Depository 
Trust Company (``DTC''), National Securities Clearing Corporation,\3\ 
the Lenders party thereto and JPMorgan Chase Bank, N.A., as 
Administrative Agent, and are substantially the same as the terms and 
conditions of the existing credit agreement, dated as of May 14, 2013 
(``Existing Agreement''),\4\ among the same parties. The substantive 
terms of the Renewal are set forth in the Summary of Indicative 
Principal Terms and Conditions, dated March 17, 2014, which is not a 
public document. The aggregate commitments being sought under the 
Renewal will be for an amount of up to $15 billion for NSCC and DTC 
together, of which all but $1.9 billion aggregate commitments would be 
the commitments to NSCC as borrower, as provided in the Existing 
Agreement.
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    \3\ The Renewal Agreement will provide for both DTC and NSCC as 
borrowers, with an aggregate commitment of $1.9 billion for DTC and 
the amount of any excess aggregate commitment for NSCC. The 
borrowers are not jointly and severally liable and each lender has a 
ratable commitment to each borrower. DTC and NSCC have separate 
collateral to secure their separate borrowings.
    \4\ Last year, the Commission published notice of no objection 
to NSCC's advance notice filing with respect to NSCC's renewal 
beginning on May 14, 2013. See Release No. 34-69557 (May 10, 2013), 
78 FR 28936 (May 16, 2013) (SR-NSCC-2013-803).
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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. 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 line 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 NSCC's 
Rule 4, pledged by Members to NSCC in lieu of cash Clearing Fund 
deposits), and (ii) securities cleared through NSCC's Continuous Net 
Settlement System (CNS) that were intended for delivery to the 
defaulting Member upon payment of its net settlement obligation. NSCC's 
Clearing Fund \5\ (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, the line of credit and the Clearing Fund, 
together, provide NSCC liquidity to complete end-of-day money 
settlement.
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    \5\ NSCC's Clearing Fund now includes additional liquidity 
deposits by certain Members pursuant to NSCC's newly implemented 
Supplemental Liquidity Deposit rule (new Rule 4(A)). On December 5, 
2013, the Commission approved rule filing SR-NSCC-2013-02, as 
amended on April 19, 2013, June 11, 2013, and on October 4 and 7, 
2013 creating new Rule 4(A). See Release No. 34-70999 (Dec. 5, 
2013), 78 FR 75413 (Dec. 11, 2013) (SR-NSCC-2013-02).
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2. Statutory Basis
    The Renewal is consistent with Section 805(b) of the Clearing 
Supervision Act \6\ and with Commission Rule 17Ad-22(d)(11) \7\ 
(regarding default procedures) because it mitigates liquidity risk.
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    \6\ 12 U.S.C. 5461(b). The Financial Stability Oversight Council 
(``FSOC'') designated NSCC a systemically important financial market 
utility (``SIFMU'') on July 18, 2012. See FSOC 2012 Annual Report, 
Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf (``FSOC Designation''). Therefore, NSCC 
is required to comply with the Clearing Supervision Act.
    \7\ 17 CFR 240.17Ad-22(d)(11).
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B. Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    Written comments on the Advance Notice have not yet been solicited 
or received. NSCC will notify the Commission of any written comments 
received by NSCC.

C. Advance Notice Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

1. Description of Change
    The terms and conditions to be specified in the Renewal Agreement 
are substantially the same as the terms and conditions specified in the 
Existing Agreement, except that, in order to help protect against 
concentration risk, an enhancement is being added for a back-up 
Administrative Agent and Collateral Agent in case the primary 
Administrative Agent and Collateral Agent is unable to perform its 
obligations.
2. Anticipated Effect on and Management of Risks
    As noted, the committed revolving line of credit is a cornerstone 
of NSCC risk management and this Renewal is critical to the NSCC risk 
management infrastructure. The Renewal does not otherwise affect or 
alter the management of risk at NSCC.

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. NSCC 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 NSCC 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 NSCC in writing that it does not object to the proposed change 
and authorizes NSCC to implement the proposed change on an earlier 
date, subject to any conditions imposed by the Commission.
    NSCC shall post notice on its Web site of proposed changes that are 
implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the Advance 
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-2014-805 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 No. SR-NSCC-2014-805. 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

[[Page 27656]]

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 NSCC's Web site at http://dtcc.com/en/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 No. SR-NSCC-2014-805 and 
should be submitted on or before June 4, 2014

V. Commission Findings and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for advance notices, the Commission believes that the stated 
purpose of the Clearing Supervision Act is instructive.\8\ The stated 
purpose is to mitigate systemic risk in the financial system and 
promote financial stability by, among other things, promoting uniform 
risk management standards for SIFMUs.\9\
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    \8\ 12 U.S.C. 5461(b).
    \9\ Id.
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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.\10\ 
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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    \10\ 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.\11\
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    \11\ 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'').\12\ 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.\13\ 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) of the 
Clearing Supervision Act,\14\ as well as the applicable Clearing Agency 
Standards promulgated under Section 805(a) of the Clearing Supervision 
Act.\15\
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    \12\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \13\ The Clearing Agency Standards are substantially similar to 
the risk management standards established by the Board of Governors 
of the Federal Reserve System governing the operations of SIFMUs 
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).
    \14\ See 12 U.S.C. 5464(b).
    \15\ See 12 U.S.C. 5464(a).
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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 unable to meet payment or settlement 
obligations in the event of a Member default. Consistent with Section 
805(b) of the Clearing Supervision Act,\16\ 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 providing 
a readily available source of liquidity for NSCC.
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    \16\ See 12 U.S.C. 5464(b).
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    Additionally, Commission Rule 17Ad-22(d)(11),\17\ adopted as part 
of the Clearing Agency Standards,\18\ 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.'' \19\ 
Here, as described above, the renewed credit facility will 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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    \17\ 17 CFR 240.17Ad-22(d)(11).
    \18\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \19\ 17 CFR 240.17Ad-22(d)(11).
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    Finally, Commission Rule 17Ad-22(b)(3),\20\ also adopted as part of 
the Clearing Agency Standards,\21\ requires a central counterparty 
(``CCP''), like NSCC,\22\ to ``establish, implement, maintain and 
enforce written policies and procedures reasonably designed to . . . 
[m]aintain sufficient financial resources to withstand, at a minimum, a 
default by the participant family to which it has the largest exposure 
in extreme but plausible market conditions. . . .'' \23\ Here, as 
described above, NSCC's proposal to enter into a renewed credit 
facility will help it maintain sufficient financial resources to 
withstand, at a minimum, a default by an NSCC Member to which NSCC has 
the largest exposure.
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    \20\ 17 CFR 240.17Ad-22(b)(3).
    \21\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \22\ See FSOC Designation, supra note 6.
    \23\ 17 CFR 240.17Ad-22(b)(3).
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    As described in Item III above, Section 806(e)(1)(G) of the 
Clearing Supervision Act provides that a designated SIFMU 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.\24\ However, Section 806(e)(1)(I) of the Clearing Supervision 
Act allows the Commission to issue a non-objection prior to the 60th 
day.\25\ If the Commission chooses to issue no objection prior to the 
60th day, it must notify the SIFMU in writing that it does not object 
and authorize implementation of the change on an earlier date.\26\ If 
the Commission chooses to object prior to the 60th day, it must 
similarly notify the SIFMU.\27\
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    \24\ See 12 U.S.C. 5465(e)(1)(G).
    \25\ 12 U.S.C. 5465(e)(1)(I).
    \26\ Id.
    \27\ 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 Thursday, May 8, 2014, three business days before 
the existing credit facility is set to expire on Tuesday, May 13, 2014, 
to ensure that there is no period of time that NSCC operates without a 
credit facility.
    For the reasons stated above, the Commission does not object to the 
Advance Notice.

[[Page 27657]]

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\28\ that the Commission does not object to 
the change described in advance notice SR-NSCC-2014-805 and that NSCC 
be and hereby is authorized to implement the change as of the date of 
this notice.
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    \28\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11035 Filed 5-13-14; 8:45 am]
BILLING CODE 8011-01-P


