
[Federal Register Volume 80, Number 199 (Thursday, October 15, 2015)]
[Notices]
[Pages 62121-62123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26151]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76112; File No. SR-NSCC-2015-005]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Permit Trades 
in Eligible Fixed Income Securities Scheduled To Settle on Day After 
Trade Date To Be Processed for Settlement at National Securities 
Clearing Corporation

October 8, 2015.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 7, 2015, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'')

[[Page 62122]]

the proposed rule change as described in Items I, II and III below, 
which Items have been prepared by NSCC. NSCC filed the proposed rule 
change pursuant to section 19(b)(2) \3\ of the Act. 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)(2).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to NSCC's Rules & 
Procedures (``Rules'') in order to permit trades in fixed income 
securities (corporate and municipal bonds, and unit investment trusts, 
collectively ``CMU'') that are scheduled to settle on the day after 
trade date (``T+1'') to settle either through its Continuous Net 
Settlement (``CNS'') system, as described below, or through its Balance 
Order Accounting Operation on a trade-for-trade basis, as described 
below, when eligible for settlement through these services.\4\
---------------------------------------------------------------------------

    \4\ Terms not defined herein are defined in the Rules, available 
at http://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, NSCC 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. 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 Proposed Rule Change

1. Purpose
    CMU transactions that are effected in the over-the-counter markets 
and submitted to NSCC directly by Members on a bilateral basis are 
processed through NSCC's Real Time Trade Matching (``RTTM'') platform. 
Within RTTM, the buy and sell sides of a transaction are validated and 
matched, resulting in a compared trade that is reported to Members. 
This process is called ``trade comparison.''
    Today, with the exception of CMU trades that are submitted to NSCC 
to settle on a timeframe that is shorter than T+2,\5\ CMU trades 
submitted to NSCC through RTTM are first compared within RTTM, and then 
are processed into NSCC's Universal Trade Capture (``UTC'') system, 
where they are checked for eligibility for settlement either through 
NSCC's CNS system \6\ or through its Balance Order Accounting Operation 
on a trade-for-trade basis.\7\ These CMU trades, those that are 
scheduled to settle on a T+2 or longer timeframe, are then processed 
for settlement through the settlement service for which they are 
eligible, i.e. either the CNS system or the Balance Order Accounting 
Operation on a trade-for-trade basis. If a CMU trade is not eligible 
for settlement through either CNS or the Balance Order Accounting 
Operation, or if it is marked as ``comparison-only'' when it is 
submitted to NSCC, it is only processed for trade comparison through 
RTTM and then it must settle away from NSCC.
---------------------------------------------------------------------------

    \5\ The settlement timeframe of a trade, i.e. when the trade 
will settle relative to the trade date, is determined by the 
counterparties to that trade, and is indicated on the trade record 
when the trade is submitted to NSCC.
    \6\ CNS and its operation are described in Rule 11 and Procedure 
VII. Rules, supra note 4. To be eligible for CNS settlement, a 
transaction must be in a security that is eligible for book-entry 
transfer on the books of The Depository Trust Company, and must be 
capable of being processed in the CNS system; for example, 
securities may be ineligible for CNS processing due to certain 
transfer restrictions (e.g., 144A securities) or due to the pendency 
of certain corporate actions.
    \7\ The Balance Order Accounting Operation is described in 
Procedure V. Rules, supra note 4. CMU trades that are processed 
through the Balance Order Accounting Operation are processed on a 
trade-for-trade basis, as described in Section B of Procedure V, 
such that Receive and Deliver Orders, as defined in the Rules, are 
created instructing the counterparties to the transaction to deliver 
or receive a quantity of securities to or from their counterparty to 
that transaction. These transactions are not netted and are not 
subject to NSCC's risk management measures, as NSCC's central 
counterparty guarantee does not attach to these trades.
---------------------------------------------------------------------------

    Today, all CMU trades submitted to NSCC through RTTM that are 
scheduled to settle on T+1 are automatically processed as comparison-
only in RTTM, and must settle away from NSCC. T+1 CMU trades are 
processed this way because, historically, NSCC's systems were not able 
to adequately risk manage CMU trades that settled on this shortened 
timeframe. NSCC is proposing to amend its Rules so that, following 
trade comparison through RTTM, T+1 CMU trades would be processed into 
UTC, where they would be checked for eligibility to settle through 
either CNS or the Balance Order Accounting Operation on a trade-for-
trade basis. If eligible, these CMU trades would settle through the 
settlement service for which they are eligible, i.e. either the CNS 
system or the Balance Order Accounting Operation on a trade-for-trade 
basis.
    Pursuant to Addendum K of the Rules, NSCC guarantees the completion 
of CNS settling trades that have reached the later of midnight of T+1 
or midnight of the day they are reported to Members, and guarantees the 
completion of shortened process trades, such as same-day and next-day 
settling trades, upon comparison or trade recording processing.\8\ 
Therefore, for those T+1 CMU trades that are eligible for settlement 
through CNS, NSCC would guarantee the completion of these trades upon 
comparison or trade recording processing. T+1 CMU trades that settle 
through CNS would be subject to all appropriate risk management 
measures and margining, pursuant to the existing risk management 
methodology and policies and procedures, including the Specified 
Activity charge component of its Clearing Fund charges, which applies 
to trades settling at NSCC on a shortened processing cycle.\9\ NSCC 
estimates that CMU trades that are designated to settle on T+1 and 
would be eligible to settle through CNS represent less than half of a 
percent of all CMU trades processed at NSCC, and less than 2% of the 
total value of all CMU trades processed at NSCC.\10\ In order to 
implement this proposed rule change, NSCC would amend Procedure II 
(Trade Comparison and Recording Service). In particular, these 
amendments would provide that CMU T+1 transactions would be handled in 
the same manner as CMU T+2 trades and trades submitted for regular way 
(or T+3) settlement. Procedure II would also be amended to remove 
reference to CMU T+1 transactions from the section that identifies 
those trades that are accepted by NSCC for comparison-only processing.
---------------------------------------------------------------------------

    \8\ NSCC guarantees the completion of trades that settle through 
CNS pursuant to Addendum K of the Rules. Rules, supra note 4.
    \9\ The components of NSCC's Clearing Fund are described in 
Procedure XV, and the Specified Activity charge is described in 
section I(A)(1)(g) for trades settling through CNS. Rules, supra 
note 4.
    \10\ Based on data from the first quarter of 2015, an 
approximate daily average of 45,000 CMU trades are processed at 
NSCC, with an approximate total daily value of an average of $8.3 
billion. Of the approximate daily average of 45,000 CMU trades 
processed at NSCC, an approximate daily average of 200 CMU trades 
are designated to settle on T+1 and are in securities that are 
eligible for settlement in CNS. Of the approximate daily value of an 
average of $8.3 billion in CMU trades processed at NSCC, CMU trades 
that are designated to settle on T+1 and are in securities that are 
eligible for settlement in CNS have an approximate total daily value 
of an average of $145 million. The average daily CMU transaction 
volume is less than 1% of NSCC's overall daily volume.
---------------------------------------------------------------------------

    Pending Commission approval of this proposed rule change, Members 
would be advised of the implementation date

[[Page 62123]]

through issuance of an NSCC Important Notice
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that NSCC's 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions and to protect investors and the 
public interest.\11\ By permitting additional, eligible transactions to 
settle through CNS or the Balance Order Accounting Operation, and 
receive the benefit of NSCC's settlement services, including, in the 
case of CNS, the central counterparty trade guarantee, the proposal 
would offer protection to investors and the public interest by 
mitigating its Members' settlement risk and counterparty risk with 
respect to those transactions. Therefore, NSCC believes the proposed 
rule change would promote the prompt and accurate clearance and 
settlement of securities transactions by reducing these risks, 
consistent with the requirements of the Act, in particular section 
17A(b)(3)(F), cited above.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule changes would have any 
impact on competition because the proposal would apply equally to all 
NSCC Members that submit CMU trades through NSCC's RTTM service.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received any written comments relating to this 
proposal. NSCC will notify the Commission of any written comments 
received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2015-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2015-005. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of NSCC and on 
DTCC's Web site (http://dtcc.com/legal/sec-rule-filings.aspx). All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSCC-2015-005 and should be 
submitted on or before November 5, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26151 Filed 10-14-15; 8:45 am]
 BILLING CODE 8011-01-P


