
[Federal Register Volume 81, Number 246 (Thursday, December 22, 2016)]
[Notices]
[Pages 93994-94005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30853]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79577; File No. 601-01]


Euroclear Bank SA/NV; Order of the Commission Approving an 
Application To Modify an Existing Exemption From Clearing Agency 
Registration

December 16, 2016

I. Introduction

    Euroclear Bank SA/NV (``EB'') filed with the Securities and 
Exchange Commission (``Commission'') on May 9, 2016, an application on 
Form CA-1 requesting to modify an existing exemption \1\ from 
registration as a clearing agency (``Modification Application'') \2\ 
pursuant to Section 17A \3\ of the Securities Exchange Act of 1934 
(``Exchange Act'') and Rule 17Ab2-1 thereunder.\4\ Notice of EB's 
Modification Application was published for comment in the Federal 
Register on September 6, 2016 (``Modification Application Notice'').\5\ 
The comment period closed on October 6, 2016, and the Commission 
received four comments, all of which were broadly supportive of the 
application.\6\
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    \1\ See Self-Regulatory Organizations; Morgan Guaranty Trust 
Company of New York, Brussels Office, as Operator of the Euroclear 
System; Order Approving Application for Exemption From Registration 
as a Clearing Agency, Exchange Act Release No. 39643 (Feb. 11, 
1998), 63 FR 8232 (Feb. 18, 1998) (``Original Exemption Order''); 
and Self-Regulatory Organizations; Morgan Guaranty Trust Company, 
Brussels Office, as Operator of the Euroclear System and Euroclear 
Bank, S.A.; Order Approving Application to Modify an Existing 
Exemption From Clearing Agency Registration, Exchange Act Release 
No. 43775 (Dec. 28, 2000), 66 FR 819 (Jan. 4, 2001) (``2001 
Exemption Modification Order'') (together the ``Existing 
Exemption'').
    \2\ The descriptions set forth in this notice regarding the 
structure and operations of EB have been derived primarily from 
information contained in EB's amended Form CA-1 application and 
publicly available sources. The redacted Modification Application 
and non-confidential exhibits thereto are available on the 
Commission's Web site.
    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ab2-1.
    \5\ See Euroclear Bank SA/NV; Notice of Filing of Application To 
Modify an Existing Exemption From Clearing Agency Registration, 
Exchange Act Release No. 34-78710 (Aug. 29, 2016), 81 FR 61271 
(Sept. 6, 2016).
    \6\ See letters from Mark Jennis, Managing Director, DTCC (Sept. 
13, 2016) (``DTCC letter''); Oscar A. Huettner, Managing Principal, 
LGM Financial Consulting LLC (Sept. 12, 2016) (``LGM letter''); 
Charles Cascarilla, Chief Executive Officer and Co-Founder, Paxos 
(Oct. 6, 2016) (``Paxos letter''); Kyle Brandon, Managing Director, 
and Robert Toomey, Esq., Managing Director and Associate General 
Counsel, Securities Industry and Financial Markets Association (Oct. 
6, 2016) (``SIFMA letter'').
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    Subject to certain limitations and conditions, the Existing 
Exemption enables EB, as operator of the Euroclear System,\7\ to 
perform the functions of a clearing agency with respect to transactions 
involving certain U.S. government securities \8\ for its U.S. 
participants \9\ without registering as a

[[Page 93995]]

clearing agency (``U.S. Government Securities Clearing Agency 
Activities'').\10\ The Commission originally granted the Existing 
Exemption in 1998 to EB's predecessor, Morgan Guaranty Trust Company of 
New York, Brussels Office (``MGT-Brussels''), as operator of the 
Euroclear System (the Original Exemption Order).\11\ Under the Existing 
Exemption, EB may provide the U.S. Government Securities Clearing 
Agency Activities to U.S. Participants.\12\
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    \7\ ``Euroclear System'' means the securities settlement system 
that has been operated by EB or its predecessor since 1968 and the 
assets, means, and rights related to such services. All services 
performed by EB that relate to securities settlement and custody are 
part of the Euroclear System. See Modification Application, Exhibit 
S-1 at 1.
    \8\ As used herein, the term ``U.S. Government Securities'' has 
the same meaning as the term ``eligible U.S. government securities'' 
used in the Existing Exemption, which consists of government 
securities described in Section 3(a)(42) of the Exchange Act, except 
that it does not include any (i) foreign-targeted U.S. government or 
agency securities or (ii) securities issued or guaranteed by the 
International Bank for Reconstruction and Development (i.e., the 
World Bank) or any other similar international organization, and 
that are (i) Fedwire-eligible U.S. government securities, (ii) 
mortgage-backed pass through securities that are guaranteed by the 
Government National Mortgage Association (``GNMA''), and (iii) any 
collateralized mortgage obligation whose underlying securities are 
Fedwire-eligible U.S. government securities or GNMA guaranteed 
mortgage-backed pass through securities and which are depository 
eligible securities. For reference purposes, Fedwire is a large-
value transfer system operated by the Board of Governors of the 
Federal Reserve System that supports the electronic transfer of 
funds and of book-entry securities. See Original Exemption Order, 
supra note 1, at 8239.
    \9\ As used herein, the term ``U.S. Participant'' refers to any 
Euroclear System participant having a U.S. residence, based upon the 
location of its executive office or principal place of business, 
including, without limitation, (i) a U.S. bank (as defined by 
Section 3(a)(6) of the Exchange Act), (ii) a foreign branch of a 
U.S. bank or U.S.-registered broker-dealer, and (iii) any broker-
dealer registered as such with the Commission, even if such broker-
dealer does not have a U.S. residence.
    \10\ See Original Exemption Order, supra note 1, at 8232.
    \11\ See supra note 1. Before EB replaced MGT-Brussels as the 
operator of the Euroclear System, the Commission approved a 
modification to the Original Exemption Order to reflect the change 
in control of the Euroclear System from MGT-Brussels to EB. See 2001 
Exemption Modification Order, supra note 1.
    \12\ See Original Exemption Order, supra note 1, at 8239.
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    In the Modification Application, EB has requested that the 
Commission broaden the Existing Exemption to permit EB to perform 
certain additional clearing agency services (such as certain central 
securities depository (``CSD'') services \13\ and collateral management 
services) for equity securities issued by U.S. Issuers (``U.S. Equity 
Securities'') for its U.S. Participants to fulfill certain collateral 
obligations. The Modification Application specifies these additional 
clearing agency functions, referred to herein as the ``U.S. Equities 
Clearing Agency Activities,'' as follows:
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    \13\ As used herein, the term ``CSD services'' has the meaning 
set forth in 17 CFR 240.17Ad-22(a)(3). See Exchange Act Release No. 
34-78961 (Sept. 28, 2016), 81 FR 70786, 70901 (Oct. 13, 2016) 
(adopting final rules that, among other things, move the definition 
of ``central securities depository services'' from Rule 17Ad-
22(a)(2) to (a)(3)).

    (a) The provision of clearing agency services (such as certain 
CSD services and collateral management services) in relation to U.S. 
Participants' use and reuse of U.S. Equity Securities issued by U.S. 
Issuers in support of collateral obligations utilizing the 
collateral management services provided by EB in relation to any 
securities or cash account held at EB that is used to receive 
collateral (``Collateral Accounts'') in connection with the services 
described in (b) below and in connection with receipt and delivery 
from other Euroclear System participants that are users of such 
collateral management services provided by EB; and
    (b) solely for the purpose of implementing the services 
described in (a) above, the provision of certain clearing agency 
services for U.S. Participants' receipt and delivery of U.S. Equity 
Securities in relation to collateral management services through 
accounts held at EB that are linked to EB's account held at DTC.\14\
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    \14\ See Modification Application, Exhibit S-1, at 40.

EB's clearing agency functions under the U.S. Equities Clearing Agency 
Activities will therefore entail only the movement of U.S. Equity 
Securities for collateral management purposes, as opposed to the 
relatively broader range of clearing agency functions permitted under 
the U.S. Government Securities Clearing Agency Activities. For example, 
the U.S. Government Securities Clearing Agency Activities include the 
settlement of purchase and sale transactions in U.S. Government 
Securities as well as the movement of U.S. Government Securities for 
collateral management purposes.
    To facilitate the movement of U.S. Equity Securities for collateral 
management purposes, Euroclear SA/NV (``ESA''), the parent company of 
EB, and The Depository Trust and Clearing Corporation (``DTCC'') have 
entered into a joint venture known as DTCC-Euroclear Global Collateral 
Ltd. (``DEGCL''). As further described in Part II.D, DEGCL would 
provide an inventory management service (``JV-IMS'') to facilitate, 
among other things, the repositioning and crediting of assets necessary 
to perform the U.S. Equities Clearing Agency Activities.
    EB has requested that it be permitted to provide the U.S. Equities 
Clearing Agency Activities without registering as a clearing agency and 
subject to the applicable conditions specified below. In addition, EB 
has requested that it be permitted to continue providing the U.S. 
Government Securities Clearing Agency Activities without registering as 
a clearing agency and under substantially the same conditions as those 
set forth in the Existing Exemption. After careful review of the 
comments received and the details and information provided in the 
Modification Application, the Commission concludes that it has 
sufficient information to decide whether the Modification Application 
should be approved. For the reasons discussed below, the Commission 
believes the Modification Application is consistent with the public 
interest, the protection of investors, and the purposes of Section 17A, 
and therefore grants EB's request to modify the Existing Exemption, 
subject to the conditions and limitations described further below.

II. Summary of EB's Organization, Current Activities, and the 
Modification Application

A. Organization and Supervision

    EB is a limited liability company headquartered in Brussels, 
Belgium,\15\ organized under the laws of Belgium, and authorized in 
Belgium as a Belgian credit institution. EB is an international CSD and 
a global provider of clearance, settlement, collateral management, and 
related services. In particular, EB provides its participants with a 
means of acquiring, holding, transferring, and pledging security 
entitlements by electronic book-entry on its records outside of the 
U.S., either free-of-payment or against payment, in multiple 
currencies.\16\
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    \15\ EB also has a secondary office in Braine l'Alleund, 
Belgium, branch offices in Wanchai, Hong Kong and Krakow, Poland, 
and a representative office in New York City. See Modification 
Application, Exhibit I-1.
    \16\ See Modification Application, Exhibit S-1 at 3.
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    EB is part of a group of companies that serve as market 
infrastructures by offering clearing agency services to the domestic 
markets in Belgium, Netherlands, France, England, Ireland, Sweden, and 
Finland (collectively with EB, the ``Euroclear Group'').\17\ CSD 
entities in the Euroclear Group are subsidiaries of ESA, a Belgian 
limited liability company.\18\ Control and direction of the Euroclear 
Group strategic decisions are vested in ESA. ESA provides common 
services to EB and other affiliated companies of the Euroclear 
Group.\19\ ESA maintains intercompany agreements with EB that set forth 
respective services and obligations.\20\
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    \17\ In 2015, the Euroclear Group had assets under custody of 
[euro]27.5 trillion, turnover equivalent to [euro]674.7 trillion, 
and a settlement volume of 190.7 million netted transactions. 
Euroclear Group's collateral management platform, the Collateral 
Highway, processed collateralized transactions in 2015 for an amount 
of [euro]1.068 trillion on a daily basis. See Modification 
Application, Exhibit S-1 at 3.
    \18\ See Modification Application, Exhibit A-2.
    \19\ See Modification Application, Exhibit S-1 at 3.
    \20\ Id.
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    As previously noted, all services performed by EB that relate to 
securities settlement and custody are part of the Euroclear System, 
which is designated as a securities settlement system under the Belgian 
Settlement Finality Act.\21\ According to EB, Belgian law provides for 
robust asset protection rights for assets deposited in the Euroclear 
System and for the protection of the holding of assets on the books of 
EB.\22\ EB further

[[Page 93996]]

represents that Belgian law and EB's arrangements provide a high degree 
of certainty with regards to finality of transfers on EB's books, the 
holding of collateral in accounts, the contractual framework of 
participants in the Euroclear System, and default procedures.\23\
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    \21\ See Modification Application, Exhibit K-5 at 22.
    \22\ See Modification Application, Exhibit S-1 at 35.
    \23\ See Modification Application, Exhibit S-1 at 35.
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    To utilize the Euroclear System, EB participants enter into a 
contractual relationship with EB to open and maintain securities and 
cash accounts at EB.\24\ EB participants agree that their rights to 
assets held in the Euroclear System are defined and governed by Belgian 
law.\25\ EB states that, under Belgian law, EB generally is the 
beneficiary of a statutory lien on assets in accounts held at EB to 
secure any claim it has against EB participants arising in connection 
with the clearance or the settlement of transactions through, or in 
connection with, the Euroclear System, including claims resulting from 
loans or advances.\26\
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    \24\ See Modification Application, Exhibit J.
    \25\ Specifically, EB represents that EB participants' rights in 
securities held in the Euroclear System are defined and governed by 
Belgian Royal Decree No. 62 dated Nov. 10, 1967 on the Deposit of 
Fungible Financial Instruments and the Settlement of Transactions 
involving such Instruments or similar Belgian legislation. EB states 
that the applicable Belgian law is effectively similar to securities 
entitlements under Revised Article 8 of the Uniform Commercial Code. 
See Modification Application, Exhibit S-1 at 36.
    \26\ See Modification Application, Exhibit E-5 at 34.
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    EB represents that it is subject to consolidated supervision by the 
National Bank of Belgium (``NBB'') and the Belgian Financial Services 
Market Authority (``FSMA'').\27\ EB also represents that NBB supervises 
ESA, due to its status as an authorized holding company of a regulated 
credit institution (i.e., EB) and as an institution assimilated to a 
securities settlement system (i.e., the Euroclear System).\28\
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    \27\ See Modification Application, Exhibit S-1 at 20.
    \28\ See Modification Application, Exhibit S-1 at 20. According 
to EB, pursuant to Article 20, Sec.  2 of the Belgian Royal Decree 
of September 26, 2005, institutions assimilated to a settlement 
institution may not have shareholdings in commercial companies 
without the prior approval of the NBB, unless the shareholding is 
taken in companies whose activities consist, in whole or in part, in 
the activities that a settlement institution or an institution 
assimilated thereto may carry out.
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    According to EB, the NBB exercises its supervision over EB and ESA 
on a consolidated basis.\29\ Specifically, the NBB has prudential 
supervision and oversight over EB as a licensed credit institution 
operating in Belgium. Furthermore, the NBB supervises EB in its role as 
operator of the Euroclear System and as a recognized CSD. EB states 
that the NBB is required to ensure: (1) That EB's clearance, 
settlement, and payment systems operate properly; (2) that those 
systems are efficient and sound; and (3) that EB meets the obligations 
applicable to credit institutions under applicable European law, as 
adopted into Belgian law.\30\ EB represents that the NBB has the 
authority to order EB to limit, suspend, or stop activities if EB does 
not comply with the regulatory requirements of its various 
authorizations.\31\ EB also states that the NBB assesses EB under the 
Principles for Financial Market Infrastructures (``PFMI'') and 
considers best practices where appropriate.\32\
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    \29\ Id. In addition, EB is submitted to the Regulation 575/2013 
of 26 June 2013 on prudential requirements for credit institutions 
and investment firms (CRR) IV, and Regulation 909/2014 of 23 July 
2014 on improving securities settlement in the European Union and on 
central securities depositaries (CSDR). See Modification 
Application, Exhibit K-5 at 16.
    \30\ See Modification Application, Exhibit S-1 at 20.
    \31\ Id.
    \32\ See Modification Application, Exhibit S-1 at 20. The PFMI 
are standards applicable to financial market infrastructures, such 
as CSDs and securities settlement systems. Committee on Payment and 
Settlement Systems (now the Committee on Payment and Market 
Infrastructure) and Technical Committee of the International 
Organization of Securities Commissions, Principles for financial 
market infrastructures (Apr. 16, 2012), available at http://www.bis.org/publ/cpss101a.pdf.
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    EB further represents that the FSMA regulates EB for the purposes 
of compliance with investor protection rules and rules on the 
operation, integrity, and transparency of the Belgian financial 
markets.\33\ These include requirements relating to conflicts of 
interest with clients, customer protection in case of insolvencies, and 
enforcement of conduct requirements.
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    \33\ See Modification Application, Exhibit S-1 at 20-21.
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B. Current Activities

    The Existing Exemption permits EB to provide the U.S. Government 
Securities Clearing Agency Activities to U.S. Participants.\34\ Under 
the terms of the Existing Exemption, the Commission places a limit on 
the volume of transactions in U.S. Government Securities conducted by 
U.S. Participants that can be settled through the Euroclear System. 
Specifically, the average daily volume of U.S. Government Securities 
settled through the Euroclear System for U.S. Participants may not 
exceed five percent of the total average daily dollar value of the 
aggregate volume in U.S. Government Securities.\35\ To facilitate the 
monitoring of compliance with the volume limit and the impact of EB's 
operations on the U.S. Government Securities market under the Existing 
Exemption, EB is required to provide the Commission with quarterly 
reports, calculated on a twelve-month rolling basis, of (i) the average 
daily volume of transactions in eligible U.S. Government Securities for 
U.S. Participants that are subject to the volume limit and (ii) the 
average daily volume of transactions in eligible U.S. Government 
Securities for all Euroclear System participants, whether or not 
subject to the volume limit.\36\ EB is also required to notify the 
Commission regarding material adverse changes in any account maintained 
in the Euroclear System for U.S. Participants.\37\ In addition, EB is 
required to respond to Commission requests for information regarding 
any U.S. Participant about whom the Commission has financial solvency 
concerns, including, for example, a settlement default by a U.S. 
Participant.\38\ The Commission also requires a satisfactory memorandum 
of understanding with the Belgian banking and securities regulator 
(currently the NBB) to facilitate the provision of information by EB to 
the Commission.\39\
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    \34\ See Original Exemption Order, supra note 1, at 8239.
    \35\ See id. at 8239.
    \36\ See Original Exemption Order, supra note 1, at 8240. EB's 
non-U.S. participants are not subject to any restrictions under the 
Existing Exemption.
    \37\ For purposes of the Original Exemption Order, the term 
``material adverse changes'' included (i) the termination of any 
U.S. Participant; (ii) the liquidation of any securities collateral 
pledged by a U.S. Participant to secure an extension of credit made 
through the Euroclear System; (iii) the institution of any 
proceedings to have a U.S. Participant declared insolvent or 
bankrupt; or (iv) the disruption or failure in whole or in part in 
the operations of the Euroclear System either at its regular 
operating location or at its contingency center. See Original 
Exemption Order, supra note 1, at 8240, n.78.
    \38\ See Original Exemption Order, supra note 1, at 8240.
    \39\ See 2001 Exemption Modification Order, supra note 1, at 
821; see also Understanding Regarding an Application of Euroclear 
Bank for an Exemption Under U.S. Federal Securities Laws (January 
30, 2001) available at https://www.nbb.be/doc/cp/nl/aboutcbfa/mou/pdf/mou_2001-01-30_euroclearbank.pdf.
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    EB participants are able to utilize various clearance and 
settlement services through the Euroclear System.\40\ Among those 
services are the EB collateral management services (``EB-CMS''), which 
provide a framework for exchanging collateral to fulfill bilateral 
obligations between counterparties.\41\ Parties to bilateral 
arrangements that require the posting of collateral by one party 
(``Collateral Giver'') in favor of the other party

[[Page 93997]]

(``Collateral Taker'') may use the EB-CMS to secure credit exposures 
arising under such bilateral arrangements. The terms of such bilateral 
arrangements and related collateral needs (including the credit 
exposure, collateral requirements, and collateral terms) are negotiated 
and agreed between the parties independently of EB. After such 
arrangements are agreed, the parties then enter into an agreement with 
EB to provide the EB-CMS.
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    \40\ See Modification Application, Ex. J.
    \41\ See Modification Application, Ex. S-1 at 3.
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    EB states that its non-U.S. participants use the EB-CMS to meet 
collateral obligations with a variety of assets, including U.S. 
Government Securities and U.S. Equity Securities.\42\ EB also 
represents that U.S. Participants currently use the EB-CMS to meet 
collateral obligations with a wide variety of assets including U.S. 
Government Securities, but not including U.S. Equity Securities, as EB 
prohibits U.S. Participants from holding U.S. Equity Securities in an 
account at EB for any purpose as part of its contractual documentation 
with its participants, consistent with the terms of the Existing 
Exemption (``Current Equities Restrictions'').\43\ EB represents that 
automated systems protocols and control procedures are implemented in 
the Euroclear System to enforce the Current Equities Restrictions. The 
systems protocols consist of coded validation rules that are part of 
EB's fully automated and standard processes that run prior to the 
settlement of any securities movement to or from an account held at 
EB.\44\
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    \42\ See Modification Application, Exhibit S-1 at 34.
    \43\ Id. EB's customer contracts provide that: ``Due to 
restrictions imposed on Euroclear Bank by the United States 
Securities and Exchange Commission (S.E.C.) following SEC Rule 
17Ab2-1, equities, ETFs and REITs issued by companies incorporated 
in a state or territory of the United States can be held in 
Euroclear Bank by non-US Participants only.'' See Modification 
Application, Exhibit S-1 at 6.
    \44\ See Modification Application, Exhibit S-1 at 34.
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C. Modification Application

    EB has requested that the Commission broaden the Existing Exemption 
to allow it to provide the EB-CMS to its U.S. Participants using U.S. 
Equity Securities. Specifically, EB has requested that the Commission: 
(1) Continue the Existing Exemption under substantially similar 
conditions except as otherwise specified herein, (2) broaden the 
Existing Exemption to allow EB to provide the U.S. Equities Clearing 
Agency Activities under new conditions applicable to those activities, 
and (3) apply conditions to EB that are largely harmonized between the 
U.S. Government Securities Clearing Agency Activities and U.S. Equities 
Clearing Agency Activities (collectively, the ``Clearing Agency 
Activities'').\45\ Below the Commission discusses each of these 
requests in turn.
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    \45\ In harmonizing the conditions between the Clearing Agency 
Activities, new operational risk conditions, set forth in Part IV.C, 
and certain additional other conditions, set forth in Part IV.D, 
would also apply to the U.S. Government Securities Clearing Agency 
Activities.
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    First, EB has requested that the Commission continue the Existing 
Exemption to conduct the U.S. Government Securities Clearing Agency 
Activities without: (i) Requiring EB to register as a clearing agency 
with the Commission; (ii) changing the definition of the terms U.S. 
Government Securities or U.S. Participants, as set forth in the 
Existing Exemption; or (iii) changing the conditions set forth in the 
Existing Exemption with regards to the U.S. Government Securities 
Clearing Agency Activities, listed below:

    (a) Volume Limit. The average daily volume of transactions in 
eligible U.S. Government Securities for U.S. Participants processed 
through EB as operator of the Euroclear System may not exceed five 
percent of the total average daily dollar value of the aggregate 
volume in eligible U.S. Government Securities.
    (b) Commission Access to Information regarding U.S. Government 
Securities Clearing Agency Activities. EB will continue to provide 
the Commission with quarterly reports, calculated on a twelve-month 
rolling basis, of (a) the average daily volume of transactions in 
eligible U.S. Government Securities for U.S. Participants that are 
subject to the volume limit as described in Section IV.C.2 of the 
Original Exemption Order and (b) the average daily volume of 
transactions in eligible government securities for all Euroclear 
System participants, whether or not subject to the volume limit as 
described in Section IV.C.2 of the Original Exemption Order.\46\
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    \46\ See Modification Application, Exhibit S-1 at 39.

    Second, EB has requested that the following conditions of the 
Existing Exemption with regards to the U.S. Government Securities 
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Clearing Agency Activities be replaced and superseded:

    (a) The obligations in Section IV.C.3 of the Original Exemption 
Order to provide disclosure documents to the Commission;
    (b) the obligations in Section IV.C.3 of the Original Exemption 
Order to file with the Commission amendments to its application for 
exemption on Form CA-1; and
    (c) the obligations in Section IV.C.3 of the Original Exemption 
Order to notify the Commission regarding material adverse changes in 
any account maintained by Euroclear for its U.S. Participants and to 
respond to a Commission request for information about any U.S. 
Participant about whom the Commission has financial solvency 
concerns.\47\
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    \47\ See id.

The conditions set forth in Part IV.D would replace the above and 
include, among other things, substantially similar obligations to the 
above.
    Third, EB has requested that the Commission permit EB to provide, 
without registering as a clearing agency with the Commission, the U.S. 
Equities Clearing Agency Activities, subject to certain conditions. As 
described in the Modification Application, EB's provision of U.S. 
Equities Clearing Agency Activities would entail activities such as 
custody and safekeeping,\48\ settlement,\49\ and asset servicing \50\ 
on behalf of U.S. Participants with respect to U.S. Equity Securities. 
For example, EB would maintain securities accounts on its books,\51\ 
provide safekeeping of and recordkeeping for those securities 
accounts,\52\ settle instructions by participants,\53\ and provide 
recordkeeping and reporting in real time on the status of settlement to 
participants.\54\ EB also would process corporate actions as part of 
its asset servicing business for any U.S. Equity Securities that remain 
in EB's account held at DTC on the record date.\55\
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    \48\ See Modification Application, Exhibit S-1 at 4.
    \49\ See Modification Application, Exhibit S-1 at 5.
    \50\ See Modification Application, Exhibit S-1 at J-3.
    \51\ See Modification Application, Exhibit S-1 at 2.
    \52\ See Modification Application, Exhibit K-5 at 80-81.
    \53\ See Modification Application, Exhibit K-5 at 76, 83.
    \54\ See Modification Application, Exhibit K-5 at 76.
    \55\ See Modification Application, Exhibit J-3.
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    The EB-CMS would be offered to U.S. Participants in support of 
their obligations under security-based swap transactions, securities 
lending transactions, and repurchase agreements, among other 
transactions.\56\ The EB-CMS would independently verify that the 
collateral proposed and provided by the Collateral Giver meets the 
terms reported by the counterparties for the duration of the collateral 
obligation.\57\ EB would do this by calculating the exchange of value 
necessary to meet the collateral obligation information entered in by 
the users of the EB-CMS, including by making value determinations, such 
as marking to market the value of the

[[Page 93998]]

collateral based on reference data.\58\ Also, EB would generate 
instructions and communicate the instructions to EB's settlement 
processing infrastructure to transfer collateral among the Collateral 
Accounts.\59\ Under the Existing Exemption, EB may already offer the 
EB-CMS for U.S. Government Securities to U.S. Participants, but EB may 
only offer the EB-CMS for U.S. Equity Securities to its non-U.S. 
participants, because non-U.S. participants are not covered by the 
scope of the Existing Exemption.
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    \56\ See, e.g., Modification Application, Exhibit P-2 
(describing necessary revisions to its Operating Procedures related 
to collateral services, derivatives services, loan services, 
repurchase services, and securities lending services arising out of 
the proposed U.S. Equities Clearing Agency Activities).
    \57\ See Modification Application, Exhibit J-3.
    \58\ See Modification Application, Exhibit K-5 at 60 
(referencing obtaining the market value of a security. The EB-CMS 
system does not apply any further haircuts or adjustments once the 
market value is obtained from third party data providers); see also 
Euroclear plc, Risk Management at Euroclear: Including Pillar 3 
Disclosure 2012--Euroclear plc, at 43 (2012) (``Securities for which 
Euroclear Bank does not obtain external quotations regularly can 
also be valued according to the price associated with securities 
transactions in the Euroclear system, or according to theoretical 
models.''), available at https://www.euroclear.com/dam/Brochures/Pillar3_2012.pdf.
    \59\ See Modification Application, Exhibit J-3.
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D. Collateral Regulations and Related Infrastructure

    According to the Modification Application, new and enhanced 
regulatory requirements (``New Collateral Regulations'') are leading 
counterparties to derivative and financing transactions to seek 
streamlined margin processing and increased efficiency in the 
availability and deployment of collateral.\60\ These New Collateral 
Regulations are expected to be implemented in the European Union in the 
near future.\61\ EB states that the regulatory changes include new 
restrictions on eligible collateral, requiring the use of highly liquid 
assets, prescribed haircuts, and segregation requirements, as well as a 
prohibition on rehypothecation for initial margin. EB believes that, 
when fully implemented, the New Collateral Regulations will result in 
increased capital requirements, mandatory central clearing of more 
derivative transactions, and new margining rules for bilateral trades, 
which will increase demand for high quality collateral. EB projects 
that the requirement for more transactions and exposures to be 
collateralized globally will result in a significant increase in the 
number of required collateral movements between market participants, 
which will have implications for counterparty credit risk, funding and 
capital charges, and reputational and operational risk.
---------------------------------------------------------------------------

    \60\ See Modification Application, Exhibit S-1 at 6.
    \61\ Id.; see also Peter Madigan, EU non-cleared margin regime 
set to take effect in January 2017, Risk.net (Sept. 27, 2016) 
(regarding the adoption and implementation of the draft Regulatory 
Technical Standards on risk mitigation techniques for non-centrally 
cleared OTC derivatives), available at http://www.risk.net/risk-magazine/news/2472246/eu-non-cleared-margin-regime-set-to-take-effect-in-january-2017.
---------------------------------------------------------------------------

    EB also represents that these regulatory changes include 
requirements for initial margin for counterparties to certain 
derivative and financing transactions, as well as a reduction or 
removal of unsecured thresholds for variation margin. EB expects that 
these new initial margin requirements will significantly increase the 
amount of collateral required to support a number of derivative and 
financing transactions. In addition, EB represents that it is expected 
that the removal or reduction of unsecured thresholds for variation 
margin will mean any changes in underlying transaction valuations may 
trigger increased margin calls, requiring market participants to hold 
additional collateral available for posting.
    EB represents that the New Collateral Regulations therefore are 
expected to greatly increase the complexity of collateral management 
and create new competition for collateral.\62\ Industry research cited 
by EB indicates that as these regulatory changes take effect, the 
volume of required collateral movements will increase and the number of 
collateral settlement fails and associated costs are likely to rise 
proportionally.\63\ EB has requested to broaden its exempt clearing 
agency activities for the purpose of assisting its participants' 
compliance with these regulations, which, as stated earlier, are 
scheduled to take effect in the near future and which will 
significantly affect the use of collateral. In connection with its 
request, EB has taken preparatory measures to create the infrastructure 
necessary to accommodate the U.S. Equities Clearing Agency Activities, 
including the formation in 2014 of DEGCL, the joint venture between 
Euroclear and DTCC. DEGCL describes itself as an open architecture 
infrastructure designed to streamline collateral processing globally, 
providing solutions for both over-the-counter derivatives and financing 
that deliver transparency, collateral mobility, efficiency, and 
security through its utility offerings.\64\ DEGCL is authorized as a 
service company by the Financial Conduct Authority (``FCA'') in the 
United Kingdom.\65\ EB represents that DEGCL seeks to provide services 
to its users, including buy-side and sell-side financial institutions, 
in meeting their risk management and regulatory requirements for the 
holding and exchange of collateral as required by the New Collateral 
Regulations.\66\ These services will be offered to users located 
primarily in Europe and the U.S.\67\
---------------------------------------------------------------------------

    \62\ EB states that collateral movements will need to be tracked 
and applied against a growing number and type of credit support 
documentation, while segregation rules will multiply the number of 
collateral accounts needed and correspondingly increase the 
complexity of accurately processing collateral movements across 
account types, fragmented central clearing, and collateral delivery 
channels. See Modification Application, Exhibit S-1 at 7; see also 
Implications of Collateral Settlement Fails: An Industry Perspective 
on Bilateral OTC Derivatives (Feb. 2016), available at http://www.imas.org.sg/uploads/media/2016/03/03/1046_Implications_of_Collateral_Settlement__FINAL.pdf 
(``Implications of Collateral Settlement Fails''); Collateral 
Management in Europe: Searching for Central Intelligence (May 2015), 
available at https://www.euroclear.com/dam/Brochures/Euroclear-Collateral-Management-Aite-Paper.pdf; The Economics of Collateral 
(Dec. 2013), available at http://dtcc.com/~/media/Files/Downloads/ 
WhitePapers/LSE%20Report.ashx.
    \63\ See, e.g., Implications of Collateral Settlement Fails, 
supra note 61, at 5.
    \64\ See ``State street to pilot GlobalCollateral ltd's margin 
settlement messaging service,'' DEGCL Press Release (July 11, 2016), 
available at http://www.globalcollateral.net/press5-statestreet.html.
    \65\ DEGCL's reference number as an authorized service company 
is 686269. See FCA Financial Services Register, available at https://www.fca.org.uk/register.
    \66\ See Modification Application, Exhibit S-1 at 7.
    \67\ See id.
---------------------------------------------------------------------------

    With respect to the U.S. Equities Clearing Agency Activities, DEGCL 
will facilitate a U.S. Participant's repositioning of assets in U.S. 
Participant-held accounts at The Depository Trust Company (``DTC'') for 
use in the U.S. Participant's corresponding Collateral Account at EB in 
the EB-CMS. In particular, these activities will be provided by the JV-
IMS, a DEGCL service offering that, according to DEGCL, will automate 
certain collateral management tasks, reposition inventory across 
settlement locations in the U.S. and Europe, and thereby make 
collateral more readily available.\68\ EB represents that the JV-IMS 
would provide an automated mechanism for an entity that is both a 
participant of EB and DTC (``JV-IMS User'') \69\ to receive 
recommendations on how to reposition assets in the JV-IMS User's 
account held at DTC, including U.S. Equity Securities, for subsequent 
crediting of those assets to its Collateral Accounts within the EB-CMS 
(and for the return of such assets to the JV-IMS User's account held at 
DTC). To facilitate the JV-IMS, EB will become a participant at DTC, 
subject to

[[Page 93999]]

approval by DTC, its standard membership requirements and certain 
heightened requirements for a non-U.S. entity.\70\
---------------------------------------------------------------------------

    \68\ See Modification Application, Exhibit S-1 at 8; ``State 
street to pilot GlobalCollateral ltd's margin settlement messaging 
service,'' DEGCL Press Release (July 11, 2016), available at: http://www.globalcollateral.net/press5-statestreet.html.
    \69\ See id.
    \70\ EB has signed a DTC Participant's Agreement pursuant to 
which it agreed that the DTC rules shall be a part of the terms and 
conditions of every contract or transaction that EB may make or have 
with DTC. See id.; see also DTC Policy Statements on the Admissions 
of Participants (June 2013).
---------------------------------------------------------------------------

    To initially establish its sub-account held at DTC for the JV-IMS 
prior to its initial use, a JV-IMS User will set parameters that 
specify which types of assets in its account held at DTC (and in what 
amounts) it will make available for the JV-IMS, including any limits or 
criteria on those assets (such as ratings).\71\ The JV-IMS User will 
then transfer assets that meet the parameters to a sub-account held at 
DTC that is designated for, and dedicated to, the JV-IMS. The JV-IMS 
will then monitor that information and independently verify that the 
assets identified by the JV-IMS User meet its own parameters, as well 
as the EB eligibility requirements (such as an accepted CUSIP number). 
If so, the JV-IMS will prepare and submit to EB free-of-payment 
delivery instructions (which EB will in turn submit to DTC on the JV-
IMS User's behalf) to transfer the assets identified by the JV-IMS User 
in its designated sub-account held at DTC to EB's account held at 
DTC.\72\ The JV-IMS will also prepare and submit instructions to EB to 
credit such transferred assets from EB's account held at DTC to the 
relevant JV-IMS User's Collateral Accounts.
---------------------------------------------------------------------------

    \71\ See Modification Application, Exhibit S-1 at 8.
    \72\ This process is subject to DTC rules governing EB's role in 
repositioning assets. See Self-Regulatory Organizations; The 
Depository Trust Company; Order Approving Proposed Rule Change to 
Establish a Link with Euroclear, Exchange Act Release No. 78358 
(July 19, 2016), 81 FR 48482 (July 25, 2016) (``DTC EB Link Rule'').
---------------------------------------------------------------------------

    Additionally, the JV-IMS would facilitate the automated return of 
such assets to the JV-IMS User's account held at DTC when necessary to 
meet other settlement obligations and for corporate actions by 
preparing and submitting to EB (for eventual forwarding by EB to DTC) 
free-of-payment delivery instructions to transfer such assets from EB's 
account held at DTC to the relevant JV-IMS User's sub-account held at 
DTC. Finally, the JV-IMS would report to the JV-IMS User all settlement 
instructions generated via the JV-IMS, the status of the generated 
settlement instructions, and other relevant information in regards to 
such settlement instructions. All of the foregoing would be subject to 
the DTC rules regarding a link with EB that was approved by the 
Commission in July 2016.\73\
---------------------------------------------------------------------------

    \73\ See id.
---------------------------------------------------------------------------

    After the JV-IMS User's assets are credited to EB's account held at 
DTC via the JV-IMS processes described above, the assets would then be 
credited to the Collateral Accounts for the relevant EB 
participant.\74\ As stated above, with respect to the U.S. Equities 
Clearing Agency Activities, EB's internal protocols would structure 
these Collateral Accounts to allow U.S. Participants to: (1) Take 
receipt of U.S. Equity Securities credited to the account via the JV-
IMS process described immediately above; (2) deliver U.S. Equity 
Securities out of the Collateral Accounts for mobilization as 
collateral through the EB-CMS infrastructure and to receive U.S. Equity 
Securities into the Collateral Accounts mobilized from other 
participants of the EB-CMS; and (3) deliver U.S. Equity Securities back 
to the relevant JV-IMS User's sub-account at DTC. EB represents that 
these transfer and use restrictions on Collateral Accounts would 
prevent a U.S. Participant's U.S. Equity Securities held in Collateral 
Accounts from being used for any other purposes in the Euroclear 
System, such as normal settlement activity, except under certain 
circumstances involving the default of a Collateral Giver.\75\
---------------------------------------------------------------------------

    \74\ All settlement activity related to the JV-IMS that occurs 
on the books of DTC is governed exclusively by DTC procedures. All 
activity related to the use of assets that occurs on the books of EB 
is governed exclusively by the EB contractual framework. See 
Modification Application, Exhibit S-1 at 9.
    \75\ See Modification Application, Exhibit S-1 at 11.
---------------------------------------------------------------------------

    Currently, non-U.S. JV-IMS Users may move U.S. Equity Securities 
from DTC to EB by transferring the securities to an account held at DTC 
for EB's custodian. Approving the Modification Application would expand 
the options available to non-U.S. participants, such that non-U.S. JV-
IMS Users holding U.S. Equity Securities at DTC could also transfer 
U.S. Equity Securities to EB's DTC account. If a user of the EB-CMS 
defaults, either a Collateral Taker or a Collateral Giver can notify EB 
of a default under their bilateral transaction. EB's operations staff 
would then initiate a process to override the regular controls that 
govern use of U.S. Equity Securities as collateral and would instruct 
DTC to debit those securities from EB's DTC Account and to credit them 
to the account held at DTC for EB's custodian, while still being 
credited to the non-defaulting party's account at EB.\76\
---------------------------------------------------------------------------

    \76\ Id.
---------------------------------------------------------------------------

    In the Modification Application, EB has proposed to amend the 
Current Equities Restrictions\77\ to permit the use by U.S. 
Participants of U.S. Equity Securities subject to the transfer and use 
restrictions described above. In all other circumstances, the Current 
Equities Restrictions would otherwise remain applicable.
---------------------------------------------------------------------------

    \77\ See supra Part II.B.
---------------------------------------------------------------------------

III. Discussion

A. Statutory Standards

    Section 17A of the Exchange Act directs the Commission to 
facilitate the establishment of (i) a national system for the prompt 
and accurate clearance and settlement of securities transactions and 
(ii) linked or coordinated facilities for clearance and settlement of 
securities transactions.\78\ In facilitating the establishment of the 
national clearance and settlement system, the Commission must have due 
regard for the public interest, the protection of investors, the 
safeguarding of securities and funds, and maintenance of fair 
competition among brokers and dealers, clearing agencies, and transfer 
agents.\79\ Section 17A(b)(1) of the Exchange Act requires all clearing 
agencies to register with the Commission.\80\ It also states that, upon 
the Commission's motion or upon a clearing agency's application, the 
Commission may conditionally or unconditionally exempt a clearing 
agency from any provision of Section 17A of the Exchange Act or the 
rules or regulations thereunder if the Commission finds that such 
exemption is consistent with the public interest, the protection of 
investors, and the purposes of Section 17A, including the prompt and 
accurate clearance and settlement of securities and funds.\81\ The 
Commission notes that it has previously found an exemption from 
clearing agency registration under Section 17A(b)(1) to be an 
appropriate response in instances where an entity has engaged in a 
limited scope of clearing agency activity.\82\
---------------------------------------------------------------------------

    \78\ See 15 U.S.C. 78q-1(a)(2).
    \79\ See 15 U.S.C. 78q-1(a)(2)(A).
    \80\ See 15 U.S.C. 78q-1(b); 17 CFR 240.17Ab2-1.
    \81\ See 15 U.S.C. 78q-1(b)(1).
    \82\ See Modification Application Notice, supra note 5, at 
61277.
---------------------------------------------------------------------------

B. Comments Received

    The Commission received four comment letters in response to the 
Modification Application Notice.\83\ Commenters included U.S. market 
participants and an industry representative. Among the commenters was 
DTCC, which is the holding company for three clearing agencies 
registered with the Commission and co-

[[Page 94000]]

owner of DEGCL. All of the commenters expressed support for the 
Modification Application.
---------------------------------------------------------------------------

    \83\ See supra note 6.
---------------------------------------------------------------------------

    Each of the commenters stated that the proposed broadening of EB's 
exempted clearing agency activity would benefit U.S. market 
participants. One commenter stated that the Modification Application 
would provide U.S. market participants with more options to meet 
collateral and liquidity demands by providing access to an expanded 
pool of high quality collateral.\84\ The commenter further explained 
that the use of U.S. Equity Securities as collateral by non-U.S. 
participants is common in the European Union, and the Modification 
Application would help provide a level playing field between U.S. 
Participants and non-U.S. participants in the types of U.S. securities 
that can be offered as collateral in the EB-CMS.\85\ Another commenter 
noted that the U.S. Equities Clearing Agency Activities would enable 
U.S. market participants to optimize their management of U.S. Equity 
Securities inventory by effectively and efficiently addressing 
collateral management needs in other markets and time zones.\86\ 
Several commenters also stated that expanding the scope of activity 
under the Existing Exemption to include U.S. Equity Securities would 
result in lower costs for U.S. market participants and more efficient 
capital management.\87\
---------------------------------------------------------------------------

    \84\ See SIFMA letter at 2 (also noting that the Modification 
Application would improve asset mobility for U.S. banks and broker-
dealers engaging in securities financing transactions); see also LGM 
letter at 1 (stating that U.S. institutions would significantly 
benefit from being allowed to use U.S. Equity Securities as 
collateral in the international environment).
    \85\ See SIFMA letter at 2.
    \86\ See Paxos letter at 2-3; see also DTCC letter at 3 (stating 
that the Modification Application would provide U.S participants 
with the ability to optimize collateral globally).
    \87\ See SIFMA letter at 2; DTCC letter at 3; Paxos letter at 3;
---------------------------------------------------------------------------

    Each of the commenters also stated that the U.S. Equities Clearing 
Agency Activities would reduce risk. One commenter stated that the 
Modification Application would reduce systemic risk by supporting more 
efficient allocation of collateral, thus reducing transaction costs and 
the risk of settlement failures.\88\ Another commenter stated that the 
effective management of collateral inventory on a real-time basis, as 
described in the Modification Application, would reduce operational 
risk and increase efficiency.\89\ A third commenter stated that 
allowing U.S. Participants to use U.S. Equity Securities in the EB-CMS 
would reduce settlement and liquidity risks across the broader 
securities markets.\90\
---------------------------------------------------------------------------

    \88\ See SIFMA letter at 3; see also DTCC letter at 3 (stating 
that the JV-IMS will reduce systemic risk by supporting the more 
efficient allocation of collateral, reducing transaction costs and 
the risk of settlement failures.).
    \89\ See Paxos letter at 2.
    \90\ See LGM letter at 1.
---------------------------------------------------------------------------

    In addition, the commenters more generally endorsed the 
Modification Application based on EB's reputation as a market 
infrastructure provider.\91\ One commenter explained that EB provides 
its participants with an efficient means of acquiring, holding, 
transferring, and pledging security entitlements by electronic book 
entry on its records outside the U.S., either free of or versus 
payment, in multiple currencies.\92\ Commenters also noted more 
generally that EB is well-known and well-regulated,\93\ and that it 
operates in a manner consistent with the PFMI.\94\
---------------------------------------------------------------------------

    \91\ See DTCC letter at 3; Paxos letter at 1; SIFMA letter at 3.
    \92\ See Paxos letter at 1.
    \93\ See LGM letter at 2-3.
    \94\ See DTCC letter at 3; Paxos letter at 1; SIFMA letter at 3.
---------------------------------------------------------------------------

    Finally, one commenter expressed views regarding the specific terms 
and conditions in the Modification Application Notice. The commenter 
expressed a favorable view of the Modification Application, stating 
that, given the limited scope of the modification request, and in light 
of the increased transparency that would result from the additional 
monitoring, reporting, and other conditions proposed by EB in the 
Modification Application, the Commission should consider EB compliant 
with applicable regulatory standards.\95\ The commenter also requested 
that the Commission use the proposed reporting conditions to monitor 
the growth of the U.S. Equities Clearing Agency Activities rather than 
establish a fixed volume limit at this time, noting that the proposed 
reporting conditions would provide the Commission with greater 
transparency and broader visibility into cross-border collateral 
management.\96\ In addition, the commenter stated that it did not see 
other providers being disadvantaged by an expansion of EB's exempted 
activity.\97\
---------------------------------------------------------------------------

    \95\ See Paxos letter at 1-2.
    \96\ See id.
    \97\ See id.
---------------------------------------------------------------------------

C. Evaluation of the Modification Application

    With respect to the U.S. Government Securities Clearing Agency 
Activities, the Modification Application does not propose to make any 
material changes to the U.S. Government Securities Clearing Agency 
Activities, and therefore the Commission is not reconsidering the 
appropriateness of an exemption for those activities in this order. In 
addition, EB has represented in the Modification Application that it 
continues to meet the standards previously applied when the Commission 
approved the Existing Exemption,\98\ and for the purposes of its 
consideration of the Modification Application, the Commission is taking 
those representations into account.\99\
---------------------------------------------------------------------------

    \98\ See Modification Application, Exhibit S-1 at 13.
    \99\ The Commission also notes that it has no basis to believe 
that EB has not operated within and otherwise performed in 
accordance with the terms and conditions of the Existing Exemption.
---------------------------------------------------------------------------

    With respect to the U.S. Equities Clearing Agency Activities, the 
Commission believes that, while such activities reflect an expansion of 
the range of securities for which EB may perform clearing agency 
functions relative to the Existing Exemption, those additional clearing 
agency functions would remain limited because EB would necessarily rely 
on its link with DTC to perform them. For example, the Modification 
Application requests only that EB be permitted to settle collateral 
movements involving U.S. Equity Securities and that the settlement of 
those collateral movements occur through the use of dedicated accounts 
at EB and DTC structured so that a U.S. Participant can only: (i) 
Receive U.S. Equity Securities in these accounts; (ii) deliver U.S. 
Equity Securities out of these accounts for mobilization as collateral 
in the EB infrastructure; and (iii) deliver U.S. Equity Securities back 
to the relevant user's account at DTC.\100\ The Modification 
Application does not request that EB be permitted to provide the full 
range of CSD and securities settlement activities for the purchase or 
sale of such securities. Finally, the Commission believes that the 
terms and conditions of the exemption set forth in this order would, as 
noted by one of the commenters,\101\ assist the Commission in 
evaluating and monitoring the U.S. Equities Clearing Agency Activities 
on an ongoing basis to assess, among other considerations, how such 
limited

[[Page 94001]]

activity interacts with other aspects of the national clearance and 
settlement system and whether the exemption and its conditions remain 
appropriate. Accordingly, the Commission believes that an exemption 
subject to the terms and conditions set forth herein, rather than full 
registration as a clearing agency, continues to be the appropriate 
regulatory status for EB.
---------------------------------------------------------------------------

    \100\ See Modification Application, Exhibit S-1, at 9-10.
    \101\ See Paxos letter at 3 (responding to a request for comment 
in the Modification Application Notice regarding whether the 
Commission should include among the conditions for the U.S. Equities 
Clearing Agency Activities a volume limit similar to the volume 
limit under the Existing Exemption that applies to the U.S. 
Government Securities Clearing Agency Activities and stating that a 
fixed volume limit should not be added as a condition). The 
Commission does not believe that such a condition is necessary and 
has declined to include it.
---------------------------------------------------------------------------

    Below, the Commission evaluates EB's request for an exemption from 
registration as a clearing agency for the U.S. Equities Clearing Agency 
Activities under Section 17A(b)(1) of the Exchange Act, including 
whether the Modification Application is consistent with the public 
interest, the protection of investors, and the purposes of Section 17A 
of the Exchange Act. The Commission also describes the specific 
conditions that will be imposed in connection with the approval of EB's 
request for an exemption and explains its rationale for such 
conditions.
1. Facilitating the Establishment of Linked or Coordinated Facilities 
for the Settlement of Transactions
    Congress found that the linking of settlement facilities and the 
development of uniform standards and procedures for settlement will 
reduce unnecessary costs and increase the protection of investors, and 
directed the Commission to use its authority to facilitate the 
establishment of linked or coordinated facilities for settlement of 
transactions in securities.\102\ As previously described, EB will 
perform the U.S. Equities Clearing Agency Activities using settlement 
facilities linked between DTC, a clearing agency registered with the 
Commission, and EB.\103\ For the reasons discussed in the Modification 
Application Notice and as discussed further below, the Commission 
believes that links and coordination between these two settlement 
providers will foster the establishment of uniform standards and 
procedures, which in turn may result in benefits to participants of 
both DTC and EB resulting from such standardization.
---------------------------------------------------------------------------

    \102\ See 15 U.S.C. 78q-1(a)(1)(D), (a)(2)(A)(ii).
    \103\ See Self-Regulatory Organizations; The Depository Trust 
Company; Order Approving Proposed Rule Change to Establish a Link 
with Euroclear, Exchange Act Release No. 34-78358 (July 19, 2016), 
81 FR 48482 (July 25, 2016).
---------------------------------------------------------------------------

    Commenters generally agreed that the proposed link between EB and 
DTC would provide benefits to U.S. market participants. One commenter 
explained that the U.S. Equities Clearing Agency Activities could help 
U.S. market participants optimize the management of their U.S. Equity 
Securities inventory by efficiently addressing management needs in 
other markets and time zones.\104\ Another commenter stated that adding 
the ability to reposition equity assets held at DTC for transactions on 
the books at EB would provide common participants of DTC and EB with 
the ability to optimize collateral globally, reduce costs, and manage 
their balance sheets in a capital efficient manner.\105\ The Commission 
agrees that the greater coordination among settlement providers in 
performing the U.S. Equities Clearing Agency Activities is consistent 
with the public interest because it could facilitate improved asset 
mobilization generally, benefiting U.S. market participants.
---------------------------------------------------------------------------

    \104\ See Paxos letter at 2.
    \105\ See DTCC letter at 3.
---------------------------------------------------------------------------

2. Safeguarding Securities and Funds Related to the Settlement of 
Securities Transactions
    Congress found that the safeguarding of securities and funds 
related to the settlement of securities transactions is necessary for 
the protection of investors, and directed the Commission to have due 
regard for the safeguarding of securities and funds in the use of its 
authority under Section 17A of the Exchange Act.\106\ Accordingly, the 
Commission has reviewed EB's representations with respect to its rules, 
procedures, and controls on the rights of securities issuers and 
holders; the creation of securities positions within client accounts; 
the regular review of such procedures and controls by EB's internal 
audit department and external auditor; the enterprise risk management 
framework EB operates under; and the role that DTC will play as a 
depository for U.S. Equity Securities. As discussed in the Modification 
Application Notice, the Commission has adopted rules under Section 17A 
of the Exchange Act that, among other things, help facilitate the 
safeguarding of funds and securities by registered clearing 
agencies.\107\ For example, the Commission's rules require certain 
registered clearing agencies to have policies and procedures to, among 
other things, immobilize or dematerialize securities certificates and 
transfer them by book entry to the greatest extent possible; eliminate 
principal risk by linking securities transfers to funds transfers; 
identify sources of operational risk and minimize them through the 
development of appropriate systems, controls and procedures; and have 
business continuity plans that allow for timely recovery of operations 
and fulfillment of a clearing agency's obligations.\108\ The Commission 
has also noted that registered clearing agencies develop and maintain 
plans to assure the safeguarding of securities and funds; the integrity 
of automated data processing systems; the recovery of securities, 
funds, or data under a variety of loss or destruction scenarios; and 
have business continuity plans that allow for the timely recovery of 
operations and the fulfillment of a registered clearing agency's 
obligations.\109\
---------------------------------------------------------------------------

    \106\ See 15 U.S.C. 78q-1(a)(1)(A), (2)(A).
    \107\ See 12 CFR 240.17Ad-22(d); 12 CFR 242.1000 et seq.; see 
also 12 CFR 240.17Ad-22(e) (adopted subsequent to publication of the 
Modification Application Notice with a compliance date of April 11, 
2017).
    \108\ See 12 CFR 240.17Ad-22(d)(4), (10), and (13).
    \109\ See Exchange Act Release No. 34-68080 (Oct. 22, 2012), 77 
FR 66219, 66268 (Nov. 2, 2012).
---------------------------------------------------------------------------

    EB has rules and procedures in place to ensure that the creation of 
securities positions is only performed upon receipt of securities to be 
credited to client accounts, and that removal of these securities 
positions is processed without manual intervention and upon final 
maturity or in accordance with a corporate event. Additionally, EB 
represents that it reports movements in client accounts to clients on a 
daily basis, and that it regularly reviews its procedures and 
controls.\110\ EB's risk mitigation practices and internal controls are 
also subject to regulatory oversight by the NBB. The Commission notes 
that commenters also viewed favorably EB's ability to safeguard 
securities and funds, stating that EB is a well-known and well-
regulated market infrastructure provider that operates under 
internationally developed standards,\111\ and that EB has a 40-plus-
year record of efficiently managing settlements and custody across 
numerous markets.\112\ Finally, the conditions set forth below will 
allow the Commission to examine EB and monitor the U.S. Equities 
Clearing Agency Activities so that the Commission can assess any impact 
the activities may have on U.S. market participants and the U.S. 
securities markets. In this respect, the Commission believes that EB's 
operations are consistent with the Commission's current regulatory 
approach to the safeguarding of securities and funds related to the 
settlement of securities transactions, and consistent with the 
protection of investors, because the transfer of securities will take 
place via book entry at EB. As described in the Modification

[[Page 94002]]

Application Notice, the Commission has previously stated its belief 
that the immobilization and dematerialization of securities and their 
transfer by book entry results in reduced costs and risks associated 
with securities settlements and custody by removing the need to hold 
and transfer many, if not most, physical certificates.\113\ 
Accordingly, the Commission believes that approval of the Modification 
Application would be consistent with the public interest and the 
protection of investors generally, and specifically, the safeguarding 
of securities and funds under EB's provision of the U.S. Equities 
Clearing Agency Activities.
---------------------------------------------------------------------------

    \110\ Part of this review includes an International Standard on 
Assurance Engagements 3402 report, which, pursuant to the conditions 
set forth in Part IV.C, will be provided to the Commission on an 
annual basis.
    \111\ See DTC letter at 3; SIFMA letter at 3.
    \112\ See LGM letter at 1.
    \113\ See Exchange Act Release No. 34-68080 (Oct. 22, 2012), 77 
FR 66219, 66253 (Nov. 2, 2012).
---------------------------------------------------------------------------

3. Prompt and Accurate Settlement of Securities Transactions
    Congress found that the prompt and accurate clearance and 
settlement of securities transactions is necessary for the protection 
of investors and that inefficient procedures for settlement imposed 
unnecessary costs on investors.\114\ For the reasons discussed in the 
Modification Application Notice and as discussed further below, the 
Commission believes that approval of the Modification Application would 
promote the prompt and accurate clearance and settlement of securities 
transactions and the protection of investors because EB's settlement 
process is consistent with prior Commission observations regarding 
delivery versus payment (``DVP'') systems. The Commission has 
previously stated that DVP reduces the risk that a party would lose 
some or its entire principal because payment is made only if securities 
are delivered.\115\ The Commission also believes that a DVP method 
reduces the potential that delivery of the security is not 
appropriately matched with payment for a security. Therefore, the 
Commission believes the use of a DVP method promotes the clearing 
agency's ability to facilitate prompt and accurate clearance and 
settlement.\116\ One commenter addressed how EB eliminates the 
principal risk described above in noting that EB currently provides its 
participants with an efficient means of acquiring, holding, 
transferring, and pledging security entitlements by electronic book 
entry on its records outside the U.S., either free of or versus 
payment, in multiple currencies.\117\ The Commission notes that the EB 
system has controls in place requiring the availability of the cash and 
securities before executing instructions (i.e., positioning), 
preventing settlement of the transaction if the cash and/or the 
securities are not available.\118\ These rules and controls help 
address the principal risk inherent in settling linked obligations.
---------------------------------------------------------------------------

    \114\ See 15 U.S.C. 78q-1(a)(1)(A), (B).
    \115\ See 77 FR at 66256.
    \116\ See id.
    \117\ See Paxos letter at 1.
    \118\ In addition, EB represents that the Euroclear System is a 
delivery-versus-payment system, which settles instructions between 
clients with finality of the transfer of securities from the seller 
to the buyer occurring at the same time as the finality of transfer 
of funds from the buyer to the seller.
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    Multiple commenters noted the potential gains in efficiency to be 
had by U.S. Participants if EB were to expand its current services to 
include U.S. Equity Securities. One commenter cited EB's real-time 
management of collateral inventory as being integral to reducing 
operational risk and increasing efficiencies,\119\ while another cited 
positively EB's ability to facilitate the efficient deployment of 
collateral at a time where new regulatory regimes significantly 
increase the demand for high-grade assets.\120\ The Commission believes 
that EB's operations, as represented to the Commission, are conducted 
in a manner that is consistent with the promptness and accuracy 
requirements under Section 17A of the Exchange Act. This will enable 
the efficient transfer of assets, which helps protect investors and 
provides benefits to U.S. market participants.
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    \119\ See Paxos letter at 2.
    \120\ See SIFMA letter at 2.
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4. Maintenance of Fair Competition Among Market Participants
    The Commission is directed to have due regard for the maintenance 
of fair competition in the use of its authority under Section 17A of 
the Exchange Act.\121\ One commenter stated that the Modification 
Application would provide a level playing field between U.S. 
Participants and non-U.S. participants in the types of U.S. securities 
they can offer as collateral in the EB-CMS, noting that the use of U.S. 
Equity Securities as collateral within the EB-CMS is already common 
among EB's non-U.S. participants in the European Union.\122\ Another 
commenter stated that it did not foresee other providers of collateral 
management services to be disadvantaged by approval of EB's 
Modification Application; rather, the commenter expected the 
Modification Application to be beneficial by expanding the options that 
participants and their clients have for addressing collateral 
demands.\123\ The Commission notes that approval will reduce the 
disparity between U.S. Participant and non-U.S. participant utilization 
of the EB-CMS, but the Commission does not believe EB's proposal will 
have a direct impact on the current competitive landscape for the 
provision of settlement of transactions in U.S. Equity Securities for 
U.S. market participants more generally because Euroclear will not 
provide settlement for purchase and sale transactions in U.S. Equity 
Securities. Accordingly, the Commission believes that the Modification 
Application is consistent with Section 17A of the Exchange Act because 
it should facilitate fair competition between U.S. Participants and 
non-U.S. participants, consistent with the public interest, and would 
not prevent U.S. market participants from using other comparable 
services that may be (or become) available.
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    \121\ See 15 U.S.C. 78q-1(a)(2)(A).
    \122\ See SIFMA Letter at 2.
    \123\ See Paxos Letter at 3.
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IV. Terms and Conditions of Exemption

    This order grants EB an exemption from registration as a clearing 
agency under Section 17A of the Exchange Act to perform the Clearing 
Agency Activities described above. The exemption is granted subject to 
the conditions set forth below, which the Commission believes are 
necessary and appropriate in light of the statutory requirements of 
Section 17A. The Commission is including specific conditions to this 
exemption designed to facilitate the establishment of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions and the establishment of linked and coordinated facilities 
for the clearance and settlement of securities transactions. In the 
Modification Application, the Commission discussed the origin and 
purpose of each of these conditions.\124\ The conditions are designed 
to promote coordination, the safeguarding of securities and funds, and 
fair competition among market participants. The conditions replace and 
supersede all conditions set forth in the Existing Exemption.
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    \124\ See Modification Application Notice, supra note 5, at 
61280-81.
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A. Continuation of Conditions Applicable to the U.S. Government 
Securities Clearing Agency Activities

    (1) The average daily volume of eligible U.S. Government Securities 
processed for U.S. Participants through EB as operator of the Euroclear 
System may not exceed five percent of the total average daily dollar 
value of the

[[Page 94003]]

aggregate volume in eligible U.S. Government Securities.
    (2) EB will provide the Commission with quarterly reports, 
calculated on a twelve-month rolling basis, of: (a) The average daily 
volume of transactions in eligible U.S. Government Securities for U.S. 
Participants that are subject to the volume limit; and (b) the average 
daily volume of transactions in eligible U.S. Government Securities for 
all Euroclear System participants.

B. Condition Applicable to the U.S. Equities Clearing Agency Activities

    EB shall provide to the Commission quarterly reports, calculated on 
a twelve-month rolling basis, of: (1) The average daily value of U.S. 
Equity Securities that are held in Collateral Accounts at EB for U.S. 
Participants and a break-down of the general types of EB collateral 
agreements in respect of which such value is given as collateral; (2) 
the average daily value of U.S. Equity Securities that are held in EB's 
account at DTC relating to inventory management services; and (3) the 
total value, and a break-down of the general types of EB collateral 
agreements in respect of which such value is given as collateral, of 
U.S. Equity Securities that are transferred from Collateral Accounts of 
U.S. Participants at EB to other Securities Clearance Accounts at EB 
(other than IMS-Linked Accounts) pursuant to a liquidation of such 
collateral.

C. Operational Risk Conditions Applicable to the Clearing Agency 
Activities

    (1) Prior to commencing the U.S. Equities Clearing Agency 
Activities,\125\ EB shall demonstrate to the Commission that EB 
maintains written policies and procedures applicable to those systems 
that support or are integrally related to the Clearing Agency 
Activities (the ``Systems'') that, on an ongoing basis, are reasonably 
designed to:
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    \125\ In the Modification Application Notice, this condition 
stated: ``EB shall demonstrate to the Commission or its designee 
prior to commencing the U.S. Equities Clearing Agency Activities 
that EB maintains written policies and procedures applicable to 
those systems that support or are integrally related to the Clearing 
Agency Activities (the ``Systems'') that, on an ongoing basis, are 
reasonably designed to.'' The Commission has modified this condition 
to improve clarity. In addition, here and below the Commission has 
removed references to ``or its designee'' because the reference is 
not necessary.
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    (a) Establish a robust operational risk-management framework 
applicable to the Systems with appropriate systems, policies, 
procedures, and controls to identify, monitor, and manage operational 
risks;
    (b) Clearly define the roles and responsibilities of EB personnel 
for addressing operational risk (e.g., identify a senior manager 
responsible for compliance with the operational conditions applicable 
to the Systems);
    (c) Review operational policies, procedures, and controls 
applicable to the Systems;
    (d) Audit the Systems, and test the Systems periodically and at 
implementation of significant changes;
    (e) Clearly define operational reliability objectives for the 
Systems;
    (f) Ensure that the Systems have scalable capacity adequate to 
handle increasing stress volumes and achieve the Systems service-level 
objectives;
    (g) Establish comprehensive physical and information security 
policies that address all potential vulnerabilities and threats to the 
Systems;
    (h) Establish a business continuity plan for the Systems that 
addresses events posing a significant risk of disrupting the Systems' 
operations, including events that could cause a wide-scale or major 
disruption in the provision of the Clearing Agency Activities;
    (i) Incorporate the use of a secondary site in EB's business 
continuity plan that is designed to ensure that the Systems can resume 
operations within two hours following disruptive events; and
    (j) Regularly test or otherwise validate EB's business continuity 
plans; and identify, monitor, and manage the risks that key 
participants, other financial market infrastructures, and service and 
utility providers might pose to the Systems' operations in relation to 
the Clearing Agency Activities.
    (2) For purposes of condition C.1, such policies and procedures 
shall be consistent with current information technology industry 
standards, which shall be comprised of information technology practices 
that are widely available to information technology professionals in 
the financial sector and issued by a widely recognized organization. EB 
shall inform the Commission of the information technology industry 
standards that EB has chosen to use, affirm that choice on an annual 
basis, and provide advance notice of the use of different standards as 
soon as practicable.
    (3) EB shall provide the Commission with an annual update on the 
status of the items set forth in condition C.1.
    (4) EB shall establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to ensure that the Systems 
operate on an ongoing basis in a manner that complies with the 
conditions applicable to the Systems and with EB's rules and governing 
documents applicable to the Clearing Agency Activities.
    (5)(a) Upon EB having a reasonable basis to conclude that a 
disruption, compliance issue, or intrusion of the Systems that impacts, 
or is reasonably likely to impact, the Clearing Agency Activities has 
occurred (a ``Systems Event''), EB shall:
    (i) Take appropriate corrective action, which shall include, at a 
minimum, devoting adequate resources to remedy the Systems Event as 
soon as reasonably practical;
    (ii) Notify the Commission of such Systems Event within 24 hours 
after occurrence;
    (iii) Until such time as a Systems Event is resolved and EB's 
investigation of the Systems Event is closed, provide updates 
pertaining to such Systems Event to the Commission on a regular basis;
    (iv) Within 48 hours after the occurrence of a Systems Event or 
where EB reasonably determines that such deadline cannot be met and so 
notifies the Commission, promptly thereafter, submit an interim written 
notification pertaining to such Systems Event to the Commission 
containing: (A) A detailed description of: The relevant discovery and 
duration times, detection, root cause, and remedial actions taken or 
planned regarding the Systems Event (to the extent known at report 
time); EB's assessment of the entities (including types of market 
participants) and EB services affected by the Systems Event; EB's 
assessment of the impact of the Systems Event on the Participants; and 
any other pertinent information known by the EB about the Systems 
Event; and (B) a copy of any information disseminated to EB's U.S. 
Participants in accordance with EB's notification practices regarding 
the Systems Event;
    (v) Within ten business days after the occurrence of a Systems 
Event, or where EB reasonably determines that such deadline cannot be 
met and so notifies the Commission, promptly thereafter, submit a 
written final report regarding the matters covered in the interim 
report required under (iv) above to the Commission; and
    (vi) For Systems Events characterized as ``Bronze level'' events 
(i.e., a Systems Event in which the incident is clearly understood, 
almost immediately under control, involves only one business unit and/
or entity, and is resolved within a few hours), in lieu of the 
reporting in (i) through (v) above, provide on a quarterly basis an 
aggregated list of Bronze level events.
    (b) As used herein: (i) A ``disruption'' means an event in the 
Systems that

[[Page 94004]]

disrupts, or significantly degrades, the normal operation of the 
Systems in relation to the Clearing Agency Activities; (ii) a 
``compliance issue'' means an event at EB that has caused any System to 
operate in a manner that does not comply with the applicable conditions 
or EB's rules and governing documents applicable to the Clearing Agency 
Activities; and (iii) an ``intrusion'' means any unauthorized entry 
into the Systems in relation to the Clearing Agency Activities.
    (6) EB shall, within 30 calendar days after the end of each 
quarter, submit to the Commission a report describing completed, 
ongoing, and planned material changes to the Systems that support or 
are related to the Clearing Agency Activities during the prior, 
current, and subsequent calendar quarters, including the dates or 
expected dates of commencement and completion. EB shall establish 
reasonable written criteria for identifying a change to the Systems as 
material and report such changes in accordance with such criteria.
    (7) EB shall provide the Commission with: (a) Annually, the audited 
control report made available to EB's Participants prepared in 
accordance with internationally accepted standards for assurance 
reports on controls at a service organization (such as the 
International Standard on Assurance Engagements (ISAE) Standard No. 
3402); (b) annually, copies of those portions of any annual control 
report provided by EB to its primary Belgian regulator that describes 
controls applicable to the Systems as used to support or in relation to 
the Clearing Agency Activities; and (c) copies of agendas, reports and 
presentation materials relating to the capacity, integrity, resiliency, 
availability, and security or compliance of the Systems that are 
provided by EB or its primary Belgian regulator to any committee of 
regulators that implements the memorandum of understanding among 
regulators of Euroclear Group's CSD entities that provides for the 
coordinated and common oversight and supervision of the Euroclear 
Group.
    (8) EB shall make, keep, and preserve at least one copy of all 
documents relating to its compliance with the operational risk 
conditions; keep all such documents for a period of not less than five 
years, the first two years in an easily accessible place (which may be 
located in the European Union); and upon request of the Commission, 
promptly furnish to the possession of the Commission copies of any such 
documents.

D. Additional Conditions Applicable to the Clearing Agency Activities

    (1) EB shall provide to the Commission its annual audited financial 
statements prepared by competent independent audit personnel.
    (2) EB shall notify the Commission of any material changes to any 
service agreement between EB and any other entity that is performing 
Clearing Agency Activities on behalf of EB if such changes are 
reasonably expected to materially affect the Clearing Agency 
Activities.
    (3) EB will notify the Commission (a) promptly following 
termination of any U.S. Participant as a participant in the Euroclear 
System, (b) promptly following the liquidation by EB of any securities 
collateral pledged by a U.S. Participant to EB to secure an extension 
of credit made through the Euroclear System, and (c) promptly following 
EB becoming aware of the institution of any proceedings to have a U.S. 
Participant declared insolvent or bankrupt, and will respond to 
Commission requests for information about any U.S. Participant about 
whom the Commission has financial solvency concerns, including, for 
example, a settlement default by a U.S. Participant.
    (4) EB shall annually provide to the Commission a report 
describing: (a) Material changes to the representations made by EB in 
support of the approval of this Order that would not otherwise require 
amendment of EB's application for exemption on Form CA-1 in accordance 
with these conditions; (b) the functioning of EB's policies and 
procedures for monitoring its own compliance with the conditions of 
this order regarding the Clearing Agency Activities (and the compliance 
of any affiliated or third-party service provider referred to in 
condition D.2); and (c) the management by EB of any conflicts of 
interest of such affiliated or third-party service provider that EB 
becomes aware have arisen since the prior report with respect to the 
performance of the Clearing Agency Activities.
    (5) EB shall keep records relating to the Clearing Agency 
Activities regarding settlement details, account details, service 
agreements, and service notices sent to U.S. Participants pertaining to 
the operation of the Clearing Agency Activities, retain such records 
for a period of not less than five years, the first two years in an 
easily accessible place (which may be located in the European Union), 
and upon request of any representative of the Commission promptly 
furnish, or require its service providers to furnish, copies thereof to 
the possession of such representative.\126\
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    \126\ The Commission has modified this condition to clarify 
that, upon request of any representative of the Commission, EB shall 
promptly furnish, or require its service providers to promptly 
furnish, copies of the records described in the condition to the 
possession of such representative.
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    (6) EB shall respond to and require its service providers to 
respond to a request from the Commission for additional information 
relating to the Clearing Agency Activities and provide access to the 
Commission to conduct on-site inspections of all facilities (including 
automated systems and systems environment), records, and personnel 
related to the Clearing Agency Activities. The request for information 
shall be made and the inspections shall be conducted solely for the 
purpose of reviewing the Clearing Agency Activities' operations and 
compliance with the federal securities laws and the terms and 
conditions in any order exempting EB from registration as a clearing 
agency with regard to the Clearing Agency Activities.
    (7) EB shall file with the Commission amendments to its application 
for exemption on Form CA-1 if it makes any material change to the 
Clearing Agency Activities or any change materially affecting the 
Clearing Agency Activities as summarized in the relevant exemption 
order, EB's amended Form CA-1 or in any subsequently filed amendments 
to its Form CA-1 that would make such previously provided information 
incomplete or inaccurate.

E. Modifications to Exemption

    EB is required to file with the Commission amendments to its 
application for exemption on Form CA-1 if it makes any material change 
affecting the Clearing Agency Activities--as summarized in this order, 
in its application on Form CA-1 dated May 9, 2016, or in any 
subsequently filed amendments to its application on Form CA-1--that 
would make such previously provided information incomplete or 
inaccurate.
    In addition, the Commission may modify by order the terms, scope, 
or conditions of EB's exemption from registration as a clearing agency 
if it determines that such modification is necessary or appropriate in 
the public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Exchange Act. Furthermore, the 
Commission may limit, suspend, or revoke this exemption if it finds 
that EB has violated or is unable to comply with any of the provisions 
set forth in this order if such action is necessary or appropriate in 
the public interest, for

[[Page 94005]]

the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act.

V. Conclusion

    The Commission believes that the Modification Application 
demonstrates that EB will have sufficient operational capabilities to 
facilitate prompt and accurate collateral management services and to 
support the establishment of linked and coordinated facilities for the 
settlement of obligations under its collateral management services in 
support of securities transactions. The Commission also notes that EB's 
exemption will be subject to conditions that are designed to enable the 
Commission to monitor EB's operational capacity and safeguards, 
corporate structure, and ability to operate in a manner to further the 
purposes of Section 17A of the Exchange Act. Further, the conditions 
include a robust set of reporting requirements that will allow the 
Commission to monitor the growth and development of EB's exempted 
clearing agency activities so that the Commission will be well 
positioned to evaluate whether and when any modifications to the terms 
and conditions set forth above are necessary. Therefore, for the 
reasons discussed throughout this order, the Commission finds that the 
Modification Application is consistent with the public interest, the 
protection of investors, and the purposes of Section 17A of the 
Exchange Act.
    It is hereby ordered, pursuant to Section 17A(b)(1) of the Exchange 
Act, that the application for a modification of EB's exemption from 
registration as a clearing agency under Section 17A(b)(1) of the 
Exchange Act filed by EB on May 9, 2016 (File No. 601-01) be, and 
hereby is, approved within the scope described in this order and 
subject to the terms and conditions contained in this order.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016-30853 Filed 12-21-16; 8:45 am]
 BILLING CODE 8011-01-P


