
[Federal Register Volume 83, Number 240 (Friday, December 14, 2018)]
[Notices]
[Pages 64393-64397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27081]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No 34-84771; File No. SR-NSCC-2018-012]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Amend Certain Fees Relating to Mutual Fund Services, and 
Insurance and Retirement Processing Services

December 10, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 26, 2018, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the clearing agency. 
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rules 19b-4(f)(2) and (f)(4) thereunder.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2) and (f)(4).
---------------------------------------------------------------------------

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

    The proposed rule change consists of modifications to Addendum A 
(Fee Structure) (``Addendum A'') of NSCC's Rules & Procedures 
(``Rules'') in order to make certain adjustments and clarifications in 
the fee provisions for NSCC's Mutual Fund Services (``MFS'') and 
Insurance and Retirement Processing Services (``I&RS''), as described 
below.\5\
---------------------------------------------------------------------------

    \5\ Capitalized terms used herein and not otherwise defined 
shall have the meaning assigned to such terms in the Rules, 
available at http://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
---------------------------------------------------------------------------

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

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to reduce certain fees 
for MFS and I&RS set forth in Addendum A as described below, in order 
to better align fees with the costs of services provided by NSCC by 
reducing the fees so that the revenue received by NSCC would be closer 
to the costs of providing the services. In addition, certain fee 
reductions as described below are also intended to incentivize greater 
use of certain MFS and I&RS products. The proposed rule change would 
also clarify the description of certain fees as described below to 
improve clarity and transparency of the Rules. NSCC expects the 
proposed rule change would result in a decrease in revenue of

[[Page 64394]]

approximately 9.5% for each of the MFS and I&RS services.
(i) Background
    NSCC has undertaken a strategic review of its pricing structure, 
and developed a revenue and pricing strategy with the goal of among 
other things, reducing pricing complexity in Addendum A and aligning 
pricing with costs.\6\ As a result of the review, NSCC has determined 
that certain fees in MFS and I&RS have over time become misaligned with 
the costs of services. Such fees are misaligned because the revenue 
that NSCC has been receiving for such services has increased over time 
more than the costs to provide the services. NSCC believes that this is 
a result of streamlined processes in such services which have resulted 
in the reduction of processing costs for NSCC for such services. NSCC 
believes it is reasonable and appropriate to assess Members and Limited 
Members (collectively, ``NSCC Members'') fees that are commensurate 
with the costs of services provided to NSCC Members. Accordingly, the 
proposed changes would adjust certain fees in MFS and I&RS so that 
revenue for NSCC would better align with the costs of the services by 
reducing the revenue that NSCC receives so that it is closer to the 
costs of providing the services by NSCC. NSCC believes that the 
proposed fee reductions would allow NSCC to lower the costs for 
services to NSCC Members while still providing adequate funding to 
enable NSCC to recover its costs in providing the services.
---------------------------------------------------------------------------

    \6\ NSCC is also proposing changes to fees for NSCC services 
that are not MFS and I&RS services in a separate proposal. In 
addition, NSCC's affiliates, The Depository Trust Company and Fixed 
Income Clearing Corporation are proposing changes to their 
respective fees.
---------------------------------------------------------------------------

    NSCC is also proposing certain fee changes as described below to 
incentivize greater use of certain MFS and I&RS products.
    In addition, NSCC is proposing certain clarifying changes to the 
description of certain fees in Addendum A as described below to enhance 
clarity and transparency of the Rules.
(ii) Proposed Rule Changes

A. Networking Omni/SERV[supreg] Fee Reductions

    Omni/SERV, which is a feature of the MFS Networking service, 
provides a streamlined communication platform for the transmission of 
files for fund accounts held in omnibus.\7\ NSCC is proposing to reduce 
the monthly fee for Omni/SERV file transmissions in Section IV.H.3. of 
Addendum A from $2,500 per month to $1,500 per month. As discussed 
below, NSCC believes that the proposed fee reduction would better align 
the fees with the costs of providing Omni/SERV.
---------------------------------------------------------------------------

    \7\ An omnibus fund account is a fund account held by a 
financial intermediary on behalf of multiple underlying investors. 
Omni/SERV allows NSCC Members to communicate information relating to 
the underlying investors' sub-accounts.
---------------------------------------------------------------------------

B. Profile Phases I and II Fee Reductions

    NSCC is proposing to reduce the monthly fee for Phases I and II of 
the Mutual Fund Profile Service (``Profile'') in Section IV.J.b. of 
Addendum A from $2,000 per month to $1,250 per month.\8\ In addition, 
NSCC is proposing to change the credit that Profile II users (with 25 
or fewer Funds) receive in footnote 1 of Addendum A from $1,150 to 
$1,000. Together, with the reduction in the monthly fee from $2,000 to 
$1,250, this proposed change would reduce the overall net fee for such 
users from $850 to $250.
---------------------------------------------------------------------------

    \8\ NSCC offers two levels of service through Profile, which are 
referred to in NSCC's fee schedule as ``Phase I'' and ``Phase II.'' 
Phase I is used by NSCC Members to transmit price and rate 
information for mutual funds and pooled investment entities (each a 
``Fund'' and collectively, ``Funds''). Phase II consists of three 
databases, (i) the participant profile database, (ii) the security 
issue profile database, and (iii) the distribution declaration 
information profile database. Through these three databases, NSCC 
offers a centralized repository for prospectus and operational 
information for securities of Funds, Fund distributions and Fund 
processing capabilities. The current fee to use both Phase I and 
Phase II is $2,000 per month. See Section IV.J.b. of Addendum A, 
supra note 5.
---------------------------------------------------------------------------

    As discussed below, NSCC believes that the proposed fee reduction 
would better align the fees with the costs of providing Phases I and 
II.
    In addition, NSCC believes that the proposed reduction in the fees 
and the credit for smaller firms for Phases I and II would incentivize 
more firms to use the service. NSCC believes that more firms using the 
service would increase the value of the service by providing greater 
access to more Fund data to NSCC Members.

C. Positions Fee Reductions

    NSCC is proposing to reduce the fees in three tiers for Positions 
(Full, New and Retirement Plans) in Section IV.K.2.a.(i) of Addendum A 
as follows: (i) Reduce fees for 0 to 500,000 items/month from $8 to $6 
per 1,000 items, (ii) reduce fees for 500,001 to 2,000,000 items/month 
from $4 to $3.50 per 1,000 items, and (iii) reduce fees for 4,000,001 
or more items/month from $2 to $1.25 per 1,000 items. NSCC is not 
proposing to reduce the fees for 2,000,001 to 4,000,000 items/month.\9\ 
As discussed below, NSCC believes that the proposed fee reduction would 
better align the fees with the costs of providing Positions (Full, New 
and Retirement Plans).
---------------------------------------------------------------------------

    \9\ NSCC has determined that, based on the average number of 
users and revenues generated for each tier, the intended overall 
revenue decrease for the service could be accomplished by reducing 
the three tiers as indicated without reducing the fees for the tier 
for 2,000,001 to 4,000,000 items/month. In addition, NSCC determined 
that the proposed tier structure following the Fee Reductions would 
continue to incentivize NSCC Members to increase their use of the 
service which NSCC believes increases efficiency in sending contract 
details. All NSCC Members using the service would benefit from the 
proposed fee reductions because the NSCC Members who reach the tier 
for 2,000,001 to 4,000,000 items/month would benefit from the fee 
reductions in the lower two tiers.
---------------------------------------------------------------------------

D. IFT Tiered Pricing Program Fee Reductions and Revised Description

    NSCC proposes to restructure the current In Force Transactions 
(``IFT'') \10\ tiered pricing program, including certain fee reductions 
and certain clarifications as described below.
---------------------------------------------------------------------------

    \10\ IFT is an I&RS offering that automates data processing with 
respect to transactions relating to ``in-force'' contracts among 
participating NSCC Members. ``In-force'' contract transactions are 
transactions that occur after the underlying insurance contract has 
become effective.
---------------------------------------------------------------------------

(1) IFT Fee Reductions
    Currently, NSCC Members engaged in IFTs are required to choose an 
Activity Level (Level 1, Level 2 or Level 3) based on their projected 
activity. Each Activity Level has a corresponding minimum monthly fee. 
NSCC Members that choose Level 2 and Level 3 benefit from discounted 
fees per transaction after the amount of fees incurred for the month 
reaches the amount of the minimum monthly fee. Once the respective 
amount of the monthly fee is met, the discount for Level 2 is 20% 
(i.e., from $1.25/$.35 per transaction to $1.00/$.28 per transaction) 
and the discount for Level 3 is 40% (i.e., from $1.25/$.35 per 
transaction to $.75/$.21 per transaction). The discounts are set forth 
in an IFT Chart in Addendum A.
    NSCC is proposing to decrease the overall price of certain IFTs in 
Section IV.K.3. of Addendum A from $1.25 per request to $.65 per 
request, increase the number of levels in the IFT tiered pricing 
program from three to four, set new monthly minimum fees for each level 
and apply new discount percentages for the proposed Level 2, Level 3 
and Level 4.
    As discussed below, NSCC believes that the proposed fee reduction 
would better align the fees with the costs of providing the IFT 
service.
    In addition, the IFT tiered pricing program is intended to 
incentivize greater use of the IFT product by discounting transaction 
fees once the minimum monthly fee has been met for

[[Page 64395]]

higher Activity Level designations. The proposed changes are intended 
to further incentivize greater use by reducing transaction pricing for 
IFTs generally and increasing the number of minimum monthly fee 
thresholds, and thus discounts, from which NSCC Members may choose.
(2) IFT Clarifications
    NSCC is proposing to change the description of the IFT chart in 
Addendum A to clarify when the discounts are applied and update the 
description in the chart for readability, including changing ``Activity 
Level'' to ``Threshold Level'' and stating the discounts as a 
percentage rather than a dollar amount for each Level and revising the 
description of the discount in the table. Below is the proposed updated 
chart:

                      * In Force Transactions Chart
------------------------------------------------------------------------
                                                        Discount for
                                        Minimum      transactions after
          Threshold level             monthly fee    fees exceed minimum
                                                     monthly fee amount
------------------------------------------------------------------------
Level 1...........................            $250  No Discount
                                                    (pay base price of
                                                     $0.65/$0.35 for
                                                     Requests/
                                                     Inquiries).
Level 2...........................             500  5%.
Level 3...........................           1,000  10%.
Level 4...........................           3,000  20%.
------------------------------------------------------------------------

    NSCC is also proposing to move the fees for the IFTs that are 
currently listed in TIER 5 ($1.25) to TIER 4 ($0.65) in Section IV.K.3. 
of Addendum A with other transactions that are $0.65 per request to 
reflect the proposed fee reductions set forth above. In addition, NSCC 
is proposing to move the description of the fee for Producer Management 
Portal (per inquiry), which is currently in TIER 5 in Section IV.K.3. 
of Addendum A, to Section IV.K.2.h. of Addendum A so that the fee is in 
the same section as other Producer Management Portal fees and to re-
number the items in Section IV.K.2.h. of Addendum A to reflect the 
addition of the fee in this Section. NSCC is also proposing to remove 
TIER 5 in Section IV.K.3. of Addendum A since there would no longer be 
any fees in that TIER following the proposed changes described above. 
In addition, NSCC is proposing to rename the Producer Management Portal 
fee to ``Distributor Subscription Fee'' to clarify that the $1.25 fee 
is for distributor inquiries for Producer Management Portal and to add 
a provision clarifying that the maximum fee paid by Distributors is 
$6,000 per month. There is a $6,000 per month maximum because if the 
number of inquiries would result in more than $6,000 in fees in a 
month, the distributor could pay the $6,000 Distributor Batch Service 
Fee for the month rather than pay on a per inquiry basis.
    NSCC is proposing to revise the description of the * In Force 
Transaction Chart as described above, move the IFT transaction fees to 
TIER 4 with other transaction fees that are $0.65, delete TIER 5, move 
and rename the Producer Management Portal fee, re-number the items in 
Section IV.K.2.h. of Addendum A and add language relating to a $6,000 
maximum per month for the Distributor Subscription Fee for enhanced 
clarity and transparency of the Rules.

E. Decimals

    In Section IV.H. through Section IV.K. of Addendum A, where a 
dollar amount is less than one and where there is not currently a zero 
in front of the decimal point, NSCC is proposing to place a zero before 
the decimal point for enhanced clarity and consistency with other 
decimals contained in Addendum A.
    The proposed changes set forth in items II(A)(1)(ii)(A), (B), (C) 
and (D)(1) above are proposed fee reductions and are referred to herein 
as ``Fee Reductions.'' For each of the services for which Fee 
Reductions are being proposed, NSCC has determined that the revenue has 
increased over time more than the overall costs to provide the service. 
Since implementation of the current fees, revenues have increased for 
each of the services due to existing NSCC Members increasing their use 
of the services and new NSCC Members using the services. In addition, 
costs to provide the services are lower as a result of streamlined 
processes which increase efficiency in such services to allow NSCC to 
provide the services for lower costs than when the current fees were 
implemented. NSCC has determined that the revenue that it would receive 
for each of the services above following the proposed Fee Reductions 
would be closer to the costs of providing the services and sufficient 
to enable NSCC to recover costs to NSCC to provide the services. As 
such, NSCC believes that the proposed Fee Reductions would better align 
the fees with the costs of providing each of the services for which Fee 
Reductions are being proposed.
    The proposed changes set forth herein in items II(A)(1)(ii)(D)(2) 
and (E) are proposed clarifying changes to the description of the fees 
and are referred to herein as ``Clarifications.'' Each of the 
Clarifications are being proposed in order to improve the clarity and 
transparency of the Rules.
(iii) Implementation Timeframe
    NSCC expects to implement the proposed rule changes on January 1, 
2019. As proposed, a legend would be added to Addendum A stating there 
are changes that became effective upon filing with the Commission but 
have not yet been implemented. The proposed legend also would include 
January 1, 2019, as the date on which such changes would be implemented 
and the file number of this proposal, and state that, once this 
proposal is implemented, the legend would automatically be removed from 
Addendum A.
2. Statutory Basis
    NSCC believes this proposal is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, NSCC believes this proposal 
is consistent with Sections 17A(b)(3)(D) \11\ and 17A(b)(3)(F) \12\ of 
the Act and Rule 17Ad-22(e)(23)(ii),\13\ as promulgated under the Act, 
for the reasons described below.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(D).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(23)(ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act \14\ requires, in part, that the 
Rules provide for the equitable allocation of reasonable dues, fees, 
and other charges among its participants.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    The proposed Fee Reductions set forth above are consistent with 
17A(b)(3)(D) of the Act \15\ because the proposed fees would be 
allocated equitably among the NSCC Members

[[Page 64396]]

that subscribe for those services based on each NSCC Member's use of 
such services. In addition, NSCC believes that the proposed Fee 
Reductions are reasonable because they would enable NSCC to better 
align its revenue with the costs and expenses required for NSCC to 
provide the services to NSCC Members. Specifically, NSCC has determined 
that based on the current usage and projected revenue for each of the 
services listed above for which Fee Reductions are proposed, the 
decrease in fees would result in revenues for those services that would 
be closer to the costs of providing such services. Therefore, by 
establishing fees that align with the costs of delivery of these 
products and services and allocating those fees equitably among the 
subscribing NSCC Members, the proposed Fee Reductions are consistent 
with the requirements of Section 17A(b)(3)(D) of the Act.\16\
---------------------------------------------------------------------------

    \15\ Id.
    \16\ Id.
---------------------------------------------------------------------------

    NSCC also believes that the proposed Clarifications above are 
consistent with 17A(b)(3)(D) of the Act \17\ because each of the 
proposed Clarifications would clarify the meaning of the fees in the 
Rules without affecting the amount of the existing fee for such line 
item. The amounts of the existing fees would continue to be equitably 
allocated among the subscribing NSCC Members in accordance with their 
utilization of the services. Therefore, NSCC believes that the proposed 
Clarifications would not affect the allocation or amount of fees, and 
would thereby continue to provide for the equitable allocation of 
reasonable fees, consistent with Section 17A(b)(3)(D) of the Act.\18\
---------------------------------------------------------------------------

    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act \19\ requires, in part, that the 
Rules promote the prompt and accurate clearance and settlement of 
securities transactions. NSCC believes that the proposed Clarifications 
set forth above would enhance NSCC Members' ability to understand the 
fees associated with the MFS and I&RS services. Specifically, the 
proposed Clarifications would clarify the meaning of certain provisions 
of Addendum A relating to the IFT tiered pricing program and Producer 
Management Portal and revise certain decimals to be consistent with 
other decimals in the Rules and enhance clarity and transparency in the 
Rules in this regard. As such, the proposed Clarifications would allow 
NSCC Members to have a better understanding of the Rules in relation to 
their activities and thereby assist in promoting the requirements of 
Section 17A(b)(3)(F) of the Act.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(ii) under the Act \21\ requires NSCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed Clarifications set forth above would help ensure 
that the fees set forth in Addendum A are clear and transparent to NSCC 
Members. Having a clear and transparent Addendum A would help NSCC 
Members to better understand NSCC's fees and help provide NSCC Members 
with increased predictability and certainty regarding the fees they 
incur in participating in NSCC. As such, by improving the clarity and 
transparency of the Rules, NSCC believes the proposed Clarifications 
are consistent with Rule 17Ad-22(e)(23)(ii) under the Act.\22\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \22\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition
    NSCC does not believe that the proposed Fee Reductions would have 
an adverse impact, or impose any burden, on competition because, in 
each case, the proposed Fee Reductions would be a reduction in fees as 
currently set forth in the Rules that would not disproportionally 
impact any NSCC Members. As a reduction to the fees currently in the 
Addendum A for these services, the proposed Fee Reductions would not 
impede any NSCC Members from engaging in the services or have an 
adverse impact on any NSCC Members.
    Moreover, the proposed Fee Reductions may promote competition 
because, in each case, the proposed Fee Reductions would allow NSCC 
Members to engage in a greater number of transactions with lower costs 
than they would incur today for the same transactions. In addition, as 
described above, NSCC believes that the proposed fee changes to the 
Profile Phase I and Phase II and the proposed fee reductions and 
increased discount levels for the IFT tiered pricing program would 
incentivize greater use of those services by NSCC Members. NSCC 
believes that increased use of the NSCC services as a result of the fee 
reductions would enhance participation in the marketplace by providing 
all NSCC Members that use the services more data which would increase 
the value of the services and promote competition among NSCC Members 
that use the services.
    NSCC does not believe that the proposed Clarifications would have 
any impact on competition because such changes are clarifications of 
the Rules that would not affect the rights or obligations of NSCC 
Members.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others
    NSCC has not received or solicited any written comments relating to 
this proposal. NSCC will notify the Commission of any written comments 
received by NSCC.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \23\ and paragraph (f) of Rule 19b-4 
thereunder.\24\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \23\ 15 U.S.C 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2018-012 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2018-012. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's

[[Page 64397]]

internet website (http://www.sec.gov/rules/sro.shtml). Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of NSCC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSCC-2018-012 and should be submitted on 
or before January 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27081 Filed 12-13-18; 8:45 am]
 BILLING CODE 8011-01-P


