[Federal Register Volume 86, Number 55 (Wednesday, March 24, 2021)]
[Notices]
[Pages 15738-15747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91350; File No. SR-NSCC-2021-002]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Amend the 
Supplemental Liquidity Deposit Requirements

March 18, 2021.
    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 March 5, 2021, 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.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NSCC filed this proposed rule change as an advance notice 
(File No. SR-NSCC-2021-801) with the Commission pursuant to Section 
806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act entitled the Payment, Clearing, and 
Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and Rule 
19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy of 
the advance notice is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to Rule 4(A) 
(Supplemental Liquidity Deposits) of the NSCC's Rules & Procedures 
(``Rules'') to (1) calculate and collect, when applicable, supplemental 
liquidity deposits to NSCC's Clearing Fund (``Supplemental Liquidity 
Deposits,'' or ``SLD'') on a daily basis rather than only in advance of 
the monthly expiration of stock options (defined in Rule 4(A) as 
``Options Expiration Activity Period''); (2) establish an intraday SLD 
obligation that would apply in advance of Options Expiration Activity 
Periods and may also be applied on other days, as needed; (3) implement 
an alternative pro rata calculation of Members' SLD obligations that 
may apply in certain circumstances; and (4) simplify and improve the 
transparency of the description of the calculation, collection and 
treatment of SLD in Rule 4(A) of the Rules, as described in greater 
detail below.\4\
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    \4\ Capitalized terms not defined herein are defined in the 
Rules, available at http://dtcc.com/~/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
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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
    NSCC is proposing to enhance its management of the liquidity risks 
that arise in or are borne by it by calculating and collecting, when 
applicable, SLD on each Business Day rather than only in advance of 
Options Expiration Activity Periods. The proposed changes would 
establish an intraday SLD obligation that would apply in advance of 
Options Expiration Activity Periods and may be applicable on any 
Business Day, as needed. The proposal would also implement an 
alternative pro rata calculation of Members' SLD obligations that may 
apply in certain circumstances. Finally, in connection with these 
proposed changes, NSCC would simplify and improve the description of 
the calculation, collection and treatment of SLD in Rule 4(A). These 
proposed rule changes are described in greater detail below.
(i) Overview of the NSCC Liquidity Risk Management
    NSCC, along with its affiliates, The Depository Trust Company and 
Fixed Income Clearing Corporation, maintains a Clearing Agency 
Liquidity Risk Management Framework (``Framework'') that sets forth the 
manner in which NSCC measures, monitors and manages the liquidity risks 
that arise in or are borne by it.\5\ As a central counterparty, NSCC's 
liquidity needs are driven by the requirement to complete end-of-day 
money settlement, on an ongoing basis, in the event NSCC ceases to act 
for a Member (hereinafter referred to as a ``default'').\6\ If a Member 
defaults, NSCC needs to complete settlement of guaranteed transactions 
on the defaulted Member's behalf from the date of default through the 
remainder of the settlement cycle. As such, and as provided for in the 
Framework, NSCC measures the sufficiency of its qualifying liquid 
resources through daily liquidity studies across a range of scenarios, 
including amounts NSCC would need in the event the Member or Member 
family with the largest aggregate liquidity exposure defaults.\7\
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    \5\ See Securities Exchange Act Release No. 82377 (December 21, 
2017), 82 FR 61617 (December 28, 2017) (File Nos. SR-DTC-2017-004; 
SR-FICC-2017-008; SR-NSCC-2017-005).
    \6\ The Rules identify when NSCC may cease to act for a Member 
and the types of actions NSCC may take. For example, NSCC may 
suspend a firm's membership with NSCC or prohibit or limit a 
Member's access to NSCC's services in the event that Member defaults 
on a financial or other obligation to NSCC. See Rule 46 
(Restrictions on Access to Services) of the Rules, supra note 4.
    \7\ ``Qualifying liquid resources'' are defined in Rule 17Ad-
22(a)(14) under the Act. 17 CFR 240.17Ad-22(a)(14). The Framework 
also includes a definition of qualifying liquid resources that 
incorporates by reference Rule 17Ad-22(a)(14). See supra note 5.
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    As described in the Framework, NSCC seeks to maintain qualifying 
liquid resources in an amount sufficient to cover this risk. These 
resources currently include (1) cash deposits to the NSCC Clearing 
Fund; \8\ (2) the proceeds of the issuance and private

[[Page 15739]]

placement of (a) short-term, unsecured notes in the form of commercial 
paper and extendable notes (``Commercial Paper Program''),\9\ and (b) 
term debt (``Term Debt Issuance''); \10\ (3) cash that would be 
obtained by drawing on NSCC's committed 364-day credit facility with a 
consortium of banks (``Line of Credit''); \11\ and (4) Supplemental 
Liquidity Deposits, collected pursuant to Rule 4(A), which are 
currently designed to cover the heightened liquidity exposure arising 
around Options Expiration Activity Periods, required from those Members 
whose activity would pose the largest liquidity exposure to NSCC.\12\
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    \8\ See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund 
Formula and Other Matters) of the Rules, supra note 4.
    \9\ See Securities Exchange Act Release Nos. 75730 (August 19, 
2015), 80 FR 51638 (August 25, 2015) (File No. SR-NSCC-2015-802); 
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (File No. 
SR-NSCC-2017-807).
    \10\ See Securities Exchange Act Release No. 88146 (February 7, 
2020), 85 FR 8046 (February 12, 2020) (File No. SR-NSCC-2019-802).
    \11\ See Securities Exchange Act Release No. 80605 (May 5, 
2017), 82 FR 21850 (May 10, 2017) (File Nos. SR-DTC-2017-802; SR-
NSCC-2017-802).
    \12\ See Rule 4(A) (Supplemental Liquidity Deposits) of the 
Rules, supra note 4. See also Securities Exchange Act Release Nos. 
70999 (December 5, 2013), 78 FR 75413 (December 11, 2013) (File No. 
SR-NSCC-2013-02); 71000 (December 5, 2013), 78 FR 75400 (December 
11, 2013) (File No. SR-NSCC-2013-802).
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    NSCC's liquidity risk management has evolved in order to adhere to 
regulatory requirements that were adopted after Rule 4(A) was 
implemented.\13\ As part of its efforts to maintain compliance with 
these requirements, NSCC has continued to strengthen its liquidity risk 
management strategy, including through growing and diversifying its 
qualifying liquid resources. In connection with these ongoing efforts, 
NSCC is proposing to calculate and collect, when applicable, SLD every 
Business Day rather than only in connection with Options Expiration 
Activity Periods. This proposed change would improve NSCC's ability to 
measure and monitor its daily liquidity exposures and allow it to 
collect additional qualifying liquid resources from Members whose 
activity poses the largest liquidity exposure to NSCC in connection 
with their daily settlement activity, and not only during Options 
Expiration Activity Periods. By measuring SLD against Members' actual 
daily settlement activity and NSCC's available qualifying liquid 
resources, the proposal would also help mitigate risks to NSCC that it 
is unable to secure adequate default liquidity from other sources in an 
amount necessary to meet its liquidity needs. For example, the proposal 
would help mitigate the risks that could arise if investor demand for 
the short-term notes issued under the Commercial Paper Program weakens, 
there is limited investor demand for term debt issued pursuant to a 
Term Debt Issuance, or NSCC is unable to renew its Line of Credit at 
the targeted amount.
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    \13\ See 17 CFR 240.17Ad-22(e)(7). See also supra note 5.
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    NSCC is also proposing to establish an intraday SLD obligation that 
would apply on the first Business Day of the Options Expiration 
Activity Period to allow NSCC to continue to mitigate the additional 
liquidity exposures presented by options activity. The proposal would 
also permit NSCC to calculate and collect an intraday SLD on any 
Business Day when, for example, NSCC believes that it is necessary to 
collect an additional SLD from a Member whose activity presents 
relatively greater risks to the NSCC on an overnight basis.
    NSCC is also proposing to implement an alternative calculation of 
Members' SLD requirements that would be their pro rata allocation of 
the largest SLD obligation calculated for that Business Day. This 
proposed change would provide NSCC with the discretion, in certain 
circumstances, to allocate its largest liquidity need on a Business Day 
among those Members that are required to pay SLD on that day rather 
than collect separate SLD from those Members, as described in greater 
detail below.
    In connection with these proposed changes, NSCC would also simplify 
the description of the calculation of SLD in Rule 4(A) in order to 
improve the transparency of this Rule, as described in greater detail 
below.
(ii) Current Rule 4(A) and Supplemental Liquidity Deposits
    Under the current Rule 4(A), NSCC collects SLD from the 
unaffiliated Members and families of affiliated Members (each defined 
as an ``Affiliated Family'') that incur the largest gross settlement 
debits over the settlement cycle during times of increased trading 
activity that arise around Options Expiration Activity Periods.\14\
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    \14\ See Section 2 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, supra note 4.
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    Under the current Rule 4(A), NSCC performs calculations on a 
monthly basis, no later than the fifth day prior to an Options 
Expiration Activity Period, using activity observed over a 24-month 
lookback period (defined in the current Rule 4(A) as the ``Special 
Activity Lookback Period'').\15\ These calculations determine (1) 
NSCC's largest liquidity need that exceeded its liquidity resources 
(defined in Rule 4(A) as ``Special Activity Peak Liquidity Need''); and 
(2) the 30 (or fewer) unaffiliated Members or Affiliated Families 
(defined in Rule 4(A) as ``Special Activity Liquidity Providers'') that 
presented the largest liquidity exposures to NSCC (defined in Rule 4(A) 
as ``Special Activity Peak Liquidity Exposures'').\16\ To determine the 
SLD obligations of each Special Activity Liquidity Provider, the 
calculated Special Activity Peak Liquidity Need of NSCC is allocated to 
these Special Activity Liquidity Providers in proportion to the Special 
Activity Peak Liquidity Exposures they presented to NSCC during the 
Special Activity Lookback Period. Special Activity Liquidity Providers 
are required to fund their SLD obligations by the close of business on 
the second day prior to the applicable Options Expiration Activity 
Period.\17\ SLD may be returned to Special Activity Liquidity Providers 
seven Business Days after the end of the applicable Options Expiration 
Activity Period.\18\
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    \15\ See id.
    \16\ See Section 3 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \17\ See Section 4 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \18\ See Section 9 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
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    On any Business Day between calculation dates, if NSCC observes an 
increase in its liquidity needs that exceeds a predetermined threshold 
amount, it may call for an additional deposit from the Member whose 
increase in activity levels caused (or was the primary cause of) such 
increased liquidity need (defined in Rule 4(A) as ``Special Activity 
Liquidity Call'').\19\ NSCC may hold deposits made pursuant to a 
Special Activity Liquidity Call for up to 90 days after the deposit is 
made.\20\ Members are also permitted to submit a cash deposit to the 
Clearing Fund as a ``Special Activity Prefund Deposit'' no later than 
the first Business Day of an Options Expiration Activity Period.\21\ 
NSCC understands that a Member would generally make a Special Activity 
Prefund Deposit when it anticipates that its Special Activity Peak 
Liquidity Exposure during that period may be greater than the amount 
calculated by NSCC pursuant to Rule 4(A) based on activity in the 
Special Activity Lookback Period.\22\
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    \19\ See Section 7 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \20\ See Section 10 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \21\ See definition of ``Special Activity Prefund Deposit'' in 
Section 2 of Rule 4(A) (Supplemental Liquidity Deposits) of the 
Rules, id.
    \22\ See id.

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[[Page 15740]]

    The current Rule 4(A) also addresses how SLD are treated 
generally.\23\ Specifically, while SLD are part of a Member's actual 
deposit to the Clearing Fund, they are made in addition to a Member's 
Required Fund Deposit and any other deposit of any such Member to the 
Clearing Fund.\24\ Rule 4(A) also provides that SLD may be invested and 
may be used to satisfy a loss or liability as provided for in Sections 
3 or 13 of Rule 4, and addresses NSCC's obligation to provide Members 
with certain information that would help them anticipate their 
potential SLD requirements.\25\
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    \23\ See Section 13 of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \24\ See Section 13(b) of Rule 4(A) (Supplemental Liquidity 
Deposits) of the Rules, id.
    \25\ See Section 13(c) and Section 14 of Rule 4(A) (Supplemental 
Liquidity Deposits) of the Rules, id.
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(iii) Amended Rule 4(A) and Proposed Daily Calculation of Supplemental 
Liquidity Deposits
    In order to better address the liquidity risks presented by 
Members' daily activity, NSCC is proposing to amend Rule 4(A) to 
calculate and collect, when applicable, SLD every Business Day rather 
than only in connection with the monthly expiration of stock options. 
While the monthly expiration of stock options does present larger 
liquidity exposures to NSCC, NSCC may also face large liquidity 
exposures from Members' daily activity, particularly during volatile 
market conditions. By allowing NSCC to calculate and collect SLD daily, 
NSCC would be able to identify these exposures based on Members' daily 
activity rather than estimate its upcoming liquidity exposures based on 
activity observed over a lookback period. The proposal would help NSCC 
mitigate its liquidity risks through the daily collection of SLD from 
those Members' whose daily activity would, in the event of the Member's 
default, create a potential liquidity need that is in excess of NSCC's 
available qualifying liquid resources. The proposal would also permit 
NSCC to return SLD to Members on the Business Day following the day 
those deposits are collected and would remove the current requirement 
that SLD be held for up to 90 days.
    In order to implement this proposed change to the timing of the 
SLD, NSCC would make a number of changes to Rule 4(A), described below. 
The proposed changes to Rule 4(A) would implement a daily calculation 
and collection of SLD, simplify and clarify the calculations done in 
connection with the SLD requirements, and enhance the disclosures of 
the SLD requirements. Despite these proposed changes, the structure of 
Rule 4(A) and the fundamental mechanics of the SLD requirements would 
be unchanged.
Proposed Daily Calculation of Supplemental Liquidity Deposits
    Supplemental Liquidity Providers. Under the proposed Rule 4(A), 
each Business Day NSCC would determine the 30 (or fewer) Members (each 
such Member a ``Supplemental Liquidity Provider'') that had the ``Peak 
Liquidity Need,'' which would be defined as the largest Daily Liquidity 
Need that NSCC would have for that Member or Affiliated Family in a 
``Lookback Period.'' \26\ For purposes of this calculation, Daily 
Liquidity Need would be defined as the amount of liquid resources 
needed to effect the settlement of NSCC's payment obligations as a 
central counterparty over a three day settlement cycle, assuming the 
default of that Member on that day.
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    \26\ The ``Lookback Period'' would continue to be defined as 24 
months, or a longer period as determined by NSCC in its discretion. 
NSCC may adjust the Lookback Period if, for example, unusual 
activity observed in the Lookback Period is not an appropriate 
indicator of future settlement activity and causes a Member to be a 
Supplemental Liquidity Provider. See Section 2 (Defined Terms) of 
Rule 4(A), id.
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    As described above, Supplemental Liquidity Providers are currently 
identified by reviewing Members' Special Activity Peak Liquidity 
Exposures over the Lookback Period. Under the proposed approach, NSCC 
would base this determination on Members' Peak Liquidity Need, which 
would continue to identify those Members whose activity posed the 
largest liquidity risks to NSCC during the Lookback Period. The 
proposed approach would no longer require a calculation using NSCC's 
available liquid resources on each day in the Lookback Period but would 
use a simpler approach by looking only at liquidity need. The proposed 
approach to use a simpler calculation would reduce the risk of error 
and would clarify the description of how NSCC would identify 
Supplemental Liquidity Providers in the proposed Rule 4(A), making it 
more predictable to Members.
    Supplemental Liquidity Obligation. After NSCC determines the 
Supplemental Liquidity Providers, NSCC would then determine if any of 
the Supplemental Liquidity Providers would be required to pay an SLD on 
that Business Day. The proposed Rule 4(A) would use a simplified 
calculation by determining if the Daily Liquidity Need for each 
Supplemental Liquidity Provider on that Business Day exceeds the sum of 
NSCC's qualifying liquid resources available to NSCC on that day, 
assuming stressed market conditions (described below) (defined in the 
proposed Rule 4(A) as ``Qualifying Liquid Resources''). The result of 
that calculation would be a Supplemental Liquidity Provider's SLD 
requirement (defined in the proposed Rule 4(A) as a ``Supplemental 
Liquidity Obligation'') for that day. If the Daily Liquidity Need of a 
Supplemental Liquidity Provider does not exceed NSCC's Qualifying 
Liquid Resources on that day, then it would not have a Supplemental 
Liquidity Obligation.
    Because this calculation would be done at the start of each 
Business Day (as discussed further below), it would be based on the 
Qualifying Liquid Resources, including Required Fund Deposits to the 
Clearing Fund, available to NSCC as of the end of the prior Business 
Day. Additionally, in order to anticipate market conditions that could 
cause Qualifying Liquid Resources to be unavailable on that day, NSCC 
would apply stress scenarios in determining its total Qualifying Liquid 
Resources for purposes of Rule 4(A). Currently, NSCC applies stress 
scenarios in determining the Special Activity Daily Liquidity Need and, 
in practice, they are currently applied to the Other Qualifying Liquid 
Resources in this calculation under the current Rule 4(A).\27\ The 
proposed change would allow NSCC to continue to assume stressed markets 
in its SLD calculations, which protects it against unexpected market 
events.\28\ The proposed changes to Rule 4(A) would make it clearer how 
these stress scenarios are applied.
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    \27\ Current Rule 4(A) uses the defined term ``Other Qualifying 
Liquid Resources'' to refer to NSCC's qualifying liquid resources 
other than the Clearing Fund and the Line of Credit. See Section 2 
of Rule 4(A) (Supplemental Liquidity Deposits) of the Rules, id.
    \28\ NSCC would apply the same stress scenarios that it 
currently applies, which include the market shocks of 1987, and 
removing the largest commitment to the Line of Credit, excess 
deposits to the Clearing Fund on deposit and proceeds from issued 
commercial paper that is maturing within five Business Days from 
NSCC's Qualifying Liquid Resource. Any changes to these stress 
scenarios would be announced by an Important Notice posted to NSCC's 
website.
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    Under this proposed calculation, NSCC would no longer need to 
estimate the potential liquidity need a Member's activity could pose to 
NSCC based on activity that settled in the Lookback Period. Instead, 
the Supplemental Liquidity Obligation of a Member would be calculated 
based on the actual liquidity exposure that its daily activity would 
pose to NSCC on that particular day in the event of that Member's 
default. The proposed change provides both NSCC and Members with a more

[[Page 15741]]

reliable measure of the liquidity risks posed to NSCC by its Members' 
daily settlement activity in calculating SLD requirements.
    Each Supplemental Liquidity Provider that has a Supplemental 
Liquidity Obligation on a Business Day would receive a notice from NSCC 
of the amount of its Supplemental Liquidity Obligation and would be 
required to make a deposit in that amount to the Clearing Fund within 
one hour of such notice. The proposed timing of funding a Supplemental 
Liquidity Obligation would mirror the current requirement that is 
applied to Members' Required Fund Deposits, which is also calculated 
and collected daily, and must be funded within one hour of demand.\29\ 
Specifically, NSCC expects to deliver notification of Supplemental 
Liquidity Obligations to Supplemental Liquidity Providers by around 
8:30 a.m. ET each Business Day, with deposits required by no later than 
9:30 a.m. ET.
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    \29\ See Section II(B) of Procedure XV (Clearing Fund Formula 
and Other Matters) of the Rules, supra note 4.
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    Proposed Pro Rata Calculation of Supplemental Liquidity 
Obligations. As an alternative to the calculation of Supplemental 
Liquidity Obligations described above, proposed Rule 4(A) would also 
state that, in the event two or more Supplemental Liquidity Providers 
have a Supplemental Liquidity Obligation of more than $2 billion on a 
Business Day, calculated pursuant to the calculation described above, 
NSCC may determine the Supplemental Liquidity Obligation of all 
Supplemental Liquidity Providers on that day would be their pro rata 
share of the largest Supplemental Liquidity Obligation calculated on 
that Business Day.\30\
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    \30\ As an example, the Supplemental Liquidity Obligations for 
three Supplemental Liquidity Providers on a Business Day are--Member 
A: $6 billion, Member B: $2 billion and Member C: $1 billion. If 
NSCC determines, in its sole discretion, to calculate their 
Supplemental Liquidity Obligations on a pro-rata basis, then their 
Supplemental Liquidity Obligations would be--Member A: $4 billion 
(or \6/9\ of the largest Supplemental Liquidity Obligation of $6 
billion), Member B: $1.3 billion (or \2/9\ of the $6 billion) and 
Member C: $700 million (or \1/9\ of the $6 billion). The notice 
provided to each Supplemental Liquidity Provider on that Business 
Day would inform those Members that this pro-rata calculation was 
applied.
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    This proposed alternative calculation of the Supplemental Liquidity 
Obligations would provide NSCC with the option of collecting only the 
largest SLD calculated on a Business Day, allocated among each of the 
Supplemental Liquidity Providers. The purpose of this proposed 
provision is to provide NSCC with the option of collecting enough funds 
to meet its regulatory requirements in circumstances when the aggregate 
Supplemental Liquidity Obligations on a particular day would 
significantly exceed that amount. Therefore, NSCC has structured this 
provision to be available only if two or more Supplemental Liquidity 
Providers owe SLD of more than $2 billion. NSCC has never had two more 
Supplemental Liquidity Providers owe more than $2 billion in SLD on a 
calculation date since Rule 4(A) was adopted. Therefore, NSCC believes 
this alternative calculation would only be available in very limited 
circumstances. Furthermore, NSCC believes the threshold of $2 billion 
is appropriate as it would only permit this alternative calculation in 
circumstances when it would have a material impact on the allocation of 
Supplemental Liquidity Obligations among the Supplemental Liquidity 
Providers.
    In such circumstances, when multiple Members have relatively large 
Supplemental Liquidity Obligations of more than $2 billion, NSCC would 
have the option to determine if it is appropriate to collect the 
largest SLD calculated for that Business Day, divided pro rata among 
the Supplemental Liquidity Providers rather than collect the each of 
the Supplemental Liquidity Obligations of those firms. NSCC may 
determine, for example, that, in certain market conditions, this 
approach would be appropriate to alleviate liquidity pressures on 
Supplemental Liquidity Providers. This alternative calculation would 
allow NSCC to collect sufficient qualifying liquid resources to meet 
its regulatory obligations with respect to liquidity risk management 
without requiring all of the Supplemental Liquidity Providers to fund 
the total amount of their calculated Supplemental Liquidity Obligation 
on that Business Day.\31\
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    \31\ Rule 17Ad-22(e)(7)(i) under the Act requires, in part, that 
NSCC maintain sufficient liquid resources at the minimum to effect 
same-day settlement of payment obligations with a high degree of 
confidence under a wide range of foreseeable stress scenarios, 
including the default of the participant family that would generate 
the largest aggregate payment obligation for the covered clearing 
agency in extreme but plausible market conditions. 17 CFR 240.17Ad-
22(e)(7)(i).
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    Intraday Supplemental Liquidity Calls. The proposed Rule 4(A) would 
also establish Intraday Supplemental Liquidity Calls that would replace 
the current Special Activity Liquidity Calls. The existing Special 
Activity Liquidity Calls are designed to address increases in NSCC's 
liquidity need between calculation dates. The proposed Intraday 
Supplemental Liquidity Calls would serve a similar function, allowing 
NSCC to calculate and collect additional SLD on an intraday basis if a 
Supplemental Liquidity Provider's increased activity levels or 
projected settlement activity causes NSCC's Daily Liquidity Need to 
exceed NSCC's Qualifying Liquid Resources. This proposed provision 
would assist NSCC in mitigating increased liquidity exposures in 
specified circumstances.
    First, proposed Rule 4(A) would establish a monthly Intraday 
Supplemental Liquidity Call that is calculated and collected, when 
applicable, on the first Business Day of an Options Expiration Activity 
Period, which is typically a Friday.\32\ This Intraday Supplemental 
Liquidity Call would be calculated as the difference between (1) NSCC's 
Daily Liquidity Need, recalculated to account for both actual 
settlement activity submitted to NSCC over the course of Business Day 
and projected activity in stock options that is expected to be 
submitted to NSCC \33\ and (2) NSCC's Qualifying Liquid Resources. 
Settlement activity may net with (and offset) the activity that NSCC 
uses in re-calculating the Daily Liquidity Need. In order to account 
for any potential offsetting settling activity, NSCC would adjust the 
re-calculated Daily Liquidity Need using an estimated netting 
percentage that is based on each Supplemental Liquidity Provider's 
average percentage of netting observed over the prior 24 months. Under 
this proposed provision, NSCC would adjust the amount of SLD it 
collects in order to mitigate the increased liquidity exposures related 
to the monthly expiration of stock options.
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    \32\ The proposed Rule 4(A) will retain the existing definition 
of an Options Expiration Activity Period for purposes of this 
monthly Intraday Supplemental Liquidity Call.
    \33\ Each Business Day, NSCC receives information regarding 
projected settlement activity from The Options Clearing Corporation 
pursuant to a Stock and Futures Settlement Agreement (``OCC 
Accord''). The OCC Accord provides for the clearance and settlement 
of exercises and assignments of options on eligible securities or 
the maturity of eligible stock futures contracts through NSCC. See 
Securities Exchange Act Release No. 81260 (July 31, 2017), 82 FR 
36484 (August 4, 2017) (File Nos. SR-NSCC-2017-803; SR-OCC-2017-
804).
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    Second, proposed Rule 4(A) would allow NSCC to call for additional 
SLD on an intraday basis on any Business Day if a Supplemental 
Liquidity Provider's increased activity levels causes NSCC's Daily 
Liquidity Need to exceed NSCC's Qualifying Liquid Resources and NSCC 
determines, in its sole discretion, that it is appropriate to require 
an additional intraday SLD from

[[Page 15742]]

that Supplemental Liquidity Provider in order to mitigate those 
additional liquidity exposures. Under this proposed change, NSCC would 
have the ability to make an Intraday Supplemental Liquidity Call on any 
Business Day. The amount of an Intraday Supplemental Liquidity Call 
would be the difference between NSCC's Daily Liquidity Need, 
recalculated for that Business Day taking into account any increase in 
settlement activity, and NSCC's Qualifying Liquid Resources. This 
proposed provision would allow NSCC to adjust the amount of SLD it 
collects for a Business Day in circumstances when NSCC believes it is 
necessary to accelerate the collection of additional SLD from 
Supplemental Liquidity Providers whose activity may present relatively 
greater risks to the NSCC on an overnight basis. NSCC would determine 
if an Intraday Supplemental Liquidity Call is appropriate based on a 
variety of factors and circumstances, including, but not limited to, an 
assessment of a Supplemental Liquidity Provider's ability to meet its 
projected settlement or Supplemental Liquidity Obligations and 
estimates of settlement activity that could offset settlement exposures 
and are not reflected in NSCC's liquidity estimates.
    Returns of SLD and Miscellaneous Matters. Proposed Rule 4(A) would 
provide that NSCC would return SLD, including any SLD funded pursuant 
to an Intraday Supplemental Liquidity Call, on the next Business Day 
unless such amounts are held longer by NSCC pursuant to proposed 
Section 12a of Rule 4(A), as described below. Under the current Rule 
4(A), NSCC may hold SLD for up to seven Business Days after the end of 
the applicable Options Expiration Activity Period and may hold SLD 
funded pursuant to a Special Activity Liquidity Call for up to 90 days 
after such deposit is made. Under the proposed change, because NSCC 
would recalculate the Supplemental Liquidity Obligations each Business 
Day, NSCC would no longer need to hold SLD for these extended periods.
    NSCC would amend proposed Section 12a (currently Section 13a) of 
Rule 4(A) to clarify that SLD, as part of Members' actual deposit to 
the Clearing Fund, would be subject to the provision of Section 9 of 
Rule 4. Section 9 of Rule 4 addresses NSCC's right to withhold all or 
any part of any excess deposit of a Member if such Member has been 
placed on the Watch List pursuant to the Rules or if NSCC determines 
that the Member's anticipated activities in NSCC in the near future may 
reasonably be expected to be materially different than its activities 
of the recent past.\34\ Current Section 13a of Rule 4(A) addresses how 
SLD are treated pursuant to other Rules, particularly Rule 4, which 
addresses Members' deposits to the Clearing Fund. While this proposal 
would not change NSCC's rights with respect to these funds, it would 
provide Members with greater transparency into how SLD are treated 
under Rule 4.
---------------------------------------------------------------------------

    \34\ For example, this may occur when an index rebalancing 
occurs shortly after a month-end options expiration period, which 
could cause an increase in NSCC's liquidity exposures.
---------------------------------------------------------------------------

    NSCC would also amend the provision in Rule 4(A) that addresses 
when SLD would be returned to a Member that ceases to be a participant. 
Currently, Rule 4(A) states that SLD are not subject to Section 7 of 
Rule 4 (which addresses how Required Fund Deposits are returned to 
retired Members) and, as such, are returned to retired Members as 
otherwise provided for in Rule 4(A).\35\ Under the proposed Rule 4(A), 
because NSCC would be able to calculate SLD each Business Day, it would 
return SLD on the Business Day following the calculation date. However, 
while a firm may still have unsettled activity on the day it retires, 
NSCC would not be able to collect SLD on the days following a Member's 
retirement. Therefore, NSCC is proposing to amend Rule 4(A) to require 
that SLD of a retired Member be treated similarly to other cash 
Required Fund Deposits to the Clearing Fund and be held by NSCC for 30 
calendar days after any of its open transactions have settled and 
obligations have been satisfied. This proposed change would protect 
NSCC from liquidity risks presented by open transactions in the days 
following a firm's retirement and would align the treatment of these 
funds with the treatment of Required Fund Deposits of retired Members.
---------------------------------------------------------------------------

    \35\ Section 7 of Rule 4 provides that Required Fund Deposits to 
the Clearing Fund in the form of cash and securities are returned to 
retired Members within 30 calendar days after all of its 
transactions have settled and obligations have been satisfied. See 
supra note 4.
---------------------------------------------------------------------------

    The proposed Rule 4(A) would also simplify the additional 
miscellaneous provisions applicable to SLD, which address, for example, 
NSCC's right to debit Members' accounts at NSCC if a Supplemental 
Liquidity Provider fails to meet its Supplemental Liquidity Obligation, 
and the information NSCC makes available to Supplemental Liquidity 
Providers each Business Day regarding SLD calculations. While the 
proposed changes would update and simplify these provisions, they would 
not significantly alter the structure of these provisions, as described 
below.
Proposed Changes to Rule 4(A)
    The proposal described above would be implemented into the Rules by 
amending the current Rule 4(A). The specific changes to implement the 
proposal are described below.
    Section 1 (Overview). NSCC is proposing changes to Section 1 of 
Rule 4(A) to simplify the descriptions by removing outdated and 
unnecessary language. Section 1 of Rule 4(A) would continue to provide 
the rationale for the SLD requirement, by describing NSCC's liquidity 
needs and how the SLD requirements are designed to contribute to 
meeting those needs. However, the proposed changes would simplify this 
section by removing a statement that specifically identifies two of 
NSCC's principal sources of liquidity and would instead more generally 
refer to NSCC's sources of liquidity. The proposed changes to Section 1 
of Rule 4(A) would also remove references to options expiration 
activity periods, which would no longer be applicable to the SLD 
requirement under this proposal.
    Section 2 (Defined Terms). NSCC is proposing several changes to 
Section 2 of Rule 4(A) in order to implement this proposal. As 
described below, the proposed changes to the defined terms address the 
change in timing of the SLD requirement to occur each Business Day and 
would improve the transparency of Rule 4(A) through simplified and 
clearer defined terms.
    First, Section 2 of proposed Rule 4(A) would remove the definition 
of ``Special Activity Calculation Date,'' which is tied to the monthly 
Options Expiration Activity Period, and instead would use the term 
``Business Day'' throughout proposed Rule 4(A), where appropriate. 
Business Day is currently defined in Rule 1 as any day on which NSCC is 
open for business. Therefore, this proposed change would provide for 
the calculation of SLD requirements on each day that NSCC is open for 
business.
    Second, Section 2 of the proposed Rule 4(A) revise other defined 
terms that use the phrase ``Special Activity'' to either remove that 
phrase or, when appropriate, to replace this phrase with the term 
``Supplemental.'' For example, NSCC would revise the defined term 
``Special Activity Daily Liquidity Need'' to ``Daily Liquidity Need,'' 
and would revise the defined term ``Special Activity Liquidity 
Provider'' to ``Supplemental Liquidity Provider.'' The phrase ``Special 
Activity'' was used in the current Rule 4(A) to refer to the Options 
Expiration Activity Period, which would only be applicable to the 
monthly intraday SLD in the proposed Rule 4(A).

[[Page 15743]]

    NSCC would also update the definition of Daily Liquidity Need to 
change a reference from a four-day settlement cycle to a three-day 
settlement cycle, to reflect the amendment to Rule 15c6-1(a) under the 
Act to shorten the standard settlement cycle for most broker-dealer 
transactions.\36\ Additionally, NSCC would move the defined term for 
``Options Expiration Activity Period'' within Section 2 of the proposed 
Rule 4(A) so it continues to appear alphabetically, but is not 
proposing to change the definition of this term.
---------------------------------------------------------------------------

    \36\ See 17 CFR 240.15c6-1.
---------------------------------------------------------------------------

    Third, the proposed changes to Section 2 of Rule 4(A) would include 
one defined term for ``Qualifying Liquid Resources'' to refer to all 
default liquidity resources available to NSCC to settle its payment 
obligations as a central counterparty. As discussed in greater detail 
above, the defined term would provide that NSCC may apply stressed 
market assumptions to its Qualifying Liquid Resources when applying 
these resources in the calculations made under Rule 4(A). In connection 
with this proposed change, NSCC would remove the defined terms 
``Commitment'' and ``Credit Facility,'' which were used in the current 
Rule 4(A) to refer to NSCC's Line of Credit, and would remove ``Other 
Qualifying Liquid Resources,'' which was used to refer to NSCC's liquid 
resources other than the Clearing Fund and the Line of Credit. This 
proposed change would simplify Rule 4(A) and would account for NSCC's 
continuing efforts to expand and diversify its default liquidity 
resources. The proposed change would also clarify that Qualifying 
Liquid Resources would not include SLD for purposes of the calculations 
in Rule 4(A).
    Fourth, the proposed changes would move certain calculations out of 
the defined terms in Section 2 and include them in the relevant later 
sections of Rule 4(A). This proposed change would simplify and clarify 
Rule 4(A), which currently requires a reader to refer back to the 
defined terms in Section 2 when reading the calculations and 
requirements set forth in later sections of Rule 4(A). For example, 
Section 2 of Rule 4(A) currently includes the calculation of ``Special 
Activity Peak Liquidity Exposure'' and ``Special Activity Peak 
Liquidity Need.'' In the proposed Rule 4(A), NSCC would no longer use 
the calculation of Special Activity Peak Liquidity Exposure in 
determining the Supplemental Liquidity Providers or in calculating 
those requirements. The calculation of Peak Liquidity Need, which would 
replace Special Activity Peak Liquidity Need, would be moved out of 
Section 2 and into Section 3, where that calculation would be described 
as being used to identify Supplemental Liquidity Providers.
    Finally, the proposed changes to Section 2 of Rule 4(A) would 
remove defined terms that are no longer needed when NSCC calculates SLD 
requirements daily. For example, NSCC would remove defined terms that 
are related to the Options Expiration Activity Period, including 
``Special Activity Business Day,'' which is currently defined as a 
Business Day included in an Options Expiration Activity Period. NSCC 
would also remove the defined term for ``Special Activity Prefund 
Deposit'' because it would no longer be necessary for Members to 
prefund their potential SLD requirement in advance of NSCC's 
calculations when they are done on a daily basis.
    Section 3 (Supplemental Liquidity Providers). NSCC is proposing to 
amend Section 3 to describe how NSCC would identify the Supplemental 
Liquidity Providers for each Business Day. Section 3 of the proposed 
Rule 4(A) would state that, each Business Day, NSCC would determine the 
Peak Liquidity Need of each Member during the Lookback Period, and 
would identify the Supplemental Liquidity Providers for that Business 
Day as the 30 (or fewer) Members with the largest Peak Liquidity Need 
in that time period. These changes would implement the proposal 
described in greater detail above to make this calculation daily and to 
simplify the calculation used to identify Supplemental Liquidity 
Providers by using Peak Liquidity Need rather than using the largest 
exposures of all providers in the Lookback Period.
    Section 4 (Supplemental Liquidity Obligations); Section 5 
(Satisfaction of Supplemental Liquidity Obligations); and Section 6 
(Notice of Supplemental Liquidity Obligations and Payment of 
Supplemental Liquidity Deposits). NSCC would amend Sections 4, 5 and 6 
of Rule 4(A) to describe the simplified calculation of Supplemental 
Liquidity Obligations, and the process by which Supplemental Liquidity 
Providers would pay their Supplemental Liquidity Obligations after 
being notified by NSCC. Proposed changes to Section 4 would implement 
the revised calculation of Supplemental Liquidity Obligations, 
described in greater detail above, as the difference between a 
Supplemental Liquidity Provider's Daily Liquidity Need for that 
Business Day and the Qualifying Liquid Resources available to NSCC on 
that day. The proposed changes would also create a subsection b. of 
Section 4 to describe the optional, alternative pro rata calculation of 
Supplemental Liquidity Obligations, as described in greater detail 
above.
    Proposed changes to Sections 5 and 6 of Rule 4(A) would update the 
defined terms and the timing by when Supplemental Liquidity Providers 
must fund their Supplemental Liquidity Obligations to reflect the 
change of these obligations to daily. Proposed changes to Section 6 of 
Rule 4(A) would state that the notice provided to Supplemental 
Liquidity Providers regarding their Supplemental Liquidity Obligations 
would state if that amount was calculated pursuant to Section 4b as a 
pro rata share of the largest Supplemental Liquidity Obligation of that 
Business Day.
    Section 7 (Determination of Intraday Supplemental Liquidity Calls) 
and Section 8 (Satisfaction of Intraday Supplemental Liquidity Calls). 
NSCC would amend Sections 7 and 8 of Rule 4(A) to reflect the removal 
of the Special Activity Liquidity Calls and the adoption of the two 
Intraday Supplemental Liquidity Calls, as described in greater detail 
above. The proposed changes to these sections would also update defined 
terms, as appropriate.
    Returns of Supplemental Liquidity Deposits--Section 9 (Deposits 
Made in Satisfaction of a Supplemental Liquidity Obligation) and 
Section 10 (Ceasing to be a Participant). NSCC is proposing to 
consolidate the current Sections 9 and 10 of Rule 4(A) into a new 
Section 9 of Rule 4(A), which would address the return of SLD that are 
made in satisfaction of both Supplemental Liquidity Obligations and 
Intraday Supplemental Liquidity Calls. The proposed changes would 
provide that SLD made pursuant to either Supplemental Liquidity 
Obligations and Intraday Supplemental Liquidity Calls would be returned 
to Supplemental Liquidity Providers on the next Business Day after the 
calculation date, unless otherwise notified by NSCC.
    NSCC would amend Section 10 (currently Section 11) to align the 
treatment of SLD of a retired Member with the treatment of such firm's 
Required Fund Deposits, as described in greater detail above.
    Miscellaneous Matters--Section 11 (Obligations of Affiliated 
Families and Supplemental Liquidity Providers), Section 12 (Application 
of Supplemental Liquidity Deposits) and Section 13 (Information). NSCC 
would amend Sections 11, 12 and 13 (currently

[[Page 15744]]

Sections 12, 13 and 14) of Rule 4(A) to update and simplify these 
provisions. The proposed amendments would not substantially amend the 
purpose or application of these sections.
    Section 11 (currently Section 12) of Rule 4(A) provides that the 
Supplemental Liquidity Obligations of Affiliated Families are the 
several obligations of all of the Members of the Affiliated Family 
ratably in proportion to their applicable Special Activity Peak 
Liquidity Exposure. NSCC would not change this provision but would 
update it to use revised defined terms. NSCC would also amend Section 
11 by consolidating two parallel paragraphs into subsection b., which 
address NSCC's right to collect SLD from Supplemental Liquidity 
Providers. This proposed change would simplify the provision but would 
not make substantive changes to NSCC's rights or Members' obligations.
    Section 12 (currently Section 13), which addresses how SLD are 
treated under Rule 4, would be amended to update defined terms and to 
clarify that SLD may be held by NSCC as part of Members' actual 
deposits to the Clearing Fund, pursuant to Section 9 of Rule 4. No 
substantive changes are proposed to this Section.
    Section 13 (currently Section 14) describes NSCC's obligation to 
provide Members with certain information regarding its SLD calculation. 
NSCC is proposing to amend this section to include updated defined 
terms and to reflect the daily calculation of SLD.
(iv) Impact Study Results
    NSCC has provided the Commission with the results of an impact 
study that reviewed the proposal against the observed regulatory 
liquidity needs and NSCC's Qualifying Liquid Resources available during 
the period from 2016 through 2020 to assess both pro-forma and 
hypothetical impacts of the proposal under various liquidity scenarios.
    Pro-Forma Impact Study. The pro-forma impact study compared NSCC's 
regulatory liquidity needs against the Qualifying Liquid Resources that 
were available between 2016 and 2020. The pro-forma analysis indicated 
that NSCC would expect between 1 and 3 Supplemental Liquidity 
Obligations per year, ranging in size between $1.0 billion to $5.4 
billion in 2016 through 2019. In calendar year 2020, the impact study 
shows that available Qualifying Liquid Resources for each date would 
have eliminated potential Supplement Liquidity Obligations.
    Additionally, this impact study showed between 4 and 27 actual 
Supplemental Liquidity Obligations were received by NSCC per year, 
typically averaging $3.6 billion during this same period, including 9 
actual Supplemental Liquidity Obligations received by NSCC in 2020.
    Hypothetical Impact Study. NSCC also developed several hypothetical 
liquidity scenarios to assess the proposal's impact. When hypothetical 
Qualifying Liquid Resources available to NSCC are between $17 billion 
and $22 billion, NSCC would expect between 7 and 36 Supplemental 
Liquidity Obligations per year, ranging in size between $2.1 billion to 
$4.6 billion each; and (2) when the hypothetical Qualifying Liquid 
Resources available to NSCC are $22 billion or above, NSCC would expect 
between 1 and 5 Supplemental Liquidity Obligations per year, ranging in 
size between $2.1 billion to $6.8 billion each.
    NSCC has also provided the Commission with details of potential 
impacts of the proposal on the largest 50 Affiliated Families, a list 
of the 30 Affiliated Families with the largest liquidity exposures as 
of December 31, 2020, and the respective Affiliated Families' maximum 
and average NSCC liquidity needs for each calendar year between 2016 
and 2020.
(v) Implementation Timeframe
    NSCC would implement the proposed changes no later than 10 Business 
Days after the later of the approval of the proposed rule change and no 
objection to the related advance notice \37\ by the Commission. NSCC 
would announce the effective date of the proposed changes by Important 
Notice posted to its website.
---------------------------------------------------------------------------

    \37\ Supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    NSCC believes the proposed changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. In particular, NSCC 
believes the proposed changes are consistent with Section 17A(b)(3)(F) 
of the Act,\38\ and Rules 17Ad-22(e)(7)(i) and (ii), each promulgated 
under the Act,\39\ for the reasons described below.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78q-1(b)(3)(F).
    \39\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the rules of NSCC be 
designed to, among other things, assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible.\40\ NSCC believes the proposed rule change 
is designed to assure the safeguarding of securities and funds which 
are in its custody or control or for which it is responsible because 
the proposal would allow NSCC to better limit its liquidity exposure to 
Members in the event of a Member default.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Specifically, under the proposal, each Business Day NSCC would 
measure the Supplemental Liquidity Obligation of each Supplemental 
Liquidity Provider as the difference between the Daily Liquidity Need 
of the Supplemental Liquidity Provider calculated for that Business Day 
and the Qualifying Liquid Resources available to NSCC on that day 
assuming stressed market conditions. By making these calculations daily 
based on Members' current activity and NSCC's resources currently 
available to NSCC, the proposed SLD requirement would provide NSCC with 
a more accurate measure of its potential liquidity exposures to its 
Members in the event of a Member default. The proposal would also 
establish a monthly intraday SLD collection in connection with options 
expiration activity that present heighted liquidity exposures, and an 
optional intraday SLD that NSCC may collect when it deems appropriate 
to mitigate any increased liquidity exposures or in light of other 
circumstances. These proposed intraday SLD would allow NSCC to re-
calculate its liquidity exposures and collect sufficient liquidity to 
allow it to complete end-of-day settlement in the event of the default 
of a Member.
    Additionally, by providing an alternative pro rata calculation of 
Supplemental Liquidity Obligations in certain circumstances, the 
proposal would provide NSCC with the flexibility to determine the total 
amount collected on a Business Day, while continuing to collect and 
hold sufficient liquidity to allow NSCC to complete end-of-day 
settlement in the event of the default of the Member with the largest 
payment obligations. In this way, the proposed change to calculate and 
collect, when applicable, SLD on a daily basis based on current 
information, and on an intraday basis when NSCC observes an increase in 
its Daily Liquidity Need, would help NSCC assure the safeguarding of 
securities and funds which are in its custody or control or for which 
it is responsible, consistent with the requirements of Section 
17A(b)(3)(F) of the Act.\41\
---------------------------------------------------------------------------

    \41\ Id.
---------------------------------------------------------------------------

    The proposed changes to simplify and clarify Rule 4(A), which 
describes the SLD requirement, would also be consistent with the 
requirements of

[[Page 15745]]

Section 17A(b)(3)(F) of the Act.\42\ These proposed changes would make 
the rights and obligations of both NSCC and its Members under Rule 4(A) 
more transparent and easier to understand. A clearer rule supports the 
ability of Members to meet their obligations to provide NSCC with SLD 
when required. The liquidity provided to NSCC through the SLD allows it 
to complete end-of-day settlement in the event of the default of a 
Member. Therefore, by making the provisions of Rule 4(A) clearer, 
simpler and more transparent to Members, these proposed changes also 
support NSCC's compliance with the requirements of Section 17A(b)(3)(F) 
of the Act to assure the safeguarding of securities and funds which are 
in NSCC's custody or control or for which it is responsible.\43\
---------------------------------------------------------------------------

    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(7)(i) under the Act requires that NSCC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain sufficient liquid resources at the 
minimum in all relevant currencies to effect same-day and, where 
appropriate, intraday and multiday settlement of payment obligations 
with a high degree of confidence under a wide range of foreseeable 
stress scenarios that includes, but is not limited to, the default of 
the participant family that would generate the largest aggregate 
payment obligation for NSCC in extreme but plausible market 
conditions.\44\ Rule 17Ad-22(e)(7)(ii) under the Act requires that NSCC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to hold qualifying liquid resources 
sufficient to meet the minimum liquidity resource requirement under 
Rule 17Ad-22(e)(7)(i) in each relevant currency for which NSCC has 
payment obligations owed to its Members.\45\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17Ad-22(e)(7)(i).
    \45\ 17 CFR 240.17Ad-22(e)(7)(ii). For purposes of Rule 17Ad-
22(e)(7)(ii), ``qualifying liquid resources'' are defined in Rule 
17Ad-22(a)(14) as including, in part, cash held either at the 
central bank of issue or at creditworthy commercial banks. Supra 
note 7.
---------------------------------------------------------------------------

    As described above, the proposal would strengthen NSCC's ability to 
maintain sufficient liquidity to complete end-of-day settlement in the 
event of the default of a Member. The proposal would do this by 
allowing NSCC to calculate and collect, when applicable, SLD every 
Business Day from those Members that pose the largest liquidity 
exposures to NSCC on that day. The proposal would also include a 
mechanism to allow NSCC to collect SLD on an intraday basis, including 
on the first Business Day of the Options Expiration Activity Period, 
when liquidity exposures are historically higher. These resources would 
be available to NSCC to complete end-of-day settlement in the event of 
the default of a Member. Further, SLD are currently, and would continue 
to be, held by NSCC at either its cash deposit account at the Federal 
Reserve Bank of New York, at a creditworthy commercial bank, or in 
other investments pursuant to the Clearing Agency Investment 
Policy.\46\ Therefore, SLD would continue to be considered a qualifying 
liquid resource, as defined by Rule 17Ad-22(a)(14) under the Act,\47\ 
and would support NSCC's ability to hold qualifying liquid resources 
sufficient to meet the minimum liquidity resource requirement under 
Rule 17Ad-22(e)(7)(i), as required by Rule 17Ad-22(e)(7)(ii). 
Additionally, the proposed alternative pro rata calculation of 
Supplemental Liquidity Obligations would provide NSCC with the 
flexibility to determine the total amount collected on a Business Day, 
while continuing to collect and hold sufficient liquidity to allow NSCC 
to complete end-of-day settlement in the event of the default of the 
Member with the largest payment obligations, as required by Rule 17Ad-
22(e)(7)(i).\48\ As such, this proposed change would support NSCC's 
ability to hold sufficient qualifying liquid resources to meet its 
minimum liquidity resource requirement under Rules 17Ad-22(e)(7)(i) and 
(ii).\49\
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release Nos. 79528 (December 
12, 2016), 81 FR 91232 (December 16, 2016) (File Nos. SR-DTC-2016-
007, SR-FICC-2016-005, SR-NSCC-2016-003); 84949 (December 21, 2018), 
83 FR 67779 (December 31, 2018) (File Nos. SR-DTC-2018-012, SR-FICC-
2018-014, SR-NSCC-2018-013).
    \47\ 17 CFR 240.17Ad-22(a)(14).
    \48\ 17 CFR 240.17Ad-22(e)(7)(i).
    \49\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------

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

    NSCC believes that the proposed rule change could have an impact on 
competition. Specifically, NSCC believes the proposed changes could 
burden competition because they would require those Members that are 
identified as Supplemental Liquidity Providers to make an SLD to the 
Clearing Fund each Business Day, when applicable, rather than only 
monthly in connection with the expiration of stock options.
    Members are currently subject to SLD requirements under Rule 4(A), 
and, while the proposed rule change could result in a Supplemental 
Liquidity Obligation on a more frequent basis, the impact study 
results, discussed above, show that the proposal would not have a 
significant impact on the frequency or amount of those requirements. 
The Supplemental Liquidity Obligations of Supplemental Liquidity 
Providers would be in direct relation to the specific liquidity 
exposures presented to NSCC by Members' daily activity. Therefore, 
Members that present the largest liquidity exposures to NSCC, 
regardless of the type of Member, currently have, and would continue to 
have, similar SLD requirements. The proposed alternative calculation of 
Supplemental Liquidity Obligations would provide NSCC with the 
flexibility to collect and hold sufficient liquidity to meet NSCC's 
regulatory obligations while allocating the Supplemental Liquidity 
Obligations on a pro rata basis among the Supplemental Liquidity 
Providers for that Business Day. This proposed change would treat each 
Supplemental Liquidity Provider equally when this alternative 
calculation is triggered.
    Therefore, NSCC believes that any burden on competition imposed by 
the proposed changes would not be significant and, further, would be 
both necessary and appropriate in furtherance of NSCC's efforts to 
mitigate risks and meet the requirements of the Act,\50\ as described 
in this filing and further below.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    NSCC believes the above described burden on competition that may be 
created by the proposed changes to the SLD requirement would be 
necessary in furtherance of the purposes of the Act, specifically 
Section 17A(b)(3)(F) of the Act.\51\ As discussed above, the proposed 
change would improve NSCC's ability to estimate its liquidity exposures 
in the calculation and collection of SLD by using daily activity rather 
than estimating potential exposures based on activity in a look-back 
period. In this way, the proposed change would improve NSCC's liquidity 
risk management by supplementing its liquidity resources that are 
available to it to complete end-of-day settlement in the event of the 
default of a Member. The proposed pro rata alternative calculation of 
SLD would allow NSCC to opt to collect only the largest Supplemental 
Liquidity Obligation calculated for that Business Day, while still 
meeting NSCC's applicable regulatory obligations. The proposed 
enhancements to its liquidity risk management would help NSCC assure 
the safeguarding of securities and funds

[[Page 15746]]

which are in its custody or control or for which it is responsible, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\52\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78q-1(b)(3)(F).
    \52\ Id.
---------------------------------------------------------------------------

    NSCC believes the above described burden on competition that may be 
created by the proposed changes to the SLD requirement would be 
necessary in furtherance of the purposes of the Act, specifically 
Section 17A(b)(3)(F) of the Act.\53\ As discussed above, the proposed 
change would improve NSCC's ability to estimate its liquidity exposures 
in the calculation and collection of SLD by using daily activity rather 
than estimating potential exposures based on activity in a look-back 
period. The proposal would also establish a monthly intraday SLD to 
address the additional liquidity exposures that are presented by 
monthly options expiration activity, and an optional intraday SLD that 
may be collected when NSCC deems appropriate. In aggregate, the total 
SLD collected would improve NSCC's liquidity risk management by 
supplementing its liquidity resources that are available to it to 
complete end-of-day settlement in the event of the default of a Member. 
The proposed pro rata alternative calculation of SLD would allow NSCC 
to opt to collect only the largest Supplemental Liquidity Obligation 
calculated for that Business Day, while still meeting NSCC's applicable 
regulatory obligations. The proposed enhancements to its liquidity risk 
management would help NSCC assure the safeguarding of securities and 
funds which are in its custody or control or for which it is 
responsible, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\54\
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78q-1(b)(3)(F).
    \54\ Id.
---------------------------------------------------------------------------

    The proposal would strengthen NSCC's ability to maintain sufficient 
liquidity to complete end-of-day settlement in the event of the default 
of a Member by allowing NSCC to collect SLD each Business Day from 
those Members that pose the largest liquidity exposures to NSCC on that 
day. Further, SLD are currently, and would continue to be, cash 
deposits to NSCC's Clearing Fund, which meet the criteria to be 
considered qualifying liquid resources, as defined by Rule 17Ad-
22(a)(14) under the Act.\55\ The proposed alternative pro rata 
calculation would allow NSCC to continue to collect sufficient 
liquidity to meet the requirements of Rule 17Ad-22(e)(7)(i).\56\ As 
such, this proposed change would support NSCC's ability to hold 
sufficient qualifying liquid resources to meet its minimum liquidity 
resource requirement under Rules 17Ad-22(e)(7)(i) and (ii).\57\
---------------------------------------------------------------------------

    \55\ 17 CFR 240.17Ad-22(a)(14).
    \56\ 17 CFR 240.17Ad-22(e)(7)(i).
    \57\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------

    NSCC believes that the above described burden on competition that 
could be created by the proposed changes would be appropriate in 
furtherance of the purposes of the Act because such changes have been 
designed to assure the safeguarding of securities and funds which are 
in the custody or control of NSCC or for which it is responsible, as 
described in detail above. Under both the current Rule 4(A) and the 
proposed changes to Rule 4(A), the SLD requirements are designed to 
require those Members whose settlement activity pose the largest 
liquidity exposures to NSCC to provide SLD in the amount of such 
exposures. The proposed changes to Rule 4(A) would better support NSCC 
by allowing it to calculate and collect, when applicable, SLD to 
address liquidity exposures that are presented by the activity of 
Supplemental Liquidity Providers each Business Day rather than only 
during monthly options expiration periods. The proposed rule change 
would improve NSCC's ability to measure these liquidity exposures by 
using daily activity rather than estimations based on past activity.
    Therefore, because the proposed changes are designed to provide 
NSCC with a more accurate measure of the liquidity risks presented by 
Members' daily activity, NSCC believes the proposal would meet NSCC's 
risk management goals and its regulatory obligations. NSCC believes 
that it has designed the proposed rule change in an appropriate way in 
order to comply with NSCC's obligations under the Act. Therefore, as 
described above, NSCC believes the proposed changes are necessary and 
appropriate in furtherance of NSCC's obligations under the Act,\58\ 
specifically Section 17A(b)(3)(F) of the Act \59\ and Rules 17Ad-
22(e)(7)(i) and (ii) under the Act.\60\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78q-1(b)(3)(I).
    \59\ 15 U.S.C. 78q-1(b)(3)(F).
    \60\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
---------------------------------------------------------------------------

(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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

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-2021-002 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-2021-002. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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,

[[Page 15747]]

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-2021-002 and should be 
submitted on or before April 14, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-05995 Filed 3-23-21; 8:45 am]
BILLING CODE 8011-01-P


