[Federal Register Volume 86, Number 85 (Wednesday, May 5, 2021)]
[Notices]
[Pages 24067-24072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09428]



[[Page 24067]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91720; File No. SR-NSCC-2021-802]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of and No Objection to Advance Notice 
Regarding the Renewal of a 364-Day Committed Revolving Line-of-Credit 
and Future Annual Renewals

April 29, 2021.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on April 
8, 2021, National Securities Clearing Corporation (``NSCC'') filed with 
the Securities and Exchange Commission (``Commission'') the advance 
notice SR-NSCC-2021-802. The advance notice (hereinafter, the ``Advance 
Notice'') is described in Items I, II and III below, which Items have 
been prepared by the clearing agency. The Commission is publishing this 
notice to solicit comments on the Advance Notice from interested 
persons and providing notice that the Commission does not object to the 
Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    NSCC is filing this advance notice in order to (1) renew its 364-
day committed revolving line-of-credit with a syndicate of commercial 
lenders (``Credit Facility''), as described below (hereinafter, 
``Current Renewal''), and (2) enter into future annual renewals of the 
Credit Facility on substantially similar terms and conditions as the 
Current Renewal without needing to file an advance notice, also 
described below (hereinafter, ``Future Renewals'').\3\
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    \3\ Terms not defined herein are defined in the Rules and 
Procedures of NSCC (``Rules''), http://www.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 Advance Notice

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

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    NSCC has not solicited or received any written comments to this 
advance notice. NSCC will notify the Commission of any written comments 
are received by NSCC.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing 
Supervision Act

Description of the Proposal
    NSCC is filing this advance notice in order to enter into (1) the 
Current Renewal and (2) Future Renewals, as described below.
    Background. NSCC and DTC maintain the Credit Facility as part of 
their liquidity risk management regime. The Credit Facility provides 
for both NSCC and DTC as borrowers, with an aggregate commitment of 
$1.9 billion for DTC and the amount of any excess aggregate commitment 
for NSCC. As borrowers, NSCC and DTC are not jointly and severally 
liable, and each lender to the Credit Facility has a ratable commitment 
to each borrower. NSCC and DTC have separate collateral to secure their 
separate borrowings.
    The Credit Facility is renewed annually, and from 2013 through 
2017, NSCC and DTC each filed an advance notice each year with the 
Commission, pursuant to Section 806(e)(1) of the Clearing Supervision 
Act \4\ and Rule 19b-4(n)(1)(i) under the Exchange Act \5\ as part of 
that renewal process.\6\
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    \4\ 12 U.S.C. 5465(e)(1).
    \5\ 17 CFR 240.19b-4(n)(1)(i).
    \6\ Securities Exchange Act Release Nos. 69557 (May 10, 2013), 
78 FR 28936 (May 16, 2013) (SR-NSCC-2013-803); 72131 (May 8, 2014), 
79 FR 27654 (May 14, 2014) (SR-NSCC-2014-805); 74906 (May 7, 2015), 
80 FR 27714 (May 14, 2015) (SR-NSCC-2015-801); 77750 (April 29, 
2016), 81 FR 27181 (May 5, 2016) (SR-NSCC-2016-801); 80605 (May 5, 
2017), 82 FR 21850 (May 10, 2017) (SR-NSCC-2017-802).
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    In 2017, NSCC and DTC proposed and the Commission did not object to 
allowing NSCC and DTC to renew the Credit Facility, subject to specific 
conditions (``Evergreen Provisions''), without filing advance notices 
with the Commission.\7\ The Commission found that because the Evergreen 
Provisions would ensure that future annual renewals of the Credit 
Facility would be on substantially similar terms and conditions as the 
2017 Credit Facility, to which the Commission did not object, 
associated advance notice filings would not be necessary.\8\ However, 
in the event that an annual renewal of the Credit Facility would not 
satisfy the Evergreen Provisions, such renewal would be subject to an 
advance notice filing.
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    \7\ Securities Exchange Act Release No. 80605 (May 5, 2017), 82 
FR 21850 (May 10, 2017) (SR-NSCC-2017-802) (``2017 Filing'').
    \8\ Id.
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    Some of the Evergreen Provisions are specific to NSCC, some to DTC, 
and some to both.\9\ One of the NSCC specific Evergreen Provisions is 
that NSCC would not seek or accept for its portion of the Credit 
Facility an aggregate commitment amount 15 percent below the amount 
NSCC sought in 2017.\10\ In 2017, NSCC sought an aggregate commitment 
amount of $12.1 billion for its portion of the Credit Facility, which 
established a 15 percent threshold amount of no less than $10.285 
billion.\11\ Because NSCC now seeks an aggregate commitment amount of 
no more than $10.1 billion for its portion of the Credit Facility, 
which is below that 15 percent threshold, it is filing this advance 
notice with the Commission.\12\ DTC need not file an advance notice for 
its renewal of the Credit Facility because DTC would continue to comply 
with the Evergreen Provisions applicable to it.\13\ The only Evergreen 
Provision to which the Current Renewal would not satisfy is the 15 
percent minimum threshold amount applicable to NSCC.
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    \9\ See id.
    \10\ Id.
    \11\ Id.
    \12\ NSCC is seeking a reduced commitment amount for a variety 
of reasons, including but not limited to NSCC's ability to obtain 
additional liquidity from the issuance of commercial paper and 
extendable notes (see Securities Exchange Act Release Nos. 75730 
(August 19, 2015), 80 FR 51638 (August 25, 2015) (SR-NSCC-2015-802); 
82676 (February 9, 2018), 83 FR 6912 (February 15, 2018) (SR-NSCC-
2017-807)), as well as certain term debt (see Securities Exchange 
Act Release No. 88146 (February 7, 2020), 85 FR 8046 (February 12, 
2020) (SR-NSCC-2019-802)) (``Liquidity Filings'').
    \13\ See 2017 Filing, supra note 7.
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    Current Renewal. The terms and conditions of the Current Renewal 
would be specified in the Revolving Credit Agreement, to be dated as of 
May 4, 2021, among DTC, NSCC, the lenders party thereto, the primary 
administrative and collateral agent, and the backup administrative and 
collateral agent (``Renewal Agreement''). Such terms and conditions 
would be substantially the same as the terms and conditions of the 
existing credit agreement, dated as of May 5, 2020 (``Existing 
Agreement''), except that

[[Page 24068]]

pricing \14\ and the aggregate commitment amount for NSCC, as discussed 
above, is expected to change. The substantive terms of the Renewal 
Agreement are set forth in the Summary of Indicative Principal Terms 
and Conditions, dated March 22, 2021 (``Term Sheet''), which is not a 
public document but has been included as a confidential Exhibit 3 to 
this filing.
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    \14\ ``Pricing'' of the Credit Facility refers to the charges 
and fees owed by the borrowers (i.e., NSCC and DTC) to the agents 
and lenders thereto with respect to the services performed by the 
agents, the commitment to lend, and the rate of interest applicable 
to any borrowing under the Credit Facility, among other such 
matters.
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    For the Current Renewal, NSCC and DTC are seeking an aggregate 
commitment amount of no more than $12 billion for the entire Credit 
Facility, of which $1.9 billion would be committed to DTC as borrower 
and any remainder to NSCC as borrower, as provided in the Existing 
Agreement. Although NSCC and DTC are seeking an aggregate commitment 
amount of no more than $12 billion, the actual, final amount will 
depend on a number of factors, including the total commitment amount 
received from lenders (i.e., it is possible that the total aggregate 
commitments received is less than the $12 billion sought); projected 
market volatility over the Credit Facility's 364-day period (``Facility 
Period''); potential business initiatives over the Facility Period; 
projected availability of NSCC's other liquidity resources (i.e., 
liquidity available via NSCC's commercial paper, extendable notes, term 
debt,\15\ Clearing Fund, and Supplemental Liquidity Deposit (``SLD'') 
requirement \16\) over the Facility Period; and NSCC and DTC's long-
term liquidity strategy.
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    \15\ See Liquidity Filings, supra note 12.
    \16\ Rule 4A (sic), Rules, supra note 3.
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    NSCC and DTC would continue not to be jointly and severally liable 
and each lender would have a ratable commitment to each borrower. DTC 
and NSCC would continue to provide separate collateral to secure their 
respective borrowings.
    Future Renewals. NSCC expects to continue to renew the Credit 
Facility annually on substantially similar terms and conditions as the 
Current Renewal. The terms and conditions of all Future Renewals would 
be specified in subsequent credit agreements among DTC, NSCC, the 
lenders party thereto, and the agents.
    As has been standard practice for the Credit Facility renewals, in 
connection with all Future Renewals, changes would not be made to (a) 
the financial institution acting as the primary administrative agent; 
or (b) the commitment period, which would continue to be 364 days.
    However, as was established with the 2017 Filing,\17\ in connection 
with all Future Renewals, changes may be made to (1) the aggregate 
commitment amount being sought for NSCC, so long as such amount does 
not vary more than 15 percent above or below the aggregate commitment 
amount being sought by NSCC under the Current Renewal (i.e., $10.1 
billion), which equates to an amount of no more than $11.615 billion 
and no less than $8.585 billion; \18\ (2) the syndicate, so long as all 
lenders party to Future Renewals are subject to the same credit review 
as those lenders party to the Current Renewal; \19\ (3) pricing and 
collateral haircuts,\20\ so long as such terms are consistent with the 
then current market practice; or (4) representations, warranties, 
covenants, terms of events of default,\21\ and other agreement 
provisions, so long as any changes are immaterial to NSCC as a borrower 
and do not impair NSCC's ability to borrow under the Credit Facility. 
NSCC would not consider such changes as materially altering the terms 
and conditions of the Credit Facility.
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    \17\ Supra note 7.
    \18\ NSCC continues to believe that a difference of no more than 
15 percent, either above or below the aggregate commitment amount 
being sought by NSCC under the Current Renewal, would not constitute 
a material change in the nature or level of risk presented by NSCC 
requiring an advance notice filing (see supra notes 1 and 2) because 
(i) the standing requirement that NSCC maintain, in short, 
sufficient liquidity to cover the default of the member family that 
would generate the largest aggregate payment obligation, in extreme 
but plausible market conditions (see Rule 17Ad-22(e)(7)(i) under the 
Exchange Act, discussed below); (ii) availability of liquidity via 
NSCC's other liquidity resources (see Liquidity Filings, supra note 
12 and see Rule 4A (sic), Rules, supra note 3); and (iii) the 
average size of the commitments for NSCC in past Credit Facilities, 
which have ranged from a low of $6.18 billion in 2011, to a high of 
$13.47 billion in 2014, both of which predated NSCC's commercial 
paper and term-debt offerings (see Liquidity Filings, supra note 
12), as well as the long-term establishment of NSCC's SLD 
requirement (Rule 4A (sic), Rules, supra note 3), which currently 
covers monthly options expiry periods but has been proposed to cover 
all business days (see Securities Exchange Act Release No. 91347 
(March 18, 2021), 86 FR 15750 (March 24, 2021) (SR-NSCC-2021-801)). 
More recently, NSCC's Credit Facility commitment amounts have been 
$12.05 (2018), $12.05 (2019), and $10.90 billion (2020).
    \19\ Potential lenders to the Credit Facility are analyzed to 
determine whether the potential lender has an acceptable credit risk 
profile. Criteria assessed can include long-term credit ratings, 
credit default swap spreads, sovereign ratings (i.e., the rating of 
the country of the ultimate parent), as applicable, and any other 
factors that may suggest a stronger or weaker credit risk profile, 
as necessary.
    \20\ ``Collateral haircuts'' with respect to the collateral for 
any borrowing under the Credit Facility refers to the schedule of 
percentages of market value, by type of collateral, determining the 
collateral value of that type of collateral, for purposes of 
securing a borrowing under the Credit Facility.
    \21\ ``Events of default'' under the Credit Facility refers to 
those events or conditions which trigger or constitute a default of 
the borrowers under the agreement (e.g., a breach of terms or 
conditions or a failure to perform an obligation).
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    So long as NSCC does not make changes to the terms described in 
items (a) and (b) above in any Future Renewal, and so long as any 
Future Renewal adheres to the conditions described in items (1) through 
(4) above (together with items (a) and (b) above, ``Proposed Evergreen 
Provisions''), NSCC would consider such Future Renewal as being on 
substantially the same terms and conditions as the Current Renewal, 
such that NSCC proposes that it would not need to file an advance 
notice pursuant to Section 806(e)(1) of the Clearing Supervision Act 
\22\ and Rule 19b-4(n)(1)(i) under the Exchange Act.\23\ Except for the 
specific dollar amounts described above, the Proposed Evergreen 
Provisions are the same as the Evergreen Provisions applicable to NSCC 
in the 2017 Filing.\24\
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    \22\ 12 U.S.C. 5465(e)(1).
    \23\ 17 CFR 240.19b-4(n)(1)(i).
    \24\ See 2017 Filing, supra note 7.
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    In the event that NSCC would have a Future Renewal that would not 
satisfy the Proposed Evergreen Provisions and, thus, would not be on 
terms and conditions that are substantially similar to the Current 
Renewal, such renewal would be subject to an advance notice filing by 
NSCC.
Expected Effect on Risks to the Clearing Agency, Its Participants and 
the Market
    The Renewal Agreement and its substantially similar predecessor 
agreements have been in place since the introduction of same day funds 
settlement at NSCC. The Current Renewal and Future Renewals subject to 
the Proposed Evergreen Provisions (``Evergreen Renewals'') would 
continue to promote the reduction of liquidity risk to NSCC, its 
Members, and the securities market in general because they would help 
NSCC maintain sufficient liquidity resources to timely meet its 
settlement obligations with a high degree of confidence.
Management of Identified Risks
    NSCC requires same day liquidity resources to cover the failure-to-
settle of its Member, or affiliated family of Members, with the largest 
aggregate liquidity exposure. If a Member defaults on its end-of-day 
net settlement obligation, NSCC may borrow under the Credit Facility to 
enable it, if necessary, to fund settlement among non-defaulting 
Members, including

[[Page 24069]]

settlement of guaranteed trades due to settle. Any borrowing would be 
secured principally by (i) securities deposited by Members in NSCC's 
Clearing Fund \25\ (i.e., the Eligible Clearing Fund Securities, as 
defined in the Rules, pledged by Members to NSCC in lieu of cash 
Clearing Fund deposits) and (ii) securities cleared through NSCC's 
Continuous Net Settlement System that were intended for delivery to the 
defaulting Member upon payment of its net settlement obligation.
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    \25\ NSCC's Clearing Fund (which operates as its default fund) 
addresses potential exposure through a number of risk-based 
component charges calculated and assessed daily and includes 
additional liquidity deposits by certain Members pursuant to NSCC's 
Supplemental Liquidity Deposits rule. Rule 4(A), Rules, supra note 
3.
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    In addition to the Credit Facility and the Clearing Fund, NSCC has 
diversified its liquidity resources through the issuance of commercial 
paper and extendable notes, as well as certain term debt, as noted 
above.\26\ Each of these liquidity resources are an integral part of 
NSCC's risk management structure, as they help provide NSCC with 
liquidity to complete end-of-day net funds settlement.
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    \26\ See Liquidity Filings, supra note 12.
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    Because the Renewal Agreement would preserve substantially similar 
terms and conditions to the Existing Agreement, and Evergreen Renewals 
would preserve substantially similar terms and conditions to the 
Renewal Agreement, NSCC believes that the Current Renewal and Evergreen 
Renewals would not otherwise affect or alter the management of risk at 
NSCC.
Consistency With the Clearing Supervision Act
    The objectives and principles of Section 805(b) of the Clearing 
Supervision Act are to promote of robust risk management, promote 
safety and soundness, reduce systemic risks, and support the stability 
of the broader financial system.\27\ As discussed below, NSCC believes 
that the changes proposed in this advance notice are consistent with 
those objectives and principles.
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    \27\ 12 U.S.C. 5464(b).
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    Promoting Robust Risk Management. NSCC believes that the changes 
proposed in this advance notice are consistent with promoting robust 
risk management, particularly management of liquidity risk presented to 
NSCC. Renewing and maintaining the Credit Facility in the manner 
proposed would preserve the diversity of liquidity resources available 
to NSCC to help resolve a Member default. Additionally, allowing 
Evergreen Renewals without an additional advance notice would provide 
NSCC, its Members, and market participants with greater certainty 
regarding a key source of committed liquidity to meet NSCC's settlement 
obligations, thus mitigating NSCC's liquidity risk. Further, because 
the Proposed Evergreen Provisions would ensure that any Future Renewal 
would be substantially similar to the Current Renewal, NSCC believes 
that any such renewals would promote robust risk management by 
preserving the diversity in liquidity resources available to NSCC to 
help resolve a Member default in the same manner as the Current 
Renewal. As such, NSCC believes the proposed changes would promote 
robust risk management practices at NSCC, consistent with Section 
805(b) of the Clearing Supervision Act.
    Promoting Safety and Soundness. NSCC believes that the changes 
proposed in this advance notice are consistent with promoting safety 
and soundness. As described above, the Current Renewal would enable 
NSCC to maintain an additional liquidity resource in the event of a 
Member default. That resource promotes safety and soundness for Members 
and market participants because it would provide NSCC with readily 
available liquidity to help NSCC continue to meet its respective 
obligations in a timely fashion in the event of a Member default, 
thereby helping to contain losses and liquidity pressures from that 
default. Because the Proposed Evergreen Provisions would ensure that 
any Future Renewals would be substantially similar to the Current 
Renewal, even without NSCC filing an advance notice, such renewals also 
would promote safety and soundness for the same reasons. As such, NSCC 
believes the proposed changes would promote safety and soundness, 
consistent with Section 805(b) of the Clearing Supervision Act.
    Reducing Systemic Risks and Supporting the Stability of the Broader 
Financial System. NSCC also believes that the proposed changes in this 
advance notice are consistent with reducing systemic risks and 
supporting the stability of the broader financial system. As mentioned 
above, allowing NSCC to enter the Current Renewal would enable NSCC, 
which has been designated a systemically important financial market 
utility,\28\ to continue to maintain an additional liquidity resource 
that NSCC may access to help manage a Member default. In addition, 
because the Proposed Evergreen Provisions would ensure that any Future 
Renewals entered into without filing an advance notice would be on 
substantially similar terms as the Current Renewal, such renewals also 
would enable NSCC to continue to maintain an additional liquidity to 
help manage a Member default. Moreover, allowing Evergreen Renewals 
would reduce the risk of gaps in availability of this liquidity 
resource, providing increased certainty and stability for NSCC, its 
Members, and market participants regarding the availability of this 
liquidity risk management resource on an ongoing basis. Accordingly, 
NSCC believes that the proposed changes would help reduce systemic risk 
at NSCC, which in turn helps support the stability of the broader 
financial system, consistent with Section 805(b) of the Clearing 
Supervision Act.
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    \28\ The Financial Stability Oversight Council designated NSCC a 
systemically important financial market utility on July 18, 2012. 
See Financial Stability Oversight Council 2012 Annual Report, 
Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
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    NSCC also believes that the changes proposed in this advance notice 
are consistent with the requirements of Rule 17Ad-22(e)(7)(i) and (ii) 
under the Exchange Act.\29\
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    \29\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
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    Rule 17Ad-22(e)(7)(i) requires a covered clearing agency, of which 
NSCC is one,\30\ to ``establish, implement, maintain and enforce 
written policies and procedures reasonably designed to . . . 
[e]ffectively measure, monitor, and manage liquidity risk that arises 
in or is borne by the covered clearing agency, including measuring, 
monitoring, and managing its settlement and funding flows on an ongoing 
and timely basis, and its use of intraday liquidity by, at a minimum . 
. . [m]aintaining sufficient liquid resources at the minimum in all 
relevant currencies to effect same-day . . . 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 of obligation for the covered clearing agency in 
extreme but plausible conditions.'' \31\
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    \30\ NSCC is a ``covered clearing agency'' as defined by Rule 
17Ad-22(a)(5) under the Exchange Act. 17 CFR 240.17Ad-22(a)(5).
    \31\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the Current Renewal would continue to provide 
NSCC with a readily available liquidity resource, enabling NSCC to 
continue to meet its respective obligations in a timely fashion in the 
event of a Member default, thereby helping to contain losses and 
liquidity pressures from that default. Additionally, because the 
Proposed Evergreen Provisions would

[[Page 24070]]

ensure that any Future Renewals would be substantially similar to the 
Current Renewal, such renewals also would provide NSCC with a readily 
available liquidity resource that would enable it to continue to meet 
its respective obligations in a timely fashion in the event of a Member 
default, thereby helping to contain losses and liquidity pressures from 
that default. Moreover, allowing NSCC to enter into Evergreen Renewals 
without filing an additional advance notice would reduce the risk of 
gaps in liquidity coverage and better enable NSCC to continually 
maintain sufficient liquidity resources. Therefore, the NSCC believes 
that the proposed changes in this advance notice are consistent with 
Rule 17Ad-22(e)(7)(i).
    Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires NSCC to 
``establish, implement, maintain and enforce written policies and 
procedures reasonably designed to . . . [e]ffectively measure, monitor, 
and manage liquidity risk that arises in or is borne by the covered 
clearing agency, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity by, at a minimum . . . [h]olding qualifying 
liquid resources sufficient to meet the minimum liquidity resource 
requirement under [Rule 17Ad-22(e)(7)(i) described above] in each 
relevant currency for which the covered clearing agency has payment 
obligations owed to clearing members.'' \32\ Rule 17Ad-22(a)(14) under 
the Exchange Act defines ``qualifying liquid resources'' to include, 
among other things, lines of credit without material adverse change 
provisions, that are readily available and convertible into cash.\33\
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    \32\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \33\ 17 CFR 240.17Ad-22(a)(14).
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    As described above, the Current Renewal would permit NSCC to enter 
into a committed line of credit that is designed to help ensure that 
NSCC has sufficient, readily-available qualifying liquid resources to 
meet the cash settlement obligations of its largest family of 
affiliated Members. Similarly, because the Proposed Evergreen 
Provisions would ensure that any Future Renewals would be substantially 
similar to the Current Renewal, such renewals also would permit NSCC to 
enter into a committed line of credit that is designed to help ensure 
that NSCC has sufficient, readily-available qualifying liquid resources 
to meet the cash settlement obligations of its largest family of 
affiliated Members. Accordingly, NSCC believes that the changes 
proposed in this advance notice are consistent with Rule 17Ad-
22(e)(7)(ii).
Accelerated Commission Action Requested
    Because the Term Sheet was not finalized until approximately six 
weeks prior to the expected effective date of the Current Renewal 
(which is standard practice), NSCC respectfully requests, as it has 
done previously,\34\ that the Commission, pursuant to Section 
806(e)(1)(I) of the Clearing Supervision Act,\35\ notify NSCC that it 
has no objection to the proposed changes in this advance notice no 
later than April 26, 2021, which is five business days prior to the May 
4, 2021 effective date of the Current Renewal. NSCC requests Commission 
action five business days in advance of the effective date in order to 
ensure that there is no period of time that NSCC operates without this 
essential liquidity resource, given its importance to NSCC risk 
management and protecting NSCC settlement.
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    \34\ See supra note 6.
    \35\ 12 U.S.C. 5465(e)(1)(I).
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III. Date of Effectiveness of the Advance Notice, and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The clearing agency shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    The clearing agency shall post notice on its website of proposed 
changes that are implemented.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2021-802 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-2021-802. 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 Advance Notice that are filed with the 
Commission, and all written communications relating to the Advance 
Notice between the Commission and any person, other than those that may 
be withheld from the public in accordance with the provisions of 5 
U.S.C. 552, will be available for 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-2021-802 and should be submitted on 
or before May 26, 2021.

V. Commission Findings and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive: to 
mitigate systemic risk in the financial system

[[Page 24071]]

and promote financial stability by, among other things, promoting 
uniform risk management standards for systemically important financial 
market utilities and strengthening the liquidity of systemically 
important financial market utilities.\36\ Section 805(a)(2) of the 
Clearing Supervision Act \37\ authorizes the Commission to prescribe 
risk management standards for the payment, clearing, and settlement 
activities of designated clearing entities and financial institutions 
engaged in designated activities for which it is the supervisory agency 
or the appropriate financial regulator. Section 805(b) of the Clearing 
Supervision Act \38\ states that the objectives and principles for the 
risk management standards prescribed under Section 805(a) shall be to:
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    \36\ 12 U.S.C. 5461(b).
    \37\ 12 U.S.C. 5464(a)(2).
    \38\ 12 U.S.C. 5464(b).
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     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.\39\
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    \39\ Id.
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    The Commission has adopted risk management standards under Section 
805(a)(2) of the Act \40\ and Section 17A of the Act (``Rule 17Ad-
22'').\41\ The Rule 17Ad-22 requires registered clearing agencies to 
establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to meet certain minimum 
requirements for their operations and risk management practices on an 
ongoing basis.\42\ Therefore, it is appropriate for the Commission to 
review changes proposed in advance notices against Rule 17Ad-22 and the 
objectives and principles of these risk management standards as 
described in Section 805(b) of the Clearing Supervision Act.\43\ The 
Commission believes the proposal in the Advance Notice is consistent 
with the objectives and principles described in Section 805(b) of the 
Act,\44\ and in Rule17Ad-22, in particular, Rule 17Ad-22(e)(7) under 
the Act.\45\
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    \40\ 12 U.S.C. 5464(a)(2).
    \41\ See 17 CFR 240.17Ad-22.
    \42\ Id.
    \43\ 12 U.S.C. 5464(b).
    \44\ Id.
    \45\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    As discussed below, the Commission believes that the changes 
proposed in the Advance Notice are consistent with Section 805(b) of 
the Act because they (i) promote robust risk management; (ii) are 
consistent with promoting safety and soundness; and (iii) are 
consistent with reducing systemic risks and promoting the stability of 
the broader financial system.
    The Commission believes that the changes proposed in the Advance 
Notice are consistent with promoting robust risk management, in 
particular management of liquidity risk presented by NSCC. Renewing the 
Credit Facility would allow NSCC to continue to maintain it as a 
liquidity resource that it may use to resolve a member default. NSCC 
proposes to renew the Credit Facility at a $10.1 billion aggregate 
commitment, which is an amount less than the $12.1 billion aggregate 
commitment amount authorized in 2017, and outside the range that the 
Commission approved in the 2017 Notice of No Objection. However, NSCC 
has diversified and expanded its liquidity resources since 2017. 
Specifically, NSCC has expanded the amount that is available through 
its commercial paper program to $10 billion, and it has obtained 
authorization to issue certain term debt.\46\ Therefore, the proceeds 
of these issuances are available to NSCC as an additional, and 
increased, amount of default liquidity resources that were not 
available in 2017.\47\ In addition, NSCC continues to have access to 
its Clearing Fund, including any supplemental liquidity deposits 
thereto, as an additional liquidity resource.\48\ Therefore, the 
Commission believes that the current renewal of the Credit Facility 
would be consistent with robust risk management by allowing NSCC to 
continue to manage the liquidity risk presented to it.\49\
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    \46\ See Liquidity Filings, supra note 12.
    \47\ As a result of these additional and increased liquidity 
resources, the Credit Facility has generally represented a smaller 
portion of NSCC's total liquid resources since 2017, while still 
continuing to help ensure that NSCC meets its regulatory liquidity 
risk management obligations, as discussed in Section III.B.2 below.
    \48\ NSCC has the ability to collect supplemental liquidity 
deposits from certain of its members whose activity presents 
particular liquidity needs for NSCC. See generally Rule 4(A) of 
NSCC's Rules, supra note 3 (as approved by the Commission in 2013, 
https://www.sec.gov/rules/sro/nscc/2013/34-70999.pdf). These 
deposits serve as another liquidity resource that NSCC may use in 
the event of a member default. Currently, NSCC's rules allow for the 
collection of such deposits only in connection with monthly options 
expiry periods.
    \49\ NSCC seeks the authority to renew the Credit Facility at an 
aggregate commitment amount of no more than $10.1 billion, meaning 
that NSCC potentially could renew the Credit Facility at some amount 
less than $10.1 billion consistent with the proposed authority, in 
light of market conditions at the time of the renewal and NSCC's 
assessment of its liquidity needs. Regardless of the amount of the 
Credit Facility into which NSCC ultimately enters, NSCC remains 
subject to the same regulatory requirements with respect to its 
liquidity risk, as discussed in Section V.B. below, and would have 
to meet those requirements using some other combination of available 
resources.
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    Moreover, allowing NSCC annually to renew the Credit Facility under 
certain specified circumstances without an additional advance notice, 
subject to the proposed Evergreen Provisions, would provide NSCC and 
market participants with greater certainty regarding a continuing 
source of committed liquidity to meet its settlement obligations and 
thus mitigate NSCC' liquidity risk. Further, because the proposed 
Evergreen Provisions would continue to ensure that any such annual 
renewals would be substantially similar to the currently proposed 
Credit Facility, the Commission believes that any such renewals would 
promote robust risk management by continuing to available liquidity 
resources that NSCC may use to resolve a member default in the same 
manner as the currently proposed Credit Facility. As such, the 
Commission believes that the proposal would promote robust risk 
management practices at NSCC, consistent with Section 805(b) of the 
Act.\50\
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    \50\ 12 U.S.C. 5464(b).
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    The Commission also believes that the changes proposed in the 
Advance Notice are consistent with promoting safety and soundness. As 
described above, the currently proposed Credit Facility would continue 
to provide NSCC with a key liquidity resource in the event of a member 
default. This liquidity would promote safety and soundness for members 
because it would provide NSCC with a readily available liquidity 
resource that would enable it to continue to meet its respective 
obligations in a timely fashion in the event of a member default, 
thereby helping to contain losses and liquidity pressures from that 
default. Because the Proposed Evergreen Provisions would ensure that 
any annual renewals implemented without filing an advance notice would 
be substantially similar to the currently proposed Credit Facility, any 
such annual renewals would promote safety and soundness for the same 
reasons. As such, the Commission believes it is consistent with 
promoting safety and soundness as contemplated in Section 805(b) of the 
Act.\51\
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    \51\ Id.
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    In addition, the Commission believes that the changes proposed in 
the Advance Notice are consistent with reducing systemic risks and 
promoting the stability of the broader financial system. As mentioned 
above, allowing NSCC to enter into the currently

[[Page 24072]]

proposed Credit Facility would enable NSCC, which has been designated a 
systemically important financial market utility,\52\ to continue to 
maintain an additional liquidity resource that NSCC may access to help 
manage a member default. In addition, because the proposed Evergreen 
Provisions would ensure that any annual renewals entered into without 
filing an advance notice would be on substantially similar terms to the 
currently proposed Credit Facility, such future renewals also would 
enable NSCC to maintain an additional liquidity resource that NSCC may 
access to help manage a member default. Moreover, allowing the annual 
renewal of the Credit Facility under the proposed Evergreen Provisions 
without filing an additional advance notice would reduce the risk of 
disruption in availability of this liquidity resource. Further, 
allowing renewal without an advance notice in these specific 
circumstances would also provide heightened certainty and stability for 
NSCC and market participants regarding the availability of this 
liquidity resource on an ongoing basis. Accordingly, the Commission 
believes that the proposal would help reduce the systemic risk of NSCC, 
which in turn would help support the stability of the broader financial 
system, consistent with Section 805(b) of the Act.\53\
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    \52\ See supra note 28.
    \53\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(7)(i) and (ii)

    The Commission believes the changes proposed in the Advance Notice 
are consistent with Rules 17Ad-22(e)(7)(i) and (ii), each promulgated 
under the Exchange Act,\54\ for the reasons described below.
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    \54\ 17 CFR 240.17Ad-22(e)(7)(i) and (ii).
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    Rule 17Ad-22(e)(7)(i) under the Exchange Act requires that a 
covered clearing agency 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 the covered 
clearing agency in extreme but plausible market conditions.\55\ Rule 
17Ad-22(e)(7)(ii) under the Act requires that a cover clearing agency 
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 the covered 
clearing agency has payment obligations owed to its clearing 
members.\56\
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    \55\ 17 CFR 240.17Ad-22(e)(7)(i).
    \56\ 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. 17 CFR 
240.17Ad-22(a)(14).
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    As described above, the currently proposed Credit Facility renewal 
would provide NSCC with a readily available liquidity resource that 
would enable NSCC to continue to meet its obligations in a timely 
fashion in the event of a member default, thereby helping to contain 
losses and liquidity pressures from that default. Additionally, because 
the proposed Evergreen Provisions would ensure that any annual renewals 
would be substantially similar to the currently proposed Credit 
Facility, such future renewals would also continue to provide NSCC with 
a readily available liquidity resource that would enable it to continue 
to meet its respective obligations in a timely fashion in the event of 
a member default, thereby helping to contain losses and liquidity 
pressures from that default. Moreover, allowing NSCC annually to renew 
the Credit Facility pursuant to the proposed Evergreen Provisions 
without filing an additional advance notice would reduce the risk of 
gaps in liquidity coverage and better allow NSCC to continually 
maintain sufficient liquidity resources.
    In addition, the currently proposed renewal of the Credit Facility 
would permit NSCC to maintain a single Credit Facility designed to help 
ensure that NSCC has sufficient, readily-available qualifying liquid 
resources to meet the cash settlement obligations of its largest family 
of affiliated members. Similarly, because the proposed Evergreen 
Provisions would ensure that any annual renewals would be substantially 
similar to the currently proposed renewal of the Credit Facility, such 
renewals also would permit NSCC to maintain a single Credit Facility 
designed to help ensure that NSCC has sufficient, readily-available 
qualifying liquid resources to meet the cash settlement obligations of 
their largest family of affiliated members. Therefore, the Commission 
believes that NSCC's proposal would support its ability to hold 
qualifying liquid resources sufficient to meet the minimum liquidity 
resource requirement under Rule 17Ad-22(e)(7)(i),\57\ as required by 
Rule 17Ad-22(e)(7)(ii).\58\
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    \57\ 17 CFR 240.17Ad-22(e)(7)(i).
    \58\ 17 CFR 240.17Ad-22(e)(7)(ii).
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    Accordingly, the Commission believes that the current renewal would 
be consistent with Rule 17Ad-22(e)(7)(i) and (ii) under the Exchange 
Act.\59\
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    \59\ 17 CFR 240.17Ad-22(e)(7).
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VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\60\ that the Commission does not object to 
Advance Notice SR-NSCC-2021-802 and that NSCC be and hereby is 
authorized to implement the change as of the date of this notice.
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    \60\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09428 Filed 5-4-21; 8:45 am]
BILLING CODE 8011-01-P


