[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36815-36822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14791]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92334; File No. SR-NSCC-2021-007]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Relating To 
Confidential Information, Market Disruption Events, and Other Changes

July 7, 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 June 25, 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. 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.
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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 NSCC's Rules 
& Procedures (``Rules'') \3\ to (i) revise certain provisions in the 
Rules relating to the confidentiality of information furnished by 
applicants, Members and Limited Members (collectively,

[[Page 36816]]

``participants'') to NSCC, (ii) require that each participant maintain 
confidential information furnished by NSCC or its affiliates in 
confidence and restrict use and disclosure of such information, (iii) 
add certain officers who are allowed to determine that there is a 
Market Disruption Event pursuant to Rule 60 and (iv) add a new Rule 60A 
to address situations in which it is necessary to disconnect a Member, 
Limited Member, third party service provider, or service bureau due to 
an imminent threat of harm to NSCC, Members, Limited Members and/or 
other market participants. Each of the proposed changes is described in 
greater detail below.
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    \3\ Capitalized terms not defined herein are defined in the 
Rules, available at https://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
    The proposed rule change consists of modifications to (i) revise 
certain provisions in the Rules relating to the confidentiality of 
information furnished by participants to NSCC, (ii) require that each 
participant maintain confidential information furnished by NSCC or its 
affiliates in confidence and restrict use and disclosure of such 
information, (iii) add certain officers who are allowed to determine 
that there is a Market Disruption Event pursuant to Rule 60 and (iv) 
add a new Rule 60A to address situations in which it is necessary to 
disconnect a Member, Limited Member, third party service provider, or 
service bureau due to an imminent threat of harm to NSCC, Members, 
Limited Members and/or other market participants. Each of the proposed 
changes is described in greater detail below.
(i) NSCC Confidentiality Requirements
    Section 1.C. of Rule 2A \4\ and Section 3 of Rule 15 \5\ each 
contain provisions relating to confidentiality of information furnished 
by participants to NSCC (collectively, the ``NSCC Confidentiality 
Requirements''). The NSCC Confidentiality Requirements provide that 
such furnished information will be held by NSCC in the same degree of 
confidence as may be required by law or the rules and regulations of 
the appropriate regulatory body having jurisdiction over the 
participant. NSCC is proposing to update the NSCC Confidentiality 
Requirements because such provisions (i) may result in unequal 
treatment of participants due to differing laws or regulations of 
regulatory bodies, (ii) may result in a potential conflict of laws 
where rules or regulations governing a regulatory body of a participant 
differ from the laws applicable to NSCC, or a participant has multiple 
regulatory bodies whose rules conflict, (iii) are burdensome as they 
require NSCC to track the rules and regulations of each regulatory body 
of its participants, and ensure that information provided by 
participants to NSCC is held in confidence to the same degree as it is 
held by such regulatory bodies and (iv) are unnecessary as NSCC has 
sufficient protections in place relating to protection and 
confidentiality of participant data.
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    \4\ Section 1.C. of Rule 2A, supra note 3. Rule 2A relates to 
initial membership requirements including information that NSCC may 
require applicants to furnish to become Members or Limited Members 
of NSCC.
    \5\ Section 3 of Rule 15, supra note 3. Rule 15 relates to 
assurances of financial responsibility and operational capability 
including information that NSCC may require Members or applicants to 
furnish.
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    The regulatory bodies that have jurisdiction over participants 
differ by participant depending on certain criteria of each 
participant, including the type of entity of the participant, where the 
participant was organized, the types of businesses in which the 
participant engages and where the participant is doing business. In 
addition, many participants are regulated by more than one regulatory 
body. As a result, a requirement to maintain confidentiality standards 
for information provided by a participant based on the regulatory body 
or bodies that regulate such participant result in varying standards of 
confidentiality for participants that are regulated by different 
regulatory bodies. Such varying standards may result in unequal 
treatment of participants due to differing laws or regulations of the 
regulatory body or bodies governing such participants. In addition, 
such varying standards may result in a potential conflict of laws where 
rules or regulations governing a regulatory body of a participant 
differ from the laws applicable to NSCC or an entity that has multiple 
regulatory bodies whose rules conflict.
    NSCC believes that it is unnecessarily burdensome to determine the 
rules and regulations of each of the regulatory bodies that regulate 
its participants. Such regulatory bodies include numerous U.S. federal 
and state regulators as well as foreign national, state and local 
regulators. NSCC proposes revising the language in the NSCC 
Confidentiality Requirements to maintain one confidentiality standard 
for all participants rather than maintaining potentially different 
confidentiality standards for participants based on the various, 
unrelated regulatory bodies regulating such participants. NSCC is 
proposing to replace the existing language in the NSCC Confidentiality 
Requirements with language that would provide that NSCC will hold non-
public information furnished pursuant to those Rules in confidence as 
may be required under the law or the rules and regulations applicable 
to NSCC that relate to the confidentiality of records. Such laws, rules 
and regulations would include national, state and foreign laws 
governing confidentiality of data that are applicable to NSCC in 
connection with its collection and disclosure of data.
    NSCC believes that the rules and regulations applicable to NSCC 
governing the use and disclosure of confidential information provide 
standards that are representative of those of the various regulatory 
bodies governing its participants. As a result, NSCC does not believe 
that the proposed rule change relating to the NSCC Confidentiality 
Requirements would result in any change to NSCC's practices relating to 
data protection and confidentiality of information provided by 
participants.
(ii) Participant Confidentiality Requirements
    Historically, NSCC has generally not provided, nor been requested 
to provide, information that contains confidential or proprietary 
information of NSCC or its affiliates to its participants except for 
information necessary for participants and their service providers and 
service bureaus to connect to NSCC and to participate in the services 
that NSCC offers to its Members and Limited Members. While certain 
information is protected by intellectual property rights of NSCC and

[[Page 36817]]

its affiliates under applicable intellectual property laws, such as 
copyright laws and trademark laws, the Rules do not include any express 
obligations for participants to protect confidential information 
received by them from NSCC or its affiliates.
    In connection with the development of cyber and information 
security programs pursuant to applicable regulatory requirements by 
participants, NSCC and its parent company, The Depository Trust & 
Clearing Corporation (``DTCC''), have received an increasing number of 
requests from participants for confidential and proprietary information 
of NSCC and DTCC.\6\ This includes, for example, information regarding 
DTCC's network operations and data security practices, legal 
settlements, and other information. Additionally, in the event there is 
a cyber incident relating to a participant, NSCC or DTCC may be 
requested to disclose confidential information regarding its cyber 
threat indicators, sources of cyber threat information, or other 
information and actions taken related to a cyber event.
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    \6\ DTCC provides a set of core business processes for NSCC and 
DTCC's other subsidiaries, including the technology systems and 
networks that provide connectivity between NSCC and its participants 
and that provide the ability of NSCC to provide the services as 
required under its Rules. Most corporate functions are established 
and managed on an enterprise-wide basis pursuant to intercompany 
agreements under which it is generally DTCC that provides relevant 
services to NSCC and DTCC's other subsidiaries.
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    In order to provide for contractual protections for such 
confidential information of DTCC, NSCC and DTCC's other subsidiaries, 
NSCC is proposing to add provisions to the Rules that would require 
participants to maintain confidential information of NSCC and its 
affiliates that NSCC provides to such participants in confidence and 
not to disclose such confidential information except as necessary to 
perform such participant's obligations under NSCC's Rules or as 
otherwise required by applicable law (``Participant Confidentiality 
Requirements''). The Participant Confidentiality Requirements would 
provide that in the event of a breach of the Participant 
Confidentiality Requirements, NSCC or DTCC would be entitled to seek 
any temporary or permanent injunctive or other equitable relief in 
addition to any monetary damages under the Rules. In addition, as with 
any failure to comply with its Rules, NSCC would have the ability to 
impose other disciplinary proceedings or restrictions on access to 
services as provided in the Rules for failure to comply with the 
Participant Confidentiality Requirements.
(iii) Market Disruption Events
    Rule 60 (Market Disruption and Force Majeure) \7\ (the ``Force 
Majeure Rule'') contains provisions that identify the events or 
circumstances that would be considered a Market Disruption Event, 
including, for example, events that lead to the suspension or 
limitation of trading or banking in the markets in which NSCC operates, 
or the unavailability or failure of any material payment, bank 
transfer, wire or securities settlement systems.\8\ Under the Force 
Majeure Rule, during the pendency of a Market Disruption Event, NSCC 
would be entitled to (i) suspend the provision of any or all services 
and (ii) take, or refrain from taking, or require Members and Limited 
Members to take, or refrain from taking, any actions NSCC considers 
appropriate to address, alleviate, or mitigate the event and facilitate 
the continuation of NSCC's services as may be practicable.\9\
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    \7\ Rule 60, supra note 3.
    \8\ Id.
    \9\ Id.
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    Section 2 of the Force Majeure Rule provides that the Board of 
Directors may determine the existence of a Market Disruption Event and 
the actions to be taken in response thereto.\10\ However, if the Board 
of Directors is unable to convene, the Force Majeure Rule provides that 
certain officers may make such determination, on an interim basis, 
which determination is then ratified, modified or rescinded as soon as 
practicable by the Board of Directors. The officers that may make such 
determination are all senior executive officers of NSCC: Chief 
Executive Officer, Chief Financial Officer, Group Chief Risk Officer 
and General Counsel.
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    \10\ Section 2 of Rule 60, id.
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    The proposed rule change would add two senior executive officers of 
NSCC, the Chief Information Officer and the Head of Clearing Agency 
Services, to the list of officers that could make such determination if 
the Board of Directors is unable to convene. These two officers, like 
the other senior executive officers currently listed in the Rules, 
maintain senior executive level positions at NSCC, oversee divisions of 
NSCC, and hold positions at NSCC that would provide them a necessary 
global view into NSCC's operations and systems to enable them to 
determine the existence of a Market Disruption Event in the event that 
the Board of Directors in unable to convene. Adding these two 
additional officers would facilitate NSCC's ability to implement its 
emergency procedures in the event of a Market Disruption Event.
(iv) Systems Disconnect: Threat of Significant Impact to NSCC's Systems
    The proposed rule change would add a new Rule 60A (Systems 
Disconnect: Threat of Significant Impact to the Corporation's Systems) 
(``Systems Disconnect Rule'') that would address situations in which 
NSCC determines it is necessary for NSCC to disconnect a single or 
limited number of Members, Limited Members, or third party service 
providers or service bureaus used by Members or Limited Members to 
connect to NSCC \11\ (collectively, ``DTCC Systems Participants'') from 
NSCC's systems or network due to an imminent threat of harm to NSCC's 
or DTCC's systems. The imminent threat could be the result of a system 
disruption or cyber incident applicable to the DTCC Systems 
Participants. This would allow DTCC to work with the affected 
participants while protecting NSCC, its systems and its other 
participants.
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    \11\ Some Members and Limited Members use third parties to 
connect to NSCC's systems and/or to send data to NSCC and receive 
data from NSCC on the Member's or Limited Member's behalf. Such 
third parties are referred to as ``service providers'' or ``service 
bureaus'' herein.
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    The proposed Systems Disconnect Rule would be structured similarly 
to the Force Majeure Rule. The Systems Disconnect Rule would address 
NSCC's authority to take certain actions upon the occurrence, and 
during the pendency, of a Major Event. A ``Major Event'' would be 
defined as the happening of one or more Systems Disruption(s) (as 
defined below) that is reasonably likely to have a significant impact 
on NSCC's operations, including the DTCC Systems (as defined below), 
that affect the business, operations, safeguarding of securities or 
funds, or physical functions of NSCC, Members, Limited Members, and/or 
other market participants. ``Systems Disruption'' would be defined as 
the unavailability, failure, malfunction, overload, or restriction 
(whether partial or total) of a DTCC Systems Participant's systems that 
disrupts or degrades the normal operation of such DTCC Systems 
Participant's systems; or anything that impacts or alters the normal 
communication or the files that are received, or information 
transmitted, to or from the DTCC Systems. ``DTCC Systems'' would be 
defined as the systems, equipment and technology networks of DTCC, NSCC 
and/or their Affiliates,\12\ whether owned, leased, or licensed, 
software, devices, IP addresses

[[Page 36818]]

or other addresses or accounts used in connection with providing the 
services set forth in the Rules, or used to transact business or to 
manage the connection with NSCC.
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    \12\ Affiliate is defined in Rule 1 and is intended to cover 
DTCC and DTCC's other subsidiaries that use shared systems with 
NSCC. Rule 1, supra note 3. See description of the shared systems of 
DTCC, NSCC and DTCC's other subsidiaries, supra note 6.
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    The proposed Systems Disconnect Rule would allow NSCC to mitigate 
the effect of such events by facilitating the continuity of services 
(or, if deemed necessary, the temporary suspension of services). To 
that end, under the proposed Systems Disconnect Rule, NSCC would be 
entitled, during the pendency of a Major Event, to (1) disconnect a 
DTCC Systems Participant's systems from the DTCC Systems, (2) suspend 
the receipt and/or transmission of files or communications to or from 
the DTCC Systems Participant to the DTCC Systems and/or (3) take, or 
refrain from taking, or require a DTCC Systems Participant to take or 
refrain from taking, any actions that NSCC considers appropriate to 
prevent, address, correct, mitigate or alleviate the Major Event and 
facilitate the continuation of services as may be practicable and, in 
that context, issue instructions to the DTCC Systems Participant.
    The proposed Systems Disconnect Rule would define the governance 
procedures for how NSCC would determine whether, and how, to implement 
the provisions of the rule. A determination that a Major Event has 
occurred could be made by the same officers with delegated authority 
under the Force Majeure Rule as discussed above (an ``Officer Major 
Event Action''). Following this determination, any management committee 
on which all of the foregoing officers serve would convene, and NSCC 
would convene a Board of Directors meeting as soon as practicable 
thereafter, and in any event within five Business Days following such 
determination, in each case, to ratify, modify, or rescind the Officer 
Major Event Action. The proposed Systems Disconnect Rule would require 
Members and Limited Members to notify NSCC immediately upon becoming 
aware of a Major Event, and, likewise, would require NSCC to promptly 
notify the DTCC Systems Participant(s) of any action NSCC takes or 
intends to take with respect to such DTCC Systems Participant(s) 
pursuant to the proposed rule.
    Finally, the Systems Disconnect Rule would address certain 
miscellaneous matters including: (i) A limitation of liability for any 
failure or delay in performance, in whole or in part of NSCC's 
obligations under the Rules, arising out of or related to a Major 
Event, (ii) a statement that the power of NSCC to take any action 
pursuant to the Systems Disconnect Rule also includes the power to 
repeal, rescind, revoke, amend or vary such action, (iii) a statement 
that the powers of NSCC pursuant to the Systems Disconnect Rule shall 
be in addition to and not in derogation of, authority granted elsewhere 
in the Rules to take action as specified therein, (iv) a requirement 
that Members and Limited Members shall keep any DTCC Confidential 
Information (as defined below) provided to them by NSCC and/or in 
connection with a Major Event confidential and (v) a statement that in 
the event of any conflict between the provisions of the Systems 
Disconnect Rule and any other Rules or Procedures, the provisions of 
the Systems Disconnect Rule would prevail.
(v) Proposed Rule Changes
    The proposed rule change would amend the Rules to make the 
following changes to implement the changes discussed above:
NSCC Confidentiality Requirements Changes
    The proposed rule change would amend the NSCC Confidentiality 
Requirements in Section 1.C. of Rule 2A \13\ and Section 3 of Rule 15 
\14\ to state as follows:

    \13\ Section 1.C. of Rule 2A, supra note 3.
    \14\ Section 3 of Rule 15, supra note 3.
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    Any non-public information furnished to the Corporation pursuant to 
this Rule shall be held in confidence as may be required under the 
laws, rules and regulations applicable to the Corporation that relate 
to the confidentiality of records.

    As discussed above, the proposed language is intended to provide 
one standard that NSCC would apply uniformly to all participants, which 
assures participants that such information would be held in confidence 
with appropriate controls. NSCC would add ``non-public'' when 
describing the information that is subject to the NSCC Confidentiality 
Requirements to make it clear that such requirements would only apply 
to information that is not public in both Section 1.C. of Rule 2A and 
Section 3 of Rule 15. NSCC would also amend a sentence in Addendum L 
that references the NSCC Confidentiality Requirements set forth in Rule 
15 to reflect the proposed updated language.
    Section 1.C. of Rule 2A would also include language relating to 
Participant Confidentiality Requirements as described below.
Participant Confidentiality Requirements
    In order to provide for Participant Confidentiality Requirements, 
NSCC would add provisions in Section 1.C. of Rule 2A \15\ (with respect 
to applicants) and a new Section 5 of Rule 2B \16\ (with respect to 
Members and Limited Members) to state that each participant shall 
maintain DTCC Confidential Information in confidence to the same extent 
and using the same means it uses to protect its own confidential 
information, but no less than a reasonable standard of care, and shall 
not use DTCC Confidential Information or disclose DTCC Confidential 
Information to any third party except as necessary to perform its 
obligations under the Rules or as otherwise required by applicable law. 
NSCC would add a new definition of DTCC Confidential Information in 
Rule 1 \17\ to provide that ``DTCC Confidential Information'' would 
mean all non-public information provided by DTCC and/or NSCC that (i) 
is marked or otherwise identified in writing prior to disclosure to the 
recipient as confidential, (ii) is designated by DTCC or NSCC as 
confidential, or (iii) the recipient knows or, under the circumstances 
surrounding disclosure, ought to reasonably know is confidential. NSCC 
would also add a definition of DTCC in Rule 1 and remove a 
corresponding definition in Rule 42 \18\ since it would be defined in 
Rule 1.
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    \15\ Section 1.C. of Rule 2A, supra note 3.
    \16\ Rule 2B, supra note 3.
    \17\ Rule 1, supra note 3.
    \18\ Rule 42, supra note 3.
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    NSCC would also add a statement in each provision relating to 
Participant Confidentiality Requirements that each participant 
acknowledges that a breach of its confidentiality obligations under the 
Rules may result in serious and irreparable harm to NSCC and/or DTCC 
for which there is no adequate remedy at law. In the event of such a 
breach by the participant, NSCC and/or DTCC would be entitled to seek 
any temporary or permanent injunctive or other equitable relief in 
addition to any monetary damages. In addition, NSCC would re-number the 
existing Section 5 of Rule 2B to Section 6 to reflect the addition of 
the new Section 5.
Force Majeure Rule Officer Additions
    The proposed rule change would add the Chief Information Officer 
and the Head of Clearing Agency Services to the list of officers that 
could make a determination of a Market Disruption

[[Page 36819]]

Event if the Board of Directors is unable to convene in Rule 60.\19\
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    \19\ Rule 60, supra note 3.
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Systems Disconnect Rule
    The proposed rule change would add a new Rule 60A entitled 
``Systems Disconnect: Threat of Significant Impact to the Corporation's 
Systems'' that would address situations in which NSCC determines it is 
necessary for NSCC to disconnect a DTCC Systems Participant or DTCC 
Systems Participants from NSCC's systems or network due to an imminent 
threat of harm to NSCC's or DTCC's systems consistent with the 
description above. The proposed Systems Disconnect Rule would include 
new definitions for ``DTCC Systems,'' ``DTCC Systems Participant,'' 
``Major Event'' and ``Systems Disruption'' consistent with the 
descriptions of the Systems Disconnect Rule above.
2. Statutory Basis
    NSCC believes that the proposal is consistent with the requirements 
of the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. In particular, NSCC believes that each of 
the proposed rule changes is consistent with Section 17A(b)(3)(F) of 
the Act,\20\ and Rules 17Ad-22(e)(1) and (e)(21) \21\ promulgated under 
the Act. In addition, NSCC believes that the proposed changes to add 
the two senior executive officers in the Force Majeure Rule and to add 
the proposed Systems Disconnect Rule are consistent with Rules 17Ad-
22(e)(2) and (e)(17) under the Act.\22\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(1) and (e)(21).
    \22\ 17 CFR 240.17Ad-22(e)(2) and (e)(17).
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Section 17A(b)(3)(F)
    Section 17A(b)(3)(F) of the Act \23\ requires, in part, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions, to assure the safeguarding of 
securities and funds which are in the custody or control of NSCC or for 
which it is responsible, and to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions.
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    NSCC believes that the proposed changes revising the NSCC 
Confidentiality Requirements and adding the Participant Confidentiality 
Requirements are each consistent with this provision of the Act. The 
proposed revisions to the NSCC Confidentiality Requirements are 
consistent with this provision because the proposed revisions would 
provide a clear and consistent standard relating to how NSCC holds the 
information furnished by participants pursuant to Rule 2A \24\ and Rule 
15.\25\ The confidential information that NSCC receives pursuant to 
Rule 2A and Rule 15 is used by NSCC to determine whether to admit a 
participant as a Member or Limited Member, to continue to allow such 
participant to be a Member or Limited Member, or to better understand 
the risks relating to each participant. Providing a clear and 
consistent standard would facilitate this process by allowing 
participants to better understand NSCC's obligations with respect to 
such information and providing a uniform obligation for NSCC with 
respect to such information. NSCC believes that facilitating the 
ability of NSCC to evaluate participants would promote the prompt and 
accurate clearance and settlement of securities transactions by NSCC. 
As such, NSCC believes the proposed rule changes are consistent with 
Section 17A(b)(3)(F) of the Act.\26\
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    \24\ Rule 2A, supra note 3.
    \25\ Rule 15, supra note 3.
    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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    NSCC also believes that the proposed rule change adding the 
Participant Confidentiality Requirements is consistent with this 
provision of the Act because the proposed revisions to the Participant 
Confidentiality Requirements would provide a clear and consistent 
contractual obligation for participants who are requesting confidential 
information from NSCC. Having clear and consistent Rules would help 
participants to better understand their rights and obligations 
regarding NSCC's clearance and settlement services. The information 
requested by participants that would be subject to the Participant 
Confidentiality Requirements would be used by participants to determine 
whether to participate in NSCC's services, NSCC system requirements and 
NSCC system safeguards. NSCC believes that when Members and Limited 
Members better understand their rights and obligations regarding NSCC's 
clearance and settlement services, they can better act in accordance 
with the Rules. NSCC believes that better enabling Members and Limited 
Members to comply with the Rules would promote the prompt and accurate 
clearance and settlement of securities transactions by NSCC. As such, 
NSCC believes the proposed rule changes are consistent with Section 
17A(b)(3)(F) of the Act.\27\
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    \27\ Id.
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    NSCC believes that the proposed changes to add the two officers to 
make a determination of a Market Disruption Event and to add the 
Systems Disconnect Rule are also consistent with this provision of the 
Act because those changes would enhance and streamline NSCC's ability 
to take necessary actions in the event of a Market Disruption Event or 
a Major Event. Improving the ability of NSCC to react to a Market 
Disruption Event or a Major Event would allow NSCC to protect its 
participants and their ability to promptly and accurately clear and 
settle securities transactions, and allow NSCC to safeguard securities 
and funds that are in its custody or control. In particular, allowing 
two additional officers that are able to make an interim determination 
of a Market Disruption Event in the event that the Board of Directors 
is unable to convene would add additional flexibility and tools to NSCC 
while maintaining proper risk controls and improve the ability of NSCC 
to act in the event of a Market Disruption Event. Also, providing for 
the ability of NSCC to disconnect DTCC Systems Participants, suspend 
the receipt or transmission of files or communications to or from a 
DTCC Systems Participant, and/or require the DTCC Systems Participant 
to take such other actions as are necessary to protect NSCC and its 
participants would, in each case, provide additional tools for NSCC in 
the event of a Major Event.
    Improving the governance around the determination of a Market 
Disruption Event, and the implementation of procedures allowing NSCC to 
disconnect a DTCC Systems Participant or DTCC Systems Participants from 
NSCC's systems or network due to an imminent threat of harm, would 
improve NSCC's ability to address and minimize losses to NSCC and its 
participants. Risks, threats and potential vulnerabilities due to a 
Market Disruption Event or a Major Event could impact NSCC's ability to 
clear and settle securities transactions, or to safeguard the 
securities and funds which are in its custody or control or for which 
it is responsible. In addition, providing governance around the ability 
to disconnect a DTCC Systems Participant that is having a systems 
disruption that could disrupt the ability of NSCC or other DTCC Systems 
Participants from using NSCC's systems would remove impediments to and 
perfect the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions. Although 
disconnecting or limiting the service of a DTCC Systems Participant

[[Page 36820]]

in the event of a Major Event would likely be an impediment to such 
DTCC Systems Participant, improving NSCC's ability to address and 
minimize losses to NSCC and its participants, and reducing risks, 
threats and potential vulnerabilities due to a Major Event that could 
impact NSCC's ability to clear and settle securities transactions, or 
to safeguard the securities and funds which are in its custody or 
control or for which it is responsible, would be consistent with 
Section 17A(b)(3)(F) of the Act.\28\
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    \28\ Id.
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    Therefore, by implementing tools that would help to mitigate these 
risks, NSCC believes that the proposed rule change would promote the 
prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of NSCC or for which it is responsible, and 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\29\
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    \29\ Id.
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Rule 17Ad-22(e)(1)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(1) promulgated under the Act,\30\ which requires 
NSCC to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for a well-founded, clear, 
transparent and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions.
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    \30\ 17 CFR 240.17Ad-22(e)(1).
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    Establishing clear and consistent rules for each participant with 
respect to the NSCC Confidentiality Requirements would allow NSCC to 
maintain one confidentiality standard for all participants rather than 
maintaining potentially different confidentiality standards for 
participants based on the various, unrelated regulatory bodies 
governing such participants. In addition, setting forth a clear 
contractual obligation relating to Participant Confidentiality 
Requirements would enhance the understanding of the participants 
receiving information from NSCC and allow NSCC to treat participants 
equally with respect to how the information furnished to participants 
should be protected by the participants.
    Adding the two officers to make a determination of a Market 
Disruption Event and adding the Systems Disconnect Rule are also 
consistent with Rule 17Ad-22(e)(1) under the Act because those changes 
would describe the circumstances under which NSCC could take actions in 
the event of a Market Disruption Event or a Major Event that are 
necessary to protect NSCC and its participants. Providing clear 
guidelines with respect to Market Disruption Events and Major Events 
would allow participants to understand the rights and obligations of 
the participants in the event of a Market Disruption Event or a Major 
Event.
    Therefore, by establishing uniform and clear standards with respect 
to its receipt and furnishing of confidential information, and by 
providing clear rights and obligations of NSCC and its participants 
with respect to Market Disruption Events and Major Events, NSCC 
believes that the proposed rule change is consistent with the 
requirements of Rule 17Ad-22(e)(1) promulgated under the Act.\31\
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    \31\ Id.
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Rule 17Ad-22(e)(21)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(21) promulgated under the Act,\32\ which requires 
NSCC to, inter alia, establish, implement, maintain and enforce written 
policies and procedures reasonably designed to be efficient and 
effective in meeting the requirements of its participants and the 
markets it serves. The proposed rule change would streamline the NSCC 
Confidentiality Requirements by providing that NSCC would apply one 
standard for all participants relating to confidential information sent 
to NSCC by participants, which would enhance (i) efficiency by avoiding 
applying varying standards of confidentiality based on the rules and 
regulations of the varying regulatory bodies that regulate the 
participants, and (ii) effectiveness by reducing potential conflicts of 
laws and providing equal treatment to participants relating to such 
confidential information.
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    \32\ 17 CFR 240.17Ad-22(e)(21).
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    The addition of the Participant Confidentiality Requirements would 
also provide a uniform and easily discernable requirement for all 
participants with respect to confidential information provided by NSCC 
allowing NSCC to provide necessary information to such participants in 
a safe and efficient manner. Adding two additional officers that are 
able to make an interim determination of a Market Disruption Event in 
the event that the Board of Directors is unable to convene would add 
additional flexibility and tools to NSCC while maintaining proper risk 
controls and improve the ability of NSCC to act quickly, efficiently 
and effectively in a Market Disruption Event to address and minimize 
losses. Also, providing for the ability of NSCC to disconnect DTCC 
Systems Participants, suspend the receipt or transmission of files or 
communications to or from a DTCC Systems Participant, and/or require 
the DTCC Systems Participant to take such other actions as are 
necessary to protect NSCC and its participants would, in each case, 
provide additional tools for NSCC in the event of a Major Event and 
improve NSCC's ability to act quickly, efficiently and effectively in 
the event of a Major Event to address and minimize losses.
    Therefore, by establishing a more efficient and effective process 
for the treatment of confidential language, and establishing procedures 
designed to improve NSCC's ability to act quickly, efficiently and 
effectively in the event of a Market Disruption Event and a Major 
Event, NSCC believes that the proposed rule change is consistent with 
the requirements of Rule 17Ad-22(e)(21) promulgated under the Act.\33\
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    \33\ Id.
---------------------------------------------------------------------------

Rule 17Ad-22(e)(2)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(2) promulgated under the Act,\34\ which requires 
NSCC to, inter alia, establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that are clear and transparent and that specify clear and 
direct lines of responsibility.
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    \34\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

    Adding two additional officers that are able to make an interim 
determination of a Market Disruption Event in the event that the Board 
of Directors is unable to convene would add additional flexibility and 
tools to NSCC while maintaining proper risk controls, and improve the 
ability of NSCC to act quickly, efficiently and effectively in a Market 
Disruption Event and mitigate any impact from such Market Disruption 
Event. Adding these officers to the governance procedures relating to a 
determination of a Market Disruption Event would make such governance 
procedures clear and transparent, and specify clear and direct lines of 
responsibility with respect to the determination of a Market Disruption 
Event, consistent with Rule 17Ad-22(e)(2) under the Act.\35\
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    \35\ Id.
---------------------------------------------------------------------------

    Adding the governance procedures relating to making a determination 
of a Major Event in the Systems Disconnect

[[Page 36821]]

Rule is also consistent with Rule 17Ad-22(e)(2) promulgated under the 
Act.\36\ Identifying the officers that have the ability to determine if 
there is a Major Event, and providing for the ability of any management 
committee on which all of such officers serve and the Board of 
Directors to ratify, modify or rescind any determination of a Major 
Event by an officer would make such governance procedures clear and 
transparent, and specify clear and direct lines of responsibility with 
respect to the determination of a Major Event, consistent with Rule 
17Ad-22(e)(2).\37\
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    \36\ Id.
    \37\ Id.
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Rule 17Ad-22(e)(17)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(17)(i) promulgated under the Act,\38\ which 
requires NSCC to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to manage the covered 
clearing agency's operational risks by identifying the plausible 
sources of operational risk, both internal and external, and mitigating 
their impact through the use of appropriate systems, policies, 
procedures, and controls.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(17)(i).
---------------------------------------------------------------------------

    Adding two additional officers that are able to make an interim 
determination of a Market Disruption Event in the event that the Board 
of Directors is unable to convene would add additional flexibility and 
tools to NSCC while maintaining proper risk controls and improve the 
ability of NSCC to act quickly, efficiently and effectively in a Market 
Disruption Event and mitigate any impact from such Market Disruption 
Event. Also, providing for the ability of NSCC to disconnect DTCC 
Systems Participants, suspend the receipt or transmission of files or 
communications to or from a DTCC Systems Participant, and/or require 
the DTCC Systems Participant to take such other actions as are 
necessary to protect NSCC and its participants would, in each case, 
provide additional tools for NSCC in the event of a Major Event and 
improve NSCC's ability to act quickly, efficiently and effectively in 
the event of a Major Event and mitigate any impact from such Major 
Event.
    Therefore, by providing clear, efficient procedures of NSCC and its 
participants with respect to Market Disruption Events and Major Events 
that help identify and mitigate operational risks, NSCC believes that 
the proposed rule change is consistent with the requirements of Rule 
17Ad-22(e)(17)(i) promulgated under the Act.\39\
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    \39\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed changes relating to the 
NSCC Confidentiality Requirements would have any impact on competition. 
These changes would provide one standard for how NSCC treats 
participant information furnished subject to the NSCC Confidentiality 
Requirements but would not affect the information that the participants 
are required to provide or affect the manner in which the participants 
must provide the information. As such, NSCC believes these proposed 
rule changes would not have any impact on competition.
    NSCC does not believe the proposed changes relating to adding 
Participant Confidentiality Requirements would have any impact on 
competition. Although the addition of the Participant Confidentiality 
Requirements would be adding obligations on participants with respect 
to how they treat confidential or proprietary information of NSCC or 
its affiliates, such obligations would be minimal because NSCC would 
only require that such participants hold such confidential information 
using the same means they use to protect their own confidential 
information but not less than a reasonable standard of care. The use of 
this standard would protect NSCC by providing a clear legal obligation 
to protect such information but would not be burdensome or expensive 
for participants, and therefore NSCC believes that it would not have 
any impact on competition.
    NSCC does not believe the changes relating to adding the two 
officers to make a determination of a Market Disruption Event would 
have any impact on competition. The proposed rule change would add two 
senior executive officers of NSCC, the Chief Information Officer and 
the Head of Clearing Agency Services, to the list of officers that 
could make a determination of a Market Disruption Event if the Board of 
Directors is unable to convene. Such addition would provide additional 
officers who could determine whether there is a Market Disruption Event 
but would not otherwise affect the rights of Members or Limited Members 
or NSCC in the determination of a Market Disruption Event or if a 
Market Disruption Event is declared. Therefore, NSCC does not believe 
that the addition of the two officers would have any impact on 
competition.
    NSCC does not believe that the changes relating to adding the 
Systems Disconnect Rule would have any impact, or impose any burden, on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\40\ To the extent that NSCC determines that there is a 
Major Event, it could take or refrain from taking actions, or require 
participants to take or refrain from taking actions, that could burden 
competition because such requirements could cause participants to incur 
additional costs, allow NSCC to suspend services or communications, or 
disconnect a DTCC Systems Participant from the DTCC Systems. NSCC 
believes such burden on competition could be significant but would be 
both necessary and appropriate in furtherance of the purposes of the 
Act, as permitted by Section 17A(b)(3)(I) of the Act,\41\ for the 
reasons described below.
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    \40\ 15 U.S.C. 78q-1(b)(3)(I).
    \41\ Id.
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    NSCC believes that the proposed changes to add the Systems 
Disconnect Rule are necessary in furtherance of the purposes of Section 
17A(b)(3)(F) of the Act,\42\ and Rules 17Ad-22(e)(1), (e)(2), (e)(17) 
and (e)(21) promulgated under the Act.\43\ The proposed changes to add 
the Systems Disconnect Rule would (i) improve the ability of NSCC to 
react to a Major Event allowing NSCC to protect itself and its 
participants and their ability to promptly and accurately clear and 
settle securities transactions, and allow NSCC to safeguard securities 
and funds that are in its custody or control, consistent with the 
requirements of Section 17A(b)(3)(F) of the Act,\44\ (ii) provide clear 
guidelines with respect to Major Events that would allow participants 
to understand the rights and obligations of the participants and NSCC 
in the event of a Major Event, consistent with Rule 17Ad-22(e)(1) 
promulgated under the Act,\45\ (iii) identify the officers that have 
the ability to determine if there is a Major Event, and provide for the 
ability of any management committee on which all of such officers 
serve, and the Board of Directors, to ratify, modify or rescind any 
determination of a Major Event by an officer, which would make such 
governance procedures clear and transparent, and specify clear and 
direct lines of responsibility with respect to the determination of a 
Major Event, consistent with Rule 17Ad 22(e)(2)

[[Page 36822]]

promulgated under the Act,\46\ (iv) improve the ability of NSCC to act 
quickly, efficiently and effectively in the event of a Major Event, and 
mitigate any impact from such event by providing clear, efficient 
procedures of NSCC and its participants with respect to such event, 
consistent with the requirements of Rule 17Ad-22(e)(17)(i) promulgated 
under the Act \47\ and (v) establish procedures designed to improve 
NSCC's ability to act quickly, efficiently and effectively in the event 
of a Major Event, consistent with the requirements of Rule 17Ad-
22(e)(21) promulgated under the Act.\48\
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    \42\ 15 U.S.C. 78q-1(b)(3)(F).
    \43\ 17 CFR 240.17Ad-22(e)(1), (e)(2), (e)(17) and (e)(21).
    \44\ 15 U.S.C. 78q-1(b)(3)(F).
    \45\ 17 CFR 240.17Ad-22(e)(1).
    \46\ 17 CFR 240.17Ad-22(e)(2).
    \47\ 17 CFR 240.17Ad-22(e)(17)(i).
    \48\ 17 CFR 240.17Ad-22(e)(21).
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    In addition, NSCC believes that the proposed changes to add the 
Systems Disconnect Rule are appropriate in furtherance of the Act. Such 
changes have been designed to improve the ability of NSCC to act 
quickly, efficiently and effectively in the event of a Major Event, and 
mitigate any impact from such event while also providing the Members 
and Limited Members clear guidelines with respect to such event to 
allow participants to understand their rights and obligations. Such 
changes have also been designed to apply uniformly to all Members and 
Limited Members in the event of a Major Event and should not affect 
NSCC's day-to-day operations under normal circumstances, or in the 
management of a typical Member or Limited Member default scenario or 
non-default event.
    Therefore, NSCC does not believe that the proposed rule change 
would impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.\49\
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    \49\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(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.

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-2021-007 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-2021-007. 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, 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-2021-007 and should be submitted on 
or before August 3, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14791 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P


