[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20481-20484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07344]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94577; File No. SR-NSCC-2022-002]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Make Certain Changes to Rule 52 to Support Processing of 
Interval Fund Repurchase Orders, Remove Underwriting Tender Offer 
Provisions and Make Certain Other Clarifications

April 1, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 24, 2022, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. NSCC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) \3\ of the Act and 
subparagraph (f)(4) \4\ of Rule 19b-4 thereunder. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    (a) The proposed rule change of National Securities Clearing 
Corporation (``NSCC'') is annexed hereto as Exhibit

[[Page 20482]]

5 and consists of modifications to Rule 52 of the NSCC's Rules & 
Procedures (the ``Rules'') \5\ to (i) make certain changes to support 
processing of interval fund repurchase orders, (ii) remove the 
underwriting/tender offer provisions which are no longer in use and 
(iii) re-number Rule 52 and make certain other clarifications. The 
proposed changes are described in greater detail below.
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    \5\ 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 Rule 52 of 
the Rules \6\ to (i) make certain changes to support processing of 
interval fund repurchase orders, (ii) remove the underwriting/tender 
offer provisions which are no longer in use and (iii) re-number Rule 52 
and make certain other clarifications. The proposed changes are 
described in greater detail below.
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    \6\ Rule 52, id.
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(i) Interval Fund Repurchase Orders
    NSCC is proposing to enhance Rule 52 to support processing of 
future-dated interval fund repurchase orders by allowing NSCC Members 
\7\ to submit orders prior to the day the order is intended to take 
place (``Trade Date'').
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    \7\ For purposes of this filing, ``NSCC Members'' shall mean 
Members and Limited Members.
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Interval Funds
    Interval funds are closed-end funds that periodically offer to 
repurchase shares from their shareholders in compliance with Rule 23c-3 
under the Investment Company Act of 1940.\8\ Interval funds make 
periodic offers to buy back shares from shareholders as disclosed in 
the fund's prospectus and annual shareholder reports. Each offer will 
specify the repurchase period (start and end dates) during which the 
fund will accept shareholder repurchase requests to sell their shares 
back to the fund. The repurchase occurs on the last day of the 
repurchase period, or a later specified Trade Date.
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    \8\ 17 CFR 270.23c-3.
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Fund/SERV[supreg] Order Processing
    NSCC Members can submit interval fund repurchase orders on behalf 
of shareholders to the Fund Members using Fund/SERV. Fund/SERV is an 
NSCC service described in Rule 52 that provides for processing and 
settling of Fund/SERV Eligible Funds,\9\ which include certain mutual 
fund, bank collective fund and other pooled investment product 
transactions between fund companies, including interval funds, and 
their distributors.\10\
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    \9\ Fund/SERV Eligible Fund is defined as a fund or other pooled 
investment entity included in the list for which provision is made 
in Section 1.(c) of Rule 3. Definition of Fund/SERV Eligible Fund, 
Rule 1, supra note 5.
    \10\ See Part A of Rule 52, supra note 5.
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    Currently, Fund/SERV does not allow NSCC Members to submit interval 
fund repurchase orders prior to the Trade Date. Fund/SERV currently 
allows NSCC Members to submit repurchase orders for interval funds that 
are Fund/SERV Eligible Funds by submitting a repurchase order on the 
Trade Date, or to the extent established by each Fund Member, any day 
thereafter (referred to as ``As-Of'' orders).\11\
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    \11\ Part A, Section 2 of Rule 52, supra note 5.
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    In 2018, the Broker Dealer Advisory Committee of the Investment 
Company Institute formed an Interval Funds Task Force (``IFTF'') \12\ 
to explore opportunities to improve interval fund operational 
efficiencies and reduce operating risk. The IFTF memorialized the 
operational challenges of interval funds in a series of 
whitepapers.\13\ One of the challenges that the IFTF identified with 
respect to interval funds was the inability of funds to submit 
repurchase orders prior to the Trade Date through Fund/SERV.
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    \12\ The Investment Company Institute is a trade association 
representing mutual funds, exchange-traded funds, closed-end funds 
and unit investment trusts. See https://www.ici.org. The members of 
the IFTF include fund companies offering interval funds, 
intermediaries, services providers and The Depository Trust & 
Clearing Corporation, NSCC's holding company.
    \13\ See Interval Funds: Operational Challenges and the 
Industry's Way Forward (ici.org) and Consider This: Interval Fund 
Operational Practices (ici.org).
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    Since NSCC Members are unable to submit the repurchase orders 
through Fund/SERV until the Trade Date, they must currently track all 
of the repurchase orders manually on their books until the applicable 
Trade Date. There is operational risk involved with holding these 
orders, rather than delivering them when received, including a risk 
that the NSCC Member holding the order fails to submit the order on the 
Trade Date. Likewise, interval fund providers would like to be informed 
of these orders as soon as possible, to help them understand liquidity 
demands and anticipate whether they may need to prorate repurchase 
activity and to provide more time to correct an order if it contains 
incorrect information. Therefore, there is an appreciable benefit to 
interval funds, shareholders, and intermediaries to improve the 
straight through processing capabilities for interval fund repurchases 
through Fund/SERV. NSCC is proposing to allow NSCC Members to submit 
orders prior to the Trade Date to support submission of interval fund 
repurchase orders. Such orders would be submitted prior to the Trade 
Date but dated as of the Trade Date.
    NSCC is also proposing to amend the Rules to provide for an 
acknowledgment process by NSCC Members relating to interval fund 
repurchase orders. Currently, the Rules provide that NSCC Members may 
only confirm or reject orders \14\ or accept, confirm or reject 
corrections of orders.\15\ In order to provide NSCC Members confidence 
that their repurchase orders have been received, NSCC is proposing to 
allow NSCC Members that receive interval fund repurchase orders to 
acknowledge orders and corrections relating to interval fund repurchase 
orders, in addition to confirming and rejecting such orders or 
corrections.
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    \14\ See Part A, Section 4 of Rule 52, supra note 5.
    \15\ See Part A, Section 8 of Rule 52, supra note 5.
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    NSCC is also proposing to extend the confirmation deadline to 
accommodate interval fund repurchase orders that are submitted prior to 
the Trade Date. Currently NSCC provides that if any orders are not 
confirmed or rejected within a certain time period established by NSCC 
from time to time (``Confirmation Deadline'') such orders will be 
deleted from the system.\16\ NSCC has established that the Confirmation 
Deadline is 10 business days after the submission date. Since the 
submission date is currently on or after the Trade Date, the 
Confirmation Deadline is always at least 10 business days after the 
Trade Date. To accommodate repurchase orders that are submitted prior 
to the Trade Date, the acknowledgement process will provide that if an 
interval fund repurchase order with a future Trade Date is acknowledged 
prior to the Confirmation

[[Page 20483]]

Deadline, the Confirmation Deadline will be extended to 10 business 
days after the Trade Date and the order will remain in the system until 
the extended Confirmation Deadline, provided the order was not 
previously confirmed or rejected. Therefore, as with other orders, the 
Confirmation Deadline would remain at least 10 business days after the 
Trade Date for such interval fund repurchase orders.
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    \16\ See Part A, Section 4 of Rule 52, supra note 5. 
Confirmation Deadline is not a defined term in the Rules and is 
being defined in this filing for ease of reference.
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(ii) Removal of Underwriting/Tender Offer Provisions
    In 1990 NSCC added provisions to Fund/SERV intended to support the 
processing of orders relating to mutual fund underwritings and tender 
offers (the ``Underwriting/Tender Offer Provisions'').\17\ The 
provisions were intended to provide for automated processing of certain 
processes that were specific to underwritings and tender offers.\18\ 
Previous to the addition, certain processes required manual 
intervention due to the extended settlement timeframe and ability to 
withdraw orders in underwritings and tender offers.\19\ Forms and 
system developments were made to support the use of Underwriting/Tender 
Offer Provisions, and certain NSCC Members used the underwriting/tender 
offer functionality after it was implemented.
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    \17\ See Securities Exchange Release No. 28456 (September 20, 
1990) (SR-NSCC-90-14), 55 FR 40028 (October 1, 1990). See also Part 
A, Section 17 of Rule 52, supra note 5.
    \18\ Id.
    \19\ Id.
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    Over the years, however, NSCC Members began using the underwriting/
tender offer functionality less and less. NSCC believes that this is 
likely due to enhancements to the non-underwriting/tender offer order 
functionality of Fund/SERV that reduced the need for the underwriting/
tender offer functionality, NSCC Members becoming more familiar with 
the non-underwriting/tender offer functionality of Fund/SERV and 
finding that the non-underwriting/tender offer functionality of Fund/
SERV is sufficient to process the orders relating to underwritings and 
tender offers. NSCC Members have not used the underwriting/tender offer 
functionality for over a decade and NSCC no longer provides online 
forms to support the full functionality due to lack of NSCC Member use 
of the functionality and costs to maintain the functionality. Given 
that the interval fund repurchase process is similar in some respects 
to the offer process for underwritings and tender offers, NSCC 
considered updating the underwriting/tender offer functionality to 
support interval fund repurchase orders. NSCC decided, however, that it 
would be more efficient to update the non-underwriting/tender offer 
order functionality of Fund/SERV to support interval fund repurchases 
as proposed in this filing rather than to overhaul the Underwriting/
Tender Offer Provisions and the underwriting/tender offer 
functionality.
    Since the Underwriting/Tender Offer Provisions are no longer being 
used by NSCC Members and NSCC does not believe that the Underwriting/
Tender Offer Provisions will be used by NSCC Members in the future, 
NSCC is proposing to remove the Underwriting/Tender Offer Provisions 
from the Rules.
(iii) Clarifications
    In order to improve readability of Rule 52, NSCC is proposing to 
re-number and make certain other clarifications to Rule 52.
    Certain section numbers in Rule 52 are reserved for future use and 
NSCC is proposing to remove those placeholders and renumber the 
existing sections.
    In addition, Part A, Section 11(a) of Rule 52 currently provides 
that certain orders and money only related charges will settle in 
accordance with the time frames as established by NSCC from time to 
time, or in such extended or shortened time frame as established by 
agreement of the submitting parties; provided, that such modified time 
frame shall be no shorter than T (the trade date) and longer than 
T+7.\20\ The provision relating to the time frame being no longer than 
T+7 is a legacy provision that is no longer applicable or necessary. 
Historically, NSCC's technology on its platform did not allow for the 
settlement timeframe to be longer than T+7. Such technology restriction 
no longer exists. As such, NSCC is proposing to delete the provision 
that the time frame as modified by the submitting parties may be no 
longer than T+7.
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    \20\ See Part A, Section 11(a) of Rule 52, supra note 5.
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(iv) Proposed Rule Changes
    NSCC is proposing to amend Part A, Section 2 of Rule 52 to provide 
that orders may be submitted prior to the Trade Date to support the 
processing of interval fund repurchase orders. NSCC is also proposing 
to amend Part A, Sections 4 and 8 of Rule 52 to provide for the 
acknowledgment of interval fund repurchase orders and corrections as 
described above.
    NSCC is proposing to delete the Underwriting/Tender Offer 
Provisions in Part A, Section 17 of Rule 52 and delete a reference to 
Part A, Section 17 currently in Part A, Section 16 of Rule 52. NSCC is 
also proposing to delete a number of section number references in Rule 
52 that are currently reserved for future use and renumber the existing 
section numbers to reflect the deletion of such section numbers and the 
deletion of the Underwriting/Tender Offer Provisions. NSCC is also 
proposing to delete the phrase ``and no longer than T+7'' in Part A, 
Section 11(a) of Rule 52 as such legacy phrase is no longer applicable 
or necessary.
(v) Implementation
    NSCC expects to implement the proposed rule changes on March 28, 
2022. As proposed, a legend would be added to Rule 52 stating there are 
changes that became effective upon filing with the Commission but have 
not yet been implemented. The proposed legend would also indicate that 
the proposed rule change would be implemented on March 28, 2022, 
indicate the file number of this proposal, and indicate that once this 
proposal is implemented the legend would automatically be removed.
2. Statutory Basis
    NSCC believes that the proposal is consistent with the requirements 
of the Securities Exchange Act of 1934 (``Act'') and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, NSCC believes that the proposed rule changes are consistent 
with Section 17A(b)(3)(F) of the Act \21\ and Rule 17Ad-22(e)(21) 
promulgated under the Act.\22\
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ 17 CFR 240.17Ad-22(e)(21).
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    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. The proposed changes to support 
interval fund repurchase orders are consistent with this provision 
because such changes would enhance the ability of NSCC Members to 
process interval fund repurchase orders. Providing a more efficient and 
streamlined process with respect to placing, acknowledging and settling 
interval fund repurchase orders would promote the prompt and accurate 
clearance and settlement of securities transactions by NSCC consistent 
with Section 17A(b)(3)(F) of the Act.\24\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ Id.
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    The removal of the Underwriting/Tender Offer Provisions, the 
deletion of the section numbers in Rule 52 that are reserved for future 
use, the renumbering in Rule 52 described above and the removal of the 
phrase ``and no longer

[[Page 20484]]

than T+7'' in Part A of Section 11(a) are also consistent with this 
provision because the proposed changes would enhance clarity and 
transparency for participants with respect to services offered by NSCC 
allowing NSCC Members to have a better understanding of the Rules 
relating to Mutual Fund Services. Having clear and accurate Rules would 
help NSCC Members to better understand their rights and obligations 
regarding NSCC's services. NSCC believes that when NSCC Members better 
understand their rights and obligations regarding NSCC's services, they 
can act in accordance with the Rules. NSCC believes that better 
enabling NSCC Members to comply with the Rules would promote the prompt 
and accurate clearance and settlement of securities transactions by 
NSCC consistent with Section 17A(b)(3)(F) of the Act.\25\
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    \25\ Id.
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    In addition, the proposed rule change is designed to comply with 
Rule 17Ad 22(e)(21) promulgated under the Act.\26\ Rule 17Ad-22(e)(21) 
under the Act 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 enhance the ability of NSCC Members to process interval fund 
repurchase orders providing a more efficient and streamlined process 
with respect to placing, acknowledging and settling interval fund 
repurchase orders. Therefore, by establishing a more efficient and 
effective process for NSCC Members to process interval fund repurchase 
orders, NSCC believes that the proposed change is consistent with the 
requirements of Rule 17Ad-22(e)(21), promulgated under the Act.\27\
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    \26\ 17 CFR 240.17Ad-22(e)(21).
    \27\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed changes would have an 
adverse impact, or impose a burden, on competition. These proposed 
changes would improve the ability of NSCC Members to process interval 
fund repurchase orders and enhance the clarity and transparency of the 
Rules and would not be adding any obligations on NSCC Members that are 
using NSCC's services. As such, the proposed changes would not impede 
any NSCC Members from engaging in the services or have an adverse 
impact on any NSCC Members. Moreover, the proposed changes may promote 
competition because the proposed changes would provide NSCC Members a 
more efficient method of processing interval fund repurchase orders.

(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. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    NSCC reserves the right not to respond to any comments received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \28\ of the Act and paragraph (f) \29\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \28\ 15 U.S.C 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f).
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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 [email protected]. Please include 
File Number SR-NSCC-2022-002 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2022-002. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, 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 
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSCC-2022-002 and should be submitted on 
or before April 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07344 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P


