[Federal Register Volume 87, Number 138 (Wednesday, July 20, 2022)]
[Notices]
[Pages 43349-43351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15443]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95278; File No. SR-NSCC-2022-010]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change To Adopt Fees for the Securities Financing Transaction 
Clearing Service

July 14, 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 July 8, 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) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder.\4\ 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)(2).
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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 amendments to Addendum A (Fee 
Structure) (``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to 
adopt fees for NSCC's securities financing transaction (``SFT'') 
clearing service (``SFT Clearing Service''), as described below.\5\
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    \5\ Capitalized terms used herein and not otherwise defined 
shall have the meaning assigned to such terms in the Rules, 
available at http://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
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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
Overview of the Proposed Rule Change
    The purpose of this proposed rule change is to adopt fees for 
NSCC's new SFT Clearing Service.\6\ The SFT Clearing Service provides 
central clearing for SFTs, which are, broadly speaking, transactions 
where the parties exchange equity securities against cash and 
simultaneously agree to exchange the same securities and cash, plus or 
minus a rate payment, on a future date. The SFT Clearing Service 
established new membership categories and requirements for Sponsoring 
Members and Sponsored Members whereby existing Members would be 
permitted to sponsor certain institutional firms into membership.\7\ 
The SFT Clearing Service also established a new membership category and 
requirements for Agent Clearing Members whereby existing Members would 
be permitted to submit, on behalf of their customers, transactions to 
NSCC for novation.\8\ The SFT Clearing Service is available for SFTs 
entered into between (i) a Member and another Member, (ii) a Sponsoring 
Member and its Sponsored Member (``Sponsored Member Transaction''), and 
(iii) an Agent Clearing Member acting on behalf of a Customer and 
either (x) a Member or (y) the same or another Agent Clearing Member 
acting on behalf of a Customer.\9\
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    \6\ See Securities Exchange Act Release No. 95011 (May 31, 
2022), 87 FR 34339 (June 6, 2022) (SR-NSCC-2022-003) (Order 
Approving Proposed Rule Change to Introduce Central Clearing for 
Securities Financing Transaction Clearing Service). NSCC also filed 
the proposal as advance notice SR-NSCC-2022-801. See Securities 
Exchange Act Release No. 94998 (May 27, 2022), 87 FR 33528 (June 2, 
2022) (SR-NSCC-2022-801) (Notice of No Objection to Advance Notice 
to Introduce Central Clearing for Securities Financing Transaction 
Clearing Service).
    \7\ See id. and Rule 2C, supra note 5.
    \8\ See supra note 6 and Rule 2D, supra note 5.
    \9\ See supra note 6 and Section 1 of Rule 56, supra note 5.
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    In connection with the SFT Clearing Service, NSCC would establish 
two new fees for the clearance of SFT transactions: (i) a fee of $1.00 
per side of each new SFT submitted (excluding any Linked SFT \10\ and 
Sponsored Member Transactions) and (ii) a fee of $0.14 per million of 
outstanding SFT notional balance.\11\ Under the proposed fee structure, 
Sponsoring Members would be liable for any fees and charges arising 
from Sponsored Member Transactions.
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    \10\ A ``Linked SFT'' is an SFT entered into by the pre-novation 
SFT Member parties to an SFT that has been previously novated by 
NSCC, the Final Settlement of which is scheduled to occur on that 
Business Day (``Settling SFT''), and has the same Transferor, 
Transferee and subject SFT Securities (including CUSIP) as the 
Settling SFT. See Rule 1, supra note 5.
    \11\ For purposes of determining the proposed outstanding SFT 
notional balance fee, the outstanding SFT notional balance would be 
calculated using the settlement value of the SFT.
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    In general, fee levels for NSCC are set by NSCC after periodic 
reviews of a number of factors, including revenues, operating costs, 
and potential service enhancements. In the case of fees associated with 
new services such as SFT, however, there are no current or historical 
data points to use in the analysis. Fees for such services are 
determined based on an evaluation of the costs associated with 
developing the service, the projected costs of operating the service on 
an ongoing basis, and the projected revenues for the service over time 
under various assumptions.\12\ In determining the proposed SFT Clearing 
Service fees, NSCC attempted to balance a combination of factors, which 
included maintaining a competitive market level price while also 
factoring in the enhanced value that the SFT Clearing Service offered 
to Members (e.g., multiple models for clearing SFTs for Members and 
their clients, and the associated balance sheet and capital efficiency 
opportunities) and the ability to achieve the payback of NSCC's 
investment costs within an appropriate timeframe. The proposed SFT 
Clearing Service fees are designed to be risk-based in that open 
interest would be charged to the lender and borrower at a

[[Page 43350]]

rate that is designed to be competitive in the cleared equity SFT 
marketplace. The proposed fee schedule would also include a per side 
fee for each new SFT submitted where the SFT has a full-service Member 
(i.e., a Member acting in a proprietary capacity, a Sponsoring Member, 
or an Agent Clearing Member) on each side of the trade (excluding any 
Linked SFTs) to account for the creation of new loans. To evaluate the 
proposed SFT Clearing Service fees, NSCC considered the expected 
investment costs to develop the SFT Clearing Service and projected 
annual costs to run the service (including both technology and non-
technology run costs) and analyzed projected revenues based on 
assumptions of growth rates for the service and the associated 
timeframes for recovering investment and operating costs.\13\
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    \12\ NSCC has in place procedures to control costs and to 
regularly review pricing levels against costs of operation. NSCC's 
fees are generally cost-based plus a markup as approved by its Board 
of Directors. This markup is applied to recover development costs 
and operating expenses and to accumulate capital sufficient to meet 
regulatory and economic requirements. The SFT Clearing Service and 
proposed associated fees, once implemented, would be reviewed and 
re-evaluated regularly under this framework. See NSCC Disclosure 
Framework for Covered Clearing Agencies and Financial Market 
Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf, 
at 120.
    \13\ NSCC has included details of its analysis in confidential 
Exhibit 3 of filing SR-NSCC-2022-010.
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Proposed Change to Addendum A
    To effectuate the proposed SFT Clearing Service fees, Section II of 
Addendum A concerning Trade Clearance Fees would be updated to include 
a new subsection for SFT fees, which would include: (i) a fee of $1.00 
per side of each new SFT submitted (excluding any Linked SFT and 
Sponsored Member Transactions) and (ii) a fee of $0.14 per million of 
outstanding SFT notional balance. NSCC would also add a new Section IX 
to Addendum A stating that a Sponsoring Member shall be liable for fees 
and charges arising from Sponsored Member Transactions, the data on 
which it, or its Sponsored Member(s), has submitted to NSCC.
2. Statutory Basis
    NSCC believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Specifically, NSCC believes 
the proposed rule change is consistent with Section 17A(b)(3)(D) of the 
Act \14\ and Rule 17Ad-22(e)(23)(ii),\15\ as promulgated under the Act, 
for the reasons set forth below.
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    \14\ 15 U.S.C. 78q-1(b)(3)(D).
    \15\ 17 CFR 240.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act \16\ requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges among its participants. NSCC believes the 
proposed fees would be allocated equitably among its full-service 
Members that transact in SFTs. NSCC would apply a fee of $1.00 per side 
for each new SFT submitted where the SFT has a full-service Member 
(i.e., a Member acting in a proprietary capacity, a Sponsoring Member, 
or an Agent Clearing Member) on each side of the trade (excluding any 
Linked SFTs) to account for the creation of new loans. In addition, 
NSCC would impose a fee of $0.14 per million of outstanding SFT 
notional balance in each account maintained by a Member holding SFTs 
(i.e., a Member's account holding proprietary SFTs, a Sponsoring 
Member's Sponsored Member Sub-Account(s), and/or an Agent Clearing 
Member's Agent Clearing Member Customer Omnibus Account(s)) to account 
for the ongoing operational and risk management activities associated 
with the maintenance of outstanding SFT positions. NSCC believes that 
the proposed fee changes are reasonable because they carefully consider 
the expected investment costs to develop the SFT Clearing Service, the 
projected annual costs to run the service (including both technology 
and non-technology run costs), and projected revenues for the service 
and are intended to achieve an appropriate timeframe for recovering 
such investment and operating costs.\17\ NSCC notes that once the 
proposed SFT Clearing Services fees are implemented, the SFT Clearing 
Services fees would be periodically reviewed under NSCC's procedures to 
control costs and to regularly review pricing levels against costs of 
operation.\18\
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    \16\ 15 U.S.C. 78q-1(b)(3)(D).
    \17\ See supra note 13 and associated text.
    \18\ See supra note 12.
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    Rule 17Ad-22(e)(23)(ii) under the Act \19\ requires NSCC to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed SFT Clearing Service Fees would be clearly and 
transparently published in Addendum A of the Rules, which are available 
on a public website,\20\ thereby enabling Members to identify the fees 
associated with participating in the SFT Clearing Service. As such, 
NSCC believes the proposed rule change is consistent with Rule 17Ad-
22(e)(23)(ii) under the Act.\21\
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    \19\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \20\ See supra note 5.
    \21\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe the proposed rule change would impose any 
burden, or have any impact, on competition. The proposed fees would 
apply equally to all Members, Sponsoring Members, and Agent Clearing 
Members clearing SFTs at NSCC. NSCC believes that the proposed SFT 
Clearing Service fees would not advantage or disadvantage any 
particular member or user of the SFT Clearing Service or unfairly 
inhibit access to the SFT Clearing Service. NSCC notes that members may 
continue to engage in securities lending on a bilateral basis if they 
choose.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has conducted outreach to Members to provide them with notice 
of the proposed fees.
    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received by NSCC, 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) of the Act \22\ and paragraph (f) of Rule 19b-4 
thereunder.\23\ At any time within

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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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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-2022-010 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-2022-010. 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-2022-010 and should be submitted on 
or before August 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15443 Filed 7-19-22; 8:45 am]
BILLING CODE 8011-01-P


