
[Federal Register Volume 88, Number 247 (Wednesday, December 27, 2023)]
[Notices]
[Pages 89485-89488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28457]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99208; File No. SR-NSCC-2023-013]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify Addendum A (Fee Structure)

December 20, 2023.
    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 December 15, 2023, 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

    NSCC is filing the proposed rule change to modify Addendum A (Fee 
Structure) (``Addendum A'') of NSCC's Rules & Procedures (``Rules'') to 
increase its Clearing Fund Maintenance Fee, 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 www.dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the 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

[[Page 89486]]

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 purpose of this proposed rule change is to amend Addendum A 
(Fee Structure) of the Rules to modify NSCC's Clearing Fund Maintenance 
Fee effective January 1, 2024. The proposed fee change is discussed in 
detail below.
Background
    NSCC's Clearing Fund Maintenance Fee was implemented in 2016 in 
order to (i) diversify NSCC's revenue sources, mitigating NSCC's 
dependence on revenues driven by trading volumes and (ii) add a stable 
revenue source that would contribute to NSCC's operating margin by 
offsetting increasing costs and expenses.\6\ The fee is charged to all 
NSCC Members that are required to make deposits to the NSCC Clearing 
Fund in proportion to the Member's average monthly cash deposit to the 
Clearing Fund.
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    \6\ See Securities Exchange Act Release No. 78525 (Aug. 9, 
2016), 81 FR 54146 (Aug. 15, 2016) (SR-NSCC-2016-002).
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    As part of the annual budgeting process, NSCC reviews price levels 
against its cost of operations and evaluates potential expense 
reductions and/or fee changes to correct any misalignment of costs and 
fees. NSCC's fees are cost-based plus a markup as approved by the Board 
of Directors or management (pursuant to authority delegated by the 
Board), as applicable. This markup is applied to recover development 
costs and operating expenses and to accumulate capital sufficient to 
meet regulatory and economic requirements.\7\
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    \7\ NSCC maintains procedures to control costs and regularly 
review pricing levels against costs of operation. See NSCC 
Disclosure Framework for Covered Clearing Agencies and Financial 
Market Infrastructures, available at www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/NSCC_Disclosure_Framework.pdf, 
at 124.
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    During the 2024 budgeting process, NSCC identified opportunities to 
better align fees and costs for NSCC, which were approved by the 
Businesses, Technology and Operations Committee of the Board of 
Directors. NSCC anticipates an increase in the cost of funding NSCC's 
default liquidity resources due to the rising interest rate 
environment, which would constitute the significant majority of the 
projected increase in NSCC's overall operating expenses. Specifically, 
two tranches of senior notes issued in 2020 with lower coupon rates are 
maturing in 2023, and these notes need to be refinanced with new 
issuances at significantly higher prevailing market rates. As a result, 
the weighted average rate of NSCC's senior notes portfolio and its 
related interest expense would increase. NSCC is therefore proposing to 
increase the Clearing Fund Maintenance Fee to partially offset its 
increasing cost of default liquidity resources.
Proposed Fee Changes
    Pursuant to Section V.F of Addendum A, NSCC charges a Clearing Fund 
Maintenance Fee, which is a monthly fee calculated, in arrears, as the 
product of (A) 0.25% and (B) the average of each Member's (or Limited 
Member's, if applicable) cash deposit balance in the Clearing Fund, as 
of the end of each day, for the month, multiplied by the number of days 
for that month and divided by 360. Based on its annal budgeting review, 
NSCC proposes to increase the rate used to calculate the Clearing Fund 
Maintenance Fee by 10 basis points from 0.25% to 0.35%. To effectuate 
the proposed fee change, NSCC would amend Section V.F. of Addendum A 
concerning the Clearing Fund Maintenance Fee to reflect the new 
calculation rate of 0.35%. NSCC would also remove the reference to 
Limited Members in the Clearing Fund Maintenance Fee description 
because Limited Members are no longer required to maintain Clearing 
Fund deposits at NSCC and therefore the Clearing Fund Maintenance Fee 
no longer applies to Limited Members.\8\
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    \8\ In December 2021, NSCC adopted a proposed rule change to (i) 
remove the requirement that Members and Mutual Fund/Insurance 
Services Members pay a Mutual Fund Deposit into the Clearing Fund 
relating to Mutual Fund Services, (ii) remove provisions relating to 
the Mutual Fund Deposit and the Insurance Deposit and (iii) remove a 
provision relating to establishing a Clearing Fund requirement for 
NSCC Members that currently do not have a Clearing Fund requirement. 
See Securities Exchange Act Release No. 93722 (Dec. 6, 2021), 86 FR 
70548 (Dec. 10, 2021) (SR-NSCC-2021-015).
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Expected Member Impact
    The proposed rule change would result in increased Clearing Fund 
Maintenance Fees for NSCC Members, the impact of which would vary based 
on each Member's average monthly cash deposit to the Clearing Fund. 
Taken alone, the proposed rule change could be expected to result in an 
increase of approximately $9 million in fee revenue. However, NSCC 
notes that while the Clearing Fund Maintenance Fee is being increased, 
NSCC also anticipates that average Clearing Fund balances would be 
reduced following the implementation of the T+1 settlement cycle in May 
2024.\9\ As a result, the proposed fee change is expected to increase 
NSCC's overall annual fee revenue by approximately $3 million. NSCC 
projects that over half of its Members would see an increase of less 
than $25,000, approximately 29 Members would see increases ranging from 
$25,000-$100,000, and approximately 20 Members would see an increase of 
over $100,000.
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    \9\ See Securities Exchange Act Release No. 96930 (Feb. 15, 
2023), 88 FR 13872 (Mar. 6, 2023) (S7-05-22) (Shortening the 
Securities Transaction Settlement Cycle). For example, NSCC analysis 
suggests that the aggregate volatility component of NSCC's margin 
calculation could potentially be reduced by 41% by a move to a T+1 
settlement cycle. See DTCC White Paper, Advancing Together: Leading 
the Industry to Accelerated Settlement (February 2021), available at 
www.dtcc.com/-/media/Files/PDFs/White%20Paper/DTCC-Accelerated-Settle-WP-2021.pdf.
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Member Outreach
    NSCC has conducted ongoing outreach to Members in order to provide 
them with notice of the proposed changes and the anticipated impact for 
the Member. As of the date of this filing, no written comments relating 
to the proposed changes have been received in response to this 
outreach. The Commission will be notified of any written comments 
received.
Implementation Timeframe
    NSCC would implement this proposal on January 1, 2024. As proposed, 
a legend would be added to Addendum A stating there are changes that 
became effective upon filing with the Commission but have not yet been 
implemented. The proposed legend also would include the date on which 
such changes would be implemented and the file number of this proposal, 
and state that, once this proposal is implemented, the legend would 
automatically be removed.
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 \10\ and Rule 17Ad-22(e)(23)(ii) \11\ thereunder for the reasons 
set forth below.
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    \10\ 15 U.S.C. 78q-1(b)(3)(D).
    \11\ 17 CFR 240.17Ad-22(e)(23)(ii).

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[[Page 89487]]

    Section 17A(b)(3)(D) of the Act \12\ 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 fee is reasonable and would be allocated equitably among its 
full-service Members. Because the proposed changes do not alter how the 
Clearing Fund Maintenance Fee is currently allocated (i.e., charged) to 
Members, NSCC believes the fee would continue to be equitably 
allocated. More specifically, as mentioned above, the Clearing Fund 
Maintenance Fee is and would continue to be charged to all Members in 
proportion to the Member's average monthly cash deposit to the Clearing 
Fund. As such, and as is currently the case, Members that make greater 
use of NSCC's guaranteed services or which have activity in those 
services that present greater risk to NSCC would generally be subject 
to a larger Clearing Fund Maintenance Fee because such Members would 
typically be required to maintain larger Clearing Fund deposits 
pursuant to the Rules.\13\
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    \12\ 15 U.S.C. 78q-1(b)(3)(D).
    \13\ See Rule 4 and Procedure XV, supra note 5.
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    NSCC also believes that the Clearing Fund Maintenance Fee would 
continue to be a reasonable fee under the described changes. As 
described above, the Clearing Fund Maintenance Fee was implemented in 
2016 in order to (i) diversify NSCC's revenue sources, mitigating 
NSCC's dependence on revenues driven by trading volumes and (ii) add a 
stable revenue source that would contribute to NSCC's operating margin 
by offsetting increasing costs and expenses. NSCC proposes to adopt a 
10 basis point increase in the fee to help offset increased costs 
funding NSCC's default liquidity resources due to the rising interest 
rate environment. As noted above, the net interest carry on NSCC's 
medium term notes is projected to decline next year as legacy senior 
notes mature and are refinanced at higher prevailing market rates. For 
this reason, NSCC believes the proposed changes to the Clearing Fund 
Maintenance Fee are reasonable.
    Rule 17Ad-22(e)(23)(ii) under the Act \14\ 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 fees would be clearly and transparently published 
in Addendum A of the Rules, which are available on a public 
website,\15\ thereby enabling Members to identify the fees and costs 
associated with participating in NSCC. As such, NSCC believes the 
proposed rule change is consistent with Rule 17Ad-22(e)(23)(ii) under 
the Act.\16\
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    \14\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \15\ See supra note 5.
    \16\ 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 that the changes to the Clearing Fund 
Maintenance Fee would impose any burden on competition. The Clearing 
Fund Maintenance Fee is charged ratably based on each Members' use of 
NSCC's guaranteed services, as reflected in Members' cash deposits to 
the Clearing Fund. Thus, the fee is designed to be reflective of each 
Member's individual activity at NSCC. While Member's may experience 
some impact from the increase in fees, NSCC notes that average Clearing 
Fund balances would also be reduced following the implementation of the 
T+1 settlement cycle in May 2024, offsetting some of this impact.\17\ 
NSCC believes the proposed fee change would not unfairly inhibit access 
to NSCC's services by any Member. NSCC therefore believes the proposed 
rule change would have a minimal impact on Members and would not impose 
any burden on competition.
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    \17\ See supra note 9.
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(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, NSCC will amend 
this filing to publicly file such comments 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 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) \18\ of the Act and paragraph (f) \19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NSCC-2023-013 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-2023-013. 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 (https://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

[[Page 89488]]

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 a.m. and 3 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). Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-NSCC-2023-013 and should be submitted on or before January 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28457 Filed 12-26-23; 8:45 am]
BILLING CODE 8011-01-P


