[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78892-78897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90543; File No. SR-NSCC-2020-018]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change, as Modified by Amendment No. 1, To Amend the Fee Structure
December 1, 2020.
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 November 16, 2020, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change. On November 30, 2020, NSCC
filed Amendment No. 1 to the proposed rule change, which revised a
portion of the rule text and corresponding description in the notice
relating to NSCC's current policy regarding the issuance of rebates to
Participants. NSCC filed the proposed rule change, as modified by
Amendment No. 1, pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder.\4\ The proposed rule change, as modified
by Amendment No. 1, is described in Items I, II, and III below, which
Items have been prepared primarily by NSCC. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Amendment No. 1, 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, as Modified by Amendment No. 1
The proposed rule change, as modified by Amendment No. 1, consists
of amendments to Addendum A (Fee Structure) of the NSCC Rules &
Procedures (``Rules'') \5\ in order to (i) modify the Clearing Fund
Maintenance Fee (``Maintenance Fee''), (ii) modify the ``value out of
the net'' component of the Clearance Activity Fee, and (iii) replace
the description currently under the heading ``NSCC Pricing Policy''
with a description of NSCC's current policy regarding the issuance of
rebates to Members, as described in greater detail below.
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\5\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change, as Modified by Amendment No. 1
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change, as modified by Amendment No. 1, and discussed any comments it
received on the proposed rule change, as modified by Amendment No. 1.
The text of these statements may be examined at the places specified in
Item IV below. The clearing agency has prepared
[[Page 78893]]
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, as Modified by Amendment No. 1
1. Purpose
The purpose of this proposed rule change, as modified by Amendment
No. 1, is to amend Addendum A (Fee Structure) of the Rules in order to
(i) modify the Maintenance Fee, (ii) modify the ``value out of the
net'' component of the Clearance Activity Fee, and (iii) replace the
description currently under the heading ``NSCC Pricing Policy'' with a
description of NSCC's current policy regarding the issuance of rebates
to Members.
(i) Overview
NSCC provides clearance and settlement services for trades executed
by its Members in the U.S. equity, corporate and municipal bond, and
unit investment trust markets.
Members are assessed fees in accordance with Addendum A (Fee
Structure). The current Fee Structure covers a multitude of fees that
are assessed on Members based upon their activities and the services
utilized.
NSCC operates a cost plus low margin pricing model and has in place
procedures to control costs and to regularly review pricing levels
against costs of operation. It reviews pricing levels against its costs
of operation typically during the annual budget process. The budget is
approved annually by the Board. NSCC's fees are cost-based plus a
markup, as approved by the Board or management (pursuant to authority
delegated by the Board), as applicable. This markup or ``low margin''
is applied to recover development costs and operating expenses, and to
accumulate capital sufficient to meet regulatory and economic
requirements.
Maintenance Fee
NSCC implemented the Maintenance Fee in the current Fee Structure
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
more 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 and Limited Members that are required to
make deposits to the NSCC Clearing Fund (collectively, ``Contributing
Members'') in proportion to the Contributing Member's average, end of
day, monthly cash deposit to the Clearing Fund.
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\6\ Securities Exchange Act Release No. 78525 (August 9, 2016),
81 FR 54146 (August 15, 2016) (SR-NSCC-2016-002).
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Until June 2020, the Maintenance Fee had been calculated monthly,
in arrears, as the product of (A) 0.25 percent and (B) the average of
the Contributing Member's actual cash deposit to the NSCC Clearing Fund
as of the end of each day of the month, multiplied by the number of
days in that month and divided by 360. However, by its terms at the
time, the fee had been waived if the monthly rate of return on NSCC's
investment of the cash portion in the Clearing Fund was less than 0.25
percent for the month (``Waiver Provision'').
In June 2020, NSCC modified the Maintenance Fee in three ways.\7\
First, NSCC removed the Waiver Provision. Second, instead of using a
fixed rate of 0.25 percent when calculating the Maintenance Fee, NSCC
calculated the fee using the corresponding month's average Interest
Rate on Excess Reserves (i.e., the IOER rate) that is determined by the
Board of Governors of the Federal Reserve System.\8\ Third, NSCC set a
ceiling of 0.25 percent and a floor of 0.00 percent on the IOER rate
used in the fee calculation.
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\7\ Securities Exchange Act Release No. 89141 (June 24, 2020),
85 FR 39253 (June 30, 2020) (SR-NSCC-2020-011) (``June Filing'').
\8\ Policy Tools, Interest on Required Reserve Balances and
Excess Balances, https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm.
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Those three modifications were designed to help address an
immediate financial issue that NSCC was experiencing due to the
coronavirus global pandemic and overall reaction by the financial
markets, and, based on information at the time, to better position NSCC
going forward, with respect to its ability to fund its default
liquidity resources in various economic environments, as well as to
improve the overall functioning of the Maintenance Fee.\9\ However,
after completing NSCC's annual budgeting process that began in August
and finished in October 2020--in which NSCC evaluated its short- and
long-term financial position in consideration of expected Contributing
Member activity, revenues, cost of funding,\10\ market volatility, and
the financial markets more broadly, concerns remained around NSCC's net
income operating margin.
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\9\ See June Filing, supra note 7 (discussing the rationale for
the three modifications made to the Maintenance Fee).
\10\ See June Filing, supra note 7 (discussing NSCC's cost of
funding).
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To help address this issue, NSCC proposes to further modify the
Maintenance Fee. Specifically, NSCC will no longer calculate the fee
using the corresponding month's average IOER rate but, instead, return
to using a fixed rate of 0.25 percent, which, consequently, would
render the current floor of 0.00 percent unnecessary. NSCC is using a
fixed rate of 0.25 percent so that Members will not be charged an
amount greater than what was possible under the original and current
calculation of the fee.
NSCC believes that reverting to a fixed rate in calculating the
Maintenance Fee would have a number of benefits. For example, by using
a fixed rate, the fee would no longer fluctuate as the IOER rate
fluctuates, which should help Contributing Members better anticipate
the cost of the fee and, for NSCC, stabilize revenue generated from the
fee. Greater stability in the revenue generated from the fee would help
support NSCC's net income operating margin and, accordingly, its credit
ratings, which are key factors in NSCC's costs, expenses, and
funding.\11\ Additionally, the proposed change would help provide
consistent pricing between NSCC and its affiliate clearing agencies,
The Depository Trust Company (``DTC'') and Fixed Income Clearing
Corporation (``FICC''),\12\ as both DTC and FICC have filed proposed
rule changes concurrently with this filing that would result in the
same calculation of their respective maintenance fees.\13\
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\11\ Not only could a downgrade to an NSCC credit rating
increase NSCC costs and expenses, but, more importantly, it could
reduce the overall availability of default liquidity resources to
NSCC if investors or lending banks reduce their current levels of
engagement with NSCC.
\12\ The Depository Trust & Clearing Corporation (``DTCC'') is
the parent company of DTC, NSCC, and FICC. DTCC operates on a shared
services model for DTC, NSCC, and FICC. Most corporate functions are
established and managed on an enterprise-wide basis pursuant to
intercompany agreements under which it is generally DTCC that
provides a relevant service to DTC, NSCC, or FICC.
\13\ See File No. SR-DTC-2020-014 and File No. SR-FICC-2020-014
available at https://www.dtcc.com/legal/sec-rule-filings.
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Clearance Activity Fee
The ``value out of the net'' component of the Clearance Activity
Fee in the Fee Structure is a fee based on the daily aggregate market
value of all settling CNS positions after netting. It is currently
$2.12 per million dollars of settling value (i.e., the absolute value
of
[[Page 78894]]
the CNS Long Positions and Short Positions).\14\
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\14\ The current ``value out of the net'' component of the
Clearance Activity Fee was implemented in 2019 as part of fee
changes to address pricing complexity. See Securities Exchange Act
Release No. 84770 (December 10, 2018), 83 FR 64374 (December 14,
2018) (SR-NSCC-2018-011).
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Due to the coronavirus global pandemic and overall reaction by the
financial markets, NSCC's cost of funding has risen sharply in 2020,
particularly for NSCC's key default liquidity resources. The unexpected
increases in cost and expense to secure and maintain those default
liquidity resources has added millions of dollars to NSCC's expense.
As described above, after completing NSCC's 2020 annual budgeting
process--in which NSCC evaluated its short- and long-term financial
position in consideration of expected Member activity, revenues, cost
of funding, market volatility, and the financial markets more broadly,
concerns remained around NSCC's net income operating margin. In order
to address this issue and to better align cost with revenue, NSCC
proposes to modify the ``value out of the net'' component of the
Clearance Activity Fee from $2.12 per million dollars of settling value
to $2.56 per million dollars of settling value. Specifically, NSCC
anticipates that the proposed change would enable NSCC to offset the
increase in its cost and expense while generating a low net income
operating margin, consistent with NSCC's cost plus low margin pricing
model.
NSCC believes modifying the ``value out of the net'' component of
the Clearance Activity Fee would further help support NSCC's net income
operating margin and, accordingly, its credit ratings, which, as
described above, are key factors in NSCC's costs, expenses, and
funding.
Rebate Policy
NSCC is also proposing to amend Section VIII of the Fee Structure
to replace the description currently under the heading ``NSCC Pricing
Policy'' with a description of its current policy regarding the
issuance of rebates to Members. In connection with this change, the
proposed change would also amend the title of Section VIII to ``NSCC
Rebate Policy'' to better describe the policy in this section.
Section VIII of the Fee Structure currently includes an outdated
description of NSCC's policy to adjust Members' invoices based on
NSCC's revenues. This description states that NSCC may adjust invoices
down in the form of a discount or up in the form of a surcharge, based
on its revenues. NSCC did historically provide its Members with a
discount on their invoices, but it does not have any record of
adjusting Members' invoices up, in the form of a surcharge, in the
past.
NSCC views its practice of providing a rebate to its Members as a
corporate function, and not related to its operation as a self-
regulatory organization. An NSCC rebate is essentially a return of the
revenue that NSCC collects through the fees it charges Members for its
services (as set forth in Addendum A of the Rules). Rebates are not
related to the amounts Members deposit with NSCC as their Required Fund
Deposits, which are made up of risk-based margin charges calculated
pursuant to Procedure XV of the Rules. The determination to provide a
rebate is made at the corporation-level, based on a number of factors
and considerations, as described below, and is not a separate
determination made for each individual Member.
Following the financial recession of 2008, NSCC ceased providing
such discounts in connection with the implementation of a financial
strategy to strengthen its financial position and health. As a result
of that strategy and improved financial markets, in 2019 NSCC
determined to reinstitute its practice of discounting Members'
invoices, in the form of a rebate, based on its financial performance.
In connection with this decision, NSCC is proposing to replace the
language under the heading ``NSCC Pricing Policy'' in Section VIII of
the Fee Structure to describe its current rebate practice. This
proposed change would not change NSCC's current rebate practice but
would provide Members with transparency into this practice and the
governance around rebates.
(ii) Proposed Fee Changes
NSCC is proposing to change the Maintenance Fee in Subsection G
(Clearing Fund Maintenance Fee) of Section V (Pass-Through and Other
Fees) of the Fee Structure. Specifically, NSCC is proposing to modify
the Maintenance Fee by removing language regarding application of the
IOER rate and a floor of 0.00 percent.
In addition, NSCC is proposing to change the Clearance Activity Fee
in Subsection A (Clearance Activity Fee) of Section II (Trade Clearance
Fees) of the Fee Structure. Specifically, NSCC is proposing to modify
the ``value out of the net'' component of the Clearance Activity Fee
from $2.12 per million of settling value to $2.56 per million of
settling value.
Finally, NSCC is proposing to amend Section VIII of the Fee
Structure to replace the description currently under the heading ``NSCC
Pricing Policy'' with a description of its current policy regarding the
issuance of rebates to Members, as described above.
First, in connection with this change, the proposed change would
also amend the title of Section VIII to ``NSCC Rebate Policy'' to
better describe the policy in this section.
Second, the proposed language would describe that NSCC may provide
Members with a rebate of excess net income, and would define excess net
income as either income of NSCC or income related to one business line
of NSCC, after application of expenses, capitalization costs, and
applicable regulatory requirements. The language would also state that
a rebate is discretionary, to make it clear that NSCC is not obligated
to provide a rebate.
Third, the proposed language would state that a rebate would be
approved by the Board. The proposed language would also state that, in
determining whether a rebate is appropriate, the Board would consider
one or more of the following, as appropriate: NSCC's regulatory capital
requirements,\15\ anticipated expenses, investment needs, anticipated
future expenses with respect to improvement or maintenance of NSCC's
operations, cash balances, financial projections, and appropriate level
of shareholders' equity.
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\15\ NSCC manages its general business risk by holding
sufficient liquid net assets funded by equity to cover potential
general business losses so it can continue operations and services
as going concerns if those losses materialize, in compliance with
the requirements of Rule 17Ad-22(e)(15). 17 CFR 240.17Ad-22(e)(15).
NSCC maintains a Clearing Agency Policy on Capital Requirements
which defines the amount of capital it must maintain for this
purpose and sets forth the manner in which this amount is
calculated. See Securities Exchange Act Release No. 89360 (July 21,
2020), 85 FR 45280 (July 27, 2020) (SR-NSCC-2020-014) (amending
original filing).
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Fourth, the proposed language would state that, if the Board
determined to issue a rebate, it would set a rebate period and a rebate
payment date, both of which are used to determine which Members are
eligible for a rebate. The proposed language would state that Members
that maintain their membership during all or a portion of the rebate
period and on the rebate payment date are eligible for a rebate.
Finally, the proposed language would describe how rebates are
applied to the invoices of eligible Members. The proposed language
would state that rebates are applied to all eligible Members on a pro-
rata basis based on
[[Page 78895]]
such Members' gross fees paid to NSCC within the applicable rebate
period, excluding pass-through fees and interest earned on Required
Fund Deposits. The proposed language would also state that rebates are
applied to eligible Members' invoices on the rebate payment date as
either a reduction in fees owed or, if fees owed are lower than the
allocated rebate amount, a payment of such difference. The proposed
language would also note that rebate amounts may be adjusted for
miscellaneous charges and discounts.
(iii) Expected Member Impact
The proposed rule change, as modified by Amendment No. 1, is
expected to increase NSCC's annual revenue by approximately $31.6
million.
In general, NSCC anticipates that, as result of the proposed
changes, approximately 62% of impacted affiliated family of members
would have a fee increase of less than $1,000 per year, approximately
24% of impacted affiliated family of members would have a fee increase
between $1,000 to $100,000 per year, approximately 10% of impacted
affiliated family of members would have a fee increase of $100,000 to
$1 million per year, and approximately 4% of impacted affiliated family
of members would have a fee increase of $1 million or greater per year.
(iv) Member Outreach
NSCC has conducted ongoing outreach to each Member 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.
(v) Implementation Timeframe
NSCC would implement this proposal on January 1, 2021. As proposed,
a legend would be added to the Fee Structure 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 this proposal 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
changes to modify the Maintenance Fee and the ``value out of the net''
component of the Clearance Activity Fee are consistent with Section
17A(b)(3)(D) of the Act \16\ and the proposed change to include a
description of NSCC's current policy regarding the issuance of rebates
to Members is consistent with Rule 17Ad-22(e)(23)(ii),\17\ as
promulgated under the Act, for the reasons described below.
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\16\ 15 U.S.C. 78q-1(b)(3)(D).
\17\ 17 CFR.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act \18\ requires that the Rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its participants. NSCC believes that the proposed
changes to the Maintenance Fee and the ``value out of the net''
component of the Clearance Activity Fee are consistent with this
provision of the Act.
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\18\ 15 U.S.C. 78q-1(b)(3)(D).
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As described above, the proposal would modify the Maintenance Fee
to no longer calculate the fee using the corresponding month's average
IOER rate; rather, the calculation would revert to using a fixed rate
of 0.25 percent, thus, negating the need to maintain the current floor
of 0.00 percent.
Because the proposed change would not alter how the Maintenance Fee
is currently allocated (i.e., charged) to Contributing Members, NSCC
believes the fee would continue to be equitably allocated. More
specifically, as mentioned above, the Maintenance Fee is and would
continue to be charged to all Contributing Members in proportion to the
Contributing Member's average monthly cash deposit to the Clearing
Fund. As such, and as is currently the case, Contributing 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 Maintenance Fee because such Contributing Members
would typically be required to maintain larger Clearing Fund deposits
pursuant to the Rules.\19\ Conversely, Contributing Members that use
NSCC's guaranteed services less or which have activity that presents
less risk would generally be subject to a smaller Maintenance Fee
because such Contributing Members would typically be required to
maintain smaller Clearing Fund deposits pursuant to the Rules.\20\ The
proposed change to the Maintenance Fee would not adjust that
allocation. For this reason, NSCC believes the Maintenance Fee would
continue to be equitably allocated among Contributing Members.
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\19\ See Rule 4 and Procedure XV, supra note 5.
\20\ Id.
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Similarly, NSCC believes that the Maintenance Fee would continue to
be a reasonable fee under the proposed change described above. For
example, by using a fixed rate, instead of a rate that fluctuates with
the IOER rate, Contributing Members should be better able to anticipate
the cost of the fee. Meanwhile, a fixed rate would not only improve
NSCC's ability to estimate revenue from the fee, but it also would
stabilize the revenue received from the fee. As described above,
greater stability in the revenue generated from the fee would help
support NSCC's net income operating margin and, accordingly, its credit
ratings, which are key factors in NSCC's costs, expenses, and funding.
Additionally, using a fixed rate of 0.25 percent would help ensure that
Contributing Members are not charged an amount greater than what was
possible under the original and current calculation of the fee. Lastly,
the proposed change would help establish consistent pricing between
NSCC and its affiliates, DTC and FICC, regarding each of their
respective Maintenance Fees, as concurrent proposals by DTC and FICC
would result in the same calculation.\21\ For this reason, NSCC
believes the Maintenance Fee would continue to be reasonable. Based on
the forgoing, NSCC believes the proposed rule change to the Maintenance
Fee is consistent with Section 17A(b)(3)(D) of the Act.\22\
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\21\ See supra note 13.
\22\ 15 U.S.C. 78q-1(b)(3)(D).
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NSCC believes the proposed rule change to the ``value out of the
net'' component of the Clearance Activity Fee would provide for the
equitable allocation of reasonable fees. Because the proposed change
would not alter how the Clearance Activity 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 ``value
out of the net'' component of the Clearance Activity Fee is based on a
Member's daily aggregate market value of all settling CNS positions
after netting. As such, and as is currently the case, Members that make
greater use of NSCC's guaranteed services would generally be subject to
a larger Clearance Activity Fee because such Members would typically
have higher value of net positions after netting. Conversely, Members
that use NSCC's guaranteed services less would generally be subject to
a smaller Clearance Activity Fee
[[Page 78896]]
because such Members would typically have lower value of net positions
after netting. The proposed change to the ``value out of the net''
component of the Clearance Activity Fee would not adjust that
allocation. For this reason, NSCC believes the Clearance Activity Fee
would continue to be equitably allocated among Members.
NSCC believes that the Clearance Activity Fee would continue to be
a reasonable fee under the proposed change described above. This is
because the proposed change to modify the ``value out of the net''
component of the Clearance Activity Fee is designed to offset NSCC's
increased costs and expenses while generating a low net income
operating margin. As described above, in determining the appropriate
level of the proposed change to modify the ``value out of the net''
component of the Clearance Activity Fee, NSCC considered a variety of
factors, including expected Member activity, revenues, cost of funding,
market volatility, and the financial markets more broadly. Based on
that consideration, NSCC believes the proposed change would allow NSCC
to assess a fee that is better aligned with NSCC's increased costs and
expenses. Having the ability to assess a fee that is better aligned
with NSCC's increased costs and expenses would further help support
NSCC's net income operating margin and, accordingly, its credit
ratings, which are key factors in NSCC's costs, expenses, and funding.
For this reason, NSCC believes the Clearance Activity Fee would
continue to be reasonable. Based on the forgoing, NSCC believes the
proposed rule change to the ``value out of the net'' component of the
Clearance Activity Fee is consistent with Section 17A(b)(3)(D) of the
Act.\23\
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\23\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act requires that NSCC 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.\24\ The proposed change would replace an outdated description
of NSCC's past practice of adjusting Members' invoices with an updated
description of its current rebate practice, which, when applicable,
results in a reduction to the amount of fees a Member owes to NSCC. By
updating the Fee Structure with a clear, transparent description of
NSCC's current rebate practice, the proposed change would provide
Members with sufficient information to evaluate the fees they may incur
by participating in NSCC. Therefore, NSCC believes the proposed change
would be consistent with the requirements of Rule 17Ad-
22(e)(23)(ii).\25\
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\24\ 17 CFR 240.17Ad-22(e)(23)(ii).
\25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed change to the Maintenance
Fee would have an impact on competition among Contributing Members. As
described above, the Maintenance Fee is charged ratably based on
Contributing Members' use of NSCC's guaranteed services, as reflected
in Contributing Members' deposits to the Clearing Fund. Thus, the fee
is designed to be reflective of each Contributing Member's individual
activity at NSCC. Additionally, NSCC does not believe reverting to a
fixed rate of 0.25 percent in calculating the Maintenance Fee would
have any impact on competition among Contributing Members because using
such a rate means that Contributing Members still cannot be assessed an
amount greater than what could have been assessed under the original
and current calculations of the fee.
However, appreciating that the value of a dollar is not consistent
for each Contributing Member, if the change to no longer calculate the
fee using the corresponding month's average IOER rate would create a
competitive burden for a Contributing Member because the Contributing
Member could be assessed a higher fee at a time when that IOER rate is
lower than the proposed 0.25 percent fixed rate, NSCC believes such a
burden would not be significant, given that the amount assessed would
still be within the range of what could be assessed under the current
calculation. Moreover, NSCC believes that any such burden would be
necessary and appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\26\
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\26\ 15 U.S.C. 78q-1(b)(3)(I).
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The burden would be necessary because it is essential that NSCC
continue to offset some of its costs and expenses with stable revenue
generated from the Maintenance Fee, regardless of the economic
environment. As described above, not doing so could adversely affect
NSCC's credit ratings, which could further increase funding or,
possibly, decrease the availability of crucial liquidity resources for
NSCC. The burden would be appropriate because, as described above, the
Maintenance Fee is calculated, using a balanced formula, to assess a
fee that is reflective of the Contributing Member's use of NSCC's
guaranteed services, so that NSCC can defray some of its costs and
expenses in providing those services. More specifically, returning to a
fixed rate of 0.25 percent would be appropriate because it is the same
rate that was used prior to the change made in June 2020,\27\ and it is
currently the ceiling used in the existing calculation; thus, the new
calculation still would not use a rate any higher than it could have
previously.
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\27\ See June Filing, supra note 7.
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NSCC believes the proposed rule change to modify the ``value out of
the net'' component of the Clearance Activity Fee may have an impact on
competition among its Members because the change would likely increase
the fees of those Members that utilize NSCC's guaranteed service when
compared to their fees under the current Fee Structure. NSCC believes
the proposed change could burden competition by negatively affecting
such Members' operating costs. While these Members may experience
increases in their fees when compared to their fees under the current
Fee Structure, NSCC does not believe the proposed change in and of
itself mean that the burden on competition is significant. This is
because even though the amount of the fee increase may seem significant
(e.g., from $2.12 to $2.56 per million of settling value), NSCC
believes the increase in fees would similarly affect all Members that
utilize NSCC's guaranteed services and would be reflective of each
Member's individual activity at NSCC, and therefore the burden on
competition would not be significant. Regardless of whether the burden
on competition is deemed significant, NSCC believes any burden that is
created by this proposed change would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\28\
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\28\ Id.
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The burden would be necessary because it is essential that NSCC
continue to offset some of its costs and expenses with revenue
generated from the Clearance Activity Fee, regardless of the economic
environment. As described above, not doing so could adversely affect
NSCC's credit ratings, which could further increase funding or,
possibly, decrease the availability of crucial liquidity resources for
NSCC. The burden would be appropriate because, as described above, the
Clearance Activity Fee is calculated,
[[Page 78897]]
using a balanced formula, to assess a fee that is reflective of the
Member's use of NSCC's guaranteed services, so that NSCC can defray
some of its costs and expenses in providing those services. More
specifically, NSCC believes the proposed rule change to modify the
``value out of the net'' component of the Clearance Activity Fee would
be appropriate because it would allow NSCC to assess a fee that is
better aligned with NSCC's increased costs and expenses while
generating a low net income operating margin.
NSCC does not believe the proposed change to describe its current
rebate practice would have any impact, or impose any burden, on
competition among its Members. As described above, this proposed rule
change, as modified by Amendment No. 1, would replace outdated
information currently in the Fee Structure with an updated description
of NSCC's current rebate practice. As described in the proposed
language, under its current practice, rebates are allocated to eligible
Members on a pro-rata basis based on such Members' gross fees paid to
NSCC within the applicable rebate period. Therefore, the current
practice is applied equally to all eligible Members. The proposed
change to provide Members with transparency into this practice would
not cause any increase or decrease in the rebates Members may receive.
Therefore, this proposed rule change, as modified by Amendment No. 1,
would not have any impact, or impose any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule
Change, as Modified by Amendment No. 1, Received From Members,
Participants, or Others
Written comments relating to this proposed rule change, as modified
by Amendment No. 1, have not been solicited or received. NSCC will
notify the Commission of any written comments received by NSCC.
III. Date of Effectiveness of the Proposed Rule Change, as Modified by
Amendment No. 1, and Timing for Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \29\ and paragraph (f) of Rule 19b-4
thereunder.\30\ At any time within 60 days of the filing of the
proposed rule change, as modified by Amendment No. 1, 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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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 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, as modified by Amendment No. 1, 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-2020-018 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-2020-018. 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, as modified by
Amendment No. 1, that are filed with the Commission, and all written
communications relating to the proposed rule change, as modified by
Amendment No. 1, 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-2020-018 and should be
submitted on or before December 28, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26785 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P