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Federal Register / Vol. 86, No. 55 / Wednesday, March 24, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

renew its Line of Credit at the targeted amount.
NSCC is also proposing to establish an intraday SLD obligation that would apply on the first Business Day of the Options Expiration Activity Period to allow NSCC to continue to mitigate the additional liquidity exposures presented by options activity. The proposal would also permit NSCC to calculate and collect an intraday SLD on any Business Day when, for example, NSCC believes that it is necessary to collect an additional SLD from a Member whose activity presents relatively greater risks to the NSCC on an overnight basis.
NSCC is also proposing to implement an alternative calculation of Members SLD requirements that would be their pro rata allocation of the largest SLD
obligation calculated for that Business Day. This proposed change would provide NSCC with the discretion, in certain circumstances, to allocate its largest liquidity need on a Business Day among those Members that are required to pay SLD on that day rather than collect separate SLD from those Members, as described in greater detail below.
In connection with these proposed changes, NSCC would also simplify the description of the calculation of SLD in Rule 4A in order to improve the transparency of this Rule, as described in greater detail below.
ii Current Rule 4A and Supplemental Liquidity Deposits Under the current Rule 4A, NSCC
collects SLD from the unaffiliated Members and families of affiliated Members each defined as an Affiliated Family that incur the largest gross settlement debits over the settlement cycle during times of increased trading activity that arise around Options Expiration Activity Periods.14
Under the current Rule 4A, NSCC
performs calculations on a monthly basis, no later than the fifth day prior to an Options Expiration Activity Period, using activity observed over a 24-month lookback period defined in the current Rule 4A as the Special Activity Lookback Period.15 These calculations determine 1 NSCCs largest liquidity need that exceeded its liquidity resources defined in Rule 4A as Special Activity Peak Liquidity Need; and 2 the 30 or fewer unaffiliated Members or Affiliated Families defined in Rule 4A as Special Activity Liquidity Providers that presented the largest liquidity 14 See
Section 2 of Rule 4A Supplemental Liquidity Deposits of the Rules, supra note 4.
15 See id.

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exposures to NSCC defined in Rule 4A as Special Activity Peak Liquidity Exposures.16 To determine the SLD
obligations of each Special Activity Liquidity Provider, the calculated Special Activity Peak Liquidity Need of NSCC is allocated to these Special Activity Liquidity Providers in proportion to the Special Activity Peak Liquidity Exposures they presented to NSCC during the Special Activity Lookback Period. Special Activity Liquidity Providers are required to fund their SLD obligations by the close of business on the second day prior to the applicable Options Expiration Activity Period.17 SLD may be returned to Special Activity Liquidity Providers seven Business Days after the end of the applicable Options Expiration Activity Period.18
On any Business Day between calculation dates, if NSCC observes an increase in its liquidity needs that exceeds a predetermined threshold amount, it may call for an additional deposit from the Member whose increase in activity levels caused or was the primary cause of such increased liquidity need defined in Rule 4A as Special Activity Liquidity Call.19 NSCC may hold deposits made pursuant to a Special Activity Liquidity Call for up to 90 days after the deposit is made.20 Members are also permitted to submit a cash deposit to the Clearing Fund as a Special Activity Prefund Deposit no later than the first Business Day of an Options Expiration Activity Period.21 NSCC understands that a Member would generally make a Special Activity Prefund Deposit when it anticipates that its Special Activity Peak Liquidity Exposure during that period may be greater than the amount calculated by NSCC pursuant to Rule 4A based on activity in the Special Activity Lookback Period.22
The current Rule 4A also addresses how SLD are treated generally.23
Specifically, while SLD are part of a Members actual deposit to the Clearing Fund, they are made in addition to a Members Required Fund Deposit and 16 See Section 3 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
17 See Section 4 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
18 See Section 9 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
19 See Section 7 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
20 See Section 10 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
21 See definition of Special Activity Prefund Deposit in Section 2 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
22 See id.
23 See Section 13 of Rule 4A Supplemental Liquidity Deposits of the Rules, id.

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any other deposit of any such Member to the Clearing Fund.24 Rule 4A also provides that SLD may be invested and may be used to satisfy a loss or liability as provided for in Sections 3 or 13 of Rule 4, and addresses NSCCs obligation to provide Members with certain information that would help them anticipate their potential SLD
requirements.25
iii Amended Rule 4A and Proposed Daily Calculation of Supplemental Liquidity Deposits In order to better address the liquidity risks presented by Members daily activity, NSCC is proposing to amend Rule 4A to calculate and collect, when applicable, SLD every Business Day rather than only in connection with the monthly expiration of stock options.
While the monthly expiration of stock options does present larger liquidity exposures to NSCC, NSCC may also face large liquidity exposures from Members daily activity, particularly during volatile market conditions. By allowing NSCC to calculate and collect SLD
daily, NSCC would be able to identify these exposures based on Members daily activity rather than estimate its upcoming liquidity exposures based on activity observed over a lookback period. The proposal would help NSCC
mitigate its liquidity risks through the daily collection of SLD from those Members whose daily activity would, in the event of the Members default, create a potential liquidity need that is in excess of NSCCs available qualifying liquid resources. The proposal would also permit NSCC to return SLD to Members on the Business Day following the day those deposits are collected and would remove the current requirement that SLD be held for up to 90 days.
In order to implement this proposed change to the timing of the SLD, NSCC
would make a number of changes to Rule 4A, described below. The proposed changes to Rule 4A would implement a daily calculation and collection of SLD, simplify and clarify the calculations done in connection with the SLD requirements, and enhance the disclosures of the SLD
requirements. Despite these proposed changes, the structure of Rule 4A and the fundamental mechanics of the SLD
requirements would be unchanged.
24 See Section 13b of Rule 4A Supplemental Liquidity Deposits of the Rules, id.
25 See Section 13c and Section 14 of Rule 4A
Supplemental Liquidity Deposits of the Rules, id.

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