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Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices
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Proposed Rule 56, Section 13 Ineligible SFT Securities and Supported Corporate Actions Section 13 of proposed Rule 56 would govern the processing of SFTs where the underlying securities become ineligible SFT Securities and the processing of SFTs in the context of supported corporate actions.
Specifically, Section 13a of proposed Rule 56 would provide that NSCC would remove an Ineligible SFT
Security from the list maintained by NSCC as set forth in Rule 3 Lists to be Maintained; provided that NSCC may not be able to identify that an SFT
Security is an Ineligible SFT Security and remove such SFT Security from the list maintained by NSCC if the reason for the ineligibility is that the SFT
Security is undergoing a corporate action or distribution not supported by NSCC and NSCC is not in receipt of reasonably advanced notice of such corporate action or distribution.
Section 13b of proposed Rule 56
would provide that notwithstanding Section 12 of proposed Rule 56, as described above, if an SFT Security becomes an Ineligible SFT Security because the Current Market Price of the SFT Security falls below the threshold established by NSCC from time to time, the Required SFT Deposit of each SFT
Member party to an SFT which has such Ineligible SFT Security as its subject shall include an additional amount equal to the product of 100% of the Current Market Price of such Ineligible SFT Security and the number of such Ineligible SFT Securities that the SFT
has as its subject.84 The threshold that would be established by NSCC is currently $5.00, which could be modified by NSCC 85 at a later date after NSCC gains more experience with the nature of the SFT portfolios submitted for clearing, as discussed above.
Section 13c of proposed Rule 56
would provide that if NSCC declares that an SFT Security has or would become an Ineligible SFT Security because the security is or would become ineligible for processing or is or would be undergoing a corporate action or distribution that is not supported by NSCC, the Final Settlement of all SFTs that have been novated to NSCC and have such SFT Security as their subject must occur before the Ineligibility Date.86 In addition, Section 13c would 84 If the Current Market Price of the SFT Security falls below the threshold established by NSCC from time to time, NSCC would assess the additional amount as part of the Required SFT Deposit.
85 Supra note 23.
86 The duration between the declaration and Ineligibility Date would vary. If the ineligibility is
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provide that if following such declaration the Transferee does not satisfy its Final Settlement obligations in respect of any such SFT as provided in Section 7 of proposed Rule 56, as described above, by the Ineligibility Date, NSCC shall, unless NSCC has previously debited and credited the Price Differential from and to the SFT
Accounts of the SFT Member parties to the SFT in accordance with Section 8 of proposed Rule 56, as described above, on Ineligibility Date, debit and credit the Price Differential from and to the SFT Accounts of the SFT Member parties to the SFT as part of its end of day final money settlement process in accordance with Rule 12 Settlement and Procedure VIII Money Settlement Service.87 Section 13c would further provide that if the Price Differential is positive, NSCC shall x credit an amount equal to the Price Differential to the Transferees SFT Account and y debit an amount equal to the Price Differential from the Transferors SFT
Account. Section 13c would also provide that if the Price Differential is negative, NSCC shall x credit an amount equal to the absolute value of the Price Differential to the Transferors SFT Account and y debit an amount equal to the absolute value of the Price Differential from the Transferees SFT
Account. Furthermore, Section 13c would provide that following the application of Price Differential to an Ineligible SFT on or after the relevant Ineligibility Date, all rights and obligations as between NSCC and the SFT Member parties thereto with respect to such SFT shall be discharged.
Section 13d of proposed Rule 56
would provide that if a corporate action supported by NSCC in respect of the SFT Securities that are the subject of an SFT is scheduled to occur, NSCC may because the SFT Security will become ineligible for processing i.e., no longer CNS eligible, the duration would depend on the timing of the CNS
ineligibility triggering event e.g., compliance with regulatory orders, risk concerns, trading suspension, etc..
If the ineligibility is because the SFT Security will be undergoing an unsupported corporate action or distribution, then it would depend on when the issuer of the relevant SFT Security announces the particular corporate action or distribution event and the record date for such corporate action or distribution. Specifically, when announcements from the issuers are received by DTC, DTC would announce the corporate action or distribution event.
NSCC would notify Members of such event when it is announced by DTC and would generally tie the Ineligibility Date to shortly before or on the record date for the corporate action or distribution.
87 NSCC is proposing this simplified process for applying Price Differentials to Ineligible SFTs because NSCC anticipates such instances would occur on a much less frequent basis than those in connection with Linked SFTs pursuant to Section 8a of proposed Rule 56 and Non-Returned SFTs pursuant to Section 9a of proposed Rule 56.

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cease to permit the discharge of the SFTs Final Settlement obligations, whether pursuant to Section 8 of proposed Rule 56, as described above, or otherwise, and treat the SFT as a Non-Returned SFT for such period of time determined by NSCC as necessary to process the corporate action, except that the additional SFT Deposit required for Non-Returned SFTs under Section 12c of proposed Rule 56, as described above, shall not apply. Section 13d would further provide that notwithstanding the foregoing, NSCC
shall not limit the ability of a Member to accelerate the Final Settlement of an SFT in accordance with Section 11 of proposed Rule 56, as described above, provided that any Price Differential for the SFT has settled in accordance with Section 9a of proposed Rule 56, as described above, and that such accelerated Final Settlement is permitted in accordance with the rules and procedures of DTC.
Proposed Rule 56, Section 14 Cease To Act Procedures for SFT Members With Open Securities Financing Transactions Section 14 of proposed Rule 56 would establish NSCCs procedures for when it ceases to act for an SFT Member with open SFTs, including recalling a nondefaulting SFT Member that is a Transferee and liquidating the Defaulting SFT Members SFT Positions by deeming NSCC to have bought in or sold out some or all the SFT Securities that are the subject of such SFTs at prevailing market price or by crossing including on a delayed basis.
Section 14a of proposed Rule 56
would provide that the provisions of Rule 18 Procedures for When the Corporation Declines or Ceases to Act shall not apply to the SFTs except for Sections 1 and 8 of Rule 18.
Section 14b of proposed Rule 56
would provide that if NSCC has declined or ceased to act for an SFT
Member and subject to Section 14 of proposed Rule 2C, as described above:
i Except as otherwise may be determined by the Board of Directors, any SFT entered into by the SFT
Member that, at the time NSCC declined or ceased to act for such SFT Member, has not been novated to NSCC pursuant to proposed Rule 56, shall be excluded from all operations of NSCC applicable to such SFT.
ii NSCC may decline to act upon any instructions, transaction data or notices submitted by such SFT Member or an Approved SFT Submitter on behalf of such SFT Member.
iii NSCC shall close-out such SFT
Members proprietary SFT Positions as
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