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Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices
that NSCC would i have an obligation to pay the cash distribution to the Transferor and the Transferee would have an obligation to pay the cash distribution to NSCC, and ii not novate any obligations related to unsupported corporate actions and distributions.
Specifically, Section 5ei of proposed Rule 56 would provide that regardless of anything to the contrary in any Existing Master Agreement including a provision addressing when an issuer pays different amounts to different security holders due to withholding tax or other reasons, the Distribution Payment obligations and entitlements between NSCC and each party to an SFT
that has been novated to NSCC shall be the obligation of NSCC to pay to the Transferor and the obligation of the Transferee to pay to NSCC the Distribution Amount in respect of each Distribution and the corresponding entitlements of the Transferor and NSCC, in each case, in accordance with the Rules.
Section 5eii of proposed Rule 56
would provide that NSCC shall maintain a list of corporate actions and distributions that NSCC does not support with respect to SFTs. Section 5eii would further provide that no Final Settlement, Rate Payment, Distribution Payment or other obligation resulting from a corporate action or distribution that is not supported by NSCC shall be novated to NSCC. In addition, Section 5eii would provide that none of such unsupported corporate action shall modify the Final Settlement, Rate Payment, Distribution Payment or other obligations of NSCC, Transferor and Transferee under an SFT
that has been novated to NSCC. Section 5eii would also provide that each SFT Member agrees that any obligation under an SFT resulting from a corporate action or distribution not supported by NSCC shall remain a binding and enforceable bilateral obligation between the Transferor and the Transferee, regardless of whether the Transferor and Transferee have entered into an Existing Master Agreement.
Section 5f of proposed Rule 56
would provide that the novation of SFTs shall not affect the fundamental substance of the SFT as a transfer of securities by one party in exchange for a transfer of cash by the other party and an agreement by each party to return the property it received and shall not affect the economic obligations or entitlements of the parties under the SFT except that following novation, the Final Settlement, Rate Payment and Distribution Payment obligations and entitlements shall be owed to and by
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NSCC rather than the original counterparty under the SFT.
Section 5g of proposed Rule 56
would provide that the representations and warranties made by each of the parties to an SFT that has been novated to NSCC under the parties Existing Master Agreement, if any, shall x to the extent that they are inconsistent with the Rules, be eliminated and replaced with the Rules and y to the extent that they are not inconsistent with the Rules, remain in effect as between the parties to the original SFT, but shall not impose any additional obligations on NSCC.
Proposed Rule 56, Section 6 Rate and Distributions Section 6 of proposed Rule 56 would govern the settlement of Rate Payments and supported Distributions by NSCC
for novated SFTs. Section 6a of proposed Rule 56 would provide that NSCC shall debit and credit the Rate Payment from and to the SFT Accounts of the SFT Member parties to an SFT
that has been novated to NSCC as part of its end of day final money settlement process in accordance with Rule 12
Settlement and Procedure VIII Money Settlement Service on the scheduled Final Settlement Date for the SFT, irrespective of whether Final Settlement of such SFT occurs on such date.
Section 6b of proposed Rule 56
would provide that if x a cash dividend is made on or in respect of an SFT Security that is the subject of an SFT that has been novated to NSCC or y cash is exchanged, in whole or in part, for such an SFT Security in a merger, consolidation or similar transaction, and the Transferor under the SFT would have been entitled to a cash payment related to the event described in clause x or y had it not transferred the SFT Securities that are the subject of the SFT to the Transferee in the Initial Settlement, then NSCC
shall, within the time period determined by NSCC from time to time, credit the Distribution Amount to the Transferors SFT Account and debit the Distribution Amount from the Transferees SFT Account as part of its end of day final money settlement process in accordance with Rule 12 and Procedure VIII. Section 6b would further provide that if cash is exchanged in whole for such an SFT Security, then the completion of the actions described in the preceding sentence shall discharge NSCCs Final Settlement obligations to the relevant Transferor and the Transferees Final Settlement obligations to NSCC.

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Proposed Rule 56, Section 7 Final Settlement of Securities Financing Transactions Section 7 of proposed Rule 56 would govern the mechanics of Final Settlement of SFTs by providing that, subject to Section 11 of proposed Rule 56, as described below, the Final Settlement of an SFT that has been novated to NSCC shall be scheduled to occur on the Business Day immediately following the date the SFT was novated to NSCC. Section 7 would further provide that unless the Final Settlement obligations under such an SFT are discharged in accordance with Section 8
of proposed Rule 56, as described below, Final Settlement of the SFT shall occur by x NSCC instructing DTC to i deliver from the relevant DTC account of the Transferee to NSCCs account at DTC the subject SFT Securities versus payment of the amount of SFT Cash and ii deliver from NSCCs account at DTC
to the relevant DTC account of the Transferor the subject SFT Securities versus payment of the amount of SFT
Cash, and y the processing of such deliveries by DTC in accordance to the rules and procedures of DTC; provided that if such transfers do not occur and a Buy-In does not occur in respect of the SFT, then the Final Settlement Date shall be rescheduled for the following Business Day as described in Section 9
of proposed Rule 56, as described below. The obligation of a Transferor or a Sponsoring Member that guarantees to NSCC the obligation of a Transferor or an Agent Clearing Member that is responsible for the performance of the obligation under an SFT that is an Agent Clearing Member Transaction to return SFT Cash to NSCC in respect of the Final Settlement of an SFT that has been novated to NSCC shall be to pay the SFT
Cash and, if applicable, the Rate Payment to NSCC against the transfer of the relevant SFT Securities by NSCC.
The obligation of a Transferee or a Sponsoring Member that guarantees to NSCC the obligation of a Transferee or an Agent Clearing Member that is responsible for the performance of the obligation under an SFT that is an Agent Clearing Member Transaction to return SFT Securities to NSCC in respect of the Final Settlement of an SFT that has been novated to NSCC shall be to transfer the SFT Securities and, if applicable, the Rate Payment to NSCC
against the transfer of SFT Cash by NSCC.
Section 7 of proposed Rule 56 would also provide that an SFT, or a portion thereof, shall be deemed complete and final upon Final Settlement of the SFT, or such portion, whether pursuant to
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