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Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices
be insufficient to manage NSCCs credit exposure to participants between margin collections should, for example, the Members clearing activity abruptly increase.58 As summarized in Section II.B above, the Impact Study Results show that approximately 88% of the deficiencies that occurred on the days when Members maintained a Required Fund Deposit of less than $250,000
would have been eliminated, which indicates the proposed increase to $250,000 would have mitigated this risk.59 Seven of the 28 Members that would have to provide some additional funding still held an average actual clearing fund deposit of above $250,000
during the Impact Study Period, ranging from approximately $315,000 to $1.7M.
In other words, there would have been many days during the study period where those seven Members would not have to provide additional funding.
Additionally, four of the remaining 21
Members that would have to provide some additional funding had an average ENC below $5 million, ranging from $834,000 to $4.8 million, during the Impact Study Period, while 11 of the 21
Members had an average ENC above $100 million during the same period.
For those 28 Members, the number of backtesting deficiencies ranged from zero and 22 based on the $10,000
minimum Required Fund Deposit compared to zero and five had the $250,000 minimum Required Fund Deposit been in place during the Impact Study Period. Moreover, the average number of backtesting deficiencies of the 28 Members would have decreased from 1.54 to 0.41 per Member had the $250,000 minimum Required Fund Deposit been in place during the study period. For the 14 Members impacted with backtesting deficiencies, the largest deficiency was $1.3 million and the smallest deficiency was $11,000 out of 50 total deficiencies. Under the proposed minimum Required Fund Deposit of $250,000, there would only be six deficiencies across four members, with a maximum deficiency of $1.1
million and a minimum deficiency of $11,000.
One commenter further states that it would not object to an increase to a $100,000 Required Fund Deposit.
However, as discussed in Section II.B
above, an increase to $250,000
compared to $100,000 would have further reduced NSCCs credit exposure to its Members by eliminating ten additional backtesting deficiencies resulting in NSCC maintaining sufficient margin levels for two 58 See 59 See
supra text accompanying notes 1719.
supra text accompanying note 29.

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additional Members to above the 99%
confidence interval. Therefore, the Commission concludes that any competitive burden to Members imposed by the Proposed Rule Change is necessary and appropriate in furtherance of the Act. Accordingly, the Commission finds that the Proposed Rule Change is consistent with the requirements of Section 17Ab3I of the Act.60
C. Consistency With Rule 17Ad 22e4i Rule 17Ad22e4i requires that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.61
As described above in Section II.A, NSCC and its non-defaulting Members may be subject to losses should a defaulted Members own Required Fund Deposit be insufficient to satisfy losses caused by the liquidation of that Members portfolio. As summarized in Section II.B above,62 the Impact Study Results show a $250,000 minimum Required Fund Deposit would have decreased the number of backtesting deficiencies, which would likely help NSCC better manage its credit exposure to each of its Members and credit exposures arising from its payment, clearing, and settlement processes.
Additionally, as discussed in Sections II.A and III.B above, NSCC would continue to require that Members pay an amount equal to the minimum Required Fund Deposit amount in cash,63 which should enable NSCC to better maintain sufficient prefunded margin to mitigate potential future exposures to its Members. Therefore, requiring the proposed minimum $250,000 deposit to be made in cash should reduce the probability that NSCC or non-defaulting Members would incur losses resulting from a Member default. Accordingly, the Commission finds that NSCCs proposed increase to its minimum Required Fund Deposit would be consistent with Rule 17Ad22e4i.64
U.S.C. 78q1b3I.
CFR 240.17Ad22e4i.
62 See supra text accompanying notes 2932.
63 See supra note 52. See also, Notice of Filing, supra note 3, at 26590.
64 17 CFR 240.17Ad22e4i.

D. Consistency with Rule 17Ad 22e6iii Rule 17Ad22e6iii under the Act requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, calculates margin sufficient to cover its potential future exposure to Members in the interval between the last margin collection and the close out of positions following a Member default.65
As summarized in Section III.B
above,66 NSCC employs daily backtesting to determine the adequacy of each Members Required Fund Deposit paying particular attention to Members that have backtesting deficiencies below the 99% confidence target.67 Such backtesting deficiencies highlight exposure that could subject NSCC to potential losses if a Member defaults.
Based on the Impact Study Results, which the Commission has reviewed and analyzed, approximately 22% of all backtesting deficiencies occur for those Members that maintain a Required Fund Deposit of less than $250,000, and approximately 88% of the deficiencies of those Members would have been eliminated during the Impact Study Period if the Required Fund Deposit were $250,000 or higher. By raising the minimum Required Fund Deposit amount to $250,000, the Commission believes the proposal could enable NSCC to decrease the number of backtesting deficiencies by Members, and thus decrease NSCCs exposure to such Members in the event of a Member default.
Additionally, based on the Commissions review and analysis of the Impact Study Results, the proposed $250,000 minimum Required Fund Deposit amount would have decreased the number of repeat backtesting deficiencies during the study period, which would have decreased the number of Members whose margin levels during the study period fell below the 99% confidence target.68 Therefore, by raising the minimum Required Fund Deposit amount to $250,000, the Commission concludes that the increase in margin for NSCC Members that currently maintain a Required Fund Deposit of less than $250,000 would improve the probabilities that the
60 15
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CFR 240.17Ad22e6iii.
supra text accompanying note 49.
67 See supra text accompanying notes 1618.
68 See supra text accompanying notes 2931. See also, supra text accompanying notes 1719.
66 See
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