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Federal Register / Vol. 86, No. 55 / Wednesday, March 24, 2021 / Notices
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Section 13a of Rule 4A addresses how SLD are treated pursuant to other Rules, particularly Rule 4, which addresses Members deposits to the Clearing Fund.
While this proposal would not change NSCCs rights with respect to these funds, it would provide Members with greater transparency into how SLD are treated under Rule 4.
NSCC would also amend the provision in Rule 4A that addresses when SLD would be returned to a Member that ceases to be a participant.
Currently, Rule 4A states that SLD are not subject to Section 7 of Rule 4 which addresses how Required Fund Deposits are returned to retired Members and, as such, are returned to retired Members as otherwise provided for in Rule 4A.35
Under the proposed Rule 4A, because NSCC would be able to calculate SLD
each Business Day, it would return SLD
on the Business Day following the calculation date. However, while a firm may still have unsettled activity on the day it retires, NSCC would not be able to collect SLD on the days following a Members retirement. Therefore, NSCC
is proposing to amend Rule 4A to require that SLD of a retired Member be treated similarly to other cash Required Fund Deposits to the Clearing Fund and be held by NSCC for 30 calendar days after any of its open transactions have settled and obligations have been satisfied. This proposed change would protect NSCC from liquidity risks presented by open transactions in the days following a firms retirement and would align the treatment of these funds with the treatment of Required Fund Deposits of retired Members.
The proposed Rule 4A would also simplify the additional miscellaneous provisions applicable to SLD, which address, for example, NSCCs right to debit Members accounts at NSCC if a Supplemental Liquidity Provider fails to meet its Supplemental Liquidity Obligation, and the information NSCC
makes available to Supplemental Liquidity Providers each Business Day regarding SLD calculations. While the proposed changes would update and simplify these provisions, they would not significantly alter the structure of these provisions, as described below.
Proposed Changes to Rule 4A
The proposal described above would be implemented into the Rules by options expiration period, which could cause an increase in NSCCs liquidity exposures.
35 Section 7 of Rule 4 provides that Required Fund Deposits to the Clearing Fund in the form of cash and securities are returned to retired Members within 30 calendar days after all of its transactions have settled and obligations have been satisfied. See supra note 4.

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amending the current Rule 4A. The specific changes to implement the proposal are described below.
Section 1 Overview. NSCC is proposing changes to Section 1 of Rule 4A to simplify the descriptions by removing outdated and unnecessary language. Section 1 of Rule 4A would continue to provide the rationale for the SLD requirement, by describing NSCCs liquidity needs and how the SLD
requirements are designed to contribute to meeting those needs. However, the proposed changes would simplify this section by removing a statement that specifically identifies two of NSCCs principal sources of liquidity and would instead more generally refer to NSCCs sources of liquidity. The proposed changes to Section 1 of Rule 4A would also remove references to options expiration activity periods, which would no longer be applicable to the SLD requirement under this proposal.
Section 2 Defined Terms. NSCC is proposing several changes to Section 2
of Rule 4A in order to implement this proposal. As described below, the proposed changes to the defined terms address the change in timing of the SLD
requirement to occur each Business Day and would improve the transparency of Rule 4A through simplified and clearer defined terms.
First, Section 2 of proposed Rule 4A
would remove the definition of Special Activity Calculation Date, which is tied to the monthly Options Expiration Activity Period, and instead would use the term Business Day throughout proposed Rule 4A, where appropriate.
Business Day is currently defined in Rule 1 as any day on which NSCC is open for business. Therefore, this proposed change would provide for the calculation of SLD requirements on each day that NSCC is open for business.
Second, Section 2 of the proposed Rule 4A revise other defined terms that use the phrase Special Activity to either remove that phrase or, when appropriate, to replace this phrase with the term Supplemental. For example, NSCC would revise the defined term Special Activity Daily Liquidity Need to Daily Liquidity Need, and would revise the defined term Special Activity Liquidity Provider to Supplemental Liquidity Provider. The phrase Special Activity was used in the current Rule 4A to refer to the Options Expiration Activity Period, which would only be applicable to the monthly intraday SLD in the proposed Rule 4A.
NSCC would also update the definition of Daily Liquidity Need to change a reference from a four-day settlement cycle to a three-day
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settlement cycle, to reflect the amendment to Rule 15c61a under the Act to shorten the standard settlement cycle for most broker-dealer transactions.36 Additionally, NSCC
would move the defined term for Options Expiration Activity Period within Section 2 of the proposed Rule 4A so it continues to appear alphabetically, but is not proposing to change the definition of this term.
Third, the proposed changes to Section 2 of Rule 4A would include one defined term for Qualifying Liquid Resources to refer to all default liquidity resources available to NSCC to settle its payment obligations as a central counterparty. As discussed in greater detail above, the defined term would provide that NSCC may apply stressed market assumptions to its Qualifying Liquid Resources when applying these resources in the calculations made under Rule 4A. In connection with this proposed change, NSCC would remove the defined terms Commitment and Credit Facility, which were used in the current Rule 4A to refer to NSCCs Line of Credit, and would remove Other Qualifying Liquid Resources, which was used to refer to NSCCs liquid resources other than the Clearing Fund and the Line of Credit. This proposed change would simplify Rule 4A and would account for NSCCs continuing efforts to expand and diversify its default liquidity resources. The proposed change would also clarify that Qualifying Liquid Resources would not include SLD for purposes of the calculations in Rule 4A.
Fourth, the proposed changes would move certain calculations out of the defined terms in Section 2 and include them in the relevant later sections of Rule 4A. This proposed change would simplify and clarify Rule 4A, which currently requires a reader to refer back to the defined terms in Section 2 when reading the calculations and requirements set forth in later sections of Rule 4A. For example, Section 2 of Rule 4A currently includes the calculation of Special Activity Peak Liquidity Exposure and Special Activity Peak Liquidity Need. In the proposed Rule 4A, NSCC would no longer use the calculation of Special Activity Peak Liquidity Exposure in determining the Supplemental Liquidity Providers or in calculating those requirements. The calculation of Peak Liquidity Need, which would replace Special Activity Peak Liquidity Need, would be moved out of Section 2 and into Section 3, where that calculation 36 See
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