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lotter on DSK11XQN23PROD with NOTICES3

Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices Proposed Rule 2D, Section 10
Insolvency of an Agent Clearing Member Section 10a of proposed Rule 2D
would provide that an Agent Clearing Member shall be obligated to immediately notify NSCC that a it fails, or is unable, to perform its contracts or obligations or b it is insolvent as required by Section 1 of Rule 20 Insolvency for other Members.
An Agent Clearing Member shall be treated by NSCC in all respects as insolvent under the same circumstances set forth in Section 2 of Rule 20 for other Members. Section 3 of Rule 20
shall apply, in the same manner in which such section applies to other Members, in the case where NSCC treats an Agent Clearing Member as insolvent.
Section 10b of proposed Rule 2D
would provide that in the event that NSCC determines to treat an Agent Clearing Member as insolvent pursuant to Rule 20 Insolvency, NSCC shall have the right to cease to act for the insolvent Agent Clearing Member pursuant to Section 9 of proposed Rule 2D. If NSCC ceases to act for the insolvent Agent Clearing Member, NSCC shall decline to accept or process data from the Agent Clearing Member, including Agent Clearing Member Transactions. As proposed, NSCC
would close-out any Agent Clearing Member Transactions which have been novated to NSCC.
This is different from how NSCC
would treat Sponsored Member Transactions. As described above, NSCC
would have the option to either terminate or settle a Sponsored Members novated positions after ceasing to act for the Sponsoring Member. However, with respect to Agent Clearing Member Transactions, NSCC would close-out any such transactions which have been novated to NSCC. This is because NSCC would have the practical and legal capability to make such an election with respect to Sponsored Member Transactions because each Sponsored Member would be a limited-purpose member of NSCC.
Accordingly, NSCC would have the requisite information about each of the Sponsored Members novated positions by virtue of each Sponsored Members novated portfolio represented as a different sub-account of the Sponsoring Member i.e., Sponsored Member SubAccount on the books and records of NSCC to make such an election. By contrast, an Agent Clearing Members Customers would not be limitedpurpose members of NSCC nor would NSCC know which transactions within an Agent Clearing Member Customer
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Omnibus Account belong to which Customers. As such, NSCC would not be able to separately terminate or complete settlement with respect to Customers novated positions.
Proposed Rule 2D, Section 11 Transfer of Agent Clearing Member Transactions in Agent Clearing Member Customer Omnibus Accounts Section 11 of proposed Rule 2D
would i permit an Agent Clearing Member, upon a default of a Customer and consent of NSCC, to transfer Agent Clearing Member Transactions of the Customer established in one or more of the Agent Clearing Members Agent Clearing Member Customer Omnibus Accounts from such Agent Clearing Member Customer Omnibus Accounts to the Agent Clearing Members proprietary account at NSCC as a Member and ii govern how the transfer would be effectuated.
Section 11a of proposed Rule 2D
would clarify the scope to which Section 11 of proposed Rule 2D applies.
It would state that Section 11 would not apply if either i the relevant Agent Clearing Member is a Defaulting Member or ii a Corporation Default has occurred. This is because, as described above with respect to Section 10b of proposed Rule 2D, NSCC would closeout all Agent Clearing Member Transactions for which the defaulting Agent Clearing Member was responsible. If a Corporation Default has occurred with respect to NSCC, each Agent Clearing Members positions would be closed out in accordance with Section 17 of proposed Rule 56.
Section 11b of proposed Rule 2D
would set out the process by which an Agent Clearing Member may transfer the Agent Clearing Member Transactions of a defaulting Customer in one or more of Agent Clearing Members Agent Clearing Member Customer Omnibus Accounts. It would provide that, to the extent permitted under applicable laws and regulations, an Agent Clearing Member may, upon a default of a Customer and the consent of NSCC, transfer the Agent Clearing Member Transactions of the Customer established in one or more of the Agent Clearing Members Agent Clearing Member Customer Omnibus Accounts from such Agent Clearing Member Customer Omnibus Accounts to the Agent Clearing Members proprietary account at NSCC as a Member. As proposed, any such transfer shall occur by novation, such that the obligations between NSCC and the relevant Customer in respect of the Agent Clearing Member Transactions shall be terminated and replaced with identical
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obligations between NSCC and the Agent Clearing Member, acting as principal. Section 11b would also provide the Agent Clearing Member shall indemnify NSCC, and its employees, officers, directors, shareholders, agents, and Members, for any and all losses, liability, or expenses incurred by them arising from, or in relation to, any such transfer.
Proposed Rule 2D, Section 12 Customer Acknowledgments Section 12 of proposed Rule 2D
would provide that each Agent Clearing Member on behalf of each of its Customers agrees that such Customer, by participating in and entering into Agent Clearing Member Transactions through the Agent Clearing Member, understands, acknowledges, and agrees that: a The service provided by NSCC
with regard to the Customer Clearing Service would be subject to and governed by the Rules; b the Rules shall govern the novation of Agent Clearing Member Transactions and all transactions between the Customer and its Agent Clearing Member resulting in the novation of such transactions, and at the time of novation of an Agent Clearing Member Transaction, the Customer on whose behalf it was submitted would be bound by the Agent Clearing Member Transaction automatically and without any further action by the Customer or by its Agent Clearing Member, and the Customer agrees to be bound by the applicable provisions of the Rules in all respects;
c NSCC shall be under no obligation to deal directly with the Customer, and NSCC may deal exclusively with the Customers Agent Clearing Member; d NSCC shall have no obligations to the Customer with respect to any Agent Clearing Member Transactions submitted by an Agent Clearing Member on behalf of the Customer, including with respect to any payment or delivery obligations; and e the Customer shall have no right to receive from NSCC, or any right to assert a claim against NSCC
with respect to, nor shall NSCC be liable to the Customer for, any payment or delivery obligation in connection with any Agent Clearing Member Transactions submitted by an Agent Clearing Member on behalf of the Customer, and NSCC shall make any such payments or redeliveries solely to the relevant Agent Clearing Member.
C Proposed Rule 56Securities Financing Transaction Clearing Service NSCC is proposing to add Rule 56, entitled Securities Financing Transaction Clearing Service. This new rule would govern the proposed SFT

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