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lotter on DSK11XQN23PROD with NOTICES3

Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices Bilaterally Initiated SFT, including any Sponsored Member Transaction, and validated pursuant to the Rules shall be novated to NSCC as of the time NSCC
provides the Approved SFT Submitter for such SFT a report confirming such novation in accordance with the communication links, formats, timeframes and deadlines established by NSCC for such purpose. Section 5b would also provide that each SFT that is neither a Bilaterally Initiated SFT nor a Sponsored Member Transaction and that is validated pursuant to the Rules shall be novated to NSCC as of the time x the Initial Settlement of such SFT
has completed by i the Transferor instructing DTC to deliver from the relevant DTC account of the Transferor to NSCCs account at DTC the subject SFT Securities versus payment of the amount of the SFT Cash, ii NSCC
instructing DTC to deliver from NSCCs account at DTC to the relevant DTC
account of the Transferee the subject SFT Securities versus payment of the amount of SFT Cash and iii DTC
processes the deliveries in accordance with the rules and procedures of DTC, or y the Initial Settlement obligations of such SFT have been discharged in accordance with Section 8 of proposed Rule 56, as described below. In addition, Section 5b would provide that if the Initial Settlement obligations of an SFT that is neither a Bilaterally Initiated SFT nor a Sponsored Member Transaction are not discharged in accordance with clause x or y, then such SFT shall be deemed void ab initio.
Section 5c of proposed Rule 56
would provide that, subject to Sections 5d and 5e of proposed Rule 56 as described below, the novation of SFTs shall consist of the termination of the Final Settlement, Rate Payment and Distribution Payment obligations and entitlements between the parties to the SFT with respect to such SFT and their replacement with obligations and entitlements to and from NSCC to perform, in accordance with the Rules, the Final Settlement, Rate Payment, and Distribution Payment obligations and entitlements under the SFT.
Section 5d of proposed Rule 56
would govern the novation of SFTs having Incremental Additional Independent Amount SFT Cash and provides when the obligation to return Independent Amount SFT Cash for which an associated Clearing Fund deposit has not been made will be novated away from a Transferor to NSCC. Specifically, Section 5di of proposed Rule 56 would provide that if an SFT has Incremental Additional Independent Amount SFT Cash, then,
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unless the SFT is a Sponsored Member Transaction and the Sponsoring Member is the Transferee,74 the obligation of the Transferor to return the Incremental Additional Independent Amount SFT Cash to the Transferee shall not be terminated and novated to NSCC nor shall NSCC otherwise be required to return such Incremental Additional Independent Amount SFT
Cash, except to the extent that the Transferor, Sponsoring Member or Agent Clearing Member, as applicable, has satisfied the associated Independent Amount SFT Cash Deposit Requirement.
As proposed, to the extent the associated Clearing Fund deposit has not been made in respect of Independent Amount SFT Cash at the time of the Initial Settlement, the obligation to return the Independent Amount SFT Cash would not be novated to NSCC.
Section 5dii of proposed Rule 56
would provide that to the extent the Transferor, Sponsoring Member or Agent Clearing Member has not satisfied the associated Independent Amount SFT Cash Deposit Requirement, the Transferors or in the case of a NonReturned SFT, NSCCs obligation to return the Incremental Additional Independent Amount SFT Cash shall:
1 If the SFT is an Agent Clearing Member Transaction for which the Agent Clearing Member, acting on behalf of the Customer, is the Transferor, be terminated and replaced with an obligation of the Agent Clearing Member, in its capacity as principal, to return the Incremental Additional Independent Amount SFT Cash to the Transferee; or 2 otherwise, remain or in the context of a Non-Returned SFT, be terminated and replaced with a bilateral obligation of the Transferor to the Transferee. As proposed, if the associated Clearing Fund deposit has not been made in respect of Independent Amount SFT Cash, the Independent Amount SFT Cash would be owed by the Transferor to the Transferee as a bilateral principal-toprincipal obligation, unless the Transferor is a Customer of an Agent Clearing Member, in which case the obligation to return the Independent Amount SFT Cash in respect of which the Clearing Fund has not been made would be novated from the Customer to 74 Where the Transferor is a Sponsored Member receiving Independent Amount SFT Cash, NSCC
would not be requiring Independent Amount SFT
Cash Deposit Requirement. This is because in the case of the Sponsored Members default, the party giving the Independent Amount SFT Cash, i.e., Sponsoring Member, is the guarantor of the settlement obligation of the Sponsored Member Independent Amount SFT Cash back to NSCC.

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the Agent Clearing Member, and the Agent Clearing Member would owe the Independent Amount SFT Cash back to the Transferee as principal.75
Section 5diii of proposed Rule 56
would provide that each SFT Member agrees that any obligation to return Incremental Additional Independent Amount SFT Cash that is novated to an Agent Clearing Member or that remains or becomes a bilateral obligation of the Transferor to the Transferee in accordance with Section 5dii of proposed Rule 56, is a binding and enforceable obligation of the Agent Clearing Member or Transferor, as applicable, regardless of whether the Transferee has entered into an Existing Master Agreement with the Agent Clearing Member or Transferor. In addition, Section 5diii would provide that each SFT Member further agrees that any such obligation shall only be due and payable to the Transferee upon the final discharge of NSCCs Final Settlement obligations to the Transferor under the portion of the SFT that has been novated to NSCC in accordance with Section 5b of proposed Rule 56, as described above.
Section 5div of proposed Rule 56
would provide that, until the Transferor, Sponsoring Member or Agent Clearing Member has satisfied in full its Independent Amount SFT Cash Deposit Requirement, the SFT Cash of the SFT
shall, for purposes of determining the obligations owing to and from NSCC
under such SFT, equal the SFT Cash of the SFT less the Incremental Additional Independent Amount SFT Cash.
Section 5dv of proposed Rule 56
would provide that once the Transferor, Sponsoring Member or Agent Clearing Member, as applicable, has satisfied in full its Independent Amount SFT Cash Deposit Requirement, the obligation of the Transferor to return the Incremental Additional Independent Amount SFT
Cash to the Transferee or, in the case of an SFT that is an Agent Clearing Member Transaction, any obligation of the Agent Clearing Member to return the Incremental Additional Independent Amount SFT Cash to the Transferee shall be novated to NSCC, and the SFT
Cash of the SFT shall, for purposes of determining the obligations owing to and from NSCC under the SFT, include the full amount of the SFT Cash of such SFT.
Section 5e of proposed Rule 56
would govern novation in respect of certain corporate actions and provide 75 This interim novation is designed to avoid any credit concerns that would manifest if the Customer and the Transferee had to have a principal bilateral obligation to each other for the Independent Amount SFT Cash.

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