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Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices and Procedure VIII Money Settlement Service. If the Price Differential is positive, NSCC shall x credit an amount equal to the Price Differential to the Transferees SFT Account and y debit an amount equal to the Price Differential from the Transferors SFT
Account. If the Price Differential is negative, NSCC shall x credit an amount equal to the absolute value of the Price Differential to the Transferors SFT Account and y debit an amount equal to the absolute value of the Price Differential from the Transferees SFT
Proposed Rule 56, Section 8 Discharge Account. However, if the Linked SFT
of Offsetting Final Settlement and Initial has as its subject fewer SFT Securities Settlement Obligations than the Settling SFT, then only the following Final Settlement obligations Section 8 of proposed Rule 56 would under the Settling SFT shall be govern the roll i.e., pair off or offset discharged in accordance with Section 8
process whereby the Final Settlement obligations on one SFT i.e., the Settling of proposed Rule 56: i The Transferees and NSCCs Final Settlement obligations SFT between two parties can be offset in respect of a quantity of SFT
with the Initial Settlement obligations Securities equal to the quantity of SFT
on another SFT between the same parties i.e., the Linked SFT through the Securities that are the subject of the Linked SFT and ii the Transferors and debiting and crediting of the difference NSCCs Final Settlement obligations in in cash collateral between the two respect of the Corresponding SFT Cash.
offsetting SFTs i.e., the Price Section 8b of proposed Rule 56
Differential.
would provide that if the Price Section 8a of proposed Rule 56
Differential is positive, NSCC shall x would provide that, subject to the instruct DTC to debit an amount equal provisions of Section 13c of proposed to the Price Differential from NSCCs Rule 56, as described below, if, on any account at DTC and credit such amount Business Day, the pre-novation SFT
to the relevant DTC account of the Member parties to a Settling SFT enter Transferee and y instruct DTC to debit into a Linked SFT and the Approved an amount equal to the Price Differential SFT Submitter provides an appropriate instruction to NSCC in accordance with from the relevant DTC account of the Transferor and credit such amount to the communication links, formats, timeframes and deadlines established by NSCCs account at DTC. If the Price Differential is negative, NSCC shall x NSCC for such purpose, the Final instruct DTC to debit an amount equal Settlement obligations of the parties to to the absolute value of the Price the Settling SFT and the Initial Differential from NSCCs account at Settlement obligations of the parties to the Linked SFT shall be discharged once DTC and credit such amount to the relevant DTC account of the Transferor NSCC has instructed DTC to debit and credit the relevant DTC accounts, of the and y instruct DTC to debit an amount SFT Member parties, as described below equal to the absolute value of the Price in Section 8b of proposed Rule 56, and Differential from the relevant DTC
account of the Transferee and credit DTC processes such debits and credits such amount to NSCCs account at DTC.
in accordance with the rules and procedures of DTC. To the extent the Proposed Rule 56, Section 9 NonPrice Differential is not processed by Returned Securities Financing DTC in accordance with the rules and Transactions and Recalls procedures of DTC, NSCC shall debit Section 9 of proposed Rule 56 would and credit the Price Differential from govern the processing of a novated SFT
and to the SFT Accounts of the SFT
for which the Final Settlement Member parties as part of its end of day obligations have not been discharged final money settlement process in either through Final Settlement in accordance with Rule 12 Settlement accordance with Section 7 of proposed Rule 56 as described above or a pair 76 With respect to an SFT between a Sponsoring off in accordance with Section 8 of Member and its Sponsored Member, the SFT would proposed Rule 56 as described above, settle on the books of the Sponsoring Member because the Sponsored Member are not participants and the recall and buy-in process for at DTC and thus would not have accounts at DTC.
such an SFT.
Accordingly, the finality of the settlement of such Specifically, Section 9a of proposed SFT would occur when the Sponsoring Member Rule 56 would provide that if x the credits the securities and cash on its or the relevant custodians books and records.
Transferee does not satisfy its Final
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Sections 7, 8, 9d or 13c of proposed Rule 56. Section 7 would also provide that from and after the Final Settlement of an SFT, or a portion thereof, pursuant to any Sections 7, 8, 9d or 13c of proposed Rule 56, NSCC shall be discharged from its obligations to the Transferor and the Transferee, and NSCC shall have no further obligation in respect of the SFT or such portion. This is to make it clear to SFT Members the point at which settlement of an SFT is deemed to be complete and final.76

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Settlement obligations in respect of an SFT that has been novated to NSCC on the Final Settlement Date, y such Final Settlement obligations have not been discharged in accordance with the provisions of Section 8 of proposed Rule 56, as described above, and z a BuyIn has not occurred in respect of such SFT or a portion thereof such SFT, a Non-Returned SFT, the Final Settlement Date of the Non-Returned SFT shall be rescheduled for the following Business Day, and NSCC shall instruct DTC to debit and credit the relevant DTC accounts of the SFT
Member parties, as described in subsection b of Section 8 above. To the extent the Price Differential is not processed by DTC in accordance with the rules and procedures of DTC, NSCC
shall debit and credit the Price Differential from and to the SFT
Accounts of the SFT Member parties to the Non-Returned SFT as part of its end of day final money settlement process in accordance with Rule 12 Settlement and Procedure VIII Money Settlement Service. Section 9a would further provide that if the Price Differential is positive, NSCC shall x credit an amount equal to the Price Differential to the Transferees SFT Account and y debit an amount equal to the Price Differential from the Transferors SFT
Account; if the Price Differential is negative, NSCC shall x credit an amount equal to the absolute value of the Price Differential to the Transferors SFT Account and y debit an amount equal to the absolute value of the Price Differential from the Transferees SFT
Account. This process would continue until Final Settlement, a pair off in accordance with Section 8 of proposed Rule 56 as discussed above, or a BuyIn.
Section 9b of proposed Rule 56
would provide that if NSCC receives a Recall Notice in respect of an SFT that has been novated to NSCC and the Transferee does not satisfy its Final Settlement obligations by the Recall Date for the Recall Notice, the Transferor may, in a commercially reasonable manner,77 purchase some or all of the SFT Securities that are the 77 The requirement that a party exercising buy-in rights do so in a commercially reasonable manner is market standard. See, e.g., Section 13.1 of the Master Securities Loan Agreement published by Securities Industry and Financial Markets Association SIFMA. NSCC has proposed to include this language in order to align the standards applicable to an exercise of remedies in relation to SFTs with those applicable in the bilateral uncleared space. NSCC believes that such alignment will increase certainty for SFT Members and allow them to follow standards with which they are familiar.

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