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Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices
than the minimum margin requirements of other CCPs that clear similar securities products.22
Therefore, NSCC proposes to increase its minimum Required Fund Deposit from $10,000 to $250,000.

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B. Impact Study Results To support its proposal, NSCC relies upon the results of recent backtesting analyses.23 Specifically, NSCC examines the backtesting coverage 24 of each of its Members during the period from June 3, 2019 to May 29, 2020, under the current $10,000 minimum Required Fund Deposit amount compared to hypothetical or pro forma minimum Required Fund Deposit amounts, including the proposed $250,000
amount and $100,000 Impact Study Results.25 NSCC uses the Impact Study Results to show the number of Member backtesting deficiencies 26 that would have been eliminated during the period had NSCCs minimum Required Fund Deposit been $250,000 and compared to $100,000. NSCC then uses the Impact Study Results to analyze the improvement to each Members backtesting coverage ratio 27 and, taking all Members backtesting coverage ratio results together, to analyze the improvement to NSCCs Clearing Fund backtesting coverage.28
During the impact study period under the current minimum Required Fund Deposit, NSCC observed a total of 227
Member backtesting deficiencies, and 29
Members experienced repeat backtesting deficiencies causing them to fall below 22 See id. For example, the minimum initial contribution for The Options Clearing Corporation OCC is $500,000. See Rule 1002d of the OCC
Rules, available at https www.theocc.com/
components/docs/legal/rules_and_bylaws/occ_
rules.pdf. The minimum Required Fund Deposit for both the Government Securities Division GSD
and Mortgage-Backed Securities Division MBSD
of Fixed Income Clearing Corporation FICC is $100,000. See Rule 4 of FICC GSD Rulebook, available at http www.dtcc.com//media/Files/
Downloads/legal/rules/ficc_gov_rules.pdf and Rule 4 of the FICC MBSD Clearing Rules, available at http www.dtcc.com//media/Files/Downloads/
legal/rules/ficc_mbsd_rules.pdf.
23 See supra text accompanying notes 1216.
24 See supra note 17 and accompanying text.
25 NSCC provided a public summary of the information in this Section II.B in its Notice of Filing, upon which this discussion is based. See Notice of Filing, supra note 3, at 2659092. NSCC
filed the data underlying the Impact Study Results as a confidential Exhibit 3 to the Proposed Rule Change pursuant to 17 CFR 240.24b-2.
26 See supra text accompanying notes 1415.
27 See supra note 17 and accompanying text.
28 The Clearing Fund backtesting coverage represents the daily sufficiency of the aggregate of all Members margin over a rolling 12-month period. As described in Section II.A above, NSCC
would be able to access the Clearing Fund to cover any losses to it should a Member with insufficient margin default. See supra text accompanying note 11.

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the 99% confidence target.29 Members with a Required Fund Deposit lower than $250,000 accounted for 22% of the total backtesting deficiencies and constituted approximately 45% of the Members whose margin levels fell below the 99% confidence target.30
Additionally, NSCCs twelve-month aggregate Clearing Fund backtesting coverage was 99.28%.
A minimum requirement of $250,000
would have eliminated 44 backtesting deficiencies across 13 Members and would have eliminated approximately 88% of the deficiencies that occurred on the days when Members maintained a Required Fund Deposit of less than $250,000.31 Additionally, a minimum requirement of $250,000 would have improved NSCCs rolling twelve-month coverage for seven Members to above the 99% confidence interval.32 NSCC
states that, if the proposed $250,000
minimum had been in place, the remaining Members still below the 99%
confidence interval would constitute only 27% of Members that fell below the 99% confidence target, which is comparable to those Members overall representation as a class of NSCCs total Members.33 Moreover, a minimum requirement of $250,000 would have increased NSCCs twelve-month aggregate Clearing Fund backtesting coverage by 0.14% to 99.41%.34
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 from 34 to 44
total backtesting deficiencies and resulting in increasing two additional Members margin levels to above the 99% confidence interval from five Members to seven Members.
Additionally, NSCCs aggregate Clearing Fund backtesting coverage would have improved from 99.38% to 99.41%
representing an increase of 0.03%.
NSCC had approximately 150 total Members during the impact study period.35 Of those, 46 Members would 29 See
id.
id.
31 See Notice of Filing, supra note 3, at 26590. Not all of the backtesting deficiencies would have been eliminated because if the Members Required Fund Deposit calculation increases to above $250,000
intraday, due to, for example, increases in trading volume and/or adverse mark-to-market adjustments, the $250,000 proposed minimum Required Fund Deposit would still be insufficient to cover NSCCs exposure between margin collections. See supra text accompanying note 19.
32 See Notice of Filing, supra note 3, at 26590.
33 See id.
34 See id.
35 See CPMI IOSCO Quantitative Disclosure Results 2019 Q2 September 25, 2019, available at https www.dtcc.com/-/media/Files/Downloads/
30 See
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be impacted by the proposed $250,000
minimum Required Fund Deposit.36 On average, 18 Members maintained excess deposits greater than the proposed increase; therefore, 28 Members on average would have been required to deposit additional funds if the proposal had been implemented.37 In addition, the 46 Members that would be impacted by the proposed $250,000 minimum Required Fund Deposit maintained excess net capital or equity capital as applicable ENC in excess of $800,000 on average over the Impact Study Period, ranging between an average of $834,000 to $211.5 billion, with 98% of the impacted Members having on average an ENC above $2.5
million.38 NSCC states it used ENC in its analysis to estimate impacted Members ability to satisfy additional Required Fund Deposit amounts required by the proposal.39
III. Discussion and Commission Findings Section 19b2C of the Act 40
directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. After careful consideration, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act and the rules and regulations applicable to NSCC.41 In particular, the Commission finds that the Proposed Rule Change is consistent with Section 17Ab3F and b3I 42 of the Act and Rules 17Ad22e4 and e6
thereunder.43
A. Consistency With Section 17Ab3F of the Act Section 17Ab3F of the Act requires, in part, that the rules of a clearing agency, such as NSCC, be designed, in part, to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.44 The Commission believes legal/policy-and-compliance/CPMI-IOSCOQuantitative-Disclosure-Results-2019-Q2-2.pdf.
36 See Notice of Filing, supra note 3 at 26593.
37 See id.
38 See id.
39 See id.
40 15 U.S.C. 78sb2C.
41 The Commissions findings are based on its review of the Proposed Rule Change, including its analysis of the Impact Study Results, which are summarized in Section II.B above. See supra note 23 and accompanying text.
42 15 U.S.C. 78q1b3F.
43 17 CFR 240.17Ad22e4 and e6.
44 15 U.S.C. 78q1b3F.

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