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Federal Register / Vol. 86, No. 183 / Friday, September 24, 2021 / Notices proposed changes described above.
These changes generally are minor modifications relating to relevant definitions and renumbering margin components.
III. Discussion and Commission Findings Section 19b2C of the Act 21
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 rules and regulations thereunder applicable to such organization. After carefully considered the proposed rule change, the Commission finds that the proposed changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to NSCC. In particular, the Commission finds the proposed rule change is consistent with Section 17Ab3F of the Act,22 and Rules 17Ad22e4i and e6i, each promulgated under the Act,23 for the reasons described below.
A. Consistency With Section 17Ab3F
Section 17Ab3F of the Act 24
requires that the rules of NSCC be designed to, among other things, to promote the prompt and accurate clearance and settlement of securities transactions and 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.
As described in Section II.B above, the proposed rule change would revise NSCCs margining methodology to remove ID Net Transactions from the calculation of Members Required Fund Deposits. The Commission believes that this increased change in the determination of Members Required Fund Deposits should allow both NSCC
and Members to more effectively manage and understand the risks related to ID Net Transactions. Therefore, the Commission believes that the proposed rule change is designed to promote the prompt and accurate clearance and settlement of ID Net Transactions and assure the safeguarding of securities and funds which are in the custody or control of NSCC, consistent with Section 17Ab3F of the Act.25
In addition, as described in Sections II.C and D above, the proposed rule 21 See
id. at 44103.
U.S.C. 78q1b3F.
23 17 CFR 240.17Ad22e4i, e6i.
24 15 U.S.C. 78q1b3F.
25 Id.
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change would amend the Rules to improve the transparency in describing ID Net Transactions as non-guaranteed and to provide clarity on how these transactions will be processed in the event of a Member default. The proposed rule would also make technical changes to implement the proposed changes described above. The Commission believes that by clearly stating the nature of ID Net Transactions, further clarifying the default procedure involving ID Net Transactions, and making technical changes to implement the changes, the proposed rule change should help ensure that the Rules are accurate and clear to Members, thus promoting prompt and accurate clearance and settlement.
B. Consistency With Rule 17Ad 22e4i Rule 17Ad22e4i under the Act 26
requires, in part, that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes, including by maintaining sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.
As described above, NSCC proposes to remove ID Net Transactions from the calculation of Required Fund Deposits of Members that are ID Net Subscribers because ID Net Transactions are not guaranteed transactions and NSCC
would not incur losses from ID Net Transactions. The proposed rule change would enable NSCC to more accurately and effectively measure the risks presented by Members by calculating margin only on the positions that NSCC
may be required to complete in the event of a Member default. Therefore, the Commission believes the proposed rule change would enhance NSCCs ability to effectively identify, measure, monitor and, through the collection of Required Fund Deposits, manage its credit exposures to Members by maintaining sufficient financial resources to cover its credit exposure fully with a high degree of confidence.
As such, the Commission believes the proposed rule change is consistent with Rule 17Ad22e4i under the Act.27
26 17

CFR 240.17Ad22e4i.

27 Id.

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C. Consistency With Rule 17Ad 22e6i Rule 17Ad22e6i under the Act 28
requires, in part, that NSCC establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.
A Members margin in the form of its Required Fund Deposit is made up of risk-based components that are calculated and assessed daily to limit NSCCs credit exposures to its members.
The Commission believes the proposed rule change, which would remove ID
Net Transactions from the calculation of Members margin, should enable NSCC
to more effectively measure the risks presented by its Members guaranteed positions and, therefore, determine a more precise level of margin commensurate with the risks and particular attributes of Members portfolios. As stated above, Required Fund Deposits are designed to mitigate any potential losses to NSCC associated with liquidating a defaulting Members portfolio in the event NSCC ceases to act for that Member. ID Net Transactions are not subject to NSCCs trade guarantee. Consequently, in the event of a Member default related to ID Net Transactions, NSCC is not required to complete such transactions, would not have any losses, and would not need to use Required Fund Deposits since there is no losses. As a result, the funds required to cover Members transactions would not be impacted by the ID Net Service. Accordingly, the Commission believes that by removing nonguaranteed positions from the margin calculation, the proposed rule change would enable NSCC to collect margin more precisely tailored to the nature of the risk presented to NSCC.
As a result, the Commission believes the proposed rule change would enhance NSCCs ability to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market. Therefore, the Commission believes the proposed change is consistent with Rule 17Ad22e6i under the Act.29
28 17

CFR 24017Ad22e6i.

29 Id.

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