[Federal Register Volume 83, Number 5 (Monday, January 8, 2018)]
[Notices]
[Pages 897-913]
[FR Doc No: 2018-00076]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82428; File No. SR-NSCC-2017-018]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change To Amend the
Loss Allocation Rules and Make Other Changes

January 2, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 18, 2017, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the clearing
agency.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On December 18, 2017, NSCC filed this proposed rule change
as an advance notice (SR-NSCC-2017-806) with the Commission pursuant
to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the Payment, Clearing,
and Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and
Rule 19b-4(n)(1)(i) of the Act, 17 CFR 240.19b-4(n)(1)(i). A copy of
the advance notice is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The proposed rule change consists of modifications to NSCC's Rules
and Procedures (``Rules'') in order to amend provisions in the Rules
regarding loss allocation as well as make other changes, as described
in greater detail below.\4\
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    \4\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
    The primary purpose of this proposed rule change is to amend NSCC's
loss allocation rules in order to enhance the resiliency of NSCC's loss
allocation process so that NSCC can take timely action to address
multiple loss events that occur in succession during a short period of
time (defined and explained in detail below). In connection therewith,
the proposed rule change would (i) align the loss allocation rules of
the three clearing agencies of The Depository Trust & Clearing
Corporation (``DTCC''), namely The Depository Trust Company (``DTC''),
Fixed Income Clearing Corporation (``FICC'') (including the Government
Securities Division (``FICC/GSD'') and the Mortgage-Backed Securities
Division (``FICC/MBSD'')), and NSCC (collectively, the ``DTCC Clearing
Agencies''), so as to provide consistent treatment, to the extent
practicable and appropriate, especially for firms that are participants
of two or more DTCC Clearing Agencies, (ii) increase transparency and
accessibility of the loss allocation rules by enhancing their
readability and clarity, (iii) reduce the time within which NSCC is
required to return a former Member's Clearing Fund deposit, and (iv)
make conforming and technical changes.
(i) Background
    Central counterparties (``CCPs'') play a key role in financial
markets by mitigating counterparty credit risk on transactions between
market participants. CCPs achieve this by providing guaranties to
participants and, as a consequence, are typically exposed to credit
risks that could lead to default losses. In addition, in performing its
critical functions, a CCP could be exposed to non-default losses that
are otherwise incident to the CCP's clearance and settlement business.
    A CCP's rulebook should provide a complete description of how
losses would be allocated to participants if the size of the losses
exceeded the CCP's pre-funded resources. Doing so provides for an
orderly allocation of losses, and potentially allows the CCP to
continue providing critical services to the market and thereby results
in significant financial stability benefits. In addition, a clear
description of the loss allocation process offers transparency and
accessibility to the CCP's participants.
Current NSCC Loss Allocation Process
    As a CCP, NSCC's loss allocation process is a key component of its
risk management process. Risk management is the foundation of NSCC's
ability to guarantee settlement, as well as the means by which NSCC
protects itself and its Members from the risks inherent in the
clearance and settlement process. NSCC's risk management process must
account for the fact that, in certain extreme circumstances, the
collateral and other financial resources that secure NSCC's risk
exposures may not be sufficient to fully cover losses resulting from
the liquidation of the portfolio of a Member for whom NSCC has ceased
to act.\5\
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    \5\ When NSCC restricts a Member's access to services generally,
NSCC is said to have ``ceased to act'' for the Member. Rule 46
(Restrictions on Access to Services) sets out the circumstances
under which NSCC may cease to act for a Member and the types of
actions it may take. Supra note 4.
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    The Rules currently provide for a loss allocation process through
which both NSCC (by applying no less than 25% of its retained earnings
in accordance with Addendum E) and its Members would share in the
allocation of a loss resulting from the default of a Member for whom
NSCC has ceased to act pursuant to the Rules. The Rules also recognize
that NSCC may incur losses outside the context of a defaulting Member
that are otherwise incident to NSCC's clearance and settlement
business.
    NSCC's loss allocation rules currently provide that in the event
NSCC ceases to act for a Member, the amounts on deposit to the Clearing
Fund from the defaulting Member, along with any other resources of, or
attributable to, the defaulting Member that NSCC may access under the
Rules (e.g., payments from Clearing Agency Cross-Guaranty Agreements),
are the first source of funds NSCC would use to cover any losses that
may result from the closeout of the defaulting Member's guaranteed

positions. If these amounts are not sufficient to cover all losses
incurred, then NSCC will apply the following available resources, in
the following loss allocation waterfall order:
    First, as provided in Addendum E, NSCC's corporate contribution of
at least 25 percent of NSCC's retained earnings existing at the time of
a Member impairment, or such greater amount as the Board of Directors
may determine; and
    Second, if a loss still remains, as and in the manner provided in
Rule 4, the required Clearing Fund deposits of Members who are non-
defaulting Members on the date of default.
    Pursuant to current Section 5 of Rule 4, if, as a result of
applying the Clearing Fund deposit of a Member, the Member's actual
Clearing Fund deposit is less than its Required Deposit, it will be
required to eliminate such deficiency in order to satisfy its Required
Deposit amount. Pursuant to current Section 4 of Rule 4, Members can
also be assessed for non-default losses incident to the operation of
the clearance and settlement business of NSCC. Pursuant to current
Section 8 of Rule 4, Members may withdraw from membership within
specified timeframes after a loss allocation charge to limit their
obligation for future assessments.
Overview of the Proposed Rule Changes
A. Changes To Enhance Resiliency of NSCC's Loss Allocation Process
    In order to enhance the resiliency of NSCC's loss allocation
process, NSCC proposes to change the manner in which each of the
aspects of the loss allocation waterfall described above would be
employed. NSCC would retain the current core loss allocation process
following the application of the defaulting Member's resources, i.e.,
first, by applying NSCC's corporate contribution, and second, by pro
rata allocations to Members. However, NSCC would clarify or adjust
certain elements and introduce certain new loss allocation concepts, as
further discussed below. In addition, the proposed rule change would
address the loss allocation process as it relates to losses arising
from or relating to multiple default or non-default events in a short
period of time, also as described below.
    Accordingly, NSCC is proposing five (5) key changes to enhance
NSCC's loss allocation process:
(1) Changing the Calculation and Application of NSCC's Corporate
Contribution
    As stated above, Addendum E currently provides that NSCC will
contribute no less than 25% of its retained earnings (or such higher
amount as the Board of Directors shall determine) to a loss or
liability that is not satisfied by the impaired Member's Clearing Fund
deposit. Under the proposal, NSCC would amend the calculation of its
corporate contribution from a percentage of its retained earnings to a
mandatory amount equal to 50% of the NSCC General Business Risk Capital
Requirement.\6\ NSCC's General Business Risk Capital Requirement, as
defined in NSCC's Clearing Agency Policy on Capital Requirements,\7\
is, at a minimum, equal to the regulatory capital that NSCC is required
to maintain in compliance with Rule 17Ad-22(e)(15) under the Act.\8\
The proposed Corporate Contribution (as defined in the proposed rule
change) would be held in addition to NSCC's General Business Risk
Capital Requirement.
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    \6\ NSCC calculates its General Business Risk Capital
Requirement as the amount equal to the greatest of (i) an amount
determined based on its general business profile, (ii) an amount
determined based on the time estimated to execute a recovery or
orderly wind-down of NSCC's critical operations, and (iii) an amount
determined based on an analysis of NSCC's estimated operating
expenses for a six (6) month period.
    \7\ See Securities Exchange Act Release No. 81105 (July 7,
2017), 82 FR 32399 (July 13, 2017) (SR-NSCC-2017-004).
    \8\ 17 CFR 240.17Ad-22(e)(15).
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    Currently, the Rules do not require NSCC to contribute its retained
earnings to losses and liabilities other than those from Member
impairments. Under the proposal, NSCC would apply its corporate
contribution to non-default losses as well. The proposed Corporate
Contribution would apply to losses arising from Defaulting Member
Events and Declared Non-Default Loss Events (as such terms are defined
below and in the proposed rule change), and would be a mandatory
contribution by NSCC prior to any allocation of the loss among NSCC's
Members.\9\ As proposed, if the Corporate Contribution is fully or
partially used against a loss or liability relating to an Event Period
(as defined below and in the proposed rule change), the Corporate
Contribution would be reduced to the remaining unused amount, if any,
during the following two hundred fifty (250) business days \10\ in
order to permit NSCC to replenish the Corporate Contribution.\11\ To
ensure transparency, Members would receive notice of any such reduction
to the Corporate Contribution.
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    \9\ The proposed rule change would not require a Corporate
Contribution with respect to the use of the Clearing Fund as a
liquidity resource; however, if NSCC uses the Clearing Fund as a
liquidity resource for more than 30 calendar days, as set forth in
proposed Section 2 of Rule 4, then NSCC would have to consider the
amount used as a loss to the Clearing Fund incurred as a result of a
Defaulting Member Event and allocate the loss pursuant to proposed
Section 4 of Rule 4, which would then require the application of a
Corporate Contribution.
    \10\ Rule 1 defines ``business day'' as ``any day on which the
Corporation is open for business. However, on any business day that
banks or transfer agencies in New York State are closed or a
Qualified Securities Depository is closed, no deliveries of
securities and no payments of money shall be made through the
facilities of the Corporation.'' Supra note 4.
    \11\ NSCC believes that two hundred and fifty (250) business
days would be a reasonable estimate of the time frame that NSCC
would require to replenish the Corporate Contribution by equity in
accordance with NSCC's Clearing Agency Policy on Capital
Requirements, including a conservative additional period to account
for any potential delays and/or unknown exigencies in times of
distress.
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    As compared to the current approach of applying ``no less than'' a
percentage of retained earnings to defaulting Member losses, the
proposed Corporate Contribution would be a fixed percentage of NSCC's
General Business Risk Capital Requirement, which would provide greater
transparency and accessibility to Members. The proposed Corporate
Contribution would apply not only towards losses and liabilities
arising out of or relating to Defaulting Member Events but also those
arising out of or relating to Declared Non-Default Loss Events, which
is consistent with the current industry guidance that ``a CCP should
identify the amount of its own resources to be applied towards losses
arising from custody and investment risk, to bolster confidence that
participants' assets are prudently safeguarded.'' \12\
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    \12\ See Resilience of central counterparties (CCPs): Further
guidance on the PFMI, issued by the Committee on Payments and Market
Infrastructures and the International Organization of Securities
Commissions, at 42 (July 2017), available at www.bis.org/cpmi/publ/d163.pdf.
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    Under the current Addendum E, NSCC has the discretion to contribute
amounts higher than the specified percentage of retained earnings, as
determined by the Board of Directors, to any loss or liability incurred
by NSCC as result of a Member's impairment. This option would be
retained and expanded under the proposal so that it would be clear that
NSCC can voluntarily apply amounts greater than the Corporate
Contribution against any loss or liability (including non-default
losses) of NSCC, if the Board of Directors, in its sole discretion,
believes such to be appropriate under the factual situation existing at
the time.
    The proposed rule changes relating to the calculation and
application of the Corporate Contribution are set forth in proposed
Sections 4 and 5 of Rule 4, as further described below.

(2) Introducing an Event Period
    In order to clearly define the obligations of NSCC and its Members
regarding loss allocation and to balance the need to manage the risk of
sequential loss events against Members' need for certainty concerning
their maximum loss allocation exposures, NSCC is proposing to introduce
the concept of an ``Event Period'' to the Rules to address the losses
and liabilities that may arise from or relate to multiple Defaulting
Member Events and/or Declared Non-Default Loss Events that arise in
quick succession. Specifically, the proposal would group Defaulting
Member Events and Declared Non-Default Loss Events occurring in a
period of ten (10) business days (``Event Period'') for purposes of
allocating losses to Members in one or more rounds (as described
below), subject to the limitations of loss allocation set forth in the
proposed rule change and as explained below.\13\ In the case of a loss
or liability arising from or relating to a Defaulting Member Event, an
Event Period would begin on the day NSCC notifies Members that it has
ceased to act \14\ for a Defaulting Member (as defined below and in the
proposed rule change) (or the next business day, if such day is not a
business day). In the case of a loss or liability arising from or
relating to a Declared Non-Default Loss Event, an Event Period would
begin on the day that NSCC notifies Members of the determination by the
Board of Directors that the applicable loss or liability may be a
significant and substantial loss or liability that may materially
impair the ability of NSCC to provide clearance and settlement services
in an orderly manner and will potentially generate losses to be
mutualized among Members in order to ensure that NSCC may continue to
offer clearance and settlement services in an orderly manner (or the
next business day, if such day is not a business day). If a subsequent
Defaulting Member Event or Declared Non-Default Loss Event occurs
during an Event Period, any losses or liabilities arising out of or
relating to any such subsequent event would be resolved as losses or
liabilities that are part of the same Event Period, without extending
the duration of such Event Period. An Event Period may include both
Defaulting Member Events and Declared Non-Default Loss Events, and
there would not be separate Event Periods for Defaulting Member Events
or Declared Non-Default Loss Events occurring during overlapping ten
(10) business day periods.
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    \13\ NSCC believes that having a ten (10) business day Event
Period would provide a reasonable period of time to encompass
potential sequential Defaulting Member Events or Declared Non-
Default Loss Events that are likely to be closely linked to an
initial event and/or a severe market dislocation episode, while
still providing appropriate certainty for Members concerning their
maximum exposure to mutualized losses with respect to such events.
    \14\ Supra note 5.
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    The amount of losses that may be allocated by NSCC, subject to the
required Corporate Contribution, and to which a Loss Allocation Cap (as
defined below and in the proposed rule change) would apply for any
withdrawing Member, would include any and all losses from any
Defaulting Member Events and any Declared Non-Default Loss Events
during the Event Period, regardless of the amount of time, during or
after the Event Period, required for such losses to be crystallized and
allocated.
    The proposed rule changes relating to the implementation of an
Event Period are set forth in proposed Section 4 of Rule 4, as further
described below.
(3) Introducing the Concept of ``Rounds'' and Loss Allocation Notice
    Pursuant to the proposed rule change, a loss allocation ``round''
would mean a series of loss allocations relating to an Event Period,
the aggregate amount of which is limited by the sum of the Loss
Allocation Caps of affected Members (a ``round cap''). When the
aggregate amount of losses allocated in a round equals the round cap,
any additional losses relating to the applicable Event Period would be
allocated in one or more subsequent rounds, in each case subject to a
round cap for that round. NSCC may continue the loss allocation process
in successive rounds until all losses from the Event Period are
allocated among Members that have not submitted a Loss Allocation
Withdrawal Notice in accordance with proposed Section 6 of Rule 4.
    Each loss allocation would be communicated to Members by the
issuance of a Loss Allocation Notice (as defined below and in the
proposed rule change). Each Loss Allocation Notice would specify the
relevant Event Period and the round to which it relates. The first Loss
Allocation Notice in any first, second, or subsequent round would
expressly state that such Loss Allocation Notice reflects the beginning
of the first, second, or subsequent round, as the case may be, and that
each Member in that round has five (5) business days from the issuance
of such first Loss Allocation Notice for the round to notify NSCC of
its election to withdraw from membership with NSCC pursuant to proposed
Section 6 of Rule 4, and thereby benefit from its Loss Allocation
Cap.\15\
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    \15\ Pursuant to the current Section 8 of Rule 4, the time
period for a participant to give notice of its election to terminate
its business with NSCC in respect of a pro rata charge is ten (10)
business days after receiving notice of a pro rata charge. Supra
note 4.
    NSCC believes that it is appropriate to shorten such time period
from ten (10) business days to five (5) business days because NSCC
needs timely notice of which Members would remain in its membership
for purposes of calculating the loss allocation for any subsequent
round. NSCC believes that five (5) business days would provide
Members with sufficient time to decide whether to cap their loss
allocation obligations by withdrawing from their membership in NSCC.
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    The amount of any second or subsequent round cap may differ from
the first or preceding round cap because there may be fewer Members in
a second or subsequent round if Members elect to withdraw from
membership with NSCC as provided in proposed Section 6 of Rule 4
following the first Loss Allocation Notice in any round.
    For example, for illustrative purposes only, after the required
Corporate Contribution, if NSCC has a $5 billion loss determined with
respect to an Event Period and the sum of Loss Allocation Caps for all
Members subject to the loss allocation is $4 billion, the first round
would begin when NSCC issues the first Loss Allocation Notice for that
Event Period. NSCC could issue one or more Loss Allocation Notices for
the first round until the sum of losses allocated equals $4 billion.
Once the $4 billion is allocated, the first round would end and NSCC
would need a second round in order to allocate the remaining $1 billion
of loss. NSCC would then issue a Loss Allocation Notice for the $1
billion and this notice would be the first Loss Allocation Notice for
the second round. The issuance of the Loss Allocation Notice for the $1
billion would begin the second round.
    The proposed rule change would link the Loss Allocation Cap to a
round in order to provide Members the option to limit their loss
allocation exposure at the beginning of each round. As proposed and as
described further below, a Member could limit its loss allocation
exposure to its Loss Allocation Cap by providing notice of its election
to withdraw from membership within five (5) business days after the
issuance of the first Loss Allocation Notice in any round.
    The proposed rule changes relating to the implementation of
``rounds'' and Loss Allocation Notices are set forth in proposed
Section 4 of Rule 4, as further described below.

(4) Implementing a ``Look-Back'' Period To Calculate a Member's Loss
Allocation Pro Rata Share and Its Loss Allocation Cap
    Currently, the Rules calculate a Member's pro rata share for
purposes of loss allocation based on the Member's ``allocation for a
System,'' which in turn is based on settlement dollar amounts.
Therefore, a Member's loss allocation obligations are currently based
on the Member's activity in each of the various services or ``Systems''
offered by NSCC.\16\ The Rules do not anticipate the possibility of
more than one Defaulting Member Event or Declared Non-Default Loss
Event in quick succession.
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    \16\ NSCC's current loss allocation rules pre-date NSCC's move
to a risk-based margining methodology.
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    Given NSCC's risk-based margining methodology, NSCC believes that
it would be more appropriate to determine a Member's pro rata share of
losses and liabilities based on the amount of risk that the Member
brings to NSCC, which is represented by the Member's Required Deposit
(NSCC is proposing that ``Required Deposits'' be renamed ``Required
Fund Deposits,'' as described below). Accordingly, NSCC is proposing to
calculate each Member's pro rata share of losses and liabilities to be
allocated in any round (as described below and in the proposed rule
change) to be equal to (i) the average of a Member's Required Fund
Deposit for the seventy (70) business days prior to the first day of
the applicable Event Period (or such shorter period of time that the
Member has been a Member) (``Average RFD'') divided by (ii) the sum of
Average RFD amounts for all Members that are subject to loss allocation
in such round.
    Additionally, NSCC is proposing that each Member's maximum payment
obligation with respect to any loss allocation round (the Member's Loss
Allocation Cap) be equal to the greater of (i) its Required Fund
Deposit on the first day of the applicable Event Period or (ii) its
Average RFD.
    NSCC believes that employing a backward-looking average to
calculate a Member's loss allocation pro rata share and Loss Allocation
Cap would disincentivize Member behavior that could heighten volatility
or reduce liquidity in markets in the midst of a financial crisis.
Specifically, the proposed look-back period would discourage a Member
from reducing its settlement activity during a time of stress primarily
to limit its loss allocation pro rata share, which, as proposed, would
now be based on the Member's average settlement activity over the look-
back period rather than its settlement activity at a point in time that
the Member may not be able to estimate. Similarly, NSCC believes that
taking a backward-looking average into consideration when determining a
Member's Loss Allocation Cap would also deter a Member from reducing
its settlement activity during a time of stress primarily to limit its
Loss Allocation Cap.
    NSCC believes that having a look-back period of seventy (70)
business days is appropriate, because it would be long enough to enable
NSCC to capture a full calendar quarter of a Member's activities,
including quarterly option expirations, and smooth out the impact from
any abnormalities and/or arbitrariness that may have occurred, but not
too long that the Member's business strategy and outlook could have
shifted significantly, resulting in material changes to the size of its
portfolios.
    The proposed rule changes relating to the implementation of a look-
back period are set forth in proposed Section 4 of Rule 4, as further
described below.
(5) Capping Withdrawing Members' Loss Allocation Exposure and Related
Changes
    NSCC's current loss allocation rules allow a Member to withdraw if
the Member notifies NSCC, within ten (10) business days after receipt
of notice of a pro rata charge, of its election to terminate its
membership and thereby avail itself of a cap on loss allocation, which
is its Required Deposit as fixed immediately prior to the time of the
pro rata charge. As discussed above, the proposed rule change would
continue providing Members the opportunity to limit their loss
allocation exposure by offering withdrawal options; however, the cap on
loss allocation would be calculated differently and the associated
withdrawal process would also be modified as it relates to withdrawals
associated with the loss allocation process. In particular, the
proposed rule change would shorten the withdrawal notification period
from ten (10) business days to five (5) business days, and would also
change the beginning of such notification period from the receipt of
the notice of a pro rata charge to the issuance of the notice, as
further described below.
    As proposed, if a Member provides notice of its withdrawal from
membership, the maximum amount of losses it would be responsible for
would be its Loss Allocation Cap,\17\ provided that the Member complies
with the requirements of the withdrawal process in proposed Section 6
of Rule 4.\18\
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    \17\ If a Member's Loss Allocation Cap exceeds the Member's
then-current Required Fund Deposit, it must still cover the excess
amount.
    \18\ For the avoidance of doubt, pursuant to Section 13(d) of
Rule 4(A) (Supplemental Liquidity Deposits), a Special Activity
Supplemental Deposit of a Member may not be used to calculate or be
applied to satisfy any pro rata charge pursuant to Section 4 of Rule
4. Supra note 4.
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    Currently, NSCC's loss allocation provisions provide that if a pro
rata charge is made against a Member's actual Clearing Fund deposit,
and as result thereof the Member's deposit is less than its Required
Deposit, the Member will, upon demand by NSCC, be required to replenish
its deposit to eliminate the deficiency within such time as NSCC shall
require. To increase transparency of the timeframe under which NSCC
would require funds from Members to satisfy their loss allocation
obligations, NSCC is proposing that Members would receive two (2)
business days' notice of a loss allocation, and Members would be
required to pay the requisite amount no later than the second business
day following issuance of such notice.\19\ Members would have five (5)
business days \20\ from the issuance of the first Loss Allocation
Notice in any round of an Event Period to decide whether to withdraw
from membership.\21\
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    \19\ NSCC believes that allowing Members two (2) business days
to satisfy their loss allocation obligations would provide Members
sufficient notice to arrange funding, if necessary, while allowing
NSCC to address losses in a timely manner.
    \20\ Supra note 15.
    \21\ NSCC believes that setting the start date of the withdrawal
notification period to the date of issuance of a notice would
provide a single withdrawal timeframe that would be consistent
across the Members.
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    Each round would allow a Member the opportunity to notify NSCC of
its election to withdraw from membership after satisfaction of the
losses allocated in such round. Multiple Loss Allocation Notices may be
issued with respect to each round to allocate losses up to the round
cap.
    Specifically, the first round and each subsequent round of loss
allocation would allocate losses up to a round cap of the aggregate of
all Loss Allocation Caps of those Members included in the round. If a
Member provides notice of its election to withdraw from membership, it
would be subject to loss allocation in that round, up to its Loss
Allocation Cap. If the first round of loss allocation does not fully
cover NSCC's losses, a second round will be noticed to those Members
that did not elect to

withdraw from membership in the previous round; however, as noted
above, the amount of any second or subsequent round cap may differ from
the first or preceding round cap because there may be fewer Members in
a second or subsequent round if Members elect to withdraw from
membership with NSCC as provided in proposed Section 6 of Rule 4
following the first Loss Allocation Notice in any round.
    Pursuant to the proposed rule change, in order to avail itself of
its Loss Allocation Cap, a Member would need to follow the requirements
in proposed Section 6 of Rule 4, which would provide that the Member
must: (i) Specify in its Loss Allocation Withdrawal Notice (as defined
below and in the proposed rule change) an effective date of withdrawal,
which date shall be no later than ten (10) business days following the
last day of the applicable Loss Allocation Withdrawal Notification
Period (as defined below and in the proposed rule change) (i.e., no
later than ten (10) business days after the 5th business day following
the first Loss Allocation Notice in that round of loss allocation),\22\
(ii) cease all activity that would result in transactions being
submitted to NSCC for clearance and settlement for which such Member
would be obligated to perform, where the scheduled final settlement
date would be later than the effective date of the Member's withdrawal,
and (iii) ensure that all clearance and settlement activity for which
such Member is obligated to NSCC is fully and finally settled by the
effective date of the Member's withdrawal, including, without
limitation, by resolving by such date all fails and buy-in obligations.
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    \22\ NSCC believes that having an effective date of withdrawal
that is not later than ten (10) business days following the last day
of the Loss Allocation Withdrawal Notification Period would provide
Members with a reasonable period of time to wind down their
activities at NSCC while minimizing any uncertainty typically
associated with a longer withdrawal period.
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    The proposed rule changes are designed to enable NSCC to continue
the loss allocation process in successive rounds until all of NSCC's
losses are allocated. To the extent that a Member's Loss Allocation Cap
exceeds the Member's Required Fund Deposit on the first day of the
applicable Event Period, NSCC may in its discretion retain any excess
amounts on deposit from the Member, up to the Member's Loss Allocation
Cap.
    The proposed rule changes relating to capping withdrawing Members'
loss allocation exposure and related changes to the withdrawal process
are set forth in proposed Sections 4 and 6 of Rule 4, as further
described below.
B. Changes To Align Loss Allocation Rules
    The proposed rule changes would align the loss allocation rules, to
the extent practicable and appropriate, of the three DTCC Clearing
Agencies so as to provide consistent treatment, especially for firms
that are participants of two or more DTCC Clearing Agencies. As
proposed, the loss allocation waterfall and certain related provisions,
e.g., returning a former Member's Clearing Fund, would be consistent
across the DTCC Clearing Agencies to the extent practicable and
appropriate. The proposed rule changes of NSCC that would align loss
allocation rules of the DTCC Clearing Agencies are set forth in
proposed Sections 1, 2, 7, and 12 of Rule 4, as further described
below.
C. Clarifying Changes Relating to Loss Allocation
    The proposed rule changes are intended to make the provisions in
the Rules governing loss allocation more transparent and accessible to
Members. In particular, NSCC is proposing the following changes
relating to loss allocation to clarify Members' obligations for
Declared Non-Default Loss Events.
    Aside from losses that NSCC might face as a result of a Defaulting
Member Event, NSCC could incur non-default losses incident to its
clearance and settlement business.\23\ The Rules currently permit NSCC
to apply Clearing Fund to non-default losses. Specifically, pursuant to
Section 2(b) of Rule 4,\24\ NSCC can use the Clearing Fund to satisfy
losses or liabilities of NSCC incident to the operation of the
clearance and settlement business of NSCC. Section II of Addendum K
provides additional details regarding the application of the Clearing
Fund to losses outside of a System.
---------------------------------------------------------------------------

    \23\ Non-default losses may arise from events such as damage to
physical assets, a cyber-attack, or custody and investment losses.
    \24\ Section 2(b) of Rule 4 provides that ``the use of the
Clearing Fund . . . shall be limited to satisfaction of losses or
liabilities of the Corporation incident to the operation of the
clearance and settlement business of the Corporation other than
losses and liabilities of a System.'' Supra note 4.
---------------------------------------------------------------------------

    If there is a failure of NSCC following a non-default loss, such
occurrence would affect Members in much the same way as a failure of
NSCC following a Defaulting Member Event. Accordingly, NSCC is
proposing rule changes to enhance the provisions relating to non-
default losses by clarifying Members' obligations for such losses.
    Specifically, NSCC is proposing enhancement of the governance
around non-default losses that would trigger loss allocation to Members
by specifying that the Board of Directors would have to determine that
there is a non-default loss that may be a significant and substantial
loss or liability that may materially impair the ability of NSCC to
provide clearance and settlement services in an orderly manner and will
potentially generate losses to be mutualized among the Members in order
to ensure that NSCC may continue to offer clearance and settlement
services in an orderly manner. The proposed rule change would provide
that NSCC would then be required to promptly notify Members of this
determination, which is referred to in the proposed rule as a Declared
Non-Default Loss Event. In addition, NSCC is proposing to better align
the interests of NSCC with those of its Members by stipulating a
mandatory Corporate Contribution apply to a Declared Non-Default Loss
Event prior to any allocation of the loss among Members, as described
above. Additionally, NSCC is proposing language to clarify Members'
obligations for Declared Non-Default Loss Events.
    The proposed rule changes relating to Declared Non-Default Loss
Events and Members' obligations for such events are set forth in
proposed Section 4 of Rule 4, as further described below.
D. Reduce the Time Within Which NSCC Is Required To Return a Former
Member's Clearing Fund Deposit
    The proposed rule change would reduce the time period in which NSCC
may retain a Member's Clearing Fund deposit. Specifically, NSCC
proposes that if a Member gives notice to NSCC of its election to
withdraw from membership, NSCC will return the Member's Actual Deposit
in the form of (i) cash or securities within thirty (30) calendar days
and (ii) Eligible Letters of Credit within ninety (90) calendar days,
after all of the Member's transactions have settled and all matured and
contingent obligations to NSCC for which the Member was responsible
while a Member have been satisfied, except NSCC may retain for up to
two (2) years the Actual Deposits from Members who have Sponsored
Accounts at DTC.
    NSCC believes that shortening the time period for the return of a
Member's Clearing Fund deposit would be helpful to firms who have
exited NSCC so that they could have use of the deposits sooner than
under the current Rules while at the same time protecting NSCC because
such return would only occur if

all obligations of the terminating Member to NSCC have been satisfied,
which would include both matured as well as contingent obligations.
    The proposed rule changes relating to the reduced time period in
which NSCC is required to return the Clearing Fund deposit of a former
Member are set forth in proposed Section 7 of Rule 4, as further
described below.
    The foregoing changes as well as other changes (including a number
of conforming and technical changes) that NSCC is proposing in order to
improve the transparency and accessibility of the Rules are described
in detail below.
(ii) Detailed Description of the Proposed Rule Changes Related to Loss
Allocation
A. Proposed Changes to Rule 4 (Clearing Fund)
Overview of Rule 4 (Clearing Fund)
    Rule 4 currently addresses Clearing Fund requirements and loss
allocation obligations. While Procedure XV addresses the various
Clearing Fund calculations, Rule 4 sets forth rights, obligations and
other aspects associated with the Clearing Fund, as well as the loss
allocation process. Rule 4 is currently organized into 12 sections.
NSCC is proposing changes to each section, and consolidating provisions
in Rule 4 relating to Mutual Fund Services and Insurance and Retirement
Processing Services into new sections, as described below.
Section 1
    Section 1 of Rule 4 currently sets forth the requirement that each
Member and Mutual Fund/Insurance Services Member shall, and each Fund
Member and Insurance Carrier/Retirement Services Member may, be
required to make a deposit to the Clearing Fund. Section 1 currently
provides that each participant's Required Deposit is based on one or
more formulas specified by NSCC's Board of Directors. The basis of each
such formula is participants' usage of NSCC's facilities. Section 1
also currently sets forth the minimum amount of each participant
category's Required Deposit.
    Current Section 1 allows a portion of a participant's Clearing Fund
deposit to be evidenced by an open account indebtedness secured by
Eligible Clearing Fund Securities, subject to certain limitations set
forth in Procedure XV, and sets forth the various requirements
associated with the deposit of Eligible Clearing Fund Securities.
Current Section 1 also permits NSCC to require participants to post a
letter of credit where NSCC believes the participants present legal
risk.
    Current Section 1 also provides that NSCC allocate the Clearing
Fund by types of service (e.g., Mutual Fund Services) as well as by
Systems (e.g., CNS), and divide the Clearing Fund into separate
``Allocations'' for each such service and separate ``Funds'' for each
such System.
    Under the proposed rule change, NSCC is proposing to add a
subheading of ``Required Fund Deposits'' to Section 1 and restructure
Section 1 so that it applies to Members only and delete references to
Mutual Fund/Insurance Services Members, Fund Members and Insurance
Carrier/Retirement Services Members from Section 1.\25\ Provisions of
Rule 4 regarding Mutual Fund/Insurance Services Members and Fund
Members would be covered in a new proposed Section 13 to Rule 4,
discussed below. Provisions of Rule 4 regarding Insurance Carrier/
Retirement Services Members would be covered in a new proposed Section
14 to Rule 4, discussed below.
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    \25\ In addition to Section 1 of Rule 4, NSCC is proposing to
delete references to Mutual Fund/Insurance Services Members, Fund
Members and Insurance Carrier/Retirement Services Members from
Sections 2, 3, 4, 5, 6, 7, 8, 9, and 12 of Rule 4.
---------------------------------------------------------------------------

    Under the proposed rule change, Section 1 would continue to have
the same provisions as they relate to Members except for the following:
(i) The language throughout the section would be reorganized,
streamlined and clarified, (ii) ``Required Deposits'' would be renamed
``Required Fund Deposits,'' \26\ which is a more descriptive term to
refer to Members' deposits required for the Clearing Fund, and would
harmonize with the rules of FICC/GSD and FICC/MBSD \27\ and the term
used in such rules,\28\ (iii) a sentence would be added regarding
additional deposits maintained by the Members at NSCC, and (iv) the
provision regarding the Clearing Fund being allocated by Systems and
services would be deleted.\29\
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    \26\ In addition to Section 1 of Rule 4, NSCC is proposing to
rename ``Required Deposits'' to ``Required Fund Deposits'' in
Sections 2, 3, 4, 8, 9, and 11 of Rule 4.
    \27\ FICC/GSD Rulebook (``FICC/GSD Rules''), available at http:/
/dtcc.com/~/media/Files/Downloads/legal/rules/ficc_gov_rules.pdf and
FICC/MBSD Clearing Rules (``FICC/MBSD Rules''), available at http://
dtcc.com/~/media/Files/Downloads/legal/rules/ficc_mbsd_rules.pdf.
    \28\ See FICC/GSD Rule 1 (Definitions) and FICC/MBSD Rule 1
(Definitions), supra note 27.
    \29\ In addition to Section 1 of Rule 4, NSCC is proposing to
delete references to the Clearing Fund being allocated by Systems
and services from Sections 2, 3, and 4 of Rule 4.
---------------------------------------------------------------------------

    The proposed sentence regarding additional deposits to the Clearing
Fund would permit Members to post such additional deposits at their
discretion and would make clear that such additional deposits would be
deemed to be part of the Clearing Fund and the Member's Actual Deposit
(as discussed below and as defined in the proposed rule change) but
would not be deemed to be part of the Member's Required Fund Deposit.
    NSCC proposes to add language in Section 1 to make it clear that
each Member would grant NSCC a first priority perfected security
interest in its right, title and interest in and to any Eligible
Clearing Fund Securities, funds and assets pledged to NSCC to secure
the Member's open account indebtedness or placed by the Member in
NSCC's possession (or its agents acting on its behalf) to secure all
such Member's obligations to NSCC, and that NSCC would be entitled to
exercise the rights of a pledgee under common law and a secured party
under Articles 8 and 9 of the New York Uniform Commercial Code with
respect to such assets. The additional language would further harmonize
the Rules with language used in the FICC/GSD Rules and FICC/MBSD
Rules,\30\ thus providing consistent treatment of pledged resources for
firms that are members of both NSCC and FICC.
---------------------------------------------------------------------------

    \30\ See Section 4 of FICC/GSD Rule 4 and Section 4 of FICC/MBSD
Rule 4, supra note 27.
---------------------------------------------------------------------------

    NSCC proposes to clarify the language in footnote 2 of Section 1.
In addition, NSCC proposes to add ``Eligible Letter of Credit'' as a
defined term to refer to letters of credit posted by participants if
required by NSCC,\31\ which would harmonize the term with the term used
in the FICC/GSD Rules and FICC/MBSD Rules,\32\ thus providing
consistent terminology for firms that are members of both NSCC and
FICC.
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    \31\ In addition to Section 1 of Rule 4, NSCC is also proposing
to rename ``Letter of Credit'' to ``Eligible Letter of Credit'' in
Sections 2 and 12 of Rule 4.
    \32\ See FICC/GSD Rule 1 (Definitions) and FICC/MBSD Rule 1
(Definitions), supra note 27.
---------------------------------------------------------------------------

    Similarly, NSCC proposes to add ``Actual Deposit'' as a defined
term in Section 1 to refer to Eligible Clearing Fund Securities, funds
and assets pledged to NSCC to secure a Member's open account
indebtedness or placed by a Member in the possession of NSCC (or its
agents acting on its behalf) and any Eligible Letters of Credit issued
on behalf of a Member in favor of NSCC.
    Instead of requiring participants to pledge Eligible Clearing Fund
Securities to NSCC's account at a Qualified Securities Depository
designated by the participants, NSCC proposes to clarify and streamline
Section 1 of proposed Rule 4 to provide that Eligible Clearing

Fund Securities pledged to secure a Member's open account indebtedness
would be delivered to NSCC's account at DTC.
    NSCC would delete the provision regarding allocation of the
Clearing Fund by Systems and services, as this provision is no longer
relevant under the proposed rule change. Provisions relating to Mutual
Fund Services and Insurance and Retirement Processing Services in
Section 1 (as well as other sections in Rule 4) would be consolidated
in the proposed new Sections 13 and 14, entitled ``Mutual Fund
Deposits'' and ``Insurance Deposits,'' respectively.
    To consolidate provisions regarding the maintenance, investment and
permitted use of Clearing Fund, NSCC would move the last paragraph of
Section 1 about segregation and maintenance of Clearing Fund (again, in
terms of ``Fund,'' ``System,'' and ``Allocation,'' as discussed above)
to Section 2.
    In addition, NSCC proposes to correct a typographical error in the
reference to a footnote in Section 1 of Rule 4. Specifically, there is
an incorrect reference to footnote 22 in the second paragraph of
Section 1 in current Rule 4. NSCC is proposing to change this reference
to reflect the correct footnote, which is footnote 2.
Section 2
    Section 2 of Rule 4 currently covers the permitted uses of the
Clearing Fund (again by ``Fund'' and ``Allocation,'' as set forth in
current Section 1), including the investment of Clearing Fund Cash and
Cash Receipts, as well as participants' rights to any interest earned
or paid on pledged Eligible Clearing Fund Securities or cash deposits.
    NSCC is proposing to add a subheading of ``Permitted Use,
Investment, and Maintenance of Clearing Fund Assets'' to Section 2 and
restructure Section 2 so that it applies to Members only. NSCC is also
proposing to restructure Section 2 so that the permitted use of
Clearing Fund appears first, then the investment of Clearing Fund,
followed by maintenance of Clearing Fund.
    Under the proposed rule change, the permitted use of Clearing Fund
paragraph would continue to have the same provisions as they relate to
how the Clearing Fund can be used by NSCC, except the provisions would
be streamlined and clarified. Specifically, in order to be consistent
with the proposed change in Section 4 (as described below) regarding
NSCC requiring Members to pay their loss allocation amounts (leaving
their Required Fund Deposits intact), NSCC is proposing to modify the
permitted use of Clearing Fund to make it clear that the Clearing Fund
can be used by NSCC to secure each Member's performance of obligations
to NSCC, including each Member's obligations with respect to any loss
allocations as set forth in Section 4 of Rule 4. NSCC is also proposing
to delete the defined term of Cash Receipts and related provisions from
Rule 4 because, unlike the Clearing Fund, Cash Receipts are money
payments received from participants and payable to others; therefore,
NSCC believes that continuing to include Cash Receipts in Rule 4 is no
longer necessary and may cause confusion among Members.
    NSCC is proposing to add a paragraph that provides that each time
NSCC uses any part of the Clearing Fund to provide liquidity to NSCC to
meet its settlement obligations, including, without limitation, through
the direct use of cash in the Clearing Fund or through the pledge or
rehypothecation of pledged Eligible Clearing Fund Securities in order
to secure liquidity for more than thirty (30) calendar days, NSCC, at
the close of business on the 30th calendar day (or on the first
business day thereafter) from the day of such use, would consider the
amount used but not yet repaid as a loss to the Clearing Fund incurred
as a result of a Defaulting Member Event and immediately allocate such
loss in accordance with proposed Section 4 of Rule 4. NSCC believes
that this proposed change would increase transparency and accessibility
of the Rules for Members by specifying a point in time by which NSCC
would need to replenish the Clearing Fund through loss allocation if
NSCC uses the Clearing Fund to provide or secure liquidity to NSCC to
meet its settlement obligations. NSCC believes that a period of thirty
(30) calendar days would be appropriate because it would provide
sufficient time for NSCC to determine whether it would be able to
obtain the necessary funds from liquidation of the portfolio of the
Defaulting Member to repay the used Clearing Fund amount. In addition,
this proposed change would also harmonize this section with the
comparable section in the FICC/GSD Rules and FICC/MBSD Rules,\33\ so as
to provide consistent treatment for firms that are members of both NSCC
and FICC.
---------------------------------------------------------------------------

    \33\ See Section 5 of FICC/GSD Rule 4 and Section 5 of FICC/MBSD
Rule 4, supra note 27.
---------------------------------------------------------------------------

    Proposed Section 2 would continue to have the same provisions
concerning the investment and maintenance of the Clearing Fund, except
these provisions would also be streamlined and clarified. Specifically,
NSCC is proposing language to make it clear that it may invest cash in
the Clearing Fund in accordance with the Clearing Agency Investment
Policy adopted by NSCC.\34\ NSCC would revise the relocated sentence
from Section 1 which provides that NSCC shall not be required to
segregate any Clearing Fund (again, in terms of ``Fund,'' ``System,''
and ``Allocation,'' as discussed above) in order to (i) conform to the
proposed deletions in Section 1 and use the newly defined term of
``Actual Deposit'' as set forth in Section 1 and (ii) make clear that
NSCC would not be required to segregate a Member's Actual Deposit but
that NSCC would maintain books and records concerning the assets that
constitute each Member's Actual Deposit.
---------------------------------------------------------------------------

    \34\ See Securities Exchange Act Release No. 79528 (December 12,
2016), 81 FR 91232 (December 16, 2016) (SR-NSCC-2016-003).
---------------------------------------------------------------------------

    Under the proposed rule change, Members would continue to be
entitled to any interest earned or paid on Clearing Fund cash deposits
and pledged Eligible Clearing Fund Securities; however, NSCC is
proposing additional language to make it clear that interest on pledged
Eligible Clearing Fund Securities that is received by NSCC would be
credited to a Member's cash deposits to the Clearing Fund, except in
the event of a default by such Member on any obligations to NSCC, in
which case NSCC may exercise its rights under proposed Section 3 of
Rule 4.
Section 3
    Section 3 of Rule 4 currently provides that NSCC may apply a
participant's actual deposit to any obligation the participant has to
NSCC that the participant has failed to satisfy and to any Cross-
Guaranty Obligation. Participants are required to eliminate any
resulting deficiencies in their Required Deposits within such time as
NSCC requires. Section 3 also currently provides for the manner in
which loss allocation would apply with respect to Off-the-Market
Transactions.
    Under the proposed rule change, NSCC is proposing to add a
subheading of ``Application of Clearing Fund Deposits and Other Amounts
to Members' Obligations'' and to delete provisions that do not apply to
Members and/or that reference the Clearing Fund being allocated into
Funds/Allocations by Systems and services. Under the proposed rule
change, NSCC would retain the provisions in Section 3 regarding
applying the Member's Actual Deposit to satisfy an obligation to NSCC

that a Member fails to satisfy and the requirement to replenish the
Required Fund Deposit as necessary, but NSCC proposes to add clarifying
language that, in addition to a Member's Actual Deposit, NSCC will also
apply any amounts available under a Clearing Agency Cross-Guaranty
Agreement and any proceeds therefrom to satisfy the obligation. NSCC
also proposes to add language making it clear that NSCC may take any
and all actions with respect to the assets and amounts referenced in
the prior sentence, including assignment, transfer, and sale of any
Eligible Clearing Fund Securities, that NSCC determines is appropriate.
    Under the proposed rule change, NSCC would move the provision
regarding allocation of losses from Off-the-Market Transactions to
proposed Section 4 of Rule 4, which addresses allocation of losses to
Members. NSCC would streamline and clarify the remaining provisions for
transparency and accessibility.
Section 4 and Section 5
    Current Section 4 of Rule 4 contains NSCC's current loss allocation
waterfall, which would be initiated if NSCC incurs a loss or liability
in a System that is not satisfied pursuant to current Section 3.
Section 4 currently provides for the following loss allocation
waterfall:
    (i) Application of NSCC's existing retained earnings or such lesser
part \35\ of the existing retained earnings unless the Board of
Directors elects to apply the Fund/Allocation for a particular System
or service.
---------------------------------------------------------------------------

    \35\ Addendum E provides that NSCC ``will apply no less than
twenty-five percent (25%) of its retained earnings, existing at the
time of a Member impairment which gives rise to a loss or liability
not satisfied by the impaired Member's Clearing Fund deposit, to
such loss or liability.'' Supra note 4.
---------------------------------------------------------------------------

    (ii) If a loss or liability remains after the application of the
retained earnings, NSCC would apply the Clearing Fund (this application
is subject to the current structure where the Rules provide that the
Clearing Fund is allocated to different Systems/services).
    a. NSCC is required to provide participants and the Commission with
5 business days' prior notice before applying the Clearing Fund.
    b. Participants (other than those responsible for causing the loss
or liability) would be charged pro rata based upon their allocation to
the applicable Fund, less any amounts that participants were required
to deposit pursuant to Rule 15.
    Section 5 of Rule 4 currently states that if a pro rata charge is
made pursuant to Rule 4 against a participant's actual Clearing Fund
deposit, and as a consequence thereof the participant's remaining
deposit is less than its Required Deposit, the participant would, upon
demand by NSCC, be required to replenish its deposit to eliminate the
deficiency within such time as NSCC shall require. Current Section 5
further provides that if the participant does not take this required
action, NSCC may take disciplinary action against the participant, and
any disciplinary action taken against the participant or the voluntary
or involuntary termination of the participant's membership will not
affect the obligations of the participant to NSCC or any remedy to
which NSCC may be entitled under applicable law.
    Under the proposed rule change, NSCC is proposing to add a
subheading of ``Loss Allocation Waterfall, Off-the-Market
Transactions'' to Section 4 and delete provisions that do not apply to
Members and/or that reference the Clearing Fund being allocated into
Funds/Allocations by System or service. In addition, NSCC is proposing
to restructure its loss allocation waterfall as described below.
    Under the proposal, Section 4 would make clear that the loss
allocation waterfall applies to losses and liabilities (i) relating to
or arising out of a default of a Member for whom NSCC has ceased to act
pursuant to Rule 46 (such Member being referred to as a ``Defaulting
Member'') that is not satisfied pursuant to proposed Sections 3, 13 or
14 of Rule 4 (a ``Defaulting Member Event'' or (ii) otherwise incident
to the clearance and settlement business of NSCC, as determined below
(a ``Declared Non-Default Loss Event'').
    Proposed Section 4 would establish the concept of an ``Event
Period'' to provide for a clear and transparent way of handling
multiple loss events occurring in a period of ten (10) business days,
which would be grouped into an Event Period.\36\ As stated above, both
Defaulting Member Events or Declared Non-Default Loss Events could
occur within the same Event Period.
---------------------------------------------------------------------------

    \36\ Supra note 13.
---------------------------------------------------------------------------

    Under the proposal, an Event Period with respect to a Defaulting
Member Event would begin on the day NSCC notifies participants that it
has ceased to act for a Defaulting Member (or the next business day, if
such day is not a business day). In the case of a Declared Non-Default
Loss Event, an Event Period would begin on the day that NSCC notifies
Members of the determination by the Board of Directors that the
applicable loss or liability incident to the clearance and settlement
business of NSCC may be a significant and substantial loss or liability
that may materially impair the ability of NSCC to provide clearance and
settlement services in an orderly manner and will potentially generate
losses to be mutualized among Members in order to ensure that NSCC may
continue to offer clearance and settlement services in an orderly
manner (or the next business day, if such day is not a business day).
If a subsequent Defaulting Member Event or Declared Non-Default Loss
Event occurs during an Event Period, any losses or liabilities arising
out of or relating to any such subsequent event would be resolved as
losses or liabilities that are part of the same Event Period, without
extending the duration of such Event Period.
    Under proposed Section 4, the loss allocation waterfall would begin
with a corporate contribution from NSCC (``Corporate Contribution''),
as is the case under the current Rules, but in a different form than
under the current Section 4 of Rule 4. Today, pursuant to Addendum E,
in the event of a Member impairment, NSCC is required to apply at least
25% of its retained earnings existing at the time of a Member
impairment; however, no corporate contribution from NSCC is currently
required for losses resulting other than those from Member impairments.
Under the proposal, NSCC would amend Section 5 to add a subheading of
``Corporate Contribution'' and define NSCC's Corporate Contribution
with respect to any loss allocation pursuant to proposed Section 4 of
Rule 4, whether arising out of or relating to a Defaulting Member Event
or a Declared Non-Default Loss Event, as an amount that is equal to
fifty (50) percent of the amount calculated by NSCC in respect of its
General Business Risk Capital Requirement as of the end of the calendar
quarter immediately preceding the Event Period.\37\ The proposed rule
change would specify that NSCC's General Business Risk Capital
Requirement, as defined in NSCC's Clearing Agency Policy on Capital
Requirements,\38\ is, at a minimum, equal to the regulatory capital
that NSCC is required to maintain in compliance with Rule 17Ad-
22(e)(15) under the Act.\39\
---------------------------------------------------------------------------

    \37\ Supra note 6.
    \38\ Supra note 7.
    \39\ Supra note 8.
---------------------------------------------------------------------------

    As proposed, if NSCC applies the Corporate Contribution to a loss
or liability arising out of or relating to one or more Defaulting
Member Events or Declared Non-Default Loss Events relating to an Event
Period, then for any subsequent Event Periods that occur

during the two hundred fifty (250) business days thereafter,\40\ the
Corporate Contribution would be reduced to the remaining unused portion
of the Corporate Contribution amount that was applied for the first
Event Period. Proposed Section 5 would require NSCC to notify Members
of any such reduction to the Corporate Contribution.
---------------------------------------------------------------------------

    \40\ Supra note 11.
---------------------------------------------------------------------------

    Currently, the Rules do not require NSCC to contribute its retained
earnings to losses and liabilities other than from Member impairments.
Under the proposal, NSCC would expand the application of its corporate
contribution beyond losses and liabilities from Member impairments. The
proposed Corporate Contribution would apply to losses or liabilities
relating to or arising out of Defaulting Member Events and Declared
Non-Default Loss Events, and would be a mandatory loss contribution by
NSCC prior to any allocation of the loss among Members.
    Addendum E currently provides NSCC the option to contribute amounts
higher than the specified percentage of retained earnings, as
determined by the Board of Directors, to any loss or liability incurred
by NSCC as the result of a Member's impairment. This option would be
retained and expanded under the proposal to also cover non-default
losses. Proposed Section 5 would provide that nothing in the Rules
would prevent NSCC from voluntarily applying amounts greater than the
Corporate Contribution against any NSCC loss or liability, whether a
Defaulting Member Event or a Declared Non-Default Loss Event, if the
Board of Directors, in its sole discretion, believes such to be
appropriate under the factual situation existing at the time.
    Proposed Section 4 of Rule 4 would provide that NSCC shall apply
the Corporate Contribution to losses and liabilities that arise out of
or relate to one or more Defaulting Member Events and/or Declared Non-
Default Loss Events that occur within an Event Period. The proposed
rule change also provides that if losses and liabilities with respect
to such Event Period remain unsatisfied following application of the
Corporate Contribution, NSCC would allocate such losses and liabilities
to Members, as described below.
    The proposed rule change to Section 4 of Rule 4 would clarify that
all Members would be subject to loss allocation for losses and
liabilities relating to or arising out of a Declared Non-Default Loss
Event; however, in the case of losses and liabilities relating to or
arising out of a Defaulting Member Event, only non-defaulting Members
would be subject to loss allocation. In addition, NSCC is proposing to
clarify that after a first round of loss allocations with respect to an
Event Period, only Members that have not submitted a Loss Allocation
Withdrawal Notice in accordance with proposed Section 6 of Rule 4 would
be subject to further loss allocations with respect to that Event
Period. NSCC is also proposing that NSCC would notify Members subject
to loss allocation of the amounts being allocated to them (``Loss
Allocation Notice'') in successive rounds of loss allocations.
    Under the proposed rule change, a loss allocation ``round'' would
mean a series of loss allocations relating to an Event Period, the
aggregate amount of which is limited by the round cap. When the
aggregate amount of losses allocated in a round equals the round cap,
any additional losses relating to the applicable Event Period would be
allocated in one or more subsequent rounds, in each case subject to a
round cap for that round. NSCC may continue the loss allocation process
in successive rounds until all losses from the Event Period are
allocated among Members that have not submitted a Loss Allocation
Withdrawal Notice in accordance with proposed Section 6 of Rule 4.
    As proposed, each loss allocation would be communicated to Members
by the issuance of a Loss Allocation Notice. Each Loss Allocation
Notice would specify the relevant Event Period and the round to which
it relates. The first Loss Allocation Notice in any first, second, or
subsequent round would expressly state that such Loss Allocation Notice
reflects the beginning of the first, second, or subsequent round, as
the case may be, and that each Member in that round has five (5)
business days from the issuance of such first Loss Allocation Notice
for the round (such period, a ``Loss Allocation Withdrawal Notification
Period'') to notify NSCC of its election to withdraw from membership
with NSCC pursuant to proposed Section 6 of Rule 4, and thereby benefit
from its Loss Allocation Cap.\41\
---------------------------------------------------------------------------

    \41\ Supra note 15.
---------------------------------------------------------------------------

    Proposed Section 4 of Rule 4 would also retain the requirement of
loss allocation among Members if a loss or liability remains after the
application of the Corporate Contribution, as described above. In
contrast to the current Section 4 where NSCC would apply Members'
Required Deposits to the mutualized loss allocation amounts, under the
proposal, NSCC would require Members to pay their loss allocation
amounts (leaving their Required Fund Deposits intact).\42\ Loss
allocation obligations would continue to be calculated based upon a
Member's pro rata share of losses and liabilities (although the pro
rata share would be calculated differently than it is today), and
Members would still retain the ability to voluntarily withdraw from
membership and cap their loss allocation obligation (although the loss
allocation obligation would also be calculated differently than it is
today).
---------------------------------------------------------------------------

    \42\ NSCC believes that shifting from the two-step methodology
of applying the Clearing Fund and then requiring Members to
immediately replenish it to requiring direct payment would increase
efficiency, while preserving the right to charge the Member's
Clearing Fund deposits in the event the Member does not timely pay.
Such a failure to pay would trigger recourse to the Clearing Fund
deposits of the Member under proposed Section 3 of Rule 4. In
addition, this change would provide greater stability for NSCC in
times of stress by allowing NSCC to retain the Clearing Fund, its
critical pre-funded resource, while charging loss allocations.
---------------------------------------------------------------------------

    As proposed, each Member's pro rata share of losses and liabilities
to be allocated in any round would be equal to (i) the Member's Average
RFD, divided by (ii) the sum of the Average RFD amounts of all Members
subject to loss allocation in such round. Each Member would have a
maximum payment obligation with respect to any loss allocation round
that would be equal to the greater of (x) its Required Fund Deposit on
the first day of the applicable Event Period or (y) its Average RFD
(such amount would be each Member's ``Loss Allocation Cap'').
Therefore, the sum of the Loss Allocation Caps of the Members subject
to loss allocation would constitute the maximum amount that NSCC would
be permitted to allocate in each round.
    As proposed, Members would have two (2) business days after NSCC
issues a first round Loss Allocation Notice to pay the amount specified
in any such notice.\43\ On a subsequent round (i.e., if the first round
did not cover the entire loss of the Event Period because NSCC was only
able to allocate up to the round cap), Members would also have two (2)
business days after notice by NSCC to pay their loss allocation amounts
(again subject to their Loss Allocation Caps), unless Members have
notified (or will timely notify) NSCC of their election to withdraw
from membership with respect to a prior loss allocation round pursuant
to proposed Section 6 of Rule 4.
---------------------------------------------------------------------------

    \43\ Supra note 19.
---------------------------------------------------------------------------

    As proposed, Section 4 would also provide that, to the extent that
a Member's Loss Allocation Cap exceeds

the Member's Required Fund Deposit on the first day of the applicable
Event Period, NSCC may in its discretion retain any excess amounts on
deposit from the Member, up to the Member's Loss Allocation Cap.
    Under the proposal, if a Member fails to make its required payment
in respect of a Loss Allocation Notice by the time such payment is due,
NSCC would have the right to proceed against such Member as a Member
that has failed to satisfy an obligation in accordance with proposed
Section 3 of Rule 4 described above. Members who wish to withdraw would
be required to comply with the requirements in proposed Section 6 of
Rule 4, described further below. Specifically, proposed Section 4 of
Rule 4 would provide that if, after notifying NSCC of its election to
withdraw from membership pursuant to proposed Section 6 of Rule 4, the
Member fails to comply with the provisions of proposed Section 6 of
Rule 4, its notice of withdrawal would be deemed void and any further
losses resulting from the applicable Event Period may be allocated
against it as if it had not given such notice.
    Under the proposal, NSCC would delete the provision in current
Section 4 of Rule 4 that requires NSCC to provide Members and the
Commission with 5 business days' prior notice before applying the
Clearing Fund to a loss or liability because such requirement would no
longer be relevant under the proposed rule change. Under the proposed
rule change, NSCC would notify Members subject to loss allocation of
the amounts being allocated to them in one or more Loss Allocation
Notices. As proposed, instead of applying the Clearing Fund, NSCC would
require Members to pay their loss allocation amounts (leaving their
Clearing Fund deposits intact). In order to conform to these proposed
rule changes, NSCC is proposing to eliminate the required notification
to Members regarding the application of Clearing Fund in current
Section 4 of Rule 4. NSCC is also proposing to delete the required
notification to the Commission regarding the application of Clearing
Fund in the same section. While as a practical matter, NSCC would
notify the Commission of a decision to loss allocate, NSCC does not
believe such notification needs to be specified in the Rules.
    Under the proposed rule change, NSCC would move the provision
related to Off-the-Market Transactions from current Section 3 of Rule 4
to proposed Section 4 of Rule 4 and clarify that (i) a loss or
liability of NSCC in connection with the close-out or liquidation of an
Off-the-Market Transaction would be allocated to the Member that was
the counterparty to such transaction and (ii) no allocation would be
made if the Defaulting Member satisfied all applicable intraday mark-
to-market margin charges assessed by NSCC with respect to the Off-the-
Market Transaction prior to its default.\44\
---------------------------------------------------------------------------

    \44\ See Securities Exchange Act Release No. 79598 (December 19,
2016), 81 FR 94462 (December 23, 2016) (SR-NSCC-2016-005), at 94465,
and Securities Exchange Act Release No. 79592 (December 19, 2016),
81 FR 94448 (December 23, 2016) (SR-NSCC-2016-803), at 94452.
---------------------------------------------------------------------------

Section 6
    Proposed Section 6 of Rule 4 would include the provisions regarding
withdrawal from membership currently covered by Section 8 of Rule 4.
NSCC believes that relocating the provisions on withdrawal from
membership as it pertains to loss allocation, so that it comes right
after the section on the loss allocation waterfall, would provide for
the better organization of Rule 4. As proposed, the subheading for
Section 6 would read ``Withdrawal Following Loss Allocation.''
    Currently, Section 8 of Rule 4 provides that participants may
notify NSCC within ten (10) business days after receipt of notice of a
pro rata charge that they have elected to terminate their membership
and thereby avail themselves of a cap on loss allocation, which is
currently their Required Deposit as fixed immediately prior to the time
of the pro rata charge.
    As stated above, under the proposed rule change, a Member who
wishes to withdraw from membership in respect of a loss allocation must
provide notice of its election to withdraw (``Loss Allocation
Withdrawal Notice'') within five (5) business days from the issuance of
the first Loss Allocation Notice in any round.\45\ In order to avail
itself of its Loss Allocation Cap, the Member would need to follow the
requirements in proposed Section 6 of Rule 4, which would provide that
the Member must: (i) Specify in its Loss Allocation Withdrawal Notice
an effective date for withdrawal from membership, which date shall not
be later than ten (10) business days following the last day of the Loss
Allocation Withdrawal Notification Period (i.e., no later than ten (10)
business days after the 5th business day following the first Loss
Allocation Notice in that round of loss allocation),\46\ (ii) cease all
activity that would result in transactions being submitted to NSCC for
clearance and settlement for which such Member would be obligated to
perform, where the scheduled final settlement date would be later than
the effective date of the Member's withdrawal, and (iii) ensure that
all clearance and settlement activity for which such Member is
obligated to NSCC is fully and finally settled by the effective date of
the Member's withdrawal, including, without limitation, by resolving by
such date all fails and buy-in obligations.
---------------------------------------------------------------------------

    \45\ Supra note 15.
    \46\ Supra note 22.
---------------------------------------------------------------------------

    NSCC is proposing to include a sentence in proposed Section 6 of
Rule 4 to make it clear that if the Member fails to comply with the
requirements set forth in that section, its Loss Allocation Withdrawal
Notice will be deemed void, and the Member will remain subject to
further loss allocations pursuant to proposed Section 4 of Rule 4 as if
it had not given such notice.
    Currently, Section 8 also contains provisions regarding additional
pro rata charges that may be made by NSCC for the same loss or
liability under the existing loss allocation process and the applicable
caps that participants wishing to voluntarily terminate their
membership after such additional pro rata charges are noticed may avail
themselves of. These provisions would be replaced by the loss
allocation process contained in proposed Section 4 described above.
Section 7
    As proposed, Section 7 would cover the provisions on the return of
a Member's Clearing Fund deposit that are currently covered by Section
6 of Rule 4. Proposed Section 7's subheading would be ``Return of
Members' Clearing Fund Deposits'' and would apply only to Members.
    Currently, with respect to the return of Clearing Fund deposits,
Section 6 of Rule 4 states that NSCC will return a participant's
Clearing Fund deposit 90 days after 3 conditions are met: (i) The
participant ceases to be a participant, (ii) all transactions open at
the time the participant ceases to be a participant which could result
in a charge to the Clearing Fund have been closed, and (iii) all
obligations of the participant to NSCC have been satisfied or have been
deducted from the participant's Clearing Fund deposit by NSCC, provided
that the participant has provided NSCC with satisfactory indemnities or
guarantees or another participant has been substituted on all
transactions and obligations of the participant.
    Current Section 6 provides further that in the absence of an
acceptable guarantee, indemnity or substitution, NSCC will retain the
entire Clearing Fund deposit of a participant if such deposit is less
than $100,000 for two (2)

years (or four (4) years for Members who have Sponsored Accounts at a
Qualified Securities Depository) after conditions described in (i),
(ii) and (iii) of the paragraph above have occurred. If the
participant's Clearing Fund deposit is equal to or greater than
$100,000, NSCC will retain the greater of twenty-five (25) percent of a
participant's average Clearing Fund requirement over the twelve (12)
months immediately prior to the date the participant ceased to be a
participant, or $100,000 for two (2) years (or four (4) years for
Members who have Sponsored Accounts at a Qualified Securities
Depository) after conditions described in (i), (ii) and (iii) of the
paragraph above have occurred.
    Current Section 6 states that if a participant made a deposit with
respect to the Mutual Fund Services or Insurance and Retirement
Processing Services, the participant will be entitled to the return of
this deposit ninety (90) days after all associated transactions in
these services have been satisfied.
    Finally, Section 6 currently provides that any obligation of a
participant to NSCC unsatisfied at the time the participant ceases to
be a participant will not be affected by such cessation of membership.
    Proposed Section 7 would reduce the period in which NSCC may retain
a Member's Clearing Fund deposit. Specifically, NSCC proposes that if a
Member gives notice to NSCC of its election to withdraw from
membership, NSCC will return the Member's Actual Deposit in the form of
(i) cash or securities within thirty (30) calendar days and (ii)
Eligible Letters of Credit within ninety (90) calendar days, after all
of the Member's transactions have settled and all matured and
contingent obligations to NSCC for which the Member was responsible
while a Member have been satisfied, except NSCC may retain for up to
two (2) years the Actual Deposits from Members who have Sponsored
Accounts at DTC. NSCC believes that shortening the time periods for the
return of a Member's Clearing Fund deposit would be helpful to firms
who have exited NSCC so that they could have use of the deposits sooner
than under the current Rules, while at the same time protecting NSCC
because such return would only occur if all obligations of the
terminating Member to NSCC have been satisfied. Proposed Section 7
would also harmonize the retention period for a Member's deposits to
the Clearing Fund with the FICC/GSD Rules,\47\ thus providing
consistent treatment for firms that are members of both NSCC and FICC.
Similarly, the Clearing Fund deposit retention for Members who have
Sponsored Accounts at DTC would be reduced in order to stay consistent
with the proposed retention period in the rules of DTC.\48\ In
addition, NSCC proposes to make it clear that a Member's obligations to
NSCC would include both matured as well as contingent obligations.
---------------------------------------------------------------------------

    \47\ Section 10 of FICC/GSD Rule 4, in relevant part, states
that ``If a Netting Member gives notice to the Corporation pursuant
to Rule 3 of its election to terminate its membership in the Netting
System, the Member's deposits to the Clearing Fund in the form of
cash or securities shall be returned to it within 30 calendar days
thereafter . . . provided that all amounts owing to the Corporation
by the Member have been paid to the Corporation prior to such return
and the Member has no remaining open Net Settlement Position, Fail
Net Settlement Position, or Forward Net Settlement Position.'' Supra
note 27.
    \48\ On December 18, 2017, DTC submitted a proposed rule change
and an advance notice to enhance its rules regarding allocation of
losses. See SR-DTC-2017-022 and SR-DTC-2017-804, which were filed
with the Commission and the Board of Governors of the Federal
Reserve System, respectively, but have not yet been published in the
Federal Register. Copies of the proposed rule change and the advance
notice are available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
---------------------------------------------------------------------------

Section 8
    Proposed Section 8 of Rule 4 would cover the subject matter
currently covered in Section 7 of Rule 4. Proposed Section 8's
subheading would be ``Changes in Members' Required Fund Deposits'' and
would apply only to Members.
    Currently, Section 7 of Rule 4 requires participants to satisfy any
increase in their Required Deposit within such time as NSCC requires.
At the time the increase becomes effective, the participant's
obligations to NSCC will be determined in accordance with the increased
Required Deposit whether or not the Member has so increased its
deposit. NSCC is not proposing any substantive changes to this
provision, which will be renumbered as Section 8 of Rule 4 under the
proposed rule change, except for streamlining the provision and
limiting its application to Members as stated above.
Section 9
    Currently, Section 9 of Rule 4 addresses situations where a
participant has excess deposits in the Clearing Fund (i.e., amounts
above its Required Deposit). The current provision provides that NSCC
will, on any day that NSCC has determined and provided notification
that an excess deposit exists with respect to a participant, return an
excess amount requested by a participant that follows the formats and
timeframe established by NSCC for such request. The current provision
makes clear that NSCC will not return the requested excess amount (i)
until any amount required to be charged against the participant's
Required Deposit is paid by the participant to NSCC and/or (ii) if NSCC
determines that the participant's current month's use of one or more
services is materially different than the previous month's use upon
which such excess is based. Section 9 currently makes clear that,
notwithstanding any of the foregoing, NSCC may, in its discretion,
withhold any or all of a participant's excess deposit if the
participant has been placed on the Watch List.\49\ Current Section 9
also makes clear that nothing in this section limits NSCC's rights
under Rule 15.\50\
---------------------------------------------------------------------------

    \49\ Pursuant to Section 4 of Rule 2B, a Member could be placed
on the Watch List either based on its credit rating of 5, 6 or 7,
which can either be generated by the Credit Risk Rating Matrix or
from a manual downgrade, or when NSCC deems such placement as
necessary to protect NSCC and its Members. Supra note 4.
    \50\ Rule 15 permits NSCC to require a Member, Limited Member or
any applicant to become either to furnish NSCC adequate assurances
of the entity's financial responsibility and operational capability
as NSCC may deem necessary. Supra note 4.
---------------------------------------------------------------------------

    Proposed Section 9 would add a subheading ``Excess Clearing Fund
Deposits'' and would apply only to Members. NSCC is not proposing any
substantive changes to this provision, except for streamlining the
provisions in this section and eliminating the condition described in
clause (i) of the paragraph above that limits participants' ability to
request the return of excess amounts on deposit in the Clearing Fund
and replacing clause (ii) of the paragraph above with a clause that
provides NSCC may, in its discretion, withhold any or all of a
participant's excess deposit if NSCC determines that the Member's
anticipated activities in NSCC in the near future may reasonably be
expected to be materially different than its activities of the recent
past. NSCC believes that the proposed additional clause would protect
NSCC and its participants because the clause would allow NSCC to retain
excess deposits to cover an expected near-term increase in a Member's
Required Fund Deposit amount due to the anticipated change in the
Member's activities. The proposed additional clause would also align
NSCC's Rules with that of FICC/GSD and FICC/MBSD,\51\ thus providing
consistent treatment for firms that are members of both NSCC and FICC.
---------------------------------------------------------------------------

    \51\ See Section 9 of FICC/GSD Rule 4 (Clearing Fund and Loss
Allocation) and Section 9 of FICC/MBSD Rule 4 (Clearing Fund and
Loss Allocation). Supra note 27.

---------------------------------------------------------------------------

Section 10
    Current Section 10 of Rule 4 provides for crediting persons against
whom losses are charged pursuant to Rule 4 if there is a subsequent
recovery of such losses by NSCC. NSCC is not proposing any changes to
this section other than adding a subheading ``Subsequent Recovery
Against Loss Amounts'' and replacing ``persons'' with ``Persons,''
which is currently defined in Rule 1 (Definitions and Descriptions) to
mean ``a partnership, corporation, limited liability corporation or
other organization, entity or an individual.'' Given that NSCC is a
corporation, NSCC believes that the term ``Person'' already includes
NSCC; however, for increased clarity, NSCC is proposing to add
``including the Corporation'' to make it clear to Members that if there
is a subsequent recovery of losses charged pursuant to Rule 4, the net
amount of the recovery would be credited to Persons, including NSCC,
against whom the loss was charged in proportion to the amounts charged
against them.
Section 11
    Current Section 11 of Rule 4 provides that a participant may
withdraw Eligible Clearing Fund Securities from pledge, provided that
the participant has deposited cash with, or pledged additional Eligible
Clearing Fund Securities to, NSCC that, in the aggregate, secure the
open account indebtedness of the participant and/or satisfy the
participant's Required Deposit. Proposed Section 11 would add a
subheading ``Substitution or Withdrawal of Pledged Securities'' and
would apply only to Members. NSCC is not proposing any substantive
changes to this provision, except for changes to improve the
transparency and accessibility of this section.
Section 12
    Current Section 12 of Rule 4 makes it clear that NSCC has certain
rights with respect to the Clearing Fund. Proposed Section 12 would add
a subheading ``Authority of Corporation'' and would apply only to
Members. NSCC is not proposing any substantive changes to this
provision, except to clarify that a reference to 30 days in current
Section 12 would mean 30 calendar days.
Section 13
    NSCC is proposing to add a new Section 13 to Rule 4 that would be
entitled ``Mutual Fund Deposits.'' Under the proposal, NSCC would
consolidate provisions from various sections in the current Rule 4
concerning Mutual Fund/Insurance Services Members and Fund Members and
group them into proposed Section 13. Aside from the consolidation, NSCC
is not proposing any substantive changes to these provisions, except
for changes to (i) reduce NSCC's retention period of Mutual Fund
Deposits when a Mutual Fund Participant (as defined below and in the
proposed rule change) elects to withdraw from membership, in order to
harmonize it with the proposed change in Section 7, as described above,
and (ii) improve the transparency and accessibility of the provisions.
    Proposed Section 13 would provide that each Member that uses the
Mutual Fund Services to submit mutual fund purchases, redemptions, or
exchanges to any Fund Member or another Member and each Mutual Fund/
Insurance Services Member would, and each Fund Member (collectively
with such Members and Mutual Fund/Insurance Services Members, ``Mutual
Fund Participants'') may, be required to make a cash deposit to the
Clearing Fund in the amounts determined in accordance with Procedure XV
and other applicable Rules (its ``Mutual Fund Deposit'' and, unless
specified otherwise, for the purposes of the Rules, Required Fund
Deposits shall include Mutual Fund Deposits). In the case of a Member,
its Mutual Fund Deposit would be a separate and additional component of
such Member's deposit to the Clearing Fund but not part of the Member's
Required Fund Deposit for purposes of calculating pro rata loss
allocations pursuant to proposed Section 4 of Rule 4.
    As in the current Rules, proposed Section 13 would also provide
that if any Mutual Fund Participant fails to satisfy any obligation to
NSCC relating to Mutual Fund Services, notwithstanding NSCC's right to
reverse in whole or in part any credit previously given to the contra
side to any outstanding Mutual Fund Services transaction of the Mutual
Fund/Insurance Services Member, NSCC would first apply such Mutual Fund
Participant's Mutual Fund Deposit. If after such application any loss
or liability remains and if such Mutual Fund Participant is a Member
that is not otherwise obligated to NSCC, NSCC would apply such Member's
Actual Deposit in accordance with proposed Section 3 of Rule 4. NSCC
would next allocate any further remaining loss or liability to the
other Mutual Fund Participants in successive rounds of loss allocations
in each case up to the aggregate of Mutual Fund Deposits from non-
defaulting Mutual Fund Participants, and after the first such round,
Mutual Fund Participants that have not submitted a Loss Allocation
Withdrawal Notice in accordance with proposed Section 6 of Rule 4,
following the procedures and timeframes set forth in proposed Sections
4 and 6 of Rule 4 as if such Mutual Fund Participants are Members. If
any loss or liability remains thereafter and there are no continuing
Mutual Fund Participants, NSCC would proceed with loss allocations to
Members for a Defaulting Member Event in accordance with proposed
Section 4 of Rule 4.
    As proposed, Section 13 would reduce NSCC's retention period of
Mutual Fund Deposits from ninety (90) days under the current Section 6
of Rule 4 to thirty (30) calendar days. Specifically, NSCC is proposing
that a Mutual Fund Participant that elects to withdraw from membership
would be entitled to the return of its Mutual Fund Deposit no later
than thirty (30) calendar days after all of its transactions have
settled and it has satisfied all of its matured and contingent
obligations to NSCC for which such Mutual Fund Participant was
responsible while a Mutual Fund Participant. NSCC is proposing this
change in order to harmonize the retention period of Mutual Fund
Deposit with the proposed Clearing Fund retention period in proposed
Section 7 of Rule 4, as described above.
    As proposed, Section 13 would make it clear that NSCC's rights,
authority and obligations with respect to deposits to the Clearing Fund
as set forth in Rule 4 would apply to Mutual Fund Deposits.
Section 14
    NSCC is proposing to add a new Section 14 to Rule 4 that would be
entitled ``Insurance Deposits.'' Under the proposal, NSCC would
consolidate provisions from various sections in current Rule 4
concerning Insurance Carrier/Retirement Services Members and group them
into proposed Section 14. Aside from the consolidation, NSCC is not
proposing any substantive changes to these provisions, except for
changes to (i) reduce NSCC's retention period of Insurance Deposits
when an Insurance Participant (as defined below and in the proposed
rule change) elects to withdraw from membership, in order to harmonize
it with proposed Section 7, as described above, and (ii) improve the
transparency and accessibility of the provisions.
    As in the current Rules, proposed Section 14 would provide that
each Mutual Fund/Insurance Services Member that uses the Insurance and
Retirement Processing Services and each Insurance Carrier/Retirement
Services Member (collectively, ``Insurance Participants'') may be

required to make a cash deposit to the Clearing Fund in the amounts
determined in accordance with Procedure XV and other applicable Rules
(its ``Insurance Deposit'' and, unless specified otherwise, for the
purposes of the Rules, Required Fund Deposits shall include Insurance
Deposits). Proposed Section 14 would also provide that if any Insurance
Participant fails to satisfy any obligation to NSCC relating to the
Insurance and Retirement Processing Services, NSCC would first apply
such Insurance Participant's Insurance Deposit. If after such
application any loss or liability remains, NSCC would allocate the
remaining loss or liability to the other Insurance Participants in
successive rounds of loss allocations in each case up to the aggregate
of Insurance Deposits from non-defaulting Insurance Participants, and
after the first such round, Insurance Participants that have not
submitted a Loss Allocation Withdrawal Notice in accordance with
proposed Section 6 of Rule 4, following the procedures and timeframes
set forth in proposed Sections 4 and 6 of Rule 4 as if such Insurance
Participants are Members. If any loss or liability remains thereafter
and there are no continuing Insurance Participants, NSCC would proceed
with loss allocations to Members for a Defaulting Member Event in
accordance with proposed Section 4 of Rule 4.
    As proposed, Section 14 would reduce NSCC's retention period of
Insurance Deposits from ninety (90) days under the current Section 6 of
Rule 4 to thirty (30) calendar days. Specifically, NSCC is proposing
that an Insurance Participant that elects to withdraw from membership
would be entitled to the return of its Insurance Deposit no later than
thirty (30) calendar days after all of its transactions have settled
and it has satisfied all of its matured and contingent obligations to
NSCC for which such Insurance Participant was responsible while an
Insurance Participant. NSCC is proposing this change in order to
harmonize the retention period of Insurance Deposit with the proposed
Clearing Fund retention period in proposed Section 7 of Rule 4, as
described above.
    As proposed, Section 14 would make it clear that NSCC's rights,
authority and obligations with respect to deposits to the Clearing Fund
as set forth in Rule 4 would apply to Insurance Deposits.
B. Proposed Changes to Addendum E (Statement of Policy--Application of
Retained Earnings--Member Impairments) and Addendum K (Interpretation
of the Board of Directors--Application of Clearing Fund)
    Addendum E is a statement of policy that currently provides that
NSCC will apply no less than twenty-five (25) percent of its retained
earnings to cover losses or liabilities from a Member's impairment that
is not otherwise satisfied by the impaired Member's Clearing Fund
deposit. NSCC is proposing to delete Addendum E in its entirety because
it would no longer be relevant given the proposed rule change relating
to the Corporate Contribution discussed above.
    NSCC is proposing to modify Addendum K to delete all provisions
associated with loss allocation and application of the Clearing Fund in
connection with a loss or liability incurred by NSCC, including
modifying the title of Addendum K. These provisions would no longer be
necessary under the proposed rule change because the loss allocation
process in its entirety would be governed by Rule 4. In addition, the
current language in Addendum K regarding allocation by System would no
longer be applicable under the proposed rule change as described above.
NSCC would retain the provisions in Addendum K that pertain to NSCC's
guaranty and rename Addendum K ``The Corporation's Guaranty.''
(iii) Other Proposed Rule Changes
    NSCC is proposing changes to Rule 1 (Definitions and Descriptions),
Rule 2B (Ongoing Membership Requirements and Monitoring), Rule 4(A)
(Supplemental Liquidity Deposits), Rule 13 (Exception Processing), Rule
15 (Assurances of Financial Responsibility and Operational Capability),
Rule 42 (Wind-Down of a Member, Fund Member or Insurance Carrier/
Retirement Services Member), Procedure III (Trade Recording Service
(Interface with Qualified Clearing Agencies)), Procedure XV (Clearing
Fund Formula and Other Matters), and Addendum O (Admission of Non-US
Entities as Direct NSCC Members). NSCC is proposing changes to these
Rules in order to conform them with the proposed changes to Rule 4 as
well as to make certain technical changes to these Rules.
    Specifically, NSCC is proposing to add the following defined terms
to Rule 1, in alphabetical order: Actual Deposit, Average RFD, Clearing
Fund Cash, Corporate Contribution, Declared Non-Default Loss Event,
Defaulting Member, Defaulting Member Event, Eligible Letter of Credit,
Event Period, Insurance Deposit, Insurance Participant, Issuer, Lender,
Loss Allocation Cap, Loss Allocation Notice, Loss Allocation Withdrawal
Notice, Loss Allocation Withdrawal Notification Period, Mutual Fund
Deposit, Mutual Fund Participant, Required Fund Deposit, Termination
Date, and Voluntary Termination Notice.
    NSCC is proposing to delete the defined term ``The Corporation'' in
Rule 1 and replace it with ``Corporation'' in Rule 1. NSCC is proposing
to replace ``Required Deposits'' with ``Required Fund Deposits'' in
Rule 2B, Rule 4(A), Rule 15, Rule 42, Procedure III, and Procedure XV.
NSCC is also proposing to replace ``Letter of Credit'' with ``Eligible
Letter of Credit'' in Rule 42 and Addendum O.
    In addition, in Section 5 of Rule 2B, NSCC proposes to change the
reference to Section 8 of Rule 4 to reflect the updated section number,
which would be to Section 4 of Rule 4. NSCC is also proposing
conforming changes to this section to ensure that termination
provisions in the Rules, whether voluntary or in response to a loss
allocation, are consistent with one another to the extent appropriate.
    Currently, Section 5 of Rule 2B provides that participants may
elect to voluntarily retire their membership by providing NSCC with
written notice of such termination. Such termination will not be
effective until accepted by NSCC, which shall be evidenced by a notice
to NSCC's participants announcing the participant's retirement and the
effective date of the retirement. This section also provides that a
participant's voluntary termination of membership shall not affect its
obligations to NSCC.
    Where appropriate, NSCC is proposing changes to align Section 5 of
Rule 2B with the proposed new Section 6 of Rule 4, both of which
address termination of membership. Specifically, NSCC is proposing to
rename the subheading of Section 5 of Rule 2B to ``Voluntary
Termination'' and to provide that when a participant elects to
voluntarily terminate its membership by providing NSCC a written notice
of such termination (``Voluntary Termination Notice''), the participant
must specify in its Voluntary Termination Notice an effective date for
its withdrawal (``Termination Date''), provided such Termination Date
shall not be prior to the scheduled final settlement date of any
remaining obligation owed by the participant to NSCC as of the time
such Voluntary

Termination Notice is submitted to NSCC, unless otherwise approved by
NSCC. In addition, NSCC would make it clear that the acceptance by NSCC
of a participant's Voluntary Termination Notice shall be no later than
ten (10) business days after the receipt of such notice from the
participant. NSCC is also proposing to clarify that as of the
Termination Date, a participant that terminates its membership shall no
longer be eligible or required to submit transactions to NSCC for
clearance and settlement, unless the Board of Directors determines
otherwise in order to ensure an orderly liquidation of the
participant's open obligations. If any transaction is submitted to NSCC
by such participant that is scheduled to settle on or after the
Termination Date, the participant's Voluntary Termination Notice would
be deemed void and the participant would remain subject to the Rules as
if it had not given such notice. Furthermore, NSCC is proposing to add
a sentence to Section 5 of Rule 2B to refer participants to Sections 7,
13 and 14 of Rule 4, as applicable, regarding provisions on the return
of a participant's Clearing Fund deposit and to specify that if an
Event Period were to occur after a participant has submitted its
Voluntary Termination Notice but prior to the Termination Date, in
order for such participant to benefit from its Loss Allocation Cap
pursuant to Section 4 of Rule 4, the participant would need to comply
with the provisions of Section 6 of Rule 4 and submit a Loss Allocation
Withdrawal Notice, which notice, upon submission, would supersede and
void any pending Voluntary Termination Notice previously submitted by
the participant.
    In Rule 4(A), NSCC proposes to amend Section 11 to update a cross-
reference to the time period for the refund of deposits to the Clearing
Fund when a Member ceases to be a participant in order to align it with
proposed Section 7 of Rule 4, which would reduce the time period from
90 days to 30 calendar days. NSCC is also proposing to add a reference
to Section 13 of Rule 4 in clause (c) of Section 13 of Rule 4(A) in
order to specify that a Special Activity Supplemental Deposit of a
Member may be used to satisfy a loss or liability as provided in such
new proposed Section 13. NSCC is also proposing technical changes in
Sections 2 and 13 of Rule 4(A) to reflect new proposed defined terms in
the Rules.
    In Rule 13, NSCC would replace ``System'' with ``system'' to
reflect the proposed deletion of ``System'' as a defined term from Rule
4 and Addendum K. In Procedure XV, NSCC would replace ``Qualified
Securities Depository'' with ``DTC'' to be consistent with the proposed
change in Section 1 of Rule 4.
Member Outreach
    Beginning in August 2017, NSCC conducted outreach to Members in
order to provide them with advance notice of the proposed changes. As
of the date of this filing, no written comments relating to the
proposed changes have been received in response to this outreach. The
Commission will be notified of any written comments received.
Implementation Timeframe
    Pending Commission approval, NSCC expects to implement this
proposal promptly. Members would be advised of the implementation date
of this proposal through issuance of an NSCC Important Notice.
2. Statutory Basis
    NSCC believes that the proposed rule change is consistent with the
requirements of the Act, and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, NSCC believes
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \52\ and Rules 17Ad-22(e)(13) and 17Ad-22(e)(23)(i),\53\
each as promulgated under the Act, for the reasons described below.
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    \52\ 15 U.S.C. 78q-1(b)(3)(F).
    \53\ 17 CFR 240.17Ad-22(e)(13) and (e)(23)(i).
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    Section 17A(b)(3)(F) of the Act requires that the Rules be designed
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 NSCC or for which it
is responsible.\54\ The proposed rule changes to (1) modify the
calculation and application of NSCC's corporate contribution, (2)
introduce an Event Period, (3) introduce the concept of ``rounds'' (and
accompanying Loss Allocation Notices) and apply this concept to the
timing of loss allocation payments and the Member withdrawal process in
connection with the loss allocation process, and (4) implement a
``look-back'' period to calculate a Member's loss allocation obligation
(which would replace the current calculation of a Member's loss
allocation obligation based on the Member's activity in each of the
various services or ``Systems'' offered by NSCC) and its Loss
Allocation Cap, taken together, are intended to enhance the overall
resiliency of NSCC's loss allocation process.
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    \54\ 15 U.S.C. 78q-1(b)(3)(F).
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    By modifying the calculation of NSCC's corporate contribution, NSCC
would apply a mandatory fixed percentage of its General Business Risk
Capital Requirement (as compared to the current Rules which provide for
``no less than'' a percentage of retained earnings), which would
provide greater transparency and accessibility to Members as to how
much NSCC would contribute in the event of a loss or liability. By
modifying the application of NSCC's corporate contribution to apply to
Declared Non-Default Loss Events, in addition to Defaulting Member
Events, on a mandatory basis, NSCC would expand the application of its
corporate contribution beyond losses and liabilities from Member
impairments, which would better align the interests of NSCC with those
of its Members by stipulating a mandatory application of the Corporate
Contribution to a Declared Non-Default Loss Event prior to any
allocation of the loss among Members. Taken together, these proposed
rule changes would enhance the overall resiliency of NSCC's loss
allocation process by enhancing the calculation and application of
NSCC's Corporate Contribution, which is one of the key elements of
NSCC's loss allocation process. Moreover, by providing greater
transparency and accessibility to Members, as stated above, the
proposed rule changes regarding the Corporate Contribution, including
the proposed replenishment period, would allow Members to better assess
the adequacy of NSCC's loss allocation process.
    By introducing the concept of an Event Period, NSCC would be able
to group Defaulting Member Events and Declared Non-Default Loss Events
occurring in a period of ten (10) business days for purposes of
allocating losses to Members. NSCC believes that the Event Period would
provide a defined structure for the loss allocation process to
encompass potential sequential Defaulting Member Events or Declared
Non-Default Loss Events that are likely to be closely linked to an
initial event and/or market dislocation episode. Having this structure
would enhance the overall resiliency of NSCC's loss allocation process
because NSCC would be better equipped to address losses that may arise
from multiple Defaulting Member Events and/or Declared Non-Default Loss
Events that arise in quick succession. Moreover, the proposed Event
Period structure would provide certainty for Members concerning their
maximum exposure to

mutualized losses with respect to such events.
    By introducing the concept of ``rounds'' (and accompanying Loss
Allocation Notices) and applying this concept to the timing of loss
allocation payments and the Member withdrawal process in connection
with the loss allocation process, NSCC would (i) set forth a defined
amount that it would allocate to Members during each round (i.e., the
round cap), (ii) advise Members of loss allocation obligation
information as well as round information through the issuance of Loss
Allocation Notices, and (iii) provide Members with the option to limit
their loss allocation exposure after the issuance of the first Loss
Allocation Notice in each round. These proposed rule changes would
enhance the overall resiliency of NSCC's loss allocation process
because they would enable NSCC to continue the loss allocation process
in successive rounds until all of NSCC's losses are allocated and
enable NSCC to identify continuing Members for purposes of calculating
subsequent loss allocation obligations in successive rounds. Moreover,
the proposed rule changes would define for Members a clear manner and
process in which they could cap their loss allocation exposure to NSCC.
    By implementing a ``look-back'' period to calculate a Member's loss
allocation obligations and its Loss Allocation Cap, NSCC would
discourage Members from reducing their settlement activity during a
time of stress primarily to limit their loss allocation obligations. By
determining a Member's loss allocation obligations and its Loss
Allocation Cap based on the greater of its Required Fund Deposit or the
average thereof over a look-back period, NSCC would be able to
calculate a Member's pro rata share of losses and liabilities based on
the amount of risk that the Member brings to NSCC. These proposed rule
changes would enhance the overall resiliency of NSCC's loss allocation
process because they would deter Members from reducing their settlement
activity during a time of stress primarily to limit their Loss
Allocation Caps.
    Taken together, the foregoing proposed rule changes would establish
a stronger (for all the reasons discussed above) and clearer loss
allocation process for NSCC, which NSCC believes would allow it to take
timely action to address losses. The ability to timely address losses
would allow NSCC to continue to meet its clearance and settlement
obligations, especially in circumstances that may involve a series of
substantially contemporaneous loss events. Therefore, NSCC believes
that these proposed rule changes would promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.
    By reducing the time within which NSCC is required to return a
former Member's Clearing Fund deposit, NSCC would enable firms that
have exited NSCC to have access to their funds sooner than under the
current Rules while at the same time protecting NSCC and its provision
of clearance and settlement services because such return would only
occur if all obligations of the terminating Member to NSCC have been
satisfied. As such, NSCC would maintain the requisite level of Clearing
Fund deposit to ensure that it can continue to meet its clearance and
settlement obligations. Therefore, NSCC believes that this proposed
rule change would promote the prompt and accurate clearance and
settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.
    Rule 17Ad-22(e)(13) under the Act requires, in part, that NSCC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to ensure NSCC has the authority and
operational capacity to take timely action to contain losses and
continue to meet its obligations.\55\ As described above, the proposed
rule changes to (1) modify the calculation and application of NSCC's
corporate contribution, (2) introduce an Event Period, (3) introduce
the concept of ``rounds'' (and accompanying Loss Allocation Notices)
and apply this concept to the timing of loss allocation payments and
the Member withdrawal process in connection with the loss allocation
process, and (4) implement a ``look-back'' period to calculate a
Member's loss allocation obligation (which would replace the current
calculation of a Member's loss allocation obligation based on the
Member's activity in each of the various services or ``Systems''
offered by NSCC) and its Loss Allocation Cap, taken together, are
designed to enhance the resiliency of NSCC's loss allocation process.
Having a resilient loss allocation process would help ensure that NSCC
can effectively and timely address losses relating to or arising out of
either the default of one or more Members or one or more non-default
loss events, which in turn would help NSCC contain losses and continue
to meet its clearance and settlement obligations. Therefore, NSCC
believes that the proposed rule changes to enhance the resiliency of
NSCC's loss allocation process are consistent with Rule 17Ad-22(e)(13)
under the Act.
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    \55\ 17 CFR 240.17Ad-22(e)(13).
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    Rule 17Ad-22(e)(23)(i) under the Act requires NSCC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to publicly disclose all relevant rules and
material procedures, including key aspects of NSCC's default rules and
procedures.\56\ The proposed rule changes to (i) align the loss
allocation rules of the DTCC Clearing Agencies, (ii) improve the
overall transparency and accessibility of the provisions in the Rules
governing loss allocation, and (iii) make conforming and technical
changes, would not only ensure that NSCC's loss allocation rules are,
to the extent practicable and appropriate, consistent with the loss
allocation rules of other DTCC Clearing Agencies, but also would help
to ensure that NSCC's loss allocation rules are transparent and clear
to Members. Aligning the loss allocation rules of the DTCC Clearing
Agencies would provide consistent treatment, to the extent practicable
and appropriate, especially for firms that are participants of two or
more DTCC Clearing Agencies. Having transparent and clear loss
allocation rules would enable Members to better understand the key
aspects of NSCC's default rules and procedures and provide Members with
increased predictability and certainty regarding their exposures and
obligations. As such, NSCC believes that the proposed rule changes to
align the loss allocation rules of the DTCC Clearing Agencies as well
as to improve the overall transparency and accessibility of NSCC's loss
allocation rules are consistent with Rule 17Ad-22(e)(23)(i) under the
Act.
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    \56\ 17 CFR 240.17Ad-22(e)(23)(i).
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(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule changes to enhance the
resiliency of NSCC's loss allocation process would impact
competition.\57\ As described above, the proposed rule changes to (1)
modify the calculation and application of NSCC's corporate
contribution, (2) introduce an Event Period, (3) introduce the concept
of ``rounds'' (and accompanying Loss Allocation Notices) and apply this
concept to the timing of loss allocation payments and the Member
withdrawal process in connection with the loss allocation process, and
(4) implement a ``look-back'' period to calculate a Member's loss
allocation obligation (which would replace the current calculation of a
Member's loss

allocation obligation based on the Member's activity in each of the
various services or ``Systems'' offered by NSCC) and its Loss
Allocation Cap, taken together, are intended to enhance the overall
resiliency of NSCC's loss allocation process, and would apply equally
to all Members. While the proposed rule changes would amend the manner
in which NSCC's corporate contribution and loss allocation are
calculated and applied, such proposed rule changes would maintain
NSCC's current core loss allocation waterfall in the case of a loss
relating to or arising out of the default of a Member for whom NSCC has
ceased to act following application of the defaulting Member's
resources, i.e., NSCC's corporate contribution and loss allocation
among Members. With respect to a loss or liability arising from a non-
default loss event, the proposed rule changes clarify NSCC's
contribution to such loss and liability, but, as with losses and
liabilities arising from a Member default event, the proposed rule
changes would maintain the loss mutualization requirement under the
current Rule 4. While the calculation of the loss obligations
associated with non-default losses would change under the proposal,
NSCC would maintain this aspect of the loss allocation waterfall (i.e.,
loss mutualization among Members for non-default losses). Based on the
foregoing, NSCC believes that these proposed rule changes to enhance
the resiliency of NSCC's loss allocation process would not have any
impact on competition.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    NSCC does not believe the proposed rule change to reduce the time
within which NSCC is required to return a former Member's Clearing Fund
deposit would impact competition.\58\ This proposed rule change is
intended to enable firms who have exited NSCC to have use of their
Clearing Fund deposit sooner, while at the same time protecting NSCC
because such return would only occur if all obligations of the
terminated Member to NSCC have been satisfied. While the proposed rule
change would reduce the applicable timeframe, it does not change the
requirement that the return occur after all obligations to NSCC have
been satisfied and the proposed rule change would apply equally to all
Members. Based on the foregoing, NSCC believes that the proposed rule
change to reduce the time within which NSCC is required to return a
former Member's Clearing Fund deposit would not have any impact on
competition.
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

    NSCC also does not believe that the proposed rule changes to (i)
align the loss allocation rules of the DTCC Clearing Agencies, (ii)
increase the transparency and accessibility of provisions in the Rules
governing loss allocation, and (iii) make conforming and technical
changes, would impact competition.\59\ These changes would apply
equally to all Members. Alignment of the loss allocation rules of the
DTCC Clearing Agencies are intended to increase the consistency of the
Rules with the rules of other DTCC Clearing Agencies in order to
provide consistent treatment, to the extent practicable and
appropriate, especially for firms that are participants of two or more
DTCC Clearing Agencies. Having transparent and accessible provisions in
the Rules governing loss allocation are intended to improve the
readability and clarity of the Rules regarding the loss allocation
process. Making conforming and technical changes to ensure the Rules
remain clear and accurate would facilitate Members' understanding of
the Rules and their obligations thereunder. As such, NSCC believes that
these proposed rule changes would not have any impact on competition.
---------------------------------------------------------------------------

    \59\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    Written comments relating to this proposed rule change have not
been solicited or received. NSCC will notify the Commission of any
written comments received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.
    The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NSCC-2017-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2017-018. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2017-018 and should be submitted on
or before January 29, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00076 Filed 1-5-18; 8:45 am]
 BILLING CODE 8011-01-P