[Federal Register Volume 76, Number 227 (Friday, November 25, 2011)]
[Notices]
[Pages 72741-72744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30285]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65788; File No. SR-NSCC-2011-10]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Amend Rules
Relating to the Creation of a Service To Provide Post-Trade Information
November 18, 2011.
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 November 7, 2011, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared primarily by NSCC. 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.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The purpose of this proposed rule change is to establish an
optional service, ``Trade Risk Pro,'' that would enable NSCC members to
monitor intraday trading activity through review of post-trade data.\3\
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\3\ The text of the proposed rule change is attached as Exhibit
5 to NSCC's filing, which is available at http://www.dtcc.com/downloads/legal/rule_filings/2011/nscc/2011-10.pdf.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\4\
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\4\ The Commission has modified the text of the summaries
prepared by NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(1) Purpose
NSCC is proposing to create an optional service for NSCC members,
``Trade Risk Pro'' or ``DTCC Trade Risk Pro,'' which will enable
members to monitor intraday trading activity of their organizations,
their correspondent firms, or both through review of post-trade data.
An effective risk management structure provides for multiple check
points, including pre-trade controls and post-trade surveillance.
Industry participants have indicated to NSCC that pre-trade monitoring
as a stand-alone risk management tool may not provide adequate
protection for firms or against systemic risk. For example, many orders
are never actually executed and thus a pre-trade filter could
overestimate potential positions or could generate false positives if
not combined with information about what orders are actually executed.
In addition, clearing firms only see their correspondents' orders that
are routed through the clearing firm's trading desks or through the
firm's order entry systems. Orders sent directly to the market can
bypass pre-trade controls. Trade Risk Pro, as more fully described
below, would provide NSCC's members with a method to monitor clearing
activity in their accounts and to set parameters that enable them to
monitor exposure.
As proposed, the service would be available to NSCC members on a
voluntary basis to provide those members electing to participate in the
service with: (i) Post-trade data relating to unsettled equity and
fixed income securities trades for a given day that have been compared
or recorded through NSCC's trade capture mechanisms on that day (``RP
Trade Date Data'') and (ii) other information based upon data the
participating member may itself provide at start of or throughout the
day (``RP Member-provided Data''), as provided in NSCC's Rules and
Procedures governing the proposed service (RP Trade Date Data
[[Page 72742]]
and RP Member-provided Data shall collectively be referred to as ``RP
Transaction Data''). This would include allowing members the ability to
input or load trade information from prior days into the system on
their own to supplement their view of overall risk exposure. As such,
the proposed Trade Risk Pro service would offer an industry-wide post-
trade reporting system that would allow Members to monitor their U.S.
equity and fixed-income trading exposure.
Overview of the Trade Risk Pro Service
Through Trade Risk Pro, NSCC would utilize market and other
information to report post-trade activity to participating members.
Such reporting would incorporate RP Trade Date Data from transactions
in equity and municipal and corporate debt securities after such
transactions have: (i) Passed through the NSCC's edit checks and not
been pended or rejected and (ii) been recorded or compared through
NSCC's Universal Trade Capture and/or Real-Time Trade Matching trade
capture and comparison systems. In addition, as proposed, Trade Risk
Pro would allow participating members to input or load start of day and
intra-day positions (i.e., RP Member-provided Data) to allow member to
view their organization's (or one or more correspondent's) aggregate
open positions in securities cleared through NSCC. Within Trade Risk
Pro, members would be able to create ``Risk Entities'' to track
activity for specific correspondents and clients as well as their own
trading desks and to define the rules for the aggregation of trade
data, set parameters on open positions allowable for each Risk Entity,
and receive alerts for the display of breaches or near breaches of the
parameters.\5\ Trade Risk Pro would provide members with a screen-based
view of their trade data residing in Trade Risk Pro for a given day
aggregated and organized according to parameters set by the member.
Displays provided to participating members will offer the option to
view aggregate and net value, to view share exposure across markets and
other liquidity destinations, and to see exposure at the CUSIP and
individual trade levels. In conformance with NSCC's Rule 49 (Release of
Clearing Data and Clearing Fund Data), each member would only be able
to view information with respect to its own clearing account(s). Trade
Risk Pro would be a reporting service only and any action taken by a
member as a result of any alert, parameter breach, or other information
associated with the service would be at the discretion of the member
and not either in whole or part by NSCC.
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\5\ Members would be able to input such limits into the Trade
Risk Pro interface in order to receive system alerts in the event of
a breach; however, these limits would not trigger a block by NSCC on
any activity processed through NSCC's clearance and settlement
systems.
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NSCC proposes to create a new Rule 54 (Trade Risk Pro) and
Procedure XVII (Trade Risk Pro) to reflect the proposed rule changes
described below. The proposed rule change also proposes to amend Rule
58 (Limitations of Liability) and to update Rule 1 (Definitions) to
include definitions for RP Trade Data, RP Member-provided Data, and RP
Transaction Data, as described more fully below.
1. Establishing and Maintaining Risk Entities and Limits
As an initial step in using the Trade Risk Pro service, members
would have to establish Risk Entities. These designations could include
the trading activity of a single desk, a correspondent, a single
clearing number within the member's NSCC account structure, or the
overall firm. The member could also look at a combination of entities
or other recognized groups. Trade Risk Pro would provide members with
the ability to create Risk Entities through the defining and updating
of the data structure and relationships for the entities to which they
assign a parameter or risk limit. The Risk Entity definitions entered
by Members would drive position calculation and displays in Trade Risk
Pro. Trade Risk Pro would provide Members with a facility to set share
and dollar limits with respect to each Risk Entity at a gross and net
level, and it may provide for additional limits as NSCC may determine
from time to time are appropriate.
Each member may define the Risk Entities so that only trades that
the member intended to belong to that Risk Entity are included through
the use of trade arrays. For each trade, relevant data elements to
create a trade array may include: (i) The member's account number(s),
(ii) the executing broker, (iii) the submitting market or firm, and
(iv) other categories as allowed by NSCC from time to time. Use of
these elements will create an array so that each transaction would be
assigned by virtue of the array to one or more Risk Entities. Users can
assign multiple trade arrays to a single Risk Entity.
Upon implementation of the service, updates and changes made to
Risk Entities by the member would take effect overnight with a cut-off
time designated by NSCC from time to time.\6\ Although Trade Risk Pro
would prohibit double counting of trades within the same Risk Entity,
it is possible that two separate Risk Entities may contain defined
elements as specified by the member that cause a specific trade to be
included into both Risk Entities. Because Risk Entities would be
defined by members, the members would control the ability to either
uniquely define Risk Entities or create Risk Entities that intersect
with one another.
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\6\ NSCC may eventually, at its discretion, provide for real-
time updates post-implementation.
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2. Limit Monitoring
As proposed, Trade Risk Pro would aggregate and make available
position information for purposes of the member's limit monitoring. The
aggregate data would be the sum of RP Member-provided data and RP Trade
Date Data, with the aggregated data defined as RP Transaction Data in
NSCC's Rules and Procedures. Under the proposal, RP Trade Date Data, RP
Member-provided Data, and other relevant data would be aggregated and
sorted, and the data would then be displayed to the member. The display
may include shares and values on a gross or net basis or any other
total aggregation and sorting methods as NSCC may from time to time
make available to members. RP Trade Date Data would be carried at
contract amount unless another pricing method is implemented by NSCC.
RP Member-provided Data would be priced according to information
provided by the member.
Intraday allocations in the settlement system would not be taken
into consideration as they are not fully effective until money
settlement completes (after the day cycle). The totals would be
compared to the parameters set by the members, and the members would be
alerted to breaches based upon their set parameters. The alerts may
take the form of visual screen changes or other notification methods.
The service would also provide updated information when the alert is
resolved (i.e., when the Risk Entity is within the relevant limit say,
for example, as a result of an offsetting transaction reducing the
position or the participant raises the limit for a Risk Entity).
Information such as alert history, members' Risk Entity definitions,
end of day positions, and other data that NSCC provides from time to
time will be supplied to members in an end of day report.
[[Page 72743]]
3. No Effect on Trade Guaranty and Other Considerations
The proposed rule change would provide that any reports and data
supplied to members through Trade Risk Pro is not intended to impact
the timing or status of the guaranty of any transaction in CNS or
Balance Order Securities. In addition, the issuance of information or
data through Trade Risk Pro to Member or the lack of the issuance of
information would not of itself indicate or have any bearing on the
status of any trade, including but not limited to, as compared, locked-
in, validated, guaranteed or not guaranteed.
4. Limitation of Liability
Trade Risk Pro provides members with a facility to review and
monitor trade activity in a manner they select, including providing
members with the ability to populate the service (but not limited to
the ability to input or load positions), define Risk Entities and set
limits, and receive alerts and position data of their choosing. Since
NSCC is not the originator of information made available through Trade
Risk Pro, NSCC proposes to make clear that it is not responsible for
the completeness or accuracy of Trade Date Data or other information or
data which it receives from members or third parties used in offering
the Trade Risk Pro service, for information or data that is received
and compared or recorded by NSCC, or for any errors, omissions, or
delays which may occur in the transmission of such data or information.
In addition, because not all transactions are submitted to NSCC on a
real-time basis, thus NSCC can only provide members using the service
with Trade Date Data as it is compared or recorded. Accordingly,
members should be aware that such Trade Date Data may not be complete.
5. Indemnification
Since each member may use the information for purposes of its own
discretion, the proposed rule change would provide that any member
participating in Trade Risk Pro shall indemnify NSCC and any or all of
its employees, officers, directors, shareholders, agents, and
participants who may sustain any loss, liability or expense as a result
of a third party claim related to any act or omission of the member
made in reliance upon data or information transmitted through Trade
Risk Pro by NSCC to the Member.
6. Implementation Time Frame
Subject to regulatory approval, NSCC is proposing to implement the
above changes during the first quarter of 2012 or soon thereafter. Upon
Commission approval of this proposed rule change, the actual
implementation date will be announced to members through an Important
Notice. NSCC is also proposing to implement a pilot program of the
service among a limited number of members in November 2011.
(2) Statutory Basis
The proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to NSCC because
as proposed Trade Risk Pro should provide NSCC members with mechanism
to monitor post-trade activity on an intraday basis and thereby allow
for enhanced risk management by those members. By providing for
enhanced risk management, the proposed rule change should better
facilitate the prompt and accurate clearance and settlement of
securities transactions. In addition, the proposal is consistent with
the Recommendations for Central Counterparties of the Committee on
Payment and Settlement Systems and the Technical Committee of the
International Organization of Securities Commissions in that it
provides members with a tool for the measurement and management of
credit exposures and thus provides enhanced transparency to members
with respect to their transactions submitted to NSCC.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would impose
any burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments relating to the proposed rule change have not been
solicited NSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within forty-five days of the date of publication of this notice in
the Federal Register or within such longer period (i) as the Commission
may designate up to ninety days of such date 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 the proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2011-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submission should refer to File Number SR-NSCC-2011-10. 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 Web site (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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between the
hours of 10 a.m. and 3 p.m. Copies of such filings will also be
available for inspection and copying at the principal office of NSCC
and on NSCC's Web site at http://www.dtcc.com/downloads/legal/rule_filings/2011/nscc/2011-10.pdf. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NSCC-2011-10 and should be submitted on or before
December 16, 2011.
[[Page 72744]]
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30285 Filed 11-23-11; 8:45 am]
BILLING CODE 8011-01-P