June 28, 2013.
On April 30, 2013, National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) advance notice SR-NSCC-2013-805 (“Advance Notice”) pursuant to Section 806(e) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),
entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (“Clearing Supervision Act” or “Title VIII”) and Rule 19b-4(n) of the Securities Exchange Act of 1934 (“Exchange Act”). On May 14, 2013, NSCC filed with the Commission Amendment No. 1 to the Advance Notice.
The Advance Notice was published in the Federal Register on June 11, 2013.
The Commission received one comment letter to the proposed rule change.
This publication serves as notice of no objection to the Advance Notice.
NSCC filed the Advance Notice to require that all locked-in trade data submitted to NSCC for trade recording Start Printed Page 40526be submitted in real-time,
and to prohibit pre-netting 
and other practices that prevent real-time trade submission, as discussed below.
According to NSCC, the majority of all transactions processed at NSCC are submitted on a locked-in basis by self-regulatory organizations (“SRO”) (including national and regional exchanges and marketplaces), and Qualified Special Representatives (“QSR”).
Currently, NSCC data reveals that almost all exchanges 
and some QSRs submit trades executed on their respective markets in real-time, representing approximately 91% of the locked-in trades submitted to NSCC today. The rule change will require that all locked-in trades submitted for trade recording by SROs and QSRs be submitted to NSCC in real-time.
NSCC will also prohibit Pre-netting practices that preclude real-time trade submission. NSCC states that typically, Pre-netting is done on a bilateral basis between a QSR and its customer, both NSCC Members. According to NSCC, Pre-netting practices disrupt NSCC's ability to accurately monitor market and credit risks as they evolve during the trading day. Therefore, NSCC will prohibit Pre-netting activity on the part of entities submitting original trade data on a locked-in basis.
The rules of NSCC's affiliate Fixed Income Clearing Corporation (“FICC”) currently prohibit such activity, and this rule change will align NSCC's trade submission rules with those of FICC.
Further, NSCC does not expect the rule changes to impact trade volumes significantly. According to NSCC, the majority of trades are currently being submitted to NSCC in real-time on a trade-by-trade basis, and NSCC is operationally capable of managing trade volumes that are multiple times larger than the historical peak volumes.
In the wake of recent industry disruptions, industry participants have been focused on developing controls to address the risks that arise from technology issues. A comment letter submitted to the Commission in advance of its Technology and Trading Roundtable, held in October 2012, and signed by a number of industry participants including SROs, broker-dealers, and buy-side firms, supported this rule change as a crucial component of the industry controls that could increase market transparency and ultimately mitigate risks associated with high-frequency trading and related technology.
NSCC will advise Members of the implementation date of the rule change through issuance of an NSCC Important Notice. The rule change will not be implemented earlier than seven (7) months from the date of Commission approval.
Although Title VIII does not specify a standard of review for an Advance Notice, the stated purpose of Title VIII is instructive.
The stated purpose of Title VIII is to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically-important financial market utilities (“FMU”) and providing an enhanced role for the Board of Governors of the Federal Reserve System (“Federal Reserve”) in the supervision of risk management standards for systemically-important FMUs.
Section 805(a)(2) of the Clearing Supervision Act 
authorizes the Commission to prescribe risk management standards for the payment, clearing, and settlement activities of designated clearing entities and financial institutions engaged in designated activities for which it is the supervisory agency or the appropriate financial regulator. Section 805(b) of the Clearing Supervision Act 
states that the objectives and principles for the risk management standards prescribed under Section 805(a) shall be to:
- promote robust risk management;
- promote safety and soundness;
- reduce systemic risks; and
- support the stability of the broader financial system.
The Commission adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act on October 22, 2012 (“Clearing Agency Standards”).
The Clearing Agency Standards became effective on January 2, 2013 and require clearing agencies that perform central counterparty (“CCP”) services to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.
As such, it is appropriate for the Commission to review Advance Notices against these risk management standards that the Commission promulgated under Section 805(a) and the objectives and principles of these Start Printed Page 40527risk management standards as described in Section 805(b).
Consistent with Section 805(a), the Commission believes NSCC's proposal promotes robust risk management, as well as the safety and soundness of NSCC's operations, while reducing systemic risks and supporting the stability of the broader financial system. As discussed above, the rule change will allow NSCC to mitigate the operational risk that results from locked-in trade data not being submitted to NSCC in real-time.
Commission Rule 17Ad-22(d)(4) regarding identification and mitigation of operational risk,
adopted as part of the Clearing Agency Standards,
requires clearing agencies to establish, implement, maintain and enforce written policies and procedures reasonably designed to: “[i]dentify sources of operational risk and minimize them through the development of appropriate systems, controls, and procedures . . . .” 
The Commission believes that the receipt of locked-in trade data on a real-time basis will permit NSCC's risk management processes to monitor trades closer to trade execution on an intra-day basis and identify and manage any issues relating to excessive risk exposure earlier on a closer to real-time basis, thereby potentially minimizing a source of operational risk.
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the Clearing Supervision Act,
that the Commission does not object to the proposed rule change described in the Advance Notice (File No. SR-NSCC-2013-805) and that NSCC be and hereby is authorized to implement the proposed rule change as of the date of this notice or the date of the “Order Approving Proposed Rule Change to Require that All Locked-in Trade Data Submitted to It for Trade Recording be Submitted in Real-time,” 
whichever is later.
By the Commission.
Kevin M. O'Neill,
[FR Doc. 2013-16086 Filed 7-3-13; 8:45 am]
BILLING CODE 8011-01-P