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Notice

Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add a Clearing Fund Maintenance Fee

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Information about this document as published in the Federal Register.

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Start Preamble August 9, 2016.

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 July 29, 2016, 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. NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act [3] and Rule 19b-4(f)(2) thereunder.[4] The proposed rule change was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change

The proposed rule change consists of modifications to the Addendum A (Fee Structure) of the Rules and Procedures (“Rules”) of NSCC in order to add a new fee that will be charged to Members and certain Limited Members [5] in connection with the maintenance of the Clearing Fund, as described in greater detail below.[6] Members and applicable Limited Members are collectively referred to herein as “members.”

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 proposed rule change will add a fee that will be charged to members in connection with the maintenance of the Clearing Fund.

Clearing Fund Maintenance Fee

Pursuant to the proposed rule change, NSCC proposes to introduce a new fee, to be known as the Clearing Fund Maintenance Fee, which will be charged to members in arrears on a monthly basis.

The proposed rule change will (i) diversify NSCC's revenue sources and mitigate NSCC's dependence on revenues driven by trading volumes and (ii) add a stable revenue source that will contribute to NSCC's operating margin by offsetting increasing costs and expenses, as further described below.

Diversify Revenue Sources

NSCC's current revenues are highly variable due to the nature of the clearing services, which are primarily driven by trading volumes, but, as a utility, NSCC's expenses are largely fixed. The combination of fixed costs and variable revenues represents a financial risk for NSCC. To mitigate such financial risk, NSCC is seeking to diversify its variable revenue base with the proposed new fee, which will introduce a revenue source that is not dependent on trading volumes. The Clearing Fund Maintenance Fee will be ratably based on the member's Clearing Fund average cash deposit.

Offset Increasing Costs and Expenses

NSCC seeks to achieve a target operating margin to cover operating expenses and fund capital expenditures as well as investments in its clearing services and risk management infrastructure; however, NSCC faces continued increasing risk management costs as well as regulatory and compliance-related expenses that need to be offset by revenue growth in order to meet the target operating margin. Such increased costs and expenses, if not offset by revenue growth, could weaken NSCC's financial position over time. As such, NSCC is seeking to implement the Clearing Fund Maintenance Fee to add an additional revenue source to offset increasing costs and expenses.

Proceeds of the Clearing Fund Maintenance Fee will be used primarily to offset risk management costs, regulatory and compliance expenses and for general operating expenses.

Calculation

The amount of the monthly Clearing Fund Maintenance Fee for a member will be calculated monthly, in arrears, as the product of 0.25% and the average of the member's actual cash deposit to the Clearing Fund as of the end of each day of the month, multiplied by the number of days in that month and divided by 360; provided that, the investment rate of return on investment by NSCC of cash in the Clearing Fund for that month is equal to or greater than 0.25%. No fee will be charged to any member for a month in which the monthly rate of return on investment of cash in the Clearing Fund is less than 0.25%.

Based on the 2015 average actual cash deposits to the Clearing Fund, the expected annual revenue to be generated by the Clearing Fund Maintenance Fee is approximately $16 million.

Member Impact

The proposed rule change will impose the Clearing Fund Maintenance Fee on all members that are required to make deposits to the Clearing Fund.

The Clearing Fund Maintenance Fee is a monthly fee based ratably upon the amount of the member's daily actual cash deposited to the Clearing Fund; it Start Printed Page 54147is applicable when the monthly rate of return on investment of cash in the Clearing Fund is equal to or greater than 0.25%.

Because the Clearing Fund Maintenance Fee per member is proportional to the average monthly cash deposit of the member to the Clearing Fund, members that generate higher levels of activity and make greater use of NSCC's services will generally be subject to a higher fee, because such members typically maintain higher Clearing Fund deposits pursuant to the Rules.

NSCC views the proposed implementation of the Clearing Fund Maintenance Fee as a prudent way to minimize the magnitude of, and mitigate the need for, potential future increases in other fees.

The proposed change will take effect on August 1, 2016.

2. Statutory Basis

Section 17A(b)(3)(D) of the Act [7] requires that NSCC's Rules provide for the equitable allocation of reasonable dues, fees, and other charges among its participants. The proposed fee is equitably allocated among members because it is based on each member's utilization of NSCC's services, as measured by their Clearing Fund deposits. In addition, NSCC believes that the proposed fee is reasonable because it will enable NSCC to better align its revenue with the costs and expenses required for NSCC to provide services to its members with a nominal impact on members. Therefore, NSCC believes the proposed rule change is consistent with Section 17A(b)(3)(D).[8]

(B) Clearing Agency's Statement on Burden on Competition

NSCC does not believe that the proposed rule change will impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, because the proposed fee will be equitably allocated among members based on each member's utilization of NSCC's services. Members that have a higher level of activities and greater use of NSCC's services will generally be subject to a higher Clearing Fund Maintenance Fee and members with lower usage will pay less.

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

NSCC has not received or solicited any written comments relating to this proposal. 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

The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) [9] of the Act and paragraph (f) of Rule 19b-4 [10] thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

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

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2016-002. 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 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 Web site (http://dtcc.com/​legal/​sec-rule-filings.aspx). 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-2016-002 and should be submitted on or before September 6, 2016.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11

Robert W. Errett,

Deputy Secretary.

End Signature End Preamble

Footnotes

5.  The proposed new fee will be imposed on Limited Members that are required to make deposits to the Clearing Fund. Currently, those Limited Members are Mutual Fund/Insurance Services Members and Fund Members organized under the laws of the Republic of Ireland.

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6.  Capitalized terms not defined herein are defined in the Rules, available at www.dtcc.com/​~/​media/​Files/​Downloads/​legal/​rules/​nscc_​rules.pdf.

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7.  15 U.S.C. 78q-1(b)(3)(D).

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[FR Doc. 2016-19326 Filed 8-12-16; 8:45 am]

BILLING CODE 8011-01-P