[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42954-42959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15206]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89269; File No. SR-DTC-2020-009]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Clearing Agency Risk Management Framework
July 9, 2020.
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 7, 2020, The Depository Trust Company (``DTC'') 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. DTC filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)
thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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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 amendments to the Clearing
Agency Risk Management Framework (``Risk Management Framework'' or
``Framework'') of DTC and its affiliates, National Securities Clearing
Corporation (``NSCC'') and Fixed Income Clearing Corporation (``FICC,''
and together with NSCC and DTC, the ``Clearing Agencies'').
Specifically, the proposed rule change would (1) include a description
of a set of policies that addresses the Clearing Agencies' compliance
with Rule 17Ad-22(e)(22) of the Standards for Covered Clearing Agencies
(``Standards''), under the Act,\5\ (2) update the Risk Management
Framework to reflect recent changes to certain processes and other
matters described in the Framework, and changes to the status of
documents identified in the Framework; and (3) clarify the descriptions
of certain matters within the Framework to improve comprehensiveness
and correct errors, as further described below.
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\5\ 17 CFR 240.17Ad-22(e)(22).
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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 Clearing Agencies adopted the Risk Management Framework \6\ to
provide an outline for how each of the Clearing Agencies (i) maintains
a well-founded, clear, transparent and enforceable legal basis for each
aspect of its activities; (ii) comprehensively manages legal, credit,
liquidity, operational, general business, investment, custody, and
other risks that arise in or are borne by it; (iii) identifies,
monitors, and manages risks related to links it establishes with one or
more clearing agencies, financial market utilities, or trading markets;
and (iv) meets the requirements of its participants and the markets it
serves efficiently and effectively. In this way, the Risk Management
Framework currently supports the Clearing Agencies' compliance with
Rules 17Ad-22(e)(1), (3), (20) and (21) of the Standards,\7\ as
described in the Initial Filing. In addition to setting forth the
manner in which each of the Clearing Agencies addresses these
requirements, the Risk Management Framework also contains a section
titled ``Framework Ownership and Change Management'' that, among other
matters, describes the Framework ownership and the required governance
process for review and approval of changes to the Framework. In
connection with the annual review and approval of the Framework by the
Board of Directors of each of NSCC, DTC and FICC (each a ``Board'' and
collectively, the ``Boards''), the Clearing Agencies are proposing to
make certain revisions to the Framework.
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\6\ See Securities Exchange Act Release No. 81635 (September 15,
2017), 82 FR 44224 (September 21, 2017) (SR-DTC-2017-013; SR-NSCC-
2017-012; SR-FICC-2017-016) (``Initial Filing'').
\7\ 17 CFR 240.17Ad-22(e)(1), (3), (20) and (21).
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The proposed changes would add a new Section 4.4 to describe a
policy and a communication standard document that support the Clearing
Agencies' compliance with Rule 17Ad-22(e)(22), which requires the
Clearing Agencies to establish, implement, maintain and enforce written
policies and procedures reasonably designed to use, or at a minimum
accommodate, relevant internationally accepted communication procedures
and standards in order to facilitate efficient payment, clearing, and
settlement.\8\
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\8\ 17 CFR 240.17Ad-22(e)(22).
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The proposed changes would also update the Risk Management
Framework to reflect (1) a change to the name of the Vendor Risk
Management group to the Third Party Risk Management group; (2) a change
to the format of the Balanced Business Scorecard, which is an internal
performance management tool used to measure the effectiveness of
various aspects of the operations of The Depository Trust & Clearing
Corporation (``DTCC'') and its subsidiaries, including the Clearing
Agencies; and (3) the filing
[[Page 42955]]
of certain documents identified in the Framework, pursuant to Section
19(b)(1) of the Act,\9\ and the rules thereunder, and 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,\10\ and the rules thereunder (collectively,
``Filing Requirements''), as described in greater detail below.
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\9\ 15 U.S.C. 78s(b)(1).
\10\ 12 U.S.C. 5465(e)(1).
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The proposed changes would also clarify and enhance the
descriptions in the Risk Management Framework to (1) identify the
requirement of Rule 17Ad-22(e)(3)(i) under the Act that the Framework
be reviewed and approved by the Boards on an annual basis; \11\ (2)
identify the role of the DTCC Legal Department in supporting the
management of legal risks that arise in or are borne by the Clearing
Agencies; (3) enhance the description of the DTCC Risk Department as
``Second Line of Defense,'' (4) enhance the description of the DTCC
Internal Audit Department as ``Third Line of Defense;'' (5) enhance the
description of a policy relating to the establishment and governance of
internal management committees; (6) enhance the description of the
processes designed to maintain comprehensive policies, procedures and
other documents; (7) clarify that certain activities described in the
Framework that relate to the public disclosure of material information,
including market data, address the Clearing Agencies' compliance with
Rule 17Ad-22(e)(23) under the Act; \12\ (8) enhance the description of
the management of systemic risks by describing the role of the Systemic
Risk Council; (9) correct a sentence by removing an unnecessary phrase;
and (10) enhance the descriptions of certain actions by removing the
indication that the Clearing Agencies have discretion in engaging in
those actions.
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\11\ 17 CFR 240.17Ad-22(e)(3)(i).
\12\ 17 CFR 240.17Ad-22(e)(23).
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Finally, the proposed changes would correct an error in the Risk
Management Framework to identify the Audit Committees of the Boards as
the committees to which the DTCC Internal Audit Department has a direct
reporting line. Each of these proposed changes is described below.
i. Proposed Amendments To Describe Policies That Address Compliance
With Rule 17Ad-22(e)(22)
First, the proposed changes would add a new Section 4.4 to the
Framework to describe a policy maintained by the Clearing Agencies to
use and accommodate relevant internationally accepted communication
procedures and standards to facilitate efficient payment, clearing, and
settlement, to support the Clearing Agencies' compliance with Rule
17Ad-22(e)(22).\13\
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\13\ 17 CFR 240.17Ad-22(e)(22).
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The policy describes how the communication standards and data
formats that are currently used by the Clearing Agencies for payment,
clearing, and settlement are regarded as accepted industry standards
for transactions processed through the Clearing Agencies. The policy
also provides that the Clearing Agencies would accommodate new industry
standards that are considered internationally accepted communication
procedures and standards. The new Section 4.4 would also state that the
Clearing Agencies maintain a communication standard document that
supports this policy.
The Clearing Agencies are proposing to amend the Risk Management
Framework to adopt a new Section 4.4 that would describe these
documents, which support the Clearing Agencies' compliance with Rule
17Ad-22(e)(22).\14\
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\14\ Id.
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ii. Proposed Amendments To Update the Framework
Second, the proposed changes would update the Risk Management
Framework to reflect recent developments with respect to certain
processes and other matters described in the Framework, and changes to
the status of documents described in the Framework, as described below.
1. Proposed Change To Identify Third Party Risk Management
Section 4 of the Risk Management Framework outlines ways in which
each of the Clearing Agencies manages certain risks that arise in or
are borne by it. Specifically, Section 4.2 describes the management of
risks related to material interdependencies and external links that may
be established by the Clearing Agencies. The Clearing Agencies
represent that management of risks presented by vendors and other
material service providers is guided by a function within the
Operational Risk Management group within the Group Chief Risk Office .
This function was previously referred to as ``Vendor Risk Management.''
While the role and responsibilities of this risk management function
have not changed, its name has recently been changed to ``Third Party
Risk Management'' to clarify that the function covers any material
third party service provider that provides a service to a DTCC entity.
The Clearing Agencies are proposing to amend Section 4.2.1 of the
Risk Management Framework to reflect this name change and to clarify
that the function covers any material third party service provider that
provides a service to a DTCC entity by adding ``Third Party'' as a new
defined term. The Clearing Agencies are also proposing to identify the
existing policy and procedure that is maintained to manage these risks.
2. Proposed Change to Description of Balanced Business Scorecard
Section 4.3 of the Risk Management Framework addresses certain
processes implemented by the Clearing Agencies in order to be efficient
and effective in meeting the requirements of their respective
participants and the markets they serve.\15\ One of the methods the
Clearing Agencies use to meet these requirements is the periodic
creation of a Balanced Business Scorecard, which provides insight into
the effectiveness of the Clearing Agencies' operations, information
technology service levels, financial performance, human capital, and
their respective participants' experience.
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\15\ Such processes support the Clearing Agencies' compliance
with the requirements of Rule 17Ad-22(e)(21) under the Act. 17 CFR
240.17Ad-22(e)(21).
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Previously, a Balanced Business Scorecard (referred to as the
``Core Balance Business Scorecard'') was created for the Clearing
Agencies, and a separate Balanced Business Scorecard was created for
the other subsidiaries of DTCC. Recently, these two tools merged, and
only one Balanced Business Scorecard (now referred to as the ``DTCC
Balanced Business Scorecard'') is created, which addresses DTCC and
each of its subsidiaries, including each of the Clearing Agencies.
While the new, enterprise-wide Balanced Business Scorecard reports its
conclusions on a less granular, enterprise-wide basis, it is created
using the same set of metrics as the legacy Clearing Agencies version.
Therefore, the Balanced Business Scorecard continues to support the
Clearing Agencies' compliance with the requirements of Rule 17Ad-
22(e)(21) under the Act.\16\ The Balanced Business Scorecard now
reports those metrics in the context of the DTCC enterprise, at a less
granular level.
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\16\ Id.
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The Clearing Agencies are proposing to amend Section 4.3 of the
Risk Management Framework to reflect the change in format of the
Balanced Business Scorecard described above.
[[Page 42956]]
3. Proposed Change to Description of Certain Documents To Reflect
Filing Pursuant to Filing Requirements
Following the adoption of the Risk Management Framework, certain
documents that are identified in the Framework were filed pursuant to
the Filing Requirements. The Clearing Agencies are proposing to revise
the descriptions of these documents to reflect this change.
Section 3.3 of the Framework describes certain frameworks that are
maintained by the Clearing Agencies and provide an outline for certain
policies and procedures that address, in whole or in part, the
management of operational, liquidity, credit, market, collateral, and
other risks. This section identified five such frameworks, the Clearing
Agency Operational Risk Management Framework, the Clearing Agency
Liquidity Risk Management Framework, the Clearing Agency Securities
Valuation Framework, the Clearing Agency Stress Testing Framework, and
the Clearing Agency Model Risk Management Framework. Each of these
frameworks has been filed pursuant to the applicable Filing
Requirements and adopted by the Clearing Agencies.\17\ The Clearing
Agencies are proposing to update Section 3.3 to reflect this change.
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\17\ See Securities Exchange Act Release Nos. 81745 (September
28, 2017), 82 FR 46332 (October 4, 2017) (SR-DTC-2017-014; SR-NSCC-
2017-013; SR-FICC-2017-017) (Operational Risk Management Framework);
82377 (December 21, 2017), 82 FR 61617 (December 28, 2017) (SR-DTC-
2017-004; SR-NSCC-2017-005; SR-FICC-2017-008) (Liquidity Risk
Management Framework); 82006 (November 2, 2017), 82 FR 51892
(November 8, 2017) (SR-DTC-2017-016; SR-NSCC-2017-016; SR-FICC-2017-
020) (Securities Valuation Framework); 82368 (December 19, 2017), 82
FR 61082 (December 26, 2017) (SR-DTC-2017-005; SR-FICC-2017-009; SR-
NSCC-2017-006) (Stress Testing Framework); and 81485 (August 25,
2017), 82 FR 41433 (August 31, 2017) (SR-DTC-2017-008; SR-FICC-2017-
014; SR-NSCC-2017-008) (Model Risk Management Framework).
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Section 5 of the Risk Management Framework describes the plans that
are maintained by each of the Clearing Agencies for their recovery or
orderly wind-down (``R&W Plans''). The R&W Plans were still in
development when the Framework was adopted, but have since been
finalized, approved by the Boards, filed pursuant to the Filing
Requirements, and adopted by the Clearing Agencies.\18\ Therefore, the
Clearing Agencies are proposing to update Section 5 to reflect these
developments, and to describe the ongoing governance of the R&W Plans.
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\18\ See Securities Exchange Act Release Nos. 83972 (August 28,
2018), 83 FR 44964 (September 4, 2018) (SR-DTC-2017-021); 83953
(August 27, 2018), 83 FR 44381 (August 30, 2018) (SR-DTC-2017-803);
83974 (August 28, 2018), 83 FR 44988 (September 4, 2018) (SR-NSCC-
2017-017); 83955 (August 27, 2018), 83 FR 44340 (August 30, 2018)
(SR-NSCC-2017-805); 83973 (August 28, 2018), 83 FR 44942 (September
4, 2018) (SR-FICC-2017-021); 83954 (August 27, 2018), 83 FR 44361
(August 30, 2018) (SR-FICC-2017-805).
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iii. Proposed Amendments To Clarify, Enhance, and Correct Descriptions
in the Framework
Finally, the proposed changes would enhance the descriptions of
certain matters within the Risk Management Framework to improve its
clarity and comprehensiveness and correct an error, as described below.
1. Proposed Change To Correct Annual Approval of Framework by Boards
Section 2 of the Risk Management Framework addresses the
Framework's ownership and change management. This section currently
states that the Framework should be reviewed by the document owner no
less frequently than annually but does not specifically identify the
requirement that the Framework also be approved by the Boards on an
annual basis. The Clearing Agencies are proposing to correct the
Framework to include the requirement that the Framework be approved by
the Boards, or a duly authorized committee of the Boards, annually.
Rule 17Ad-22(e)(3) under the Act requires that the Clearing
Agencies maintain a sound risk management framework for comprehensively
managing the risks that arise in or are borne by the Clearing Agencies,
including investment and custody risks.\19\ Rule 17Ad-22(e)(3)(i) under
the Act requires that the risk management policies, procedures, and
systems that are maintained in compliance with Rule 17Ad-22(e)(3) be
subject to review on a specified periodic basis and be approved by the
Boards annually.\20\ As stated above, the Framework provides an outline
for how each of the Clearing Agencies comprehensively manages legal,
credit, liquidity, operational, general business, investment, custody,
and other risks that arise in or are borne by it, as required by Rule
17Ad-22(e)(3) under the Act.\21\ Therefore, the Risk Management
Framework is reviewed and approved by the Boards annually, as required
by Rule 17Ad-22(e)(3)(i) under the Act.\22\
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\19\ 17 CFR 240.17Ad-22(e)(3).
\20\ 17 CFR 240.17Ad-22(e)(3)(i).
\21\ 17 CFR 240.17Ad-22(e)(3).
\22\ 17 CFR 240.17Ad-22(e)(3)(i).
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The Clearing Agencies are proposing to amend Section 2 of the
Framework to state that the Framework shall be approved by the Boards,
or a duly authorized committee of the Boards, annually. The proposed
change would correct the Framework to include this requirement, which
is aligned with the applicable requirements of Rule 17Ad-22(e)(3)(i)
under the Act.\23\
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\23\ Id.
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2. Proposed Change To Identify DTCC Legal Department's Role in
Management of Clearing Agencies' Legal Risks
Section 3.1 of the Risk Management Framework describes the ``three
lines of defense'' approach adopted by each of the Clearing Agencies
for identifying, assessing, measuring, monitoring, mitigating, and
reporting the risks that arise in or are borne by it. Currently, this
section outlines the role of each line of defense, and specifically
describes the roles of the DTCC Risk Department (``Risk Department'')
and DTCC Internal Audit Department (``Internal Audit'') within this
risk management approach. The DTCC Legal Department (``Legal
Department'') also plays a particular role in the three lines of
defense approach by supporting each line of defense in the management
of legal risks.
While the Legal Department is currently identified as part of the
control functions that form the second line of defense in Section
3.1.2, its particular role is not separately described. Therefore, the
Clearing Agencies are proposing to update the introduction of Section
3.1 to state that the Legal Department supports each line of defense in
the management of legal risks. This proposed change would more clearly
describe the particular role of the Legal Department in this risk
management approach.
3. Proposed Change To Enhance Description of DTCC's Risk Department as
``Second Line of Defense'' in Risk Management
As stated above, Section 3.1 of the Risk Management Framework
describes the ``three lines of defense'' approach to risk management
adopted by the Clearing Agencies. Section 3.1.2 describes the
particular role of the Risk Department as the second line of defense
within this risk management approach. The Clearing Agencies are
proposing to amend this Section 3.1.2 to enhance the description of the
Risk Department's role, including by providing details relating to the
role of the Operational Risk Management group within the Risk
Department. The proposed amendments would describe how the Operational
Risk Management group addresses and escalates incidents based on a risk
rating of those incidents. In addition, the proposed change would
[[Page 42957]]
clarify the description relating to the procedures, processes, tools,
mechanisms, analyses, and testing controls employed by the Risk
Department and indicate that such procedures, etc. are subject to the
parameters set forth in Section 3.3, which discusses the Filing
Requirements and document standards relating to policies, procedures,
frameworks and certain related documents. In addition, the Clearing
Agencies are proposing to add a defined term in Section 3.1 to reflect
that the Risk Department refers to the Risk Department of DTCC. The
proposed changes would more clearly describe the particular role of the
Risk Department in this risk management approach.
4. Proposed Change To Enhance Description of DTCC's Internal Audit
Department as ``Third Line of Defense'' in Risk Management
Section 3.1.3 of the Risk Management Framework describes the
particular role of Internal Audit as the third line of defense within
the risk management approach. The Clearing Agencies are proposing to
amend this Section 3.1.3 to enhance the description of Internal Audit's
role, including by providing a clearer description of the
responsibilities of Internal Audit, making grammatical changes to
certain descriptions to improve readability, and removing references to
Internal Audit as providing an advisory role to the Clearing Agencies.
By removing references to advisory services, the proposed changes would
conform the Risk Management Framework to the charter of the Audit
Committees of the Boards, where similar changes have been made to
reinforce the group's role as the third line of defense in risk
management and its independence and objectivity in the performance of
assurance services. In addition, the Clearing Agencies are proposing to
add a defined term in Section 3.1 to clarify that Internal Audit refers
to the Internal Audit Department of DTCC.
5. Proposed Change To Enhance Description of Policy Regarding
Management Committees and Oversight
Section 3.2 of the Risk Management Framework states that a set of
senior management committees provides oversight of various aspects of
the Clearing Agencies' activities, including risk management, and
describes the policy that sets forth the requirements for establishing
and governing these committees. The Clearing Agencies are proposing to
amend Section 3.2 by including a reference to the described document
and providing a clearer and more complete description of the contents
of this policy and the ongoing governance requirements of senior
management committees. The proposed changes would not make any
substantive changes to this description.
6. Proposed Change To Enhance Description of Management of Policies,
Procedures, and Other Documents
Section 3.3.1 of the Risk Management Framework states that the
Clearing Agencies maintain comprehensive policies and procedures
designed to identify, measure, monitor and manage the risks that arise
in or are borne by the Clearing Agencies, and describes a set of
standards the Clearing Agencies have established for creating and
managing these documents. The Clearing Agencies are proposing to amend
the description of these standards. The proposed amendments to Section
3.3.1 would re-word the descriptions of these standards by, for
example, more clearly describing the governance of these documents, how
these standards provide guidance on reviews of these documents by
document owners, and the role of the document owners in adhering to
these standards. The proposed changes would not make any substantive
changes to this description.
7. Proposed Change To Clarify Regulatory Basis of Certain Public
Disclosures
Section 4.1 of the Risk Management Framework states that the
Clearing Agencies provide their respective participants with
information and incentives to enable them, and, through them, their
customers, to understand, monitor, manage, and contain the risks they
pose to the respective Clearing Agencies, and identifies some of the
tools the Clearing Agencies provide to their participants to facilitate
this understanding. The Clearing Agencies are proposing to amend
Section 4.1 to make clarifying edits.
First, the proposed amendments would clarify that the tools and
activities described in Section 4.1 support the Clearing Agencies'
compliance with Rule 17Ad-22(e)(23) under the Act.\24\ Rule 17Ad-
22(e)(23) requires, in part, that the Clearing Agencies establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for publicly disclosing relevant basic
data on transaction volume and values, and a comprehensive public
disclosure that describes their material rules, policies, and
procedures regarding their legal, governance, risk management, and
operating framework, accurate in all material respects at the time of
publication.\25\ Certain matters described in Section 4.1 of the
Framework, including the publication of disclosure frameworks and
quantitative disclosures (described below), support the Clearing
Agencies' compliance with the requirements of Rule 17Ad-22(e)(23).\26\
Therefore, the Clearing Agencies would update the introduction to
Section 4.1, and make a conforming change to Section 1 of the
Framework, to refer to Rule 17Ad-22(e)(23).\27\
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\24\ 17 CFR 240.17Ad-22(e)(23).
\25\ Id.
\26\ Id.
\27\ Id.
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Second, the proposed amendments would correct a statement in
Section 4.1 of the Framework regarding the disclosure frameworks posted
to the DTCC website for each of the Clearing Agencies on a biennial
basis, which provide a comprehensive description of how the businesses
and operations of the Clearing Agencies reflect the Principles for
financial market infrastructures, issued by the Committee on Payment
and Settlement Systems (``CPSS'') and the Technical Committee of the
International Organization of Securities Commissions (``IOSCO'').\28\
These disclosure frameworks also address how the businesses and
operations of the Clearing Agencies reflect the Standards. Therefore,
the Clearing Agencies would correct this statement in Section 4.1
regarding the scope of the disclosure frameworks by also referring to
the Standards.
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\28\ CPSS and the Technical Committee of IOSCO, Principles for
financial market infrastructures (April 16, 2012), available at
http://www.bis.org/cpmi/publ/d101a.pdf. In 2014, CPSS became the
Committee on Payments and Market Infrastructures (``CPMI'').
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Finally, the proposed amendments would correct a statement in
Section 4.1 of the Framework regarding the quantitative disclosures
that are posted to the DTCC website on a quarterly basis, which
disclose certain quantitative data and other information as set out in
the Public quantitative disclosure standards for central counterparties
published by CPMI and IOSCO.\29\ Currently, Section 4.1 states that
these disclosures relate to the Clearing Agencies. However, these
disclosures are only required for central counterparties and, as such,
only relate to NSCC and FICC, and not DTC. The Clearing Agencies would
correct this error by replacing ``Clearing Agencies''
[[Page 42958]]
with ``NSCC and FICC, as central counterparties'' in Section 4.1 of the
Framework.
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\29\ CPMI and the Board of IOSCO, Public quantitative disclosure
standards for central counterparties (February 26, 2015), available
at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD475.pdf.
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8. Proposed Change To Enhance Description of Governance of Systemic
Risk Management
The proposed change would enhance the description of the governance
of systemic risk management in Section 4.2.1 by including a description
of the Systemic Risk Council, the frequency of this Council's meetings,
and stating that matters discussed at these meetings may be escalated
to the Management Risk Committee or the Board Risk Committee when
appropriate. The proposed changes would improve the descriptions in the
Framework by providing additional details regarding the governance of
systemic risk management.
9. Proposed Change To Enhance Description of Management of Risk Related
to Other External Links
The proposed change would enhance the description of the management
of risks related to external links in Section 4.2.2 by identifying a
policy and a procedure that are maintained by the Clearing Agencies to
govern this process. The proposed change would improve the disclosures
in the Framework by providing a clear reference to these documents.
10. Proposed Change To Remove Unnecessary Phrase
The proposed change would remove an unnecessary phrase ``, is set
forth in'' that is incorrectly at the end of a sentence in Section 1 of
the Framework.
11. Proposed Change To Rephrase Sentences That Incorrectly Indicate
Discretion in Taking Certain Actions
The proposed change would rephrase four sentences in the Framework
that currently indicate the action described is discretionary. First,
the proposed change would rephrase a statement in Section 4.2.1 to
remove the indication that the Clearing Agencies have discretion to not
manage risks related to participants and settlement banks. Second, the
proposed change would rephrase a statement in Section 4.2.1 to remove
the indication that the Clearing Agencies have discretion to not
maintain policies, procedures or templates relating to the management
of third-party risks. Third, the proposed change would rephrase a
statement in Section 4.2.2 to remove the indication that the General
Counsel's Office has discretion in reviewing certain key link
arrangements. Finally, the proposed change would rephrase a statement
in Section 5 to remove the indication that the Clearing Agencies have
discretion to not maintain policies and procedures governing the
development and maintenance of R&W Plans.
12. Proposed Change To Correct Error Regarding Reporting Line of DTCC
Internal Audit Department
The Clearing Agencies are proposing a change to the Framework to
correct an error in Section 3.1.3, which currently states Internal
Audit has a direct reporting line to the Risk Committees of the Boards.
This statement is incorrect, as Internal Audit has a direct reporting
line to the Audit Committees of the Boards. The Clearing Agencies would
correct this error by making a minor revision to Section 3.1.3 of the
Framework. In addition, the Clearing Agencies are proposing to change
references of ``Audit Committee'' to ``Audit Committees'' to reflect
that each of the Boards has an audit committee.
2. Statutory Basis
The Clearing Agencies believe that the proposed changes are
consistent with Section 17A(b)(3)(F) of the Act \30\ and Rules 17Ad-
22(e)(22) and (e)(23) promulgated under the Act,\31\ for the reasons
described below.
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\30\ 15 U.S.C. 78q-1(b)(3)(F).
\31\ 17 CFR 240.17Ad-22(e)(22) and (e)(23).
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a registered clearing agency 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 the clearing agency or for which it is
responsible.\32\ The proposed changes would (1) add a description of
how the Clearing Agencies address compliance with Rule 17Ad-22(e)(22),
(2) update the descriptions of certain matters in the Risk Management
Framework, and (3) clarify and correct other statements within the
Framework, as described above. By addressing the Clearing Agencies'
compliance with Rule 17Ad-22(e)(22), creating clearer, updated
descriptions and correcting errors, the Clearing Agencies believe that
the proposed changes would make the Risk Management Framework more
effective in providing an overview of the important risk management
activities of the Clearing Agencies, as described therein.
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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As described in the Initial Filing, the risk management functions
described in the Risk Management Framework allow the Clearing Agencies
to continue to promote the prompt and accurate clearance and settlement
of securities transactions, and continue to assure the safeguarding of
securities and funds which are in their custody or control or for which
they are responsible notwithstanding the default of a member of an
affiliated family. The proposed changes to describe policies that
address to the Clearing Agencies' communication standards and improve
the clarity and accuracy of the descriptions of risk management
functions within the Framework would assist the Clearing Agencies in
carrying out these risk management functions. Therefore, the Clearing
Agencies believe these proposed changes are consistent with the
requirements of Section 17A(b)(3)(F) of the Act.\33\
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\33\ Id.
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Rule 17Ad-22(e)(22) under the Act requires that each covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to use, or at a minimum
accommodate, relevant internationally accepted communication procedures
and standards in order to facilitate efficient payment, clearing, and
settlement.\34\ The Framework would describe a policy maintained by the
Clearing Agencies that (1) identifies the communication standards and
data forms used by the Clearing Agencies for payment, clearing and
settlement that are regarded as accepted industry standards for
transactions processed through the Clearing Agencies, and (2) provides
that the Clearing Agencies would accommodate relevant internationally
accepted communication procedures and standards when new industry
standards are introduced. By describing the Clearing Agencies' use of
accepted industry communication standards and their policy of
supporting new industry standards when introduced, this policy, and a
supporting communication standards document, both support the Clearing
Agencies' compliance with Rule 17Ad-22(e)(22).\35\ Therefore, the
Clearing Agencies believe that the proposed rule change to include this
policy in the Risk Management Framework is consistent with Rule 17Ad-
22(e)(22).\36\
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\34\ 17 CFR 240.17Ad-22(e)(22).
\35\ Id.
\36\ Id.
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Rule 17Ad-22(e)(23) under the Act requires, in part, that the
Clearing Agencies establish, implement, maintain and enforce written
policies and procedures reasonably designed to provide for publicly
disclosing relevant basic data on transaction volume and values, and a
comprehensive public
[[Page 42959]]
disclosure that describes their material rules, policies, and
procedures regarding their legal, governance, risk management, and
operating framework, accurate in all material respects at the time of
publication.\37\ Section 4.1 of the Framework currently describes how
the Clearing Agencies provide their respective participants with
information and incentives to enable them, and, through them, their
customers, to understand, monitor, manage and contain the risks they
pose to the respective Clearing Agencies, and identifies some of the
tools the Clearing Agencies provide to their participants to facilitate
this understanding. The proposed rule change would revise Section 4.1
of the Framework to state that those tools and activities support the
Clearing Agencies' compliance with Rule 17Ad-22(e)(23) under the
Act.\38\ By describing these actions, including the publication of
disclosure frameworks and quantitative disclosures, the Clearing
Agencies believe that the proposed change to the Risk Management
Framework is consistent with Rule 17Ad-22(e)(23).\39\
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\37\ 17 CFR 240.17Ad-22(e)(23).
\38\ Id.
\39\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
The Clearing Agencies do not believe that the proposed changes to
the Framework described above would have any impact, or impose any
burden, on competition. As described above, the proposed rule changes
would improve the comprehensiveness of the Framework by including a
description of the Clearing Agencies' compliance with Rule 17Ad-
22(e)(22) under the Act and would also improve the clarity and accuracy
of the descriptions of certain matters within the Framework. Therefore,
the proposed changes are technical and non-material in nature, relating
mostly to the operation of the Framework rather than the risk
management functions described therein. As such, the Clearing Agencies
do not believe that the proposed rule changes would have any impact on
competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
The Clearing Agencies have not solicited or received any written
comments relating to this proposal. The Clearing Agencies will notify
the Commission of any written comments received by the Clearing
Agencies.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \40\ and
Rule 19b-4(f)(6) thereunder.\41\
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\40\ 15 U.S.C. 78s(b)(3)(A).
\41\ 17 CFR 240.19b-4(f)(6).
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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
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-DTC-2020-009 on the subject line.
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-DTC-2020-009. 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 DTC 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-DTC-2020-009 and should be submitted on
or before August 5, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15206 Filed 7-14-20; 8:45 am]
BILLING CODE 8011-01-P