See NSCC add an intraday volatility charge to its margin requirement and amend its margin requirements that relied on assumptions undercounting potential deficiencies.
(Release No. 34-97129; File No. SR-NSCC-2022-009) March 13, 2023 Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change to Adopt Intraday Volatility Charge and Eliminate Intraday Backtesting Charge
NSCC proposes to implement an intraday volatility charge that would be part of its members’ margin requirement to better address the volatility risks presented by members’ intraday net unsettled positions between the collections of margin at the start of each business day.
Passages of Note:
Specifically, a recent impact study shows that the proposal would have resulted in approximately eight intraday volatility charges collected on an average day during that time period, and such charges would have been an average of $31.6 million, ranging in size from $251,000 to $1.35 billion.
When calculating the intraday volatility charge, NSCC proposes to adjust the net unsettled positions by excluding any position for which shares have either been delivered to the CNS System which is used by NSCC to account for and settle transactions or received by the member from the CNS System to satisfy all or any portion of that position. NSCC states it believes that, for purposes of this calculation, it would be appropriate to assume the positions for which the shares have been delivered and received would settle at the end of the day, so that the calculation would be more effectively driven by any significant intraday changes to the volatility risks presented by members’ adjusted intraday net unsettled positions.
With respect to both aspects of this proposal, the Commission believes that, by allowing NSCC to collect sufficient margin, the proposal should help ensure that, in the event of a member default, NSCC’s operation of its critical clearance and settlement services would not be disrupted because of insufficient financial resources.
Robinhood raises concerns:
One commenter ( Letter from John S. Markle, VP and Deputy General Counsel, Robinhood Securities LLC, at 2 (Aug. 23, 2022), available at https://www.sec.gov/comments/sr-nscc-2022-009/srnscc2022009-20137444- 307937.pdf (“Robinhood Letter”).) raised concerns with respect to the analysis cited by NSCC in the Proposed Rule Change, stating that NSCC did not provide any data to support its assertion that it occasionally observed significant intraday changes to market price volatility.