SR-NSCC-2022-012: Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Make a Number of Clarifications and Enhancements to NSCC’s Rules & Procedures
CNS Delivery Exemptions Section D of Procedure VII describes the procedures for controlling deliveries to CNS, including the process by which Members may submit instructions to NSCC to indicate which short positions they do not wish to settle and should be exempt from delivery.
CNS provides for two levels of Exemption. Level 1 Exemptions allow a Member to designate that a portion of its short positions should not be automatically settled against its current Designated Depository position or against any securities which may be received into its Designated Depository account as a result of other depository activity.
Level 2 Exemptions allow a Member to designate that a portion of its short positions should not be automatically settled against its current depository position, but that such a position may be satisfied by certain types of “qualified” activity in its Designated Depository account. Section D.2(b) of Procedure VII discusses the four types of qualified activity, which allow short positions carrying Level 2 Exemptions to be settled.
The list of qualified activity currently includes, among other things, “Receipts from Member’s Sub-Account,” which provides that, as a result of CNS sub-accounting, a Member may have a long position in a given security in one CNS account and a short position in the same security in another CNS account, and since both CNS accounts settle against a single Designated Depository Account, the Member may receive securities from itself.
As noted above, Section D of Procedure VII is intended to describe certain Member rights and obligations associated with the delivery of securities to CNS. Section D.2. of the procedure specifically discusses the process by which Members submit instructions to indicate which short positions should be exempt from delivery and which types of qualified activity allow short positions carrying Level 2 Exemptions to be delivered and settled.
Section D.2(b)(iv), however, discusses a hypothetical scenario under which a Member may receive securities, which is unrelated and not relevant to the delivery of securities to CNS under the exemption and qualified activity process. Accordingly, NSCC proposes to delete Section D.2(b)(iv) to remove potentially confusing procedural language and improve the clarity and accuracy of its Rules.*
*CNS accounts settle against a single Designated Depository Account. It is therefore technically possible for a Member to deliver securities to NSCC’s CNS account to satisfy a short position in one CNS sub-account and receive the same securities from NSCC’s CNS account in connection with a long position in another CNS sub-account. However, the Member is not delivering those securities directly to, nor receiving securities directly from, itself, and the Member may also receive securities that have been delivered to NSCC’s CNS account by another Member. This is another potential area of confusion in the procedure that would be addressed by the proposed deletion of this rule text.
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 e-mail to [email protected]. Please include File Number SR-NSCC-2022-012 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-NSCC-2022-012. This file number should be included on the subject line if e-mail 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).