Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance NSCC's Clearing Fund Methodology

[Federal Register Volume 91, Number 107 (Thursday, June 4, 2026)]

[Notices]

[Pages 33839-33844]

From the Federal Register Online via the Government Publishing Office [ www.gpo.gov ]

[FR Doc No: 2026-11144]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-105593; File No. SR-NSCC-2026-008]

Self-Regulatory Organizations; National Securities Clearing

Corporation; Notice of Filing of Proposed Rule Change To Enhance NSCC's

Clearing Fund Methodology

June 1, 2026.

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 May 26, 2026, 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. 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.

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I. Clearing Agency's Statement of the Terms of Substance of the

Proposed Rule Change

The proposed rule change would modify the NSCC Rules & Procedures

(``NSCC Rules'') \3\ to enhance NSCC's Clearing Fund methodology to

address certain risks presented by exchange-traded products (``ETPs'').

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\3\ Capitalized terms not defined herein shall have the meaning

assigned to such terms in the NSCC Rules, available at www.dtcc.com/legal/rules-and-procedures .

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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

Background

(i) Overview of the NSCC Clearing Fund

NSCC is a clearing agency that provides clearing, settlement, risk

management, and central counterparty (``CCP'') services for trades

involving equity securities, corporate and municipal debt, ETPs,\4\ and

unit investment trusts. NSCC manages its credit exposure to its Members

by determining the appropriate Required Fund Deposit to the Clearing

Fund for each Member and by monitoring the sufficiency of such

deposits, as provided for in the NSCC Rules.\5\

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\4\ ETPs cleared by NSCC include exchange-traded funds

(``ETFs'') and exchange-traded notes (``ETNs''). ETFs are securities

that are traded on an exchange and track underlying securities,

indexes or other financial instruments, including equities,

corporate and municipal bonds and treasury instruments. ETNs are

unsecured debt obligations of financial institutions that trade on a

securities exchange.

\5\ See NSCC Rule 4 (Clearing Fund) and Procedure XV (Clearing

Fund Formula and Methodology), supra note 3.

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NSCC Procedure XV describes NSCC's Clearing Fund formula and

methodology. NSCC calculates and

[[Page 33840]]

collects Clearing Fund from its Members (i.e., a Required Fund Deposit)

on a daily basis using a risk-based margin methodology. The objective

of a Member's Required Fund Deposit is to mitigate potential losses to

NSCC associated with liquidating a Member's portfolio in the event NSCC

ceases to act for that Member (hereinafter referred to as a

``default'').\6\ Required Fund Deposits operate, individually, as the

Member's margin, and the aggregate of all such Members' deposits is

referred to, collectively, as the Clearing Fund, which operates as

NSCC's default fund. NSCC would access the Clearing Fund should a

defaulting Member's own Required Fund Deposit be insufficient to

satisfy losses to NSCC caused by the liquidation of that Member's

portfolio.

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\6\ The NSCC Rules identify when NSCC may cease to act for a

Member and the types of actions NSCC may take. See NSCC Rule 46

(Restrictions on Access to Services), supra note 3.

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Each Member's Required Fund Deposit amount consists of a number of

applicable components, each of which is calculated to address specific

risks faced by NSCC, as identified within the NSCC Rules. The major

components of NSCC's Clearing Fund charges include, but are not limited

to: (i) volatility charges for securities based on asset type and

liquidity profile (``Volatility Charge''); (ii) mark-to-market charges;

(iii) fail charges; (iv) a charge for Family-Issued Securities to

mitigate wrong-way risk; (v) a charge to mitigate day over day margin

differentials; (vi) a coverage component; (vii) a margin liquidity

adjustment component; (viii) a backtesting charge; and (ix) an excess

capital premium charge. The primary component of NSCC's Clearing Fund

is the Volatility Charge, which is designed to measure market price

volatility of each Member's start of day (``SOD'') portfolio.

(ii) Volatility Charge Component of the Clearing Fund

The Volatility Charge of each Member's Required Fund Deposit is

designed to measure the market price volatility of the SOD portfolio

and is calculated for Members' Net Unsettled Positions \7\ and Net

Balance Order Unsettled Positions \8\ (hereinafter, collectively

referred to as ``Net Unsettled Positions''). The Volatility Charge is

designed to capture the market price risk \9\ associated with each

Member's portfolio at a 99th percentile level of confidence. The

Volatility Charge component usually comprises the largest portion of a

Member's Required Fund Deposit.

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\7\ Net Unsettled Positions are defined in the NSCC Rules as a

Member's net of unsettled Regular Way, When-Issued and When-

Distributed positions in CNS Securities that have not yet passed

Settlement Date and net positions in CNS Securities that did not

settle on Settlement Date. See Definitions and Descriptions in NSCC

Rule 1, supra note 3.

\8\ Net Balance Order Unsettled Positions are defined as a

Member's net of unsettled Regular Way, When-Issued and When-

Distributed positions in Balance Order Securities that have not yet

passed Settlement Date. See Definitions and Descriptions in NSCC

Rule 1, supra note 3.

\9\ Market price risk refers to the risk that volatility in the

market causes the price of a security to change between the

execution of a trade and settlement of that trade. This risk is also

referred to herein as market risk and volatility risk.

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NSCC has two methodologies for calculating the Volatility Charge.

For the majority of equity Net Unsettled Positions, NSCC calculates the

Volatility Charge as the sum of (1) the greater of (a) the larger of

two separate calculations that utilize a parametric Value-at-Risk

(``VaR'') model \10\ and (b) a portfolio margin floor calculation

(``Margin Floor'') based on the market values of the long and short

positions in the portfolio \11\ and (2) a gap risk measure calculation

(``Gap Risk Charge'') based on the concentration threshold of the two

largest non-diversified positions in a portfolio (collectively, the

``VaR Charge'').\12\ NSCC also excludes certain equity Net Unsettled

Positions from the calculation of the VaR Charge and instead applies a

haircut-based volatility charge that is calculated by multiplying the

absolute value of those Net Unsettled Positions by a percentage.\13\

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\10\ The parametric VaR calculation utilizes (i) an

exponentially-weighted moving average (``EWMA'') estimation and (ii)

an evenly-weighted estimation that is directly compared to the EWMA

parameter. The greater of these two separate calculations produces a

single core parametric result (``Core Parametric Estimation'').

\11\ The Margin Floor is then compared to the Core Parametric

Estimation to determine the parametric VaR (i.e., the parametric VaR

is the highest among the Core Parametric Estimation and the Margin

Floor).

\12\ See Procedure XV, Sections I(A)(1)(a)(i) and I(A)(2)(a)(i)

of the NSCC Rules, supra note 3.

\13\ See Procedure XV, Sections I(A)(1)(a)(ii) and

I(A)(2)(a)(ii) of the NSCC Rules, supra note 3.

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Fat Tail Adjustment Factor. Under NSCC's current parametric VaR

model methodology, NSCC supplements its assumption of a normal return

distribution for equity portfolios with a factor that utilizes the

degrees of freedom (``DOF'') derived from a family of Student's t-

distributions, which are more representative of the historically

observed return distributions in the equities markets (the ``Fat Tail

Adjustment Factor'').\14\ NSCC estimates periodically the DOF factor of

the empirical t-distribution in the model by using daily return data

from an industry standard index over a historical window of no shorter

than 12 months. NSCC then computes a multiplication factor that

represents the magnitude of increase of t-distribution-based parametric

VaR from the normal-based parametric VaR. This multiplication factor is

then applied to parametric VaR.

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\14\ In 2014, the Commission issued a notice of no objection to

an advance notice filing by NSCC to make certain enhancements to its

parametric VaR model by supplementing the assumption of normal

distribution underlying the current model with a family of Student's

t-distributions. The Fat Tail Adjustment Factor is not currently

described in the NSCC Rules. See Securities Exchange Act Release No.

72260 (May 27, 2014), 79 FR 31360 (June 2, 2014) (SR-NSCC-2014-802).

The Fat Tail Adjustment Factor is described in NSCC's internal

methodology and risk model documentation and in the externally

available NSCC Risk Margin Component Guide, posted on the DTCC

website at www.dtcclearning.com/products-and-services/equities-clearing/nscc-risk-management.html .

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Bid-Ask Spread Charge. In calculating estimations of volatility for

the Core Parametric Estimation, NSCC also includes an additional charge

designed to cover the risk presented by the variation of bid-ask

spreads over time and varying market conditions (``Bid-Ask Spread

Charge''). The Bid-Ask Spread Charge is measured by multiplying the

gross market value of each Net Unsettled Position by a basis point

charge.\15\ The applicable basis point charge is based on the following

groups/classifications: (i) large and medium capitalization equities;

(ii) small capitalization equities; (iii) micro-capitalization

equities; and (iv) ETPs. NSCC reviews the basis point charges at least

annually.

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\15\ See Procedure XV, Sections I(A)(1)(a)(i)I and

I(A)(2)(a)(i)I of the NSCC Rules, supra note 3.

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Gap Risk Charge. In addition to the Core Parametric Estimation and

the Margin Floor, NSCC calculates a Gap Risk Charge, which is designed

to address a pronounced form of idiosyncratic risk from unexpected,

large, gap-like price movements of a stock due to company-specific

events. The Gap Risk Charge is added, if applicable, to the parametric

VaR to determine the VaR Charge.\16\

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\16\ See Procedure XV, Sections I(A)(1)(a)(i)III and

I(A)(2)(a)(i)III of the NSCC Rules, supra note 3.

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The Gap Risk Charge is assessed if the sum of the gross market

values of the two largest non-diversified Net Unsettled Positions in a

Member's portfolio represents a percentage designated by NSCC of the

gross market value of the entire portfolio (the ``Concentration

Threshold''), currently set at a value that is no greater than 30

percent. The amount of the Gap Risk Charge is determined by adding the

sum of (1) the product of (A) the gross market value of the largest

non-diversified Net Unsettled Position and (B) a ``gap risk haircut''

determined by NSCC of not

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less than five percent and (2) the product of (A) the gross market

value of the second largest non-diversified Net Unsettled Position and

(B) a gap risk haircut, no larger than the gap risk haircut applied to

the largest Net Unsettled Position (but not less than 2.5 percent). The

Concentration Threshold and the gap risk haircuts are determined by

NSCC from time to time and are calibrated based on backtesting and

impact analysis during a time period of not less than the previous 12

months.\17\

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\17\ See id.

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Additionally, NSCC excludes ETF \18\ positions from the calculation

if the positions have characteristics that indicate that they are less

prone to the effects of gap risk events. Such characteristics include

whether the ETF positions track to an index that is linked to a broad-

based market index, contain a diversified underlying basket, are

unleveraged, or track to an asset class that is less prone to gap

risk.\19\

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\18\ As noted above, ETFs are securities that are traded on an

exchange and that track underlying securities, indexes or other

financial instruments, including equities, corporate and municipal

bonds and treasury instruments. Unlike mutual funds, ETFs are

created with the assistance of certain financial institutions called

authorized participants (``APs''), often banks, that are given the

ability to create and redeem ETF shares directly from the ETF

issuer. To create ETF shares, an AP can either deliver a pre-

specified bundle of securities underlying the ETFs (i.e., an ``in-

kind basket'') in exchange for ETF shares or provide cash equal to

the value of the cost of purchasing underlying securities for the

ETF shares. To redeem ETF shares, an AP would do the opposite--

deliver ETF shares to the ETF issuer in exchange for an in-kind

basket of underlying securities or cash equal to the value of the

underlying securities. NSCC supports the creation and redemption of

ETFs on both a ``cash-only'' and ``in-kind'' basis. ``Cash-only''

creations and redemptions represent an exchange of ETF shares for

cash rather than for the component securities and other assets in

the trading basket. ``In-kind'' ETF creations and redemptions

represent an exchange of ETF shares for the component securities and

other assets in the trading basket. See NSCC Rule 7 (Comparison and

Trade Recording Operation (Including Special Representative/Index

Receipt Agent)) and Procedure II (Trade Comparison and Recording

Service), Section F concerning the ETF creation/redemption process,

supra note 3.

\19\ See Securities Exchange Act Release No. 98086 (Aug. 8,

2023), 88 FR 55100 (Aug. 14, 2023) (SR-NSCC-2022-015).

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Proposed Changes to the NSCC Rules

NSCC proposes to amend the NSCC Rules to (i) enhance its Gap Risk

Charge methodology to address certain risks presented by ETFs; (ii)

enhance the Bid-Ask Spread Charge by applying more granular basis point

charges for different sub-categories of ETPs; and (iii) describe the

use of the Fat Tail Adjustment Factor in the parametric VaR

calculation. The proposed changes are described in detail below.

(i) Proposed Enhancements to the Gap Risk Charge

NSCC proposes to enhance its methodology for the Gap Risk Charge by

introducing a mapping and decomposition process for ETFs that is

designed to more accurately isolate and address the risk exposures of

the underlying ETF holdings. The proposed rule change would allow NSCC

to (i) map certain leveraged or inverse equity ETFs \20\ to a related

non-leveraged ETF with in-kind baskets with adjustment of the

corresponding leverage/inverse factor; (ii) decompose equity ETFs

eligible for in-kind baskets, including the mapped ETFs from (i), into

their underlying components; and (iii) map single stock ETFs to their

corresponding single stock positions with adjustments for any

corresponding leverage/inverse factor, so that NSCC can net indirect

and direct exposures within a Member's portfolio.

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\20\ A ``leveraged'' ETF is an ETF that seeks to deliver

multiples of the daily performance of the index or benchmark it

tracks. For example, a 2x (or two times) leveraged ETF seeks to

deliver double the daily performance of the index or benchmark that

it tracks. An ``inverse'' ETF seeks to deliver the opposite of the

daily performance of the index or benchmark it tracks. To accomplish

their objectives, leveraged and inverse ETFs may pursue a range of

investment strategies through the use of swaps, futures contracts,

and other derivative instruments. See U.S. Securities and Exchange

Commission, Commission Investor Bulletin, Leveraged and Inverse

ETFs: Specialized Products with Extra Risks for Buy-and-Hold

Investors, Office of Investor Education and Advocacy (Aug. 29,

2023), available at https://sec.gov/investor/pubs/leveragedetfs-alert.htm .

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NSCC proposes to modify Sections I(A)(1)(a)(i)(III) and

I(A)(2)(a)(i)(III) of Procedure XV to describe the proposed

enhancements to the Gap Risk Charge. First, NSCC would revise the NSCC

Rules to provide that the enhanced Gap Risk Charge would be assessed

based on the sum of the gross market values of the two largest non-

diversified ``net positions'' within a Member's portfolio, rather than

the Net Unsettled Positions. The proposed rule change would further

provide that, for purposes of determining ``net positions'' for the Gap

Risk Charge calculation, NSCC would start with Net Unsettled Positions

and then apply a mapping and decomposition process for ETF Net

Unsettled Positions to isolate the risk exposures of the underlying ETF

holdings, which is described in further detail below. The proposed

changes are intended to reflect the application of the proposed mapping

and decomposition process in determining the net position used to (i)

determine whether positions in the portfolio exceed the Concentration

Threshold and (ii) calculate the resultant Gap Risk Charge.

Second, NSCC would amend the NSCC Rules to describe the proposed

mapping and decomposition process, which would enable the Gap Risk

Charge to account for both direct exposure and indirect exposure for

applicable equities. Specifically, the proposed rule change would

provide that (i) equity ETFs eligible for in-kind baskets may be

decomposed into positions in their underlying components; (ii)

leveraged or inverse equity ETFs may be mapped to a related non-

leveraged ETF with in-kind baskets, which may then be decomposed into

positions in their underlying components; and (iii) single stock ETFs

may be mapped to their corresponding single stock positions.

Third, NSCC would amend the NSCC Rules to provide that NSCC would

then net all positions, whether they have direct exposure from the Net

Unsettled Positions within the original portfolio or indirect exposures

from the ETF mapping and decomposition process, to establish the ``net

positions'' for the Gap Risk Charge calculation. Accordingly, the Gap

Risk Charge would then be determined by adding the sum of the product

of the gross market value of the two largest non-diversified net

positions (as derived by the mapping and decomposition process) and

corresponding gap risk haircuts established by NSCC, if the sum of the

gross market values of the two largest non-diversified net positions in

the portfolio represent a percentage designated by NSCC of the gross

market value of the entire liquid equity portfolio, minus the exempted

equity ETFs.

In addition, NSCC would modify its existing procedures for

determining which ETFs would be excluded from the Gap Risk Charge

calculation by moving those procedures from a footnote into the body of

the NSCC Rules and clarifying that the characteristics that are

described to determine the exclusions (e.g., whether the ETF positions

track to an index that is linked to a broad-based market index, contain

a diversified underlying basket, are unleveraged, or track to an asset

class that is less prone to gap risk) are not exclusive and may be

subject to modification by NSCC.

NSCC believes the proposed changes would improve the design of its

current Gap Risk Charge methodology, which does not fully account for

idiosyncratic risks presented by the underlying holdings of ETFs and

broadly exempts diversified ETFs from the charge entirely without

considering potential idiosyncratic risks. The proposed changes would

enhance the Gap Risk

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Charge to address security exposures embedded in single-stock ETFs and

those ETFs currently exempted from the Gap Risk Charge, which may

contribute to the concentration risk of single name equities presented

by such ETFs in a Member's portfolio. The proposed mapping and

decomposition process is designed to enable NSCC to address unique

risks presented by equity-based ETFs. By mapping leveraged and inverse

equity ETFs to related non-leveraged ETFs with in-kind baskets,

decomposing in-kind baskets into their underlying components, and

mapping single stock ETFs to their corresponding single stock

positions, and then netting and aggregating the resulting positions,

NSCC would be able to better assess and address the underlying security

exposures embedded within single-stock ETFs and those ETFs currently

exempted from the Gap Risk Charge. NSCC therefore believes that the

proposed change would result in more accurate and appropriate Gap Risk

Charges for Member portfolios.

(ii) Proposed Enhancements to the Bid-Ask Spread Charge

NSCC also proposes to enhance its Bid-Ask Spread Charge by applying

more granular basis point charges for different sub-categories of ETPs.

Specifically, NSCC proposes to revise Sections I(A)(1)(a)(i)I and

I(A)(2)(a)(i)I of Procedure XV of the NSCC Rules to provide that NSCC

would apply different basis point charges within the ETP risk group

based on an ETP's inclusion in additional sub-categories determined by

NSCC, which would be based on factors such as capitalization or asset

class.\21\

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\21\ Examples of such sub-categories may include but are not

limited to: (i) large and mid-capitalization ETPs; (ii) small and

micro capitalization ETPs; (iii) cryptocurrency ETPs; and (iv) fixed

income ETPs.

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As discussed above, the Bid-Ask Spread Charge is calculated by

multiplying the gross market value of each Net Unsettled Position by an

applicable basis point charge, which is determined based on the

following groups/classifications: (i) large and medium capitalization

equities; (ii) small capitalization equities; (iii) micro-

capitalization equities; and (iv) ETPs.\22\ NSCC currently applies one

standard basis point charge for all ETPs, which assumes that all ETPs

share similar liquidity and bid-ask spread haircuts.

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\22\ See Procedure XV, Sections I(A)(1)(a)(i)I and

I(A)(2)(a)(i)I of the NSCC Rules, supra note 3.

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The proposed rule change would enhance the current design of the

Bid-Ask Spread Charge by improving the granularity of the basis point

charges used within the ETP risk group to account for different asset

classes and market capitalizations of ETPs. As a result, NSCC believes

that the proposed change would result in more accurate and

representative Bid-Ask Spread Charges for the liquidity profile of

different types of ETPs.

(iii) Proposed Clarifications Related to the Fat Tail Adjustment Factor

Finally, NSCC proposes to modify the NSCC Rules to include a

description of the Fat Tail Adjustment Factor used in its parametric

VaR calculations and to provide additional clarification that NSCC may

apply different parameter values to more accurately calibrate for the

tail risk of different Member portfolio types. Specifically, NSCC

proposes to modify Sections I(A)(1)(a)(i)I and I(A)(2)(a)(i)I of

Procedure XV, which currently state that the volatility component

calculation of the VaR Charge shall be made utilizing such assumptions

and based on such historical data as NSCC deems reasonable and shall

cover such range of historical volatility as NSCC from time to time

deems appropriate, to include that such assumptions and historical data

would also account for the tail risk of Member portfolio types.

As discussed above, NSCC currently applies one Fat Tail Adjustment

Factor for all portfolios based on an industry standard index as a

proxy for tail risk calibration. While the current Fat Tail Adjustment

Factor is conservative from a risk perspective, the current approach

does not reflect the complexity of all Member portfolios, which include

long and short positions, diverse securities, and dynamic compositions.

As a result, NSCC may calibrate tail risk using actual member portfolio

residuals for better accuracy. NSCC believes that calibrating the Fat

Tail Adjustment Factors based on considerations of portfolio

characteristics such as portfolio size would result in more accurate

estimations of risk and associated margin requirements.

The proposed rule change would improve Members understanding of the

use of the Fat Tail Adjustment Factor in NSCC's parametric VaR

calculations and clarify that Fat Tail Adjustment Factor parameters may

be calibrated from time to time to ensure that NSCC is appropriately

addressing tail risk for various Member portfolio types.

(iv) Anticipated Impact on Members

NSCC conducted an impact analysis of portfolios over the period

January 2025 to February 2026 (``Impact Study''). If the proposed rule

change had been in place during the Impact Study period, the analysis

showed that the proposed changes would have resulted in an overall

increase of approximately $60 million across NSCC Members, which is

less than 1 percent of the total VaR Charge.

With respect to the Gap Risk Charge, the Impact Study showed an

average daily increase in the overall Gap Risk Charge of approximately

$223 million (from $727 million to approximately $950 million), which

was mostly attributable to changes in portfolio concentration profile

due to the netting of indirect and direct security exposures. With

respect to the Bid-Ask Spread Charge, the Impact Study showed an

average daily increase in the overall Bid-Ask Spread Charge of

approximately $6 million (from $96 million to approximately $102

million). Finally, for the Fat Tail Adjustment Factor calibration, the

Impact Study showed an average daily reduction in the VaR Charge of

approximately $168 million (from $5.49 billion to approximately $5.32

billion).

NSCC notes that individual Member-level impacts would vary based on

the composition and size of each Member's portfolio. With respect to

the Gap Risk Charge, the Impact Study results for the top 20 largest

daily average notional impacts by account showed an increase in the Gap

Risk Charge ranging from approximately $4.4 million to $23.4 million,

with 15 of those accounts seeing an average impact of less than $10

million. The percentage impact for the top 20 largest accounts ranged

from approximately 110 to 750 percent increases in the Gap Risk Charge;

however, there was also one Member account that would have seen Gap

Risk Charges imposed that had not previously incurred such charges. As

noted above, these larger impacts are mostly attributable to changes in

portfolio concentration profiles due to the netting of indirect and

direct security exposures, which were not previously captured in the

Gap Risk Charge on these portfolios.

For the Bid-Ask Spread Charge, the Impact Study results for the top

20 largest daily average notional impacts by account showed a reduction

in the charge of approximately $75,000 to $100,000 for two Member

accounts and increases ranging from approximately $82,000 to $752,000

for the rest of the top 20 accounts, with half of those accounts seeing

an increase of less than $150,000. From a percentage impact

perspective, all but three of the most impacted accounts saw an

increase in the Bid-Ask Spread Charge of 50 percent or less.

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For the Fat Tail Adjustment Factor calibration, the Impact Study

results for the top 20 largest daily average notional impacts by

account showed reductions in the parametric VaR ranging from

approximately $2.6 to $13 million. Meanwhile, the top 20 percentage

impacts fall between the range of 3.3 to 3.7 percent of reduction.

NSCC will perform individual client outreach by sharing impact

studies for all Members and conducting targeted outreach for Members

that are most significantly impacted by the proposed rule change.

Implementation Timeframe

NSCC expects to implement the proposed rule change by no later than

October 30, 2026. NSCC would announce the effective date of the

proposed changes by an Important Notice posted to NSCC's website.

2. Statutory Basis

NSCC believes that the proposed rule change is consistent with the

requirements of the Act and the rules and regulations thereunder

applicable to a registered clearing agency. Specifically, NSCC believes

that the proposed changes are consistent with Section 17A(b)(3)(F) of

the Act \23\ and Rules 17ad-22(e)(4) and (6) thereunder \24\ for the

reasons set forth below.

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\23\ 15 U.S.C. 78q-1(b)(3)(F).

\24\ 17 CFR 240.17ad-22(e)(4) and (6).

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Section 17A(b)(3)(F) of Act \25\ requires, in part, that the rules

of a clearing agency be designed to promote the prompt and accurate

clearance and settlement of securities transactions, 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 and, in

general, to protect investors and the public interest. The proposed

rule change would improve risk management at NSCC by enhancing its

Clearing Fund calculations, specifically as they relate to the Gap Risk

Charge, Bid-Ask Spread Charge, and Fat Tail Adjustment Factor. First,

the proposed rule change would improve the design of NSCC's Gap Risk

Charge methodology by more accurately isolating and addressing the risk

exposures of underlying ETF holdings, such as security exposures

embedded in single-stock ETFs and those ETFs currently exempted from

the Gap Risk Charge, which may contribute to the concentration risk

presented by such ETFs in a Member's portfolio. Second, the proposed

rule change would enhance the Bid-Ask Spread Charge by improving the

granularity of the basis point charges used within the ETP risk group

to account for different asset classes and market capitalizations,

resulting in more accurate and representative Bid-Ask Spread Charges

for the liquidity profile of different types of ETPs. Third, the

proposed rule change would improve Members understanding of the use of

the Fat Tail Adjustment Factor in NSCC's parametric VaR calculations

and clarify that Fat Tail Adjustment Factor parameters may be

calibrated from time to time to ensure that NSCC is appropriately

addressing tail risk for various Member portfolio types. NSCC uses the

margin and Clearing Fund it collects to mitigate potential losses to

NSCC (and through loss allocation, to its Members) associated with

liquidating a defaulting Member's portfolio and to continue to effect

the prompt and accurate clearance and settlement of securities

transactions in the event of a Member default. As a result, NSCC

believes the proposed rule change is designed to promote the prompt and

accurate clearance and settlement of securities transactions, to assure

the safeguarding of securities and funds which are in the custody or

control of NSCC or for which it is responsible and, in general, to

protect investors and the public interest in accordance with the

requirements of Section 17A(b)(3)(F) of Act.

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\25\ 15 U.S.C. 78q-(b)(3)(F).

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Rule 17ad-22(e)(6)(i) \26\ under the Act requires that each covered

clearing agency that provides CCP services establish, implement,

maintain, and enforce written policies and procedures reasonably

designed to establish a risk-based margin system that, among other

things, considers, and produces margin levels commensurate with, the

risks and particular attributes of each relevant product, portfolio,

and market. As discussed above, the proposed rule change would improve

the design of NSCC's Gap Risk Charge methodology by more accurately

isolating and addressing the risk exposures of underlying ETF holdings,

including security exposures embedded in single-stock ETFs and those

ETFs currently exempted from the Gap Risk Charge. The proposed rule

change also would enhance the Bid-Ask Spread Charge by improving the

granularity of the basis point charges used within the ETP risk group

to account for different asset classes and market capitalizations of

ETPs, resulting in more accurate and representative Bid-Ask Spread

charges as applied to different types of ETPs. In addition, the

proposed rule change would describe the use of the Fat Tail Adjustment

Factor in NSCC's parametric VaR calculations and clarify that Fat Tail

Adjustment Factor parameters may be calibrated from time to time to

ensure that NSCC is appropriately addressing tail risk for various

Member portfolio types. As a result, NSCC believes that the proposed

changes are reasonably designed to allow NSCC to consider, and produce

margin levels commensurate with, the risks and particular attributes of

relevant products, portfolios, and markets in accordance with Rule

17ad-22(e)(6)(i) under the Act.

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\26\ 17 CFR 240.17ad-22(e)(6)(i).

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Rule 17ad-22(e)(4)(i) \27\ under the Act requires that each covered

clearing agency establish, implement, maintain, and enforce written

policies and procedures reasonably designed to effectively identify,

measure, monitor, and manage its credit exposures to participants and

those arising from its payment, clearing, and settlement processes,

including by maintaining sufficient financial resources to cover its

credit exposure to each participant fully with a high degree of

confidence. As described above, the proposed rule change is generally

designed to enhance NSCC's Clearing Fund calculations by (i) improving

the design of NSCC's Gap Risk Charge to more accurately isolate and

address the risk exposures of underlying ETF holdings; (ii) improving

the design of the Bid-Ask Spread Charge to include more granularity in

the basis point charges used within the ETP risk group to account for

different asset classes and market capitalizations of ETPs; and (iii)

providing additional clarity regarding the Fat Tail Adjustment Factor

parameter, which may be calibrated from time to time to ensure that

NSCC is appropriately addressing tail risk for various Member portfolio

types. NSCC believes that these changes are reasonably designed to

enable NSCC to better identify, measure, monitor, and manage its credit

exposures to participants and to maintain sufficient resources to cover

those credit exposures fully with a high degree of confidence,

consistent with the requirements of Rule 17ad-22(e)(4)(i) under the

Act.

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\27\ 17 CFR 240.17ad-22(e)(4)(i).

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For the reasons set forth above, NSCC believes the proposed rule

change is consistent with Section 17A(b)(3)(F) of the Act \28\ and

Rules 17ad-22(e)(4) and (6) thereunder.\29\

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\28\ 15 U.S.C. 78q-1(b)(3)(F).

\29\ 17 CFR 240.17ad-22(e)(4) and (6).

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[[Page 33844]]

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

Section 17A(b)(3)(I) of the Act \30\ requires that the rules of a

clearing agency do not impose any burden on competition not necessary

or appropriate in furtherance of the purposes of the Act. NSCC believes

that the proposed changes could have an impact on competition because

they may result in larger Clearing Fund charges for Members,

specifically with respect to the Gap Risk Charge and Bid-Ask Spread

Charge components of the Clearing Fund. However, NSCC believes any

impact or burden on competition that may result from the proposed rule

change would be necessary and appropriate in furtherance of the

purposes of the Act, for the reasons described below.

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\30\ 15 U.S.C. 78q-1(b)(3)(I).

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NSCC believes the proposed rule change is necessary and appropriate

to improve the design of its current Gap Risk Charge methodology, which

does not fully account for idiosyncratic risks presented by the

underlying holdings of ETFs and broadly exempts diversified ETFs from

the charge entirely without considering potential idiosyncratic risks.

The proposed changes would enhance the Gap Risk Charge to address

security exposures embedded in single-stock ETFs and those ETFs

currently exempted from the Gap Risk Charge, which may contribute to

the concentration risk presented by such ETFs in a Member's portfolio.

NSCC also believes the proposed rule change is necessary and

appropriate to enhance its Bid-Ask Spread Charge methodology by

improving the granularity of the basis point charges used within the

ETP risk group to account for risks presented by different asset

classes and market capitalizations of ETPs. NSCC believes that the

proposed changes would result in more accurate and appropriate Clearing

Fund requirements that address certain risks presented by ETFs and ETPs

in its Members' cleared portfolios.

NSCC believes that it has designed the proposed changes in an

appropriate way in order to meet compliance with its obligations under

the Act. Specifically, the proposal would improve the risk-based

margining methodology that NSCC employs to set margin requirements and

better limit NSCC's credit exposures to its Members. As discussed

above, NSCC uses the margin and Clearing Fund it collects to mitigate

potential losses to NSCC (and through loss allocation, to its Members)

associated with liquidating a defaulting Member's portfolio and to

continue to effect the prompt and accurate clearance and settlement of

securities transactions in the event of a Member default. Therefore, as

described above, NSCC believes the proposed changes are necessary and

appropriate in furtherance of NSCC's obligations under the Act,

specifically Section 17A(b)(3)(F) of the Act \31\ and Rules 17ad-

22(e)(4) and (6) thereunder.\32\

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\31\ 15 U.S.C. 78q-1(b)(3)(F).

\32\ 17 CFR 240.17ad-22(e)(4) and (6).

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(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. If any written comments are received, they will be

publicly filed as an Exhibit 2 to this filing, as required by Form 19b-

4 and the General Instructions thereto.

Persons submitting comments are cautioned that, according to

Section IV (Solicitation of Comments) of the Exhibit 1A in the General

Instructions to Form 19b-4, the Commission does not edit personal

identifying information from comment submissions. Commenters should

submit only information that they wish to make available publicly,

including their name, email address, and any other identifying

information.

All prospective commenters should follow the Commission's

instructions on how to submit comments, available at www.sec.gov/rules-regulations/how-submit-comment . General questions regarding the rule

filing process or logistical questions regarding this filing should be

directed to the Main Office of the Commission's Division of Trading and

Markets at [email protected] or 202-551-5777.

NSCC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for

Commission Action

Within 45 days of the date of publication of this notice in the

Federal Register or within such longer period up to 90 days (i) as the

Commission may designate if it finds such longer period to be

appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) by order approve or disapprove such proposed rule change, or

(B) institute proceedings to determine whether the proposed rule

change should be disapproved.

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 ( https://www.sec.gov/rules/sro.shtml ); or

Send an email to [email protected] . Please include

file number SR-NSCC-2026-008 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities

and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2026-008. 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 ( https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking ). Copies of the

filing will be available for inspection and copying at the principal

office of NSCC and on DTCC's website ( www.dtcc.com/legal/sec-rule-filings ). Do not include personal identifiable information in

submissions; you should submit only information that you wish to make

available publicly. We may redact in part or withhold entirely from

publication submitted material that is obscene or subject to copyright

protection. All submissions should refer to File Number SR-NSCC-2026-

008 and should be submitted on or before June 25, 2026.

For the Commission, by the Division of Trading and Markets,

pursuant to delegated authority.\33\

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\33\ 17 CFR 200.30-3(a)(12).

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Sherry R. Haywood,

Assistant Secretary.

[FR Doc. 2026-11144 Filed 6-3-26; 8:45 am]

BILLING CODE 8011-01-P