The Securities and Exchange Commission accepts petitions from the public for rulemaking adjustments.
Learn more on our "SEC Petition" advocacy page.
Petition for Rulemaking: Amend Clearing Agency Rules for Consistent Close Outs
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What is the NSCC?
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The National Securities Clearing Corporation (NSCC) is a central cog in the machinery of the U.S. markets which provides clearing, settlement, risk management, central counterparty services and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts. The NSCC nets trades for participants and reduces volume of payments by 98% every day, and as of August 2024 provides T+1 settlement for trades it is involved in.
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The NSCC is a subsidiary of the Depository Trust & Clearing Corporation (DTCC), alongside the Depository Trust Company (DTC) and other entities crucial to the U.S. markets as they operate today. Both the NSCC and the DTC are Self-Regulatory Organizations, meaning that they exercise regulatory authority over a sector by creating and enforcing rules for themselves and their members to follow. The Securities and Exchange Commission acts in a supervisory role - the SEC both hears appeals for changes to rules from the SROs and can impose updates to rules upon the SROs. Through petitions, the public can instigate conversations about potential rule updates.
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Retail investors can publicly document changes they want to see using SEC Petitions.
What is stated in NSCC Rules regarding Settlements, Clearance, and Close Outs?
Full text of the NSCC current rules can be reviewed here -->
NSCC Rules and Procedures do not codify strict procedures for closing out positions (e.g., in the event of a Member default). Per NSCC’s Disclosure Framework for Covered Clearing Agencies and Financial Market Infrastructures, “[a]s a cash market CCP, if a Member defaults, NSCC will need to complete settlement of guaranteed transactions on the failing Member’s behalf” [4 “Liquidity risk management framework”].
However, NSCC Rule 18 SEC. 6(a) contains a provision that “if, in the opinion of the Corporation, the close out of a position in a specific security would create a disorderly market in that security, then the completion of such close-out shall be in the discretion of the Corporation”.
Potential market distortion and market manipulation may arise from the discretion afforded to the NSCC based solely on the NSCC’s unreviewed and private opinion regarding how the potential [in-]completion of a close-out of a position in a specific security could distort markets and/or create disorderly markets.
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Market participants of all kinds, including retail and institutional, should have more insight into positions so extreme that their unwinding could create disorderly markets - and, likewise, NSCC and it's members should be accountable for these extreme positions. Why should an independent body have discretion when considering whether to close out positions, rather than a universal and transparent guideline? Who benefits from, and who pays the cost for, these decisions?
Petition for Rulemaking: Amend Clearing Agency Rules for Consistent Close Outs
How can I support this Petition's rule changes?
Submit this Petition to the SEC!
Instructions
3 Click Submission Instructions to the Right!
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Long version: Email Secretarys-Office@SEC.GOV​ with subject "Petition for Rulemaking: Amend Clearing Agency Rules for Consistent Close Outs" and either paste the petition in the body, or attach a version of the petition.
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Your name is optional. The SEC advises to not include personal identifiable information in submissions; submit only information that you wish to make available publicly.
3 Click Petition
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