November 28, 2021
SR-NSCC-2021-010 should not be approved, on the grounds that, as written, it violates Section 17A(b)(3)(F) of the Act AND Rule 17Ad-22(e)(8) under the Act. The final paragraph of (II)(i) Key Parameters of the Proposed SFT Clearing Service -- quoted below -- is at issue:
\"In a case of an SFT Member default, NSCC would be able to delay its satisfaction
of final settlement obligations to non-defaulting SFT Members beyond the normal
settlement cycle for the purchase or sale of securities to the extent NSCC determines that
taking market action to close-out some or all of the defaulted SFT Members novated SFT Positions would create a disorderly market in the relevant SFT Securities.\"
The above-quoted violates Section 17A(b)(3)(F) of the Act because it does not protect investors or the public interest. It creates a loophole by which the NSCC is enabled to give bad actors, who take on unleveraged risk and are in default, extra time to remedy their situation. The means by which these bad actors may remedy their situation only magnifies the risk, which is then shared by non-defaulting Members and the market as a whole.
The above-quoted violates Rule 17Ad-22(e)(8) under the Act because it does not define a specific point at which settlement is final. It enables the NSCC to delay default indefinitely.