NSCC Equity Clearing Methodology

Procedure XV clearing fund methodology, CNS netting, VaR-based margin, and fee schedule for equities and ETFs.

Overview

The National Securities Clearing Corporation (NSCC), a subsidiary of DTCC, clears and settles virtually all US equity, ETF, and corporate bond trades. NSCC's ~4,000 members are subject to Procedure XV, which determines clearing fund contributions based on each member's settlement risk.

The PrimeRisk NSCC Clearing Margin Calculator estimates margin using the same VaR engine parameters as NSCC (99% confidence, 3-day holding period, 10-year lookback + GFC stress) and adds NSCC-specific components: CNS netting, mark-to-market, gap risk, liquidity adjustment, and trade clearance fees.

Key Characteristics

• VaR-based: Clearing fund is driven by 99% CVaR with a 3-day liquidation horizon, not fixed percentages.
• CNS netting: Continuous Net Settlement reduces gross obligations to net positions, significantly lowering margin.
• Multi-component: Total clearing fund = VaR charge + mark-to-market + gap risk + liquidity adjustment + CNS fails charge.
• Minimum floor: $500,000 minimum clearing fund requirement per member.
• Published fees: NSCC publishes trade clearance fee rates per $1M of value.

NSCC Procedure XV Clearing Fund

Source: DTCC NSCC Clearing Fund Methodology Overview (2025)

VaR Model Parameters

Clearing Fund Components

The total clearing fund is the sum of five components, subject to a $500K floor:

Total Clearing Fund = max(
    VaR Charge + Mark-to-Market + Gap Risk + Liquidity Adj + CNS Fails Charge,
    $500,000
)

VaR Charge Detail

The VaR charge uses CVaR (Expected Shortfall) as a conservative proxy for the NSCC's proprietary VaR model:

• CVaR (99%) = average of all losses beyond the 99th percentile
• Holding period: 3 business days (scaled via square-root-of-time: vol × sqrt(3/260))
• Lookback: 10 years of daily returns (~2,500 observations)
• GFC stress stub: 18-month window (Jan 2008 - Jun 2009) at 2x volatility, always included regardless of lookback start date
• Computation: max of parametric (normal-distribution) and seeded Monte Carlo

See VaR / CVaR Methodology for full engine documentation.

Liquidity Adjustment

Positions exceeding 10% of average daily volume (ADV) receive a concentration surcharge:

For each position:
    pctADV = |quantity| / ADV
    if pctADV > 10%:
        multiplier = floor((pctADV - 10%) / 10%) + 1
        liquidityCharge = positionVaR × 50% × multiplier

This penalizes concentrated or illiquid positions that would be difficult to liquidate within the 3-day horizon.

Continuous Net Settlement (CNS)

CNS is the core settlement mechanism that allows NSCC to reduce gross trade obligations to net positions per CUSIP.

How CNS Works

1. Trade submission: Buy and sell trades are submitted to NSCC throughout the day.
2. Novation: NSCC becomes the central counterparty (CCP) to both sides.
3. Netting: All buy orders and sell orders in the same security are netted to a single obligation.
4. Settlement: Only net positions settle (deliver or receive).

Netting Efficiency

Netting efficiency varies with portfolio size and composition:

Netting efficiency is computed as:

Gross MV = Σ |MV_long| + Σ |MV_short|
Net MV   = |Σ MV_long - Σ MV_short|
Netting Efficiency = 1 - (Net MV / Gross MV)

Higher netting efficiency means lower clearing fund requirements, since VaR and other charges are computed on net (post-netting) exposure.

Trade Clearance Fee Schedule

Source: NSCC Fee Schedule (January 2026)

CNS Transaction Fees

Fee Calculation Example

For a portfolio with $7M long and $3M short:

Value Into Net Fee  = ($7M / $1M) × $0.44 = $3.08
Value Out of Net Fee = ($3M / $1M) × $2.16 = $6.48
Total Clearance Fees = $3.08 + $6.48 = $9.56
Annual Maintenance   = $10M × 0.0035 = $35,000

Relationship to Other Margin Regimes

NSCC clearing margin is distinct from — and additive to — other margin requirements:

NSCC clearing fund is the clearing-level requirement — the deposit each member must maintain with DTCC/NSCC. This is separate from the client-level margin that brokers charge their customers, which includes Reg T or portfolio margin requirements.

PrimeRisk Implementation

The NSCC Clearing Margin Calculator provides:

1. VaR-based clearing fund using the same 3-day 99% CVaR engine as NSCC Procedure XV
2. CNS netting simulation with portfolio-size-scaled efficiency
3. Component breakdown showing VaR charge, mark-to-market, gap risk, liquidity, and CNS fails
4. Per-position detail with individual VaR contributions, gap risk, and fees
5. Random portfolio generator with configurable long/short mix and target market value

Module Structure

Key Function

import { computeNscc } from '@/lib/nscc'

const report = computeNscc(positions, fees?)
// Returns: NsccReport with clearingFund, netting, perPosition, varReport

Limitations and Assumptions

1. CVaR as VaR proxy: NSCC uses a proprietary VaR model. PrimeRisk uses CVaR (Expected Shortfall) as a conservative proxy — CVaR is always >= VaR, so estimates will tend to be higher than actual NSCC charges.

2. Simplified CNS netting: Real CNS netting operates at the CUSIP level across all member trades. PrimeRisk estimates netting efficiency based on portfolio size using an empirical scaling function.

3. No member-specific adjustments: NSCC applies member-specific surcharges based on credit rating, settlement history, and capital adequacy. These are not modeled.

4. Static ADV: Liquidity adjustment requires average daily volume data. When ADV is not provided, the liquidity surcharge is omitted.

5. No intraday margin calls: NSCC may issue intraday supplemental margin calls during volatile markets. Only end-of-day requirements are estimated.

6. Default proxy vol: When historical volatility data is unavailable, a 25% annualized volatility proxy is used.

Sources

1. DTCC NSCC Rules & Procedures — Procedure XV; DTCC
2. NSCC Clearing Fund Methodology Overview; DTCC
3. NSCC Fee Schedule (Jan 2026); DTCC
4. SEC Rule 17Ad-22 — Clearing Agency Standards; SEC
5. DTCC Annual Report 2024; NSCC cleared $2.5 quadrillion in US equity transactions
6. PrimeRisk VaR/CVaR Methodology; VaR docs