NSCC Proposes Streamlined Clearing for ETFs With Options Components

What's Changing

The National Securities Clearing Corporation (NSCC) has filed a proposed rule change with the Securities and Exchange Commission (SEC) that would overhaul how certain exchange-traded funds (ETFs) are created and redeemed in the primary market. Specifically, this affects ETFs whose underlying "basket" of assets includes options contracts.

Right now, when financial institutions want to create or redeem shares in these option-containing ETFs, the process is split between two separate clearing systems — NSCC for the ETF shares and standard securities, and the Options Clearing Corporation (OCC) for the options components. That split requires significant manual coordination, increases the risk of errors, and leaves participants exposed to counterparty credit risk (the risk that the other party in a transaction fails to deliver).

The Problem This Solves

Under the current system, market participants known as Authorized Participants (APs) — the brokers and dealers that create and redeem ETF shares — must manage ETF redemptions almost entirely outside of official clearing systems, a process called "ex-clearing." This means tracking, pricing, validating, and executing options transfers manually, often involving multiple parties including prime brokers.

This fragmented workflow has been flagged by industry participants as a major operational burden and source of risk. Because these transactions happen outside a central counterparty (CCP) model, they don't benefit from NSCC's settlement guarantee, adding both credit risk and balance sheet costs for APs.

What the Proposal Would Do

NSCC is proposing to amend its Rules & Procedures to:

• Centralize ETF creation/redemption processing: NSCC would serve as the single hub for processing both the ETF shares and the instructions for any underlying options components.
• Establish new messaging connectivity with OCC: NSCC would automatically route instructions to OCC for position transfers or adjustments of the options components — similar to how NSCC already communicates with OCC for customer account transfers.
• Automate cash offset payments: To handle the accounting mismatch that arises when options are transferred separately at OCC, NSCC would automate payment orders between APs and ETF Agents to offset related cash debits.
• Require updated portfolio composition data: ETF Agents (custodian banks) would need to include details about options components in the portfolio files they submit to NSCC.

Important limitation: NSCC's settlement guarantee would apply only to the ETF shares and underlying securities cleared through NSCC. The options components transferred through OCC would not be covered by NSCC's guarantee.

Who Is Affected

This proposal primarily affects institutional market participants:

• Authorized Participants (APs): Broker-dealers who create and redeem ETF shares directly with fund sponsors
• ETF Agents (Index Receipt Agents): Custodian banks that manage ETF creation/redemption logistics
• ETF Sponsors: The issuers of option-containing ETFs
• Prime brokers: Intermediaries currently involved in manual options transfers

Retail investors and individual visa holders are not directly affected by this rule change, which operates at the institutional clearing infrastructure level.

Timeline

The SEC has up to 45 days from the January 29, 2026 publication date — or up to 90 days if extended — to approve, disapprove, or open formal proceedings on the proposal. If approved, NSCC would implement the changes within 60 business days of SEC approval and would announce the exact effective date via a notice on its website.

Public comments are due by February 19, 2026.

Why This Matters for Markets

ETFs have grown into a dominant investment vehicle, and options-based ETFs represent a specialized but growing segment. By reducing manual processes and integrating options-containing ETF transactions into NSCC's existing clearing infrastructure, this proposal aims to lower operational risk and make these products more efficient to administer — potentially supporting broader adoption of options-based ETF strategies.