Notice2021-14797
Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Relating to Confidential Information, Market Disruption Events, and Other Changes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 131 (Tuesday, July 13, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36833-36839]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14797]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92342; File No. SR-DTC-2021-011]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change Relating to Confidential
Information, Market Disruption Events, and Other Changes
July 7, 2021.
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 June 25, 2021, The Depository Trust Company (``DTC'') 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of modifications to DTC's Rules,
Bylaws and Organization Certificate (the ``Rules'') \3\ to (i) revise
certain provisions in the Rules relating to the confidentiality of
information furnished by Participants \4\ to DTC, (ii) require that
each Participant maintain confidential information furnished by DTC or
its affiliates in confidence, and restrict use and disclosure of such
information, (iii) add certain officers who are allowed to determine
that there is a Market Disruption Event pursuant to Rule 38 and (iv)
add a new Rule 38(A) to address situations in which it is necessary to
disconnect a Participant, or third party service provider, or service
bureau due to an imminent threat of harm to DTC, Participants and/or
other market participants. Each of the proposed changes is described in
greater detail below.
---------------------------------------------------------------------------
\3\ Capitalized terms not defined herein are defined in the
Rules, available at <a href="https://www.dtcc.com/legal/rules-and-procedures">https://www.dtcc.com/legal/rules-and-procedures</a>.
\4\ As provided in the Rules, the term ``Participant'' includes
the term ``Limited Participant'' unless (i) the context otherwise
requires or (ii) the Procedures otherwise provide. Section 1 of Rule
2, id.
---------------------------------------------------------------------------
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
The proposed rule change consists of modifications to (i) revise
certain provisions in the Rules relating to the confidentiality of
information furnished by Participants to DTC, (ii) require that each
Participant maintain confidential information furnished by DTC or its
affiliates in confidence and restrict use and disclosure of such
information, (iii) add certain officers who are allowed to determine
that there is a Market Disruption Event pursuant to Rule 38 and (iv)
add a new Rule 38(A) to address situations in which it is necessary to
disconnect a Participant, or third party service provider, or service
bureau due to an imminent threat of harm to DTC, Participants and/or
other market participants. Each of the proposed changes is described in
greater detail below.
(i) DTC Confidentiality Requirements
Section 1 of Rule 2 \5\ contains provisions relating to
confidentiality of information furnished by Participants to DTC
(collectively, the ``DTC Confidentiality Requirements''). Each of the
DTC Confidentiality Requirements provides that the rights of DTC to
inspect books and records, or to be furnished with information, is
subject to any applicable laws or rules, or regulations of regulatory
bodies having jurisdiction over the Participant, that relate to
confidentiality of records. DTC is proposing to update the DTC
Confidentiality Requirements because such provisions (i) may result in
unequal treatment of Participants due to differing laws or regulations
of regulatory bodies, (ii) may result in a potential conflict of laws
where rules or regulations governing a regulatory body of a Participant
differ from the laws applicable to DTC, or a Participant has multiple
regulatory bodies whose rules conflict, (iii) are burdensome as they
require DTC to track the rules and regulations of each regulatory body
of its Participants to determine what applicable laws or rules or
regulations of regulatory bodies that relate to confidentiality of
records affect its rights to receive information and (iv) are
unnecessary as DTC has sufficient protections in place relating to
protection and confidentiality of Participant data.
---------------------------------------------------------------------------
\5\ Rule 2 relates to initial and ongoing requirements to become
and continue to be a Participant and/or Pledgee, including
information that DTC may require applicants or Participants to
provide to DTC. Id.
---------------------------------------------------------------------------
The regulatory bodies that have jurisdiction over Participants
differ by Participant depending on certain criteria of each
Participant, including the type of entity of the Participant, where the
Participant was organized, the types of businesses in which the
Participant engages and where the Participant is doing business. In
addition, many Participants are regulated by more than one regulatory
body. As a result, a requirement to maintain confidentiality standards
for information provided by a Participant or the right to receive
information based on the regulatory body or bodies that regulate such
Participant result in varying standards of confidentiality for
Participants that are regulated by different regulatory bodies. Such
varying standards may result in unequal treatment of Participants due
to differing laws or regulations of the regulatory body or bodies
governing such Participants. In addition, such varying standards may
result in a potential conflict of laws where rules or regulations
governing a regulatory body of a Participant differ from the laws
applicable to DTC or an entity that has multiple regulatory bodies
whose rules conflict.
DTC believes that it is unnecessarily burdensome to determine the
rules and regulations of each of the regulatory bodies that regulate
its Participants.
[[Page 36834]]
Such regulatory bodies include numerous U.S. federal and state
regulators as well as foreign national, state and local regulators. DTC
proposes revising the language in the DTC Confidentiality Requirements
to maintain one confidentiality standard for all Participants rather
than maintaining potentially different confidentiality standards for
Participants based on the various, unrelated regulatory bodies
regulating such Participants. DTC is proposing to replace the existing
language in the DTC Confidentiality Requirements with language that
would provide that DTC will hold non-public information furnished
pursuant to those Rules in confidence as may be required under the law
or the rules and regulations applicable to DTC that relate to the
confidentiality of records. Such laws, rules and regulations would
include national, state and foreign laws governing confidentiality of
data that are applicable to DTC in connection with its collection and
disclosure of data.
DTC believes that the rules and regulations applicable to DTC
governing the use and disclosure of confidential information provide
standards that are representative of those of the various regulatory
bodies governing its Participants. As a result, DTC does not believe
that the proposed rule change relating to the DTC Confidentiality
Requirements would result in any change to DTC's practices relating to
data protection and confidentiality of information provided by
Participants.
(ii) Participant Confidentiality Requirements
Historically, DTC has generally not provided, nor been requested to
provide, information that contains confidential or proprietary
information of DTC or its affiliates to its Participants except for
information necessary for Participants and their service providers and
service bureaus to connect to DTC and to participate in the services
that DTC offers to its Participants. While certain information is
protected by intellectual property rights of DTC and its affiliates
under applicable intellectual property laws, such as copyright laws and
trademark laws, the Rules do not include any express obligations for
Participants to protect confidential information received by them from
DTC or its affiliates.
In connection with the development of cyber and information
security programs pursuant to applicable regulatory requirements by
Participants, DTC and its parent company, The Depository Trust &
Clearing Corporation (``DTCC''), have received an increasing number of
requests from Participants for confidential and proprietary information
of DTC and DTCC.\6\ This includes, for example, information regarding
DTCC's network operations and data security practices, legal
settlements, and other information. Additionally, in the event there is
a cyber incident relating to a Participant, DTC or DTCC may be
requested to disclose confidential information regarding its cyber
threat indicators, sources of cyber threat information, or other
information and actions taken related to a cyber event.
---------------------------------------------------------------------------
\6\ DTCC provides a set of core business processes for DTC and
DTCC's other subsidiaries, including the technology systems and
networks that provide connectivity between DTC and its participants
and that provide the ability of DTC to provide the services as
required under its Rules. Most corporate functions are established
and managed on an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that provides relevant
services to DTC and DTCC's other subsidiaries.
---------------------------------------------------------------------------
In order to provide for contractual protections for such
confidential information of DTCC, DTC and DTCC's other subsidiaries,
DTC is proposing to add provisions to the Rules that would require
Participants to maintain confidential information of DTC and its
affiliates that DTC provides to such Participants in confidence and not
to disclose such confidential information except as necessary to
perform such Participant's obligations under DTC's Rules or as
otherwise required by applicable law (``Participant Confidentiality
Requirements''). The Participant Confidentiality Requirements would
provide that in the event of a breach of the Participant
Confidentiality Requirements, DTC or DTCC would be entitled to seek any
temporary or permanent injunctive or other equitable relief in addition
to any monetary damages under the Rules. In addition, as with any
failure to comply with its Rules, DTC would have the ability to impose
other disciplinary proceedings or restrictions on access to services as
provided in the Rules for failure to comply with the Participant
Confidentiality Requirements.
(iii) Market Disruption Events
Rule 38 (Market Disruption and Force Majeure) \7\ (the ``Force
Majeure Rule'') contains provisions that identify the events or
circumstances that would be considered a Market Disruption Event,
including, for example, events that lead to the suspension or
limitation of trading or banking in the markets in which DTC operates,
or the unavailability or failure of any material payment, bank
transfer, wire or securities settlement systems.\8\ Under the Force
Majeure Rule, during the pendency of a Market Disruption Event, DTC
would be entitled to (i) suspend the provision of any or all services
and (ii) take, or refrain from taking, or require Members to take, or
refrain from taking, any actions DTC considers appropriate to address,
alleviate, or mitigate the event and facilitate the continuation of
DTC's services as may be practicable.\9\
---------------------------------------------------------------------------
\7\ Rule 38, supra note 3.
\8\ Id.
\9\ Id.
---------------------------------------------------------------------------
Section 2 of the Force Majeure Rule provides that the Board of
Directors may determine the existence of a Market Disruption Event and
the actions to be taken in response thereto.\10\ However, if the Board
of Directors is unable to convene, the Force Majeure Rule provides that
certain officers may make such determination, on an interim basis,
which determination is then ratified, modified or rescinded as soon as
practicable by the Board of Directors. The officers that may make such
determination are all senior executive officers of DTC: Chief Executive
Officer, Chief Financial Officer, Group Chief Risk Officer and General
Counsel.
---------------------------------------------------------------------------
\10\ Section 2 of Rule 38, id.
---------------------------------------------------------------------------
The proposed rule change would add two senior executive officers of
DTC, the Chief Information Officer and the Head of Clearing Agency
Services, to the list of officers that could make such determination if
the Board of Directors is unable to convene. These two officers, like
the other senior executive officers currently listed in the Rules,
maintain senior executive level positions at DTC, oversee divisions of
DTC, and hold positions at DTC that would provide them a necessary
global view into DTC's operations and systems to enable them to
determine the existence of a Market Disruption Event in the event that
the Board of Directors in unable to convene. Adding these two
additional officers would facilitate DTC's ability to implement its
emergency procedures in the event of a Market Disruption Event.
(iv) Systems Disconnect: Threat of Significant Impact to DTC's Systems
The proposed rule change would add a new Rule 38(A) (Systems
Disconnect: Threat of Significant Impact to the Corporation's Systems)
(``Systems Disconnect Rule'') that would address situations in which
DTC determines it is necessary for DTC to disconnect a single or
limited number of Participants, or third party service providers, or
service bureaus used by Participants to connect
[[Page 36835]]
to DTC \11\ (collectively, ``DTCC Systems Participants'') from DTC's
systems or network due to an imminent threat of harm to DTC's or DTCC's
systems. The imminent threat could be the result of a system disruption
or cyber incident applicable to the DTCC Systems Participants. This
would allow DTCC to work with the affected Participants while
protecting DTC, its systems and its other Participants.
---------------------------------------------------------------------------
\11\ Some Participants use third parties to connect to DTC's
systems and/or to send data to DTC and receive data from DTC on the
Participant's behalf. Such third parties are referred to as
``service providers'' or ``service bureaus'' herein.
---------------------------------------------------------------------------
The proposed Systems Disconnect Rule would be structured similarly
to the Force Majeure Rule. The Systems Disconnect Rule would address
DTC's authority to take certain actions upon the occurrence, and during
the pendency, of a Major Event. A ``Major Event'' would be defined as
the happening of one or more Systems Disruption(s) (as defined below)
that is reasonably likely to have a significant impact on DTC's
operations, including the DTCC Systems (as defined below), that affect
the business, operations, safeguarding of securities or funds, or
physical functions of DTC, Participants and/or other market
participants. ``Systems Disruption'' would be defined as the
unavailability, failure, malfunction, overload, or restriction (whether
partial or total) of a DTCC Systems Participant's systems that disrupts
or degrades the normal operation of such DTCC Systems Participant's
systems; or anything that impacts or alters the normal communication,
or the files that are received, or information transmitted, to or from
the DTCC Systems. ``DTCC Systems'' would be defined as the systems,
equipment and technology networks of DTCC, DTC and/or their
Affiliates,\12\ whether owned, leased, or licensed, software, devices,
IP addresses or other addresses or accounts used in connection with
providing the services set forth in the Rules, or used to transact
business or to manage the connection with DTC.
---------------------------------------------------------------------------
\12\ ``Affiliate'' would be defined as a Person that controls or
is controlled by or is under common control with another Person.
Control of a Person means the direct or indirect ownership, or power
to vote more than 50% of any class of the voting securities or other
voting interests of such Person.
---------------------------------------------------------------------------
The proposed Systems Disconnect Rule would allow DTC to mitigate
the effect of such events by facilitating the continuity of services
(or, if deemed necessary, the temporary suspension of services). To
that end, under the proposed Systems Disconnect Rule, DTC would be
entitled, during the pendency of a Major Event, to (1) disconnect a
DTCC Systems Participant's systems from the DTCC Systems, (2) suspend
the receipt and/or transmission of files or communications to or from
the DTCC Systems Participant to the DTCC Systems and/or (3) take, or
refrain from taking, or require a DTCC Systems Participant to take or
refrain from taking, any actions that DTC considers appropriate to
prevent, address, correct, mitigate or alleviate the Major Event and
facilitate the continuation of services as may be practicable and, in
that context, issue instructions to the DTCC Systems Participant.
The proposed Systems Disconnect Rule would define the governance
procedures for how DTC would determine whether, and how, to implement
the provisions of the rule. A determination that a Major Event has
occurred could be made by the same officers with delegated authority
under the Force Majeure Rule as discussed above (an ``Officer Major
Event Action''). Following this determination, any management committee
on which all of the foregoing officers serve would convene, and DTC
would convene a Board of Directors meeting as soon as practicable
thereafter, and in any event within five Business Days following such
determination, in each case, to ratify, modify, or rescind the Officer
Major Event Action. The proposed Systems Disconnect Rule would require
Participants to notify DTC immediately upon becoming aware of a Major
Event, and, likewise, would require DTC to promptly notify the DTCC
Systems Participant(s) of any action DTC takes or intends to take with
respect to such DTCC Systems Participant(s) pursuant to the proposed
rule.
Finally, the Systems Disconnect Rule would address certain
miscellaneous matters including: (i) A limitation of liability for any
failure or delay in performance, in whole or in part of DTC's
obligations under the Rules, arising out of or related to a Major
Event, (ii) a statement that the power of DTC to take any action
pursuant to the Systems Disconnect Rule also includes the power to
repeal, rescind, revoke, amend or vary such action, (iii) a statement
that the powers of DTC pursuant to the Systems Disconnect Rule shall be
in addition to, and not in derogation of, authority granted elsewhere
in the Rules to take action as specified therein, (iv) a requirement
that Participants shall keep any DTCC Confidential Information (as
defined below) provided to them by DTC and/or in connection with a
Major Event confidential and (v) a statement that in the event of any
conflict between the provisions of the Systems Disconnect Rule and any
other Rules or Procedures, the provisions of the Systems Disconnect
Rule would prevail.
(v) Proposed Rule Changes
The proposed rule change would amend the Rules to make the
following changes to implement the changes discussed above:
DTC Confidentiality Requirements Changes
The proposed rule change would amend the DTC Confidentiality
Requirements in two paragraphs in Section 1 of Rule 2,\13\ to state as
follows:
---------------------------------------------------------------------------
\13\ Section 1 of Rule 2, supra note 3.
. . . any non-public information furnished to the Corporation pursuant
to this Rule shall be held in confidence as may be required under the
laws, rules and regulations applicable to the Corporation that relate
---------------------------------------------------------------------------
to the confidentiality of records.
As discussed above, the proposed language is intended to provide
one standard that DTC would apply uniformly to all Participants, which
assures Participants that such information would be held in confidence
with appropriate controls. DTC would add ``non-public'' when describing
the information that is subject to the DTC Confidentiality Requirements
to make it clear that such requirements would only apply to information
that is not public.
Certain Rules relating to DTC Confidentiality Requirements would
also include language relating to Participant Confidentiality
Requirements as described below.
Participant Confidentiality Requirements
In order to provide for Participant Confidentiality Requirements,
DTC would add a provision at the end of Section 1 of Rule 2 \14\ to
state that each applicant and Participant shall maintain DTCC
Confidential Information in confidence to the same extent and using the
same means it uses to protect its own confidential information, but no
less than a reasonable standard of care, and shall not use DTCC
Confidential Information or disclose DTCC Confidential Information to
any third party except as necessary to perform its obligations under
the Rules or as otherwise required by applicable law. DTC would add a
new definition of DTCC Confidential Information in Section 1 of Rule 1
\15\ to provide that
[[Page 36836]]
``DTCC Confidential Information'' would mean all non-public information
provided by DTCC and/or DTC that (i) is marked or otherwise identified
in writing prior to disclosure to the recipient as confidential, (ii)
is designated by DTCC or DTC as confidential, or (iii) the recipient
knows or, under the circumstances surrounding disclosure, ought to
reasonably know is confidential. DTC would also add a definition of
DTCC in Section 1 of Rule 1 and remove a corresponding definition in
Rule 32(A) \16\ since it would be defined in Section 1 of Rule 1.
---------------------------------------------------------------------------
\14\ Section 1 of Rule 2, supra note 3.
\15\ Section 1 of Rule 1, supra note 3.
\16\ Rule 32(A), supra note 3.
---------------------------------------------------------------------------
DTC would also add a statement in the provision relating to
Participant Confidentiality Requirements that each applicant and
Participant acknowledges that a breach of its confidentiality
obligations under the Rules may result in serious and irreparable harm
to DTC and/or DTCC for which there is no adequate remedy at law. In the
event of such a breach by the applicant or Participant, DTC and/or DTCC
would be entitled to seek any temporary or permanent injunctive or
other equitable relief in addition to any monetary damages.
Force Majeure Rule Officer Additions
The proposed rule change would add the Chief Information Officer
and the Head of Clearing Agency Services to the list of officers that
could make a determination of a Market Disruption Event if the Board of
Directors is unable to convene in Rule 38.\17\
---------------------------------------------------------------------------
\17\ Rule 38, supra note 3.
---------------------------------------------------------------------------
Systems Disconnect Rule
The proposed rule change would add a new Rule 38(A) entitled
``Systems Disconnect: Threat of Significant Impact to the Corporation's
Systems'' that would address situations in which DTC determines it is
necessary for DTC to disconnect a DTCC Systems Participant or DTCC
Systems Participants from DTC's systems or network due to an imminent
threat of harm to DTC's or DTCC's systems consistent with the
description above. The proposed Systems Disconnect Rule would include
new definitions for ``DTCC Systems,'' ``DTCC Systems Participant,''
``Major Event'' and ``Systems Disruption'' consistent with the
descriptions of the Systems Disconnect Rule above.
2. Statutory Basis
DTC believes that the proposal is consistent with the requirements
of the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. In particular, DTC believes that each of
the proposed rule changes is consistent with Section 17A(b)(3)(F) of
the Act,\18\ and Rules 17Ad-22(e)(1) and (e)(21) \19\ promulgated under
the Act. In addition, DTC believes that the proposed changes to add the
two senior executive officers in the Force Majeure Rule and to add the
proposed Systems Disconnect Rule are consistent with Rules 17Ad-
22(e)(2) and (e)(17) under the Act.\20\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q-1(b)(3)(F).
\19\ 17 CFR 240.17Ad-22(e)(1) and (e)(21).
\20\ 17 CFR 240.17Ad-22(e)(2) and (e)(17).
---------------------------------------------------------------------------
Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act \21\ requires, in part, that the
Rules 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 DTC or for
which it is responsible, and to remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
DTC believes that the proposed changes revising the DTC
Confidentiality Requirements and adding the Participant Confidentiality
Requirements are each consistent with this provision of the Act. The
proposed revisions to the DTC Confidentiality Requirements are
consistent with this provision because the proposed revisions would
provide a clear and consistent standard relating to how DTC holds the
information furnished by Participants pursuant to Section 1 of Rule
2.\22\ The confidential information that DTC receives pursuant to this
rule is used by DTC to determine whether to admit a Participant, to
continue to allow such Participant to be a Participant, or to better
understand the risks relating to each Participant. Providing a clear
and consistent standard would facilitate this process by allowing
Participants to better understand DTC's obligations with respect to
such information and providing a uniform obligation for DTC with
respect to such information. DTC believes that facilitating the ability
of DTC to evaluate Participants would promote the prompt and accurate
clearance and settlement of securities transactions by DTC. As such,
DTC believes the proposed rule changes are consistent with Section
17A(b)(3)(F) of the Act.\23\
---------------------------------------------------------------------------
\22\ Section 1 of Rule 2, supra note 3.
\23\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
DTC also believes that the proposed rule change adding the
Participant Confidentiality Requirements is consistent with this
provision of the Act because the proposed revisions to the Participant
Confidentiality Requirements would provide a clear and consistent
contractual obligation for applicants and Participants who are
requesting confidential information from DTC. Having clear and
consistent Rules would help applicants and Participants to better
understand their rights and obligations regarding DTC's clearance and
settlement services. The information requested by applicants and
Participants that would be subject to the Participant Confidentiality
Requirements would be used by applicants and Participants to determine
whether to participate in DTC's services, DTC system requirements and
DTC system safeguards. DTC believes that when Participants better
understand their rights and obligations regarding DTC's clearance and
settlement services, they can better act in accordance with the Rules.
DTC believes that better enabling Participants to comply with the Rules
would promote the prompt and accurate clearance and settlement of
securities transactions by DTC. As such, DTC believes the proposed rule
changes are consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------
\24\ Id.
---------------------------------------------------------------------------
DTC believes that the proposed changes to add the two officers to
make a determination of a Market Disruption Event and to add the
Systems Disconnect Rule are also consistent with this provision of the
Act because those changes would enhance and streamline DTC's ability to
take necessary actions in the event of a Market Disruption Event or a
Major Event. Improving the ability of DTC to react to a Market
Disruption Event or a Major Event would allow DTC to protect its
Participants and their ability to promptly and accurately clear and
settle securities transactions, and allow DTC to safeguard securities
and funds that are in its custody or control. In particular, allowing
two additional officers that are able to make an interim determination
of a Market Disruption Event in the event that the Board of Directors
is unable to convene would add additional flexibility and tools to DTC
while maintaining proper risk controls and improve the ability of DTC
to act in the event of a Market Disruption Event. Also, providing for
the ability of DTC to disconnect DTCC Systems Participants, suspend the
receipt or transmission of files or communications to or from a DTCC
Systems Participant, and/or require the DTCC Systems Participant to
take such
[[Page 36837]]
other actions as are necessary to protect DTC and its Participants
would, in each case, provide additional tools for DTC in the event of a
Major Event.
Improving the governance around the determination of a Market
Disruption Event, and the implementation of procedures allowing DTC to
disconnect a DTCC Systems Participant or DTCC Systems Participants from
DTC's systems or network due to an imminent threat of harm, would
improve DTC's ability to address and minimize losses to DTC and its
Participants. Risks, threats and potential vulnerabilities due to a
Market Disruption Event or a Major Event could impact DTC's ability to
clear and settle securities transactions, or to safeguard the
securities and funds which are in its custody or control or for which
it is responsible. In addition, providing governance around the ability
to disconnect a DTCC Systems Participant that is having a systems
disruption that could disrupt the ability of DTC or other DTCC Systems
Participants from using DTC's systems would remove impediments to and
perfect the mechanism of a national system for the prompt and accurate
clearance and settlement of securities transactions. Although
disconnecting or limiting the service of a DTCC Systems Participant in
the event of a Major Event would likely be an impediment to such DTCC
Systems Participant, improving DTC's ability to address and minimize
losses to DTC and its Participants, and reducing risks, threats and
potential vulnerabilities due to a Major Event that could impact DTC's
ability to clear and settle securities transactions, or to safeguard
the securities and funds which are in its custody or control or for
which it is responsible, would be consistent with Section 17A(b)(3)(F)
of the Act.\25\
---------------------------------------------------------------------------
\25\ Id.
---------------------------------------------------------------------------
Therefore, by implementing tools that would help to mitigate these
risks, DTC believes that the proposed rule change would promote the
prompt and accurate clearance and settlement of securities
transactions, assure the safeguarding of securities and funds which are
in the custody or control of DTC or for which it is responsible, and
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions, consistent with the requirements of Section 17A(b)(3)(F)
of the Act.\26\
---------------------------------------------------------------------------
\26\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(1)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(1) promulgated under the Act,\27\ which requires
DTC to establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for a well-founded, clear,
transparent and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.
---------------------------------------------------------------------------
\27\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------
Establishing clear and consistent rules for each Participant with
respect to the DTC Confidentiality Requirements would allow DTC to
maintain one confidentiality standard for all Participants rather than
maintaining potentially different confidentiality standards for
Participants based on the various, unrelated regulatory bodies
governing such Participants. In addition, setting forth a clear
contractual obligation relating to Participant Confidentiality
Requirements would enhance the understanding of the Participants
receiving information from DTC and allow DTC to treat Participants
equally with respect to how the information furnished to Participants
should be protected by the Participants.
Adding the two officers to make a determination of a Market
Disruption Event and adding the Systems Disconnect Rule are also
consistent with Rule 17Ad-22(e)(1) under the Act because those changes
would describe the circumstances under which DTC could take actions in
the event of a Market Disruption Event or a Major Event that are
necessary to protect DTC and its Participants. Providing clear
guidelines with respect to Market Disruption Events and Major Events
would allow DTC Participants to understand the rights and obligations
of the Participants in the event of a Market Disruption Event or a
Major Event.
Therefore, by establishing uniform and clear standards with respect
to its receipt and furnishing of confidential information, and by
providing clear rights and obligations of DTC and its Participants with
respect to Market Disruption Events and Major Events, DTC believes that
the proposed rule change is consistent with the requirements of Rule
17Ad-22(e)(1) promulgated under the Act.\28\
---------------------------------------------------------------------------
\28\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(21)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(21) promulgated under the Act,\29\ which requires
DTC to, inter alia, establish, implement, maintain and enforce written
policies and procedures reasonably designed to be efficient and
effective in meeting the requirements of its Participants and the
markets it serves. The proposed rule change would streamline the DTC
Confidentiality Requirements by providing that DTC would apply one
standard for all Participants relating to confidential information sent
to DTC by Participants, which would enhance (i) efficiency by avoiding
applying varying standards of confidentiality based on the rules and
regulations of the varying regulatory bodies that regulate the
Participants, and (ii) effectiveness by reducing potential conflicts of
laws and providing equal treatment to Participants relating to such
confidential information.
---------------------------------------------------------------------------
\29\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------
The addition of the Participant Confidentiality Requirements would
also provide a uniform and easily discernable requirement for all
Participants with respect to confidential information provided by DTC
allowing DTC to provide necessary information to such Participants in a
safe and efficient manner. Adding two additional officers that are able
to make an interim determination of a Market Disruption Event in the
event that the Board of Directors is unable to convene would add
additional flexibility and tools to DTC while maintaining proper risk
controls and improve the ability of DTC to act quickly, efficiently and
effectively in a Market Disruption Event to address and minimize
losses. Also, providing for the ability of DTC to disconnect DTCC
Systems Participants, suspend the receipt or transmission of files or
communications to or from a DTCC Systems Participant, and/or require
the DTCC Systems Participant to take such other actions as are
necessary to protect DTC and its Participants would, in each case,
provide additional tools for DTC in the event of a Major Event and
improve DTC's ability to act quickly, efficiently and effectively in
the event of a Major Event to address and minimize losses.
Therefore, by establishing a more efficient and effective process
for the treatment of confidential language, and establishing procedures
designed to improve DTC's ability to act quickly, efficiently and
effectively in the event of a Market Disruption Event and a Major
Event, DTC believes that the proposed rule change is consistent with
the requirements of Rule 17Ad-22(e)(21) promulgated under the Act.\30\
---------------------------------------------------------------------------
\30\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(2)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(2) promulgated under the
[[Page 36838]]
Act,\31\ which requires DTC to, inter alia, establish, implement,
maintain and enforce written policies and procedures reasonably
designed to provide for governance arrangements that are clear and
transparent and that specify clear and direct lines of responsibility.
---------------------------------------------------------------------------
\31\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------
Adding two additional officers that are able to make an interim
determination of a Market Disruption Event in the event that the Board
of Directors is unable to convene would add additional flexibility and
tools to DTC while maintaining proper risk controls, and improve the
ability of DTC to act quickly, efficiently and effectively in a Market
Disruption Event and mitigate any impact from such Market Disruption
Event. Adding these officers to the governance procedures relating to a
determination of a Market Disruption Event would make such governance
procedures clear and transparent, and specify clear and direct lines of
responsibility with respect to the determination of a Market Disruption
Event, consistent with Rule 17Ad-22(e)(2) under the Act.\32\
---------------------------------------------------------------------------
\32\ Id.
---------------------------------------------------------------------------
Adding the governance procedures relating to making a determination
of a Major Event in the Systems Disconnect Rule is also consistent with
Rule 17Ad-22(e)(2) promulgated under the Act.\33\ Identifying the
officers that have the ability to determine if there is a Major Event,
and providing for the ability of any management committee on which all
of such officers serve and the Board of Directors to ratify, modify or
rescind any determination of a Major Event by an officer would make
such governance procedures clear and transparent, and specify clear and
direct lines of responsibility with respect to the determination of a
Major Event, consistent with Rule 17Ad-22(e)(2).\34\
---------------------------------------------------------------------------
\33\ Id.
\34\ Id.
---------------------------------------------------------------------------
Rule 17Ad-22(e)(17)
In addition, the proposed rule change is designed to be consistent
with Rule 17Ad-22(e)(17)(i) promulgated under the Act,\35\ which
requires DTC to establish, implement, maintain and enforce written
policies and procedures reasonably designed to manage the covered
clearing agency's operational risks by identifying the plausible
sources of operational risk, both internal and external, and mitigating
their impact through the use of appropriate systems, policies,
procedures, and controls.
---------------------------------------------------------------------------
\35\ 17 CFR 240.17Ad-22(e)(17)(i).
---------------------------------------------------------------------------
Adding two additional officers that are able to make an interim
determination of a Market Disruption Event in the event that the Board
of Directors is unable to convene would add additional flexibility and
tools to DTC while maintaining proper risk controls and improve the
ability of DTC to act quickly, efficiently and effectively in a Market
Disruption Event and mitigate any impact from such Market Disruption
Event. Also, providing for the ability of DTC to disconnect DTCC
Systems Participants, suspend the receipt or transmission of files or
communications to or from a DTCC Systems Participant, and/or require
the DTCC Systems Participant to take such other actions as are
necessary to protect DTC and its Participants would, in each case,
provide additional tools for DTC in the event of a Major Event and
improve DTC's ability to act quickly, efficiently and effectively in
the event of a Major Event and mitigate any impact from such Major
Event.
Therefore, by providing clear, efficient procedures of DTC and its
Participants with respect to Market Disruption Events and Major Events
that help identify and mitigate operational risks, DTC believes that
the proposed rule change is consistent with the requirements of Rule
17Ad-22(e)(17)(i) promulgated under the Act.\36\
---------------------------------------------------------------------------
\36\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
DTC does not believe that the proposed changes relating to the DTC
Confidentiality Requirements would have any impact on competition.
These changes would provide one standard for how DTC treats Participant
information furnished subject to the DTC Confidentiality Requirements
but would not affect the information that the Participants are required
to provide or affect the manner in which the Participants must provide
the information. As such, DTC believes these proposed rule changes
would not have any impact on competition.
DTC does not believe the proposed changes relating to adding
Participant Confidentiality Requirements would have any impact on
competition. Although the addition of the Participant Confidentiality
Requirements would be adding obligations on Participants with respect
to how they treat confidential or proprietary information of DTC or its
affiliates, such obligations would be minimal because DTC would only
require that such Participants hold such confidential information using
the same means they use to protect their own confidential information
but not less than a reasonable standard of care. The use of this
standard would protect DTC by providing a clear legal obligation to
protect such information but would not be burdensome or expensive for
Participants, and therefore DTC believes that it would not have any
impact on competition.
DTC does not believe the changes relating to adding the two
officers to make a determination of a Market Disruption Event would
have any impact on competition. The proposed rule change would add two
senior executive officers of DTC, the Chief Information Officer and the
Head of Clearing Agency Services, to the list of officers that could
make a determination of a Market Disruption Event if the Board of
Directors is unable to convene. Such addition would provide additional
officers who could determine whether there is a Market Disruption Event
but would not otherwise affect the rights of Participants or DTC in the
determination of a Market Disruption Event or if a Market Disruption
Event is declared. Therefore, DTC does not believe that the addition of
the two officers would have any impact on competition.
DTC does not believe that the changes relating to adding the
Systems Disconnect Rule would have any impact, or impose any burden, on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\37\ To the extent that DTC determines that there is a Major
Event, it could take or refrain from taking actions, or require
Participants to take or refrain from taking actions, that could burden
competition because such requirements could cause Participants to incur
additional costs, allow DTC to suspend services or communications, or
disconnect a DTCC Systems Participant from the DTCC Systems. DTC
believes such burden on competition could be significant but would be
both necessary and appropriate in furtherance of the purposes of the
Act, as permitted by Section 17A(b)(3)(I) of the Act,\38\ for the
reasons described below.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78q-1(b)(3)(I).
\38\ Id.
---------------------------------------------------------------------------
DTC believes that the proposed changes to add the Systems
Disconnect Rule are necessary in furtherance of the purposes of Section
17A(b)(3)(F) of the Act,\39\ and Rules 17Ad-22(e)(1), (e)(2), (e)(17)
and (e)(21) promulgated under the Act.\40\ The proposed changes to add
the Systems Disconnect Rule would (i)
[[Page 36839]]
improve the ability of DTC to react to a Major Event allowing DTC to
protect itself and its Participants and their ability to promptly and
accurately clear and settle securities transactions, and allow DTC to
safeguard securities and funds that are in its custody or control,
consistent with the requirements of Section 17A(b)(3)(F) of the
Act,\41\ (ii) provide clear guidelines with respect to Major Events
that would allow Participants to understand the rights and obligations
of the Participants and DTC in the event of a Major Event, consistent
with Rule 17Ad-22(e)(1) promulgated under the Act,\42\ (iii) identify
the officers that have the ability to determine if there is a Major
Event, and provide for the ability of any management committee on which
all of such officers serve, and the Board of Directors, to ratify,
modify or rescind any determination of a Major Event by an officer,
which would make such governance procedures clear and transparent, and
specify clear and direct lines of responsibility with respect to the
determination of a Major Event, consistent with Rule 17Ad 22(e)(2)
promulgated under the Act,\43\ (iv) improve the ability of DTC to act
quickly, efficiently and effectively in the event of a Major Event, and
mitigate any impact from such event by providing clear, efficient
procedures of DTC and its Participants with respect to such event,
consistent with the requirements of Rule 17Ad-22(e)(17)(i) promulgated
under the Act \44\ and (v) establish procedures designed to improve
DTC's ability to act quickly, efficiently and effectively in the event
of a Major Event, consistent with the requirements of Rule 17Ad-
22(e)(21) promulgated under the Act.\45\
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78q-1(b)(3)(F).
\40\ 17 CFR 240.17Ad-22(e)(1), (e)(2), (e)(17) and (e)(21).
\41\ 15 U.S.C. 78q-1(b)(3)(F).
\42\ 17 CFR 240.17Ad-22(e)(1).
\43\ 17 CFR 240.17Ad-22(e)(2).
\44\ 17 CFR 240.17Ad-22(e)(17)(i).
\45\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------
In addition, DTC believes that the proposed changes to add the
Systems Disconnect Rule are appropriate in furtherance of the Act. Such
changes have been designed to improve the ability of DTC to act
quickly, efficiently and effectively in the event of a Major Event, and
mitigate any impact from such event while also providing the
Participants clear guidelines with respect to such event to allow
Participants to understand their rights and obligations. Such changes
have also been designed to apply uniformly to all Participants in the
event of a Major Event and should not affect DTC's day-to-day
operations under normal circumstances, or in the management of a
typical Participant default scenario or non-default event.
Therefore, DTC does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.\46\
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
DTC has not received or solicited any written comments relating to
this proposal. DTC will notify the Commission of any written comments
received by DTC.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1"><span class="__cf_email__" data-cfemail="1062657c753d737f7d7d757e6463506375733e777f66">[email protected]</span></a>. Please include
File Number SR-DTC-2021-011 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-DTC-2021-011. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of DTC and on DTCC's website
(<a href="http://dtcc.com/legal/sec-rule-filings.aspx">http://dtcc.com/legal/sec-rule-filings.aspx</a>). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-2021-011 and should be submitted on
or before August 3, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------
\47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14797 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 13, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.