Notice2021-24621
Self-Regulatory Organizations; The Depository Trust Company; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Provide Settlement Services for Transactions Entered Into Under the Proposed Securities Financing Transaction Clearing Service of the National Securities Clearing Corporation
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
November 12, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 216 (Friday, November 12, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 216 (Friday, November 12, 2021)]
[Notices]
[Pages 62853-62855]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-24621]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93533; File No. SR-DTC-2021-014]
Self-Regulatory Organizations; The Depository Trust Company;
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Provide Settlement Services for
Transactions Entered Into Under the Proposed Securities Financing
Transaction Clearing Service of the National Securities Clearing
Corporation
November 5, 2021.
I. Introduction
On July 22, 2021, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') proposed rule
change SR-DTC-2021-014 (``Proposed Rule Change'') pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder.\2\ The Proposed Rule Change was published for comment
in the Federal Register on August 11, 2021.\3\ The Commission has
received no comment letters on the Proposed Rule Change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 92572 (August 5, 2021),
86 FR 44077 (August 11, 2021) (SR-DTC-2021-014) (``Notice'').
---------------------------------------------------------------------------
On September 2, 2021, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the Proposed Rule Change.\5\ This order institutes
proceedings, pursuant to Section 19(b)(2)(B) of the Act,\6\ to
determine whether to approve or disapprove the Proposed Rule Change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ Securities Exchange Act Release No. 92861 (September 2,
2021), 86 FR 50570 (September 9, 2021) (SR-DTC-2021-014).
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
[[Page 62854]]
II. Summary of the Proposed Rule Change
As described in the Notice,\7\ DTC proposes to amend the Rules, the
Settlement Guide, and the Fee Guide in order to provide Participants
that are also members of the National Securities Clearing Corporation
(``NSCC'') with a proposed optional securities financing transaction
clearing service of NSCC (``NSCC SFT Service''). The proposed NSCC SFT
Service would provide central clearing for equity securities financing
transactions, which are, broadly speaking, transactions where the
parties exchange equity securities against cash and simultaneously
agree to exchange the same securities and cash, plus or minus a rate
payment, on a future date (each, an ``SFT'').\8\ SFTs between
counterparties that are members of NSCC (each, an ``NSCC SFT
Counterparty'') would be settled through their respective Participant
accounts at DTC.
---------------------------------------------------------------------------
\7\ The description of the Proposed Rule Change is based on the
statements prepared by DTC in the Notice. See Notice, supra note 3.
Capitalized terms used herein and not otherwise defined herein are
defined in DTC's Rules, By-Laws and Organization Certificate,
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf, and the Notice.
\8\ On July 22, 2021, NSCC filed a proposed rule change and an
advance notice to establish the NSCC SFT Service (``NSCC Proposed
Rules''). See Securities Exchange Act Release No. 92570 (August 5,
2021), 86 FR 44482 (August 12, 2021) (SR-NSCC-2021-010); Securities
Exchange Act Release No. 92568 (August 5, 2021), 86 FR 44530 (August
12, 2021) (SR-NSCC-2021-803).
---------------------------------------------------------------------------
Pursuant to the proposed rule change, DTC would (i) expand the
types of instructions that NSCC can submit to DTC on behalf of a
Participant that are also members of NSCC in connection with the NSCC
SFT Service, (ii) apply a modified look-ahead process to the new
account that NSCC would maintain at DTC in connection with the NSCC SFT
Service (the ``NSCC SFT Account''), and (iii) establish a fee for the
payments relating to SFT activities at NSCC, and (iv) make clarifying
and conforming changes.
(i) NSCC Instructions to DTC
NSCC would use its new NSCC SFT Account in connection with the NSCC
SFT Service. DTC would allow NSCC to submit instructions to DTC with
respect to the NSCC SFT Service. NSCC would submit Delivery Versus
Payment (``DVP'') instructions or payment orders relating to SFT
activity (``SFT PD Payment Orders'') to DTC in accordance with the NSCC
Proposed Rules. The DVP instructions or the SFT PD Payment Orders would
be subject to DTC's risk management controls and the modified look-
ahead.
(ii) Modified Look-Ahead Processing
The typical look-ahead process utilized by DTC reduces transaction
blockage by applying the net amount of offsetting receive and deliver
transactions in the same security rather than the gross amount of the
receive transaction to a Participant's Net Debit Cap.\9\
---------------------------------------------------------------------------
\9\ The Net Debit Cap controls the amount of the settlement
obligation that any Participant or family may incur.
---------------------------------------------------------------------------
DTC would apply a modified look-ahead processing to the NSCC SFT
Accounts so that look-ahead matches on other details in addition to
CUSIP. The modified look-ahead would be satisfied when (i) the pair of
instructions from NSCC are consistent in terms of the number of subject
shares and/or dollar amount, CUSIP, and DTCC Reference ID, and (ii) the
net effect of processing the instructions would not violate the
respective Net Debit Caps, Collateral Monitor \10\ or other risk
management system controls of the Participants that are on each side of
the DVP or SFT PD Payment Order.
---------------------------------------------------------------------------
\10\ The Collateral Monitor tracks whether each Participant has
available sufficient collateral value to secure a borrowing to fund
the amount of the Participant's net settlement obligation, in the
event that the Participant fails to settle.
---------------------------------------------------------------------------
In addition, because the modified look-ahead relies on the
completion of offsetting transactions, transactions to and from the
NSCC SFT Account would not be subject to either reclaims or Receiver
Authorized Delivery (``RAD''). Since both reclaims and RAD effectively
permit one side of the transaction to reject or reverse the
transaction, allowing such activity would interfere with the ability of
the modified look-ahead to rely on the completion of the offsetting
transactions.
(iii) SFT PD Payment Order Fee
DTC proposes to amend the Fee Guide to establish a fee for SFT PD
Payment Orders. DTC proposes a fee of $0.005 per item delivered or
received to be charged to the payor and the payee of an SFT PD Payment
Order.
III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \11\ to determine whether the Proposed Rule
Change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the Proposed Rule Change. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to comment on the Proposed Rule Change,
and provide the Commission with arguments to support the Commission's
analysis as to whether to approve or disapprove the Proposed Rule
Change.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\12\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the Proposed
Rule Change's consistency with Section 17A of the Act,\13\ and the
rules thereunder, including the following provisions:
---------------------------------------------------------------------------
\12\ Id.
\13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
<bullet> Section 17A(b)(3)(F) of the Act,\14\ which requires, among
other things, that the rules of a clearing agency must be designed to
promote the prompt and accurate clearance and settlement of securities
transactions; and
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
<bullet> Section 17A(b)(3)(D) of the Act \15\ requires that the
rules of a clearing agency must provide for the equitable allocation of
reasonable dues, fees, and other charges among Participants.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the Proposed Rule Change. In particular, the Commission invites
the written views of interested persons concerning whether the Proposed
Rule Change is consistent with Section 17A(b)(3)(F) of the Act,\16\ and
Section 17A(b)(3)(D) of the Act,\17\ or any other provision of the Act,
or the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4(g) under the Act,\18\
any request for an opportunity to make an oral presentation.\19\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ 15 U.S.C. 78q-1(b)(3)(D).
\18\ 17 CFR 240.19b-4(g).
\19\ Section 19(b)(2) of the Act grants to the Commission
flexibility to determine what type of proceeding--either oral or
notice and opportunity for written comments--is appropriate for
consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
---------------------------------------------------------------------------
[[Page 62855]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the Proposed Rule Change should be approved
or disapproved by December 3, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 17, 2021.
The Commission asks that commenters address the sufficiency of
DTC's statements in support of the Proposed Rule Change, which are set
forth in the Notice,\20\ in addition to any other comments they may
wish to submit about the Proposed Rule Change.
---------------------------------------------------------------------------
\20\ See Notice, supra note 3.
---------------------------------------------------------------------------
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#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="cdbfb8a1a8e0aea2a0a0a8a3b9be8dbea8aee3aaa2bb">[email protected]</span></a>. Please include
File Number SR-DTC-2021-014 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-DTC-2021-014. 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-2021-014 and should be submitted on
or before December 3, 2021. Rebuttal comments should be submitted by
December 17, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------
\21\ 17 CFR 200.30-3(a)(31).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-24621 Filed 11-10-21; 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 November 12, 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.