Notice2022-08389
Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of and Immediate Effectiveness of Proposed Rule Change To Amend the Reorganizations Service Guide and the Operational Arrangements
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Published
April 20, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 76 (Wednesday, April 20, 2022)</title>
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[Federal Register Volume 87, Number 76 (Wednesday, April 20, 2022)]
[Notices]
[Pages 23613-23616]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08389]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94726; File No. SR-DTC-2022-003]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of and Immediate Effectiveness of Proposed Rule Change
To Amend the Reorganizations Service Guide and the Operational
Arrangements
April 14, 2022.
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 April 11, 2022, 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. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change is to amend the Reorganizations Guide to
(i) remove the Eurobond Conversions Service, (ii) clarify and
streamline language relating to omnibus proxies \5\ and proxy letters,
and (iii) make conforming and clarifying changes. DTC is also proposing
to amend the Reorganizations Guide and the Operational Arrangements to
reflect that an issuer or trustee (each, an ``Issuer'') would only be
able to access an omnibus proxy through the SPR Service,\6\ as
described in greater detail below.\7\
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\5\ Securities held at DTC are registered in the name of DTC's
nominee Cede & Co. DTC does not vote securities registered in the
name of Cede & Co. Instead, DTC provides the Issuer with an omnibus
proxy, which assigns Cede & Co.'s voting rights to those
Participants that have position credit to their DTC account at the
close of business on the record date.
\6\ In order for Issuers or their third party agents
(collectively, ``Users'') to receive listings of Participants'
holdings of a security of an Issuer as of a specific date (a
``securities position report'' or ``SPR''), Users are required to
register for the SPR Service with respect to the specific CUSIP.
Users need access to SPRs to identify Participants holding
securities in order to conduct functions they perform relating to
security holders, including but not limited to record date
functions. All Users must be registered and all requests for
subscriptions or individual copies of SPRs must be made through the
SPR Service. For further information on the SPR Service, see
Securities Exchange Act Release No. 52393 (September 8, 2005), 70 FR
54598 (September 15, 2005) (SR-DTC-2005-12).
\7\ Each term not otherwise defined herein has its respective
meaning as set forth in the Rules, By-Laws and Organization
Certificate of DTC (the ``Rules''), The Reorganizations Service
Guide (``Reorganizations Guide''), and the Operational Arrangements
(``OA''), available at <a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">http://www.dtcc.com/legal/rules-and-procedures.aspx</a>.
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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 purpose of the proposed rule change is to amend the
Reorganizations Guide to (i) remove the Eurobond Conversions Service,
(ii) clarify and streamline language relating to omnibus proxies \8\
and proxy letters, and (iii) make conforming and clarifying changes.
DTC is also proposing to amend the Reorganizations Guide and the
Operational Arrangements to reflect that an issuer or trustee (each, an
``Issuer'') would only be able to access an omnibus proxy through the
SPR Service,\9\ as discussed more fully below.
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\8\ Securities held at DTC are registered in the name of DTC's
nominee Cede & Co. DTC does not vote securities registered in the
name of Cede & Co. Instead, DTC provides the Issuer with an omnibus
proxy, which assigns Cede & Co.'s voting rights to those
Participants that have position credit to their DTC account at the
close of business on the record date.
\9\ In order for Issuers or their third party agents
(collectively, ``Users'') to receive listings of Participants'
holdings of a security of an Issuer as of a specific date (a
``securities position report'' or ``SPR''), Users are required to
register for the SPR Service with respect to the specific CUSIP.
Users need access to SPRs to identify Participants holding
securities in order to conduct functions they perform relating to
security holders, including but not limited to record date
functions. All Users must be registered and all requests for
subscriptions or individual copies of SPRs must be made through the
SPR Service. For further information on the SPR Service, see
Securities Exchange Act Release No. 52393 (September 8, 2005), 70 FR
54598 (September 15, 2005) (SR-DTC-2005-12).
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(i) Remove Eurobond Conversions Service
A. Background
Pursuant to the proposed rule change, DTC would amend the
Reorganization Guide to remove the Eurobond Conversions Service. The
Eurobond Conversions Service allowed Participants to convert
convertible Eurobonds into the underlying securities. The Eurobond
Conversions Service began in the early 1980s. The service was a manual
process whereby DTC received a hardcopy conversion instruction from the
conversion agent that identified the applicable Participant and
included the physical certificate for conversion. DTC then manually
credited the Participant's account with the shares.
The Eurobond Conversions Services was never widely used, and there
has not been any demand for the service for many years. As the industry
moved away from physical certificates and physical processing, the
Eurobond Conversions Service became unnecessary. Today, a Participant
can convert its Eurobond position at the agent, which then adds the
underlying equity to the Participant's DTC account via a Deposit and
Withdrawal at Custodian (DWAC) request. Accordingly, DTC is proposing
to amend the Reorganizations Guide to remove the Eurobond Conversions
Service.
B. Proposed Rule Change
Pursuant to the proposed rule change with respect to the Eurobond
Conversions Service, DTC is proposing to amend the Reorganizations
Guide as follows:
1. In the ``About the Service'' subsection of the ``Conversions''
section, delete the third bullet, ``Process
[[Page 23614]]
instructions from U.S. agents to convert Eurobonds into DTC-eligible
securities,'' because the Eurobond Conversions Service would no longer
be offered.
2. Delete the ``Eurobond Conversions'' section in its entirety.
3. In the ``Forms for Instructions Outside PTS/PBS'' table, delete
the row for Eurobond Conversions.
(ii) Hardcopy Omnibus Proxy
A. Background
Pursuant to the proposed rule change, DTC would amend the
Reorganizations Guide and the Operational Arrangements to reflect that
an Issuer would only be able to access an omnibus proxy through the SPR
Service and would no longer be able to receive a physical copy directly
from DTC.
For proxy solicitations where a record date has been established,
DTC assigns the voting rights of Cede & Co. to the Participants which,
on the record date, have the security credited to their account at
DTC.\10\ Shortly after record date, DTC generates an omnibus proxy,
which includes an SPR of Participant positions in the security on the
record date, and then makes the omnibus proxy available for download by
the Issuer through the SPR Service.\11\
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\10\ See Reorganizations Service Guide, supra note 7, at 20.
\11\ See id.
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However, from time to time there is a record date proxy
solicitation where the Issuer had not registered for the SPR Service.
In these cases, DTC printed out a copy of the omnibus proxy and mailed
the physical copy of the omnibus proxy to the address of the Issuer on
DTC's records.
DTC is proposing to eliminate the delivery of a hardcopy omnibus
proxy and to require that Issuers access the omnibus proxy
electronically through the SPR Service. First, doing so would improve
efficiency and security of the omnibus proxy process by replacing the
manually intensive physical mailing with a secure method of electronic
access by an authorized person. Second, the elimination of the hardcopy
delivery method should not have a significant impact on Issuers because
the percentage of Issuers that send meeting notices to DTC but are not
registered for the SPR Service is less than five percent. Further, DTC
has been performing outreach to facilitate Issuer registration for the
SPR Service. When an Issuer sends in a meeting notice for a CUSIP and
the Issuer is not registered, DTC obtains a contact of an authorized
party for a related CUSIP or of the Issuer's investor relations group.
DTC sends an email informing the Issuer that it needs to register for
the SPR Service to obtain the omnibus proxy. The email contains
directions on how to register. To date, those Issuers that received the
email have registered for the SPR Service.
Finally, the SPR Service does not require special connectivity
because it can be accessed through the web. Registration in the SPR
Service is free and an Issuer's access to the omnibus proxy is free as
well.\12\ Accordingly, the proposed rule change would not impose
additional costs on Issuers.
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\12\ See Security Position Report Pricing, available at <a href="https://www.dtcc.com/settlement-and-asset-services/issuer-services/spr-pricing">https://www.dtcc.com/settlement-and-asset-services/issuer-services/spr-pricing</a>, which does not list any fees for SPR Service registration
or omnibus proxy access.
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B. Proposed Rule Change
Pursuant to the proposed rule change with respect to the delivery
of a hardcopy omnibus proxy, DTC is proposing to amend Section VI(E)(3)
(Shareholder Meetings) of the Operational Arrangements by (i) replacing
the first sentence of the second paragraph with ``Soon after the record
date for the meeting, DTC will make an omnibus proxy available to the
Issuer, trustee, or authorized third-party agent through the Securities
Position Report (SPR) Service,'' and (ii) adding ``For information
about registering for the SPR Service, refer to <a href="http://www.dtcc.com/spr">http://www.dtcc.com/spr</a>,'' before the last sentence in the second paragraph. In addition,
DTC is proposing to replace the term ``are to'' in the second sentence
of the first paragraph with ``must,'' to reinforce the requirement that
the meeting announcement must be emailed to DTC at the designated email
address.
In addition, DTC is proposing to amend the Reorganizations Guide by
removing the sentence ``Issuers and trustees who do not register for
this service will receive an omnibus proxy and Security Position Report
via hard copy mail,'' from the ``Omnibus Proxy'' subsection of the
``Proxy Announcements'' section.
(iii) Other Proposed Rule Changes
DTC is proposing to amend the Reorganizations Guide as follows:
1. On the ``Important Legal Information'' page, change the
copyright date from 2021 to 2022.
2. In the ``Omnibus Proxy'' subsection of the ``Proxy
Announcements'' section replace ``SPR'' with ``Security Position
Reports (SPR).''
3. In the ``Other Securityholder or Bondholder Services''
subsection of the ``Proxy Announcements'' section, update the Guide to
reflect that (i) a Participant must submit its instruction letter and
Cede & Co. securityholder letter through the MyDTCC portal, (ii) the
instruction letter must identify the subject securities, the quantity
of the securities involved, the beneficial owner, and the nature of the
request, and must include the exact form of the requested
securityholder letter, (iii) a user guide for MyDTCC portal is
available on the DTCC website, and (iv) DTC will not accept any request
from (x) any party other than a Participant or (y) outside of the
MyDTCC portal.\13\ In addition, DTC is proposing to make changes to
clarify that the sample letters on the DTCC website are for
illustrative purposes only, and that (i) DTC makes no determination as
to whether a letter is sufficient, legally or otherwise, for a
Participant's or beneficial owner's intended purpose, and (ii)
Participants and beneficial owners must consult with their own counsel
to make such determination.
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\13\ Previously, Participants submitted the documents through
the DTC Web Inquiry Notification System (``WINS''), which was
decommissioned on March 30, 2020. See Securities Exchange Act
Release No. 88050 (January 27, 2020), 85 FR 5728 (January 31, 2020)
(SR-DTC-2020-002).
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DTC is also proposing to add the following paragraph to remind
Participants to timely submit their instructions and form of
securityholder letter and to anticipate a DTC processing time of
approximately six business days: ``To help ensure timely processing of
a Participant's request for a Cede & Co. securityholder letter, a
Participant should anticipate a DTC processing time of approximately
six business days. Processing time may increase if, for example, a
Participant requests notarization of the Cede & Co. letter, or if, once
a request is submitted to DTC, DTC needs to return the request to the
Participant for technical revisions. In addition, Participants should
anticipate longer processing times during periods of high volumes and
plan accordingly. DTC is not responsible for a Participant's failure to
meet any deadline or cut-off in connection with its request.'' Finally,
DTC is also proposing to make minor changes to this subsection for
conformity and readability.
4. In the ``Dissenters' Rights/Appraisal Rights'' subsection of the
``Proxy Announcements'' section, DTC is proposing to replace the
existing Note and Warning sections, with a Note that conforms to the
proposed changes to the ``Other Shareholder or Bondholder Services''
subsection. Specifically, DTC would insert the following:
``There are examples of instruction letters and Assertion Letter on
the DTCC website at http://www.dtcc.com/settlement-and-asset-services/
issuer-
[[Page 23615]]
services/proxy-services. Please note that these example letters are for
illustrative purposes only, and DTC makes no determination as to
whether a letter is sufficient, legally or otherwise, for a
Participant's or beneficial owner's intended purpose. Participants and
beneficial owners must consult with their own counsel to make such
determination.
Completed forms must be submitted by a Participant via the MyDTCC
portal. DTC will not accept the request from any other party or outside
of the MyDTCC portal.
A user guide is available at <a href="https://www.dtcc.com/-/media/Files/Downloads/Settlement-Asset-Services/Issuer-Services/Shareholder-Demand-Dissent-MyDTCC-CAWeb.pdf">https://www.dtcc.com/-/media/Files/Downloads/Settlement-Asset-Services/Issuer-Services/Shareholder-Demand-Dissent-MyDTCC-CAWeb.pdf</a>.''
In addition, to conform with the ``Other Shareholder or Bondholder
Services'' subsection. DTC is proposing to add a paragraph to remind
Participants to timely submit their dissent/appraisal letter
instructions and to anticipate a DTC processing time of approximately
six business days. Specifically, DTC is proposing to add the following:
``To help ensure timely processing of a Participant's request for an
Assertion Letter, a Participant should anticipate a DTC processing time
of approximately six business days. Processing time may increase if,
for example, a Participant requests notarization of the Assertion
Letter, or if, once a request is submitted to DTC, DTC needs to return
the request to the Participant for technical revisions. In addition,
Participants should anticipate longer processing times during periods
of high volumes and plan accordingly. DTC is not responsible for a
Participant's failure to meet any deadline or cut-off in connection
with its request.'' Further, DTC is proposing to amend the
Reorganizations Guide to expressly state that, upon receipt of an
appropriate request for a dissenter/appraisal rights letter involving
securities that are participating in the Direct Registration Service
(DRS), DTC will deliver a DRS Statement--instead of a physical
certificate--to the Participant. Finally, DTC is also proposing to make
minor changes to this subsection for conformity and readability.
In the ``Important Considerations'' subsection of the
``Instructions/Expirations'' section: (i) In the fourth bullet, delete
``either return the instructions form to you with a Rejection Notice
attached, detailing the reason for the rejection, or,'' because the
bullet refers to hardcopy instructions, which are not accepted, (ii)
delete the fifth bullet in its entirety, because DTC does not notify
Participants of a rejection by phone, and (iii) in the eighth bullet,
for clarity, delete ``If you wish to put a unit comprised of a bond and
a certificate evidencing a put option right, and you hold the
securities in the form of the individual components, you must combine
the components into a unit in order to effect the put,'' because this
statement only applies to a specific put bond type and any specific
requirement appears in the applicable announcement for such event.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act \14\ requires that the rules of the
clearing agency be designed, inter alia, to promote the prompt and
accurate clearance and settlement of securities transactions, and, in
general, to protect investors and the public interest.
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
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DTC believes that by deleting an obsolete service that is not being
used, the proposed rule change to amend the Reorganizations Guide to
remove the Eurobond Conversions Service would clarify the scope of
reorganizations services offered by the DTC, thereby promoting the
prompt and accurate clearance and settlement of securities transactions
relating to reorganizations consistent with Section 17A(b)(3)(F) of the
Act.
By eliminating the manually intensive physical mailing of an
omnibus proxy in favor of a secure method of electronic access by an
authorized person, the proposed rule change would enhance the
efficiency and security of the omnibus proxy process and facilitate
record date shareholder identification and voting. Therefore, DTC
believes that the proposed rule change is designed to protect investors
and the public interest, particularly with respect to securityholder
rights, consistent with Section 17A(b)(3)(F) of the Act.
DTC believes that the proposed changes to (i) clarify and
streamline language relating to omnibus proxies and proxy letters, and
(ii) make conforming and clarifying changes in the Reorganizations
Guide would enhance the clarity and transparency of the Reorganizations
Guide. By enhancing the clarity and transparency of the Reorganizations
Guide, the proposed rule change would allow Participants to more
efficiently and effectively conduct their business in accordance with
the Reorganizations Guide. Therefore, DTC believes that the proposed
rule change is designed to promote the prompt and accurate clearance
and settlement of securities transactions relating to reorganizations
consistent with Section 17A(b)(3)(F) of the Act, cited above.
(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change to amend the
Reorganizations Guide to remove the Eurobond Conversions Service would
not have any impact or impose any burden on competition because it
would remove an outdated service that has not been utilized by
Participants for several years.
DTC believes that the proposed rule change to require Issuers to
access the omnibus proxy electronically through the SPR Service would
not have any impact or impose any burden on competition because an
Issuer can register for the SPR Service and access the omnibus proxy
without charge. In addition, Issuers can download and print their own
hardcopies through the SPR Service.
DTC believes that the proposed changes to (i) clarify and
streamline language relating to omnibus proxies and proxy letters, and
(ii) make conforming and clarifying changes in the Reorganizations
Guide would not have any impact on competition because it would enhance
the clarity and transparency of the Reorganizations Guide and therefore
would not affect the rights or obligations of any party.
In light of the foregoing, DTC does not believe that the proposed
rule change would have any impact or impose any burden on
competition.\15\
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\15\ 15 U.S.C. 78q-1(b)(3)(I).
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(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. If any written comments are received, they would be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at
[[Page 23616]]
<a href="https://www.sec.gov/regulatory-actions/how-to-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</a>. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<a href="/cdn-cgi/l/email-protection#4135332025282f26202f252c20332a243532013224226f262e37"><span class="__cf_email__" data-cfemail="63171102070a0d04020d070e021108061710231006004d040c15">[email protected]</span></a> or 202-551-5777.
DTC reserves the right to not respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \16\ of the Act and paragraph (f) \17\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f).
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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#2654534a430b45494b4b434852556655434508414950"><span class="__cf_email__" data-cfemail="1e6c6b727b337d7173737b706a6d5e6d7b7d30797168">[email protected]</span></a>. Please include
File Number SR-DTC-2022-003 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-2022-003. 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-2022-003 and should be submitted on
or before May 11, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08389 Filed 4-19-22; 8:45 am]
BILLING CODE 8011-01-P
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