Notice2023-21137
Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule To Amend the DTC Operational Arrangements (Necessary for Securities To Become and Remain Eligible for DTC Services)
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
September 28, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 187 (Thursday, September 28, 2023)</title>
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[Federal Register Volume 88, Number 187 (Thursday, September 28, 2023)]
[Notices]
[Pages 66921-66923]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21137]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98490; File No. SR-DTC-2023-009]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of Proposed Rule To Amend
the DTC Operational Arrangements (Necessary for Securities To Become
and Remain Eligible for DTC Services)
September 22, 2023.
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 September 14, 2023, 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)(6) 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)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to the DTC
Operational Arrangements (Necessary for Securities to Become and Remain
Eligible for DTC Services) (the ``OA'') \5\ to (i) allow DTC to delete
the Participant positions and dispose of the underlying certificates,
if any, for a warrant \6\ or right \7\ that is past its expiration date
as reflected on DTC books and records (``Expiration Date''), provided
that DTC did not receive a notice of extension of the Expiration Date
from the Agent or Issuer within the applicable timeframe (``Notice
Period'') set forth in the OA; and (ii) make technical and clarifying
changes relating to expired warrants/rights, as described in greater
detail below.
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\5\ Available at www.dtcc.com/~/media/Files/Downloads/legal/
issue-eligibility/eligibility/operational-arrangements.pdf. Each
term not otherwise defined herein has its respective meaning as set
forth in the OA and in the Rules, By-Laws and Organization
Certificate of DTC (the ``Rules''), available at <a href="http://www.dtcc.com/legal/rules-and-procedures.aspx">www.dtcc.com/legal/rules-and-procedures.aspx</a>.
\6\ A warrant generally represents the right of the holder to
acquire common stock of an issuer at some future date at a specified
price. Warrants, by their terms, have an expiration date, i.e., the
date after which a holder can no longer exercise its rights under
the warrant, thereby rendering the warrant worthless.
\7\ A right generally represents an opportunity for stockholders
to buy new securities issued by a corporation in proportion to the
number of shares they own before the new shares are offered to the
public. Rights, by their terms, have an expiration date, i.e., the
date on which the subscription period under the rights offering
expires, thereby rendering the right worthless.
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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
On November 21, 1990, DTC filed a rule change providing for the
deletion and disposal of a warrant/right whose Expiration Date had
passed (``Expired Warrant/Right'').\8\ The rule change provided that
DTC be permitted to delete and dispose of an Expired Warrant/Right
after DTC (i) obtains written confirmation from the Issuer or Agent
that the Expired Warrant/Right has expired and is null, void, and
worthless (the ``Confirmation''), and (ii) provides Participants with
thirty days' notice of the proposed deletion and disposal of the
Expired Warrant/Right. After thirty days, DTC is permitted to delete
the positions in the Expired Warrant/Right from Participants' accounts
and to dispose of the underlying certificates.
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\8\ Securities Exchange Act Release No. 28642 (Nov. 21, 1990),
55 FR 49725 (Nov. 30, 1990) (SR-DTC-90-11).
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Over the years, DTC has encountered difficulties in contacting the
Issuers or Agents of Expired Warrants/Rights and/or obtaining the
Confirmation from the Issuers or Agents. In addition to the
administrative burden on DTC to follow-up with Issuers and Agents, if
DTC does not receive the Confirmation from the Issuer or Agent of an
Expired Warrant/Right (i) the DTC books and records continue to reflect
the expired security, and (ii) the underlying certificates, if any,\9\
continue to be
[[Page 66922]]
maintained in the DTC vault. This exposes DTC to the unnecessary risks
and costs associated with the ongoing monitoring of positions and the
custody of certificates for worthless securities. In addition, the
positions in the Expired Warrant/Right remain credited to Participant
accounts and the Participants continue to be charged for their
positions in the Expired Warrant/Right.
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\9\ Currently, warrants/rights are required to be part of the
FAST program (Fast Automated Securities Transfer) program. This
means that the Agent for a warrant/right, and not DTC, is
responsible for maintaining the physical certificates representing
the warrant/right. See OA, supra note 1, at 65.
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At the time of this filing, DTC maintains approximately 16,700
certificates in the vault and the associated Participant positions
representing approximately 890 CUSIPs of Expired Warrants/Rights for
which DTC did not obtain a Confirmation. DTC is also maintaining
Participant positions in certain Expired Warrants/Rights in the FAST
program for which DTC did not obtain a Confirmation.
(i) Proposed Rule Change
In order to reduce the burden, costs, and risks presented to DTC,
Participants, Agents and Issuers by requiring DTC to obtain a
Confirmation from the Issuer or Agent of an Expired Warrant/Right prior
to deletion and disposal, DTC is proposing to amend the OA to make the
following changes:
Notice of Extension of Expiration Date of Warrants/Rights: DTC is
proposing to amend the OA to revise the Notice Period from 15 (fifteen)
business days after the Expiration Date to ten (10) business days after
the Expiration Date for a warrant, and two (2) business days after the
Expiration Date for rights.\10\
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\10\ The fifteen (15) business day timeframe was established on
or around 2002, when notices of extension were required to be
physically mailed or telecopied to DTC. Given the technological
advances in the intervening years, and the current requirement that
an Issuer or Agent email a notice of extension to DTC, DTC believes
that a shorter Notice Period for warrants is appropriate. DTC
believes that a two (2) business day Notice Period for rights is
appropriate because the payment and allocation on exercised rights
typically occurs two business days after expiration date, after
which the rights offer can no longer be amended or extended.
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Further, pursuant to the proposed rule change, DTC would change the
email address to which such notice is required to be sent from
<a href="/cdn-cgi/l/email-protection#6e1801021b001a0f1c171c0b011c090f0000011b000d0b030b001a1d2e0a1a0d0d400d0103"><span class="__cf_email__" data-cfemail="9debf2f1e8f3e9fcefe4eff8f2effafcf3f3f2e8f3fef8f0f8f3e9eeddf9e9fefeb3fef2f0">[email protected]</span></a> to
<a href="/cdn-cgi/l/email-protection#6d0e02031b081f1e0402031e0c03091a0c1f1f0c03191e0c03030218030e08000803191e2d09190e0e430e0200"><span class="__cf_email__" data-cfemail="65060a0b130017160c0a0b16040b0112041717040b1116040b0b0a100b060008000b111625011106064b060a08">[email protected]</span></a>.
Deletion and Disposal of Expired Warrants/Rights: DTC is proposing
to amend the OA to advise Issuers and Agents that if DTC has not
received a notice of extension for an Expired Warrant/Right within ten
(10) business days after the Expiration Date for a warrant or within
two (2) business days after the Expiration Date for rights, DTC may
delete all Participant positions and dispose of any underlying
certificates for the Expired Warrant/Right, without further instruction
or notice. In addition, DTC is proposing to insert an asterisked
footnote stating that with respect to expired warrants/rights with an
expiration date prior to August 1, 2023 (``aged expired warrants/
rights''), DTC will issue an Important Notice at least thirty (30) days
prior to deleting and disposing of an aged Expired Warrant/Right, and
the footnote will be automatically be deleted after DTC issues such
Important Notice(s) for all of the aged expired warrants/rights.
Finally, DTC is proposing to remove the language referencing the
requirement for the Issuer or Agent to provide a null, void, and
worthless declaration for Expired Warrants/Rights.
Reactivation of Expired Warrants/Rights: DTC is proposing to amend
the OA to replace and revise the language relating to reactivation of
Expired Warrants/Rights to (i) enhance the readability of the
requirements and (ii) change the email address to which a notice of
reactivation is required to be sent from
<a href="/cdn-cgi/l/email-protection#a4d2cbc8d1cad0c5d6ddd6c1cbd6c3c5cacacbd1cac7c1c9c1cad0d7e4c0d0c7c78ac7cbc9"><span class="__cf_email__" data-cfemail="c3b5acafb6adb7a2b1bab1a6acb1a4a2adadacb6ada0a6aea6adb7b083a7b7a0a0eda0acae">[email protected]</span></a> to
<a href="/cdn-cgi/l/email-protection#cfaca0a1b9aabdbca6a0a1bcaea1abb8aebdbdaea1bbbcaea1a1a0baa1acaaa2aaa1bbbc8fabbbacace1aca0a2"><span class="__cf_email__" data-cfemail="a8cbc7c6decddadbc1c7c6dbc9c6ccdfc9dadac9c6dcdbc9c6c6c7ddc6cbcdc5cdc6dcdbe8ccdccbcb86cbc7c5">[email protected]</span></a>.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\11\ DTC believes that by amending the OA to
(i) permit DTC to delete the Participant positions and dispose of the
underlying certificates, if any, for an Expired Warrant/Right, provided
that DTC did not receive a notice of extension within the ten (10)
business days' Notice Period for a warrant or the two (2) business
days' Notice Period for rights, as applicable; and (ii) make technical
and clarifying changes to the OA with respect to Expired Warrants/
Rights, the proposed rule change would facilitate the ability of
Issuers, Agents, and Participants to understand their rights and
obligations relating to Expired Warrants/Rights and activity relating
thereto. Therefore, DTC believes that the proposed rule change is
designed to promote the prompt and accurate clearance and settlement of
securities transactions, consistent with section 17A(b)(3)(F) of the
Act, cited above.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(e)(11) under the Act \12\ requires, in part, that DTC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to maintain securities in an immobilized
or dematerialized form for their transfer by book entry, ensure the
integrity of securities issues, and minimize and manage the risks
associated with the safekeeping and transfer of securities. DTC
believes that by amending the OA to permit DTC to delete all
Participant positions and dispose of any underlying certificates for an
Expired Warrant/Right, without further instruction or notice, provided
that DTC has not received a notice of extension for the Expired
Warrant/Right from the Issuer or Agent within the applicable Notice
Period, the proposed rule change would reduce the burden, costs, and
risks associated with the administration of the Confirmation process,
the recordkeeping of Participant positions in Expired Warrants/Rights,
and the custody of the physical certificates for Expired Warrants/
Rights. Based on the foregoing, DTC believes that the proposed rule
change is designed to enhance DTC's maintenance of Participants' book-
entry positions in warrants and rights, and its management and
reduction of the risks associated with the safekeeping of its physical
securities inventory, consistent with Rule 17Ad-22(e)(11) under the
Act, cited above.
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\12\ 17 CFR 240.17Ad-22(e)(11).
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change to amend the OA to (i)
permit DTC to delete the Participant positions and dispose of the
underlying certificates, if any, for an Expired Warrant/Right, provided
that DTC did not receive a notice of extension within the ten (10)
business days' Notice Period for a warrant or the two (2) business
days' Notice Period for rights, as applicable; and (ii) make technical
and clarifying changes to the OA with respect to Expired Warrants/
Rights procedures, would not have any impact on competition.\13\ The
proposed rule change would merely streamline the processing of Expired
Warrants/Rights and would apply to all Issuers and Agents of Expired
Warrants/Rights and to all holders of Expired Warrants/Rights. In light
of the foregoing, DTC does not believe that the proposed rule change
would impose a burden on competition.\14\
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\13\ 15 U.S.C. 78q-1(b)(3)(I).
\14\ Id.
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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 <a href="http://www.sec.gov/regulatory-actions/how-to-submit-comments">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#abdfd9cacfc2c5cccac5cfc6cad9c0cedfd8ebd8cec885ccc4dd"><span class="__cf_email__" data-cfemail="cfbbbdaeaba6a1a8aea1aba2aebda4aabbbc8fbcaaace1a8a0b9">[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
Because the foregoing proposed rule change does not:
(i) significantly affect the protection of investors or the public
interest;
(ii) impose any significant burden on competition; and
(iii) become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to section 19(b)(3)(A) of the Act \15\ and
Rule 19b-4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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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.
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1"><span class="__cf_email__" data-cfemail="d3a1a6bfb6feb0bcbebeb6bda7a093a0b6b0fdb4bca5">[email protected]</span></a>. Please include
file number SR-DTC-2023-009 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-2023-009. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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>). Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-DTC-2023-009 and should be submitted on
or before October 19, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21137 Filed 9-27-23; 8:45 am]
BILLING CODE 8011-01-P
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