Notice2024-00078
Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to the DTC Fee Schedule To Revise Certain Fees Charged to Participants for (i) Participants Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and (iv) Settlement 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
January 8, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 5 (Monday, January 8, 2024)</title>
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[Federal Register Volume 89, Number 5 (Monday, January 8, 2024)]
[Notices]
[Pages 975-981]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00078]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99264; File No. SR-DTC-2023-014]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
to the DTC Fee Schedule To Revise Certain Fees Charged to Participants
for (i) Participants Fund Maintenance; (ii) Underwriting Services;
(iii) Asset Services; and (iv) Settlement Services
January 2, 2024.
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 December 21, 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)(2) 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ would modify the DTC Fee Schedule \6\
(``Fee Guide'') to revise certain fees charged to Participants for (i)
Participants Fund Maintenance; (ii) Underwriting Services; \7\ (iii)
Asset Services; and (iv) Settlement Services, as described below.
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\5\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth 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\ Available at <a href="http://www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/DTC-Fee-Schedule.pdf">www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/DTC-Fee-Schedule.pdf</a>.
\7\ Pursuant to Rule 2, Section 1, each Participant shall pay to
DTC the compensation due it for services rendered to the Participant
based on DTC's fee schedules. See Rule 2, supra note 5.
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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
Purpose
The proposed rule change would modify the Fee Guide to revise
certain fees charged to Participants for (i) Participants Fund
Maintenance; (ii) Underwriting Services; (iii) Asset Services; and (iv)
Settlement Services, as described below.
Overview
DTC operates a ``low cost'' pricing model and has in place
procedures to control costs and to regularly review pricing levels
against costs of operation. It reviews pricing levels against its costs
of operation during the annual budget process. The budget is approved
annually by the Board. DTC's fees are cost-based plus a low-margin
markup, as approved by the Board or management (pursuant to authority
delegated by the Board), as applicable. The markup is applied to
recover development costs and operating expenses, and to accumulate
capital sufficient to meet regulatory and economic requirements. When
estimating expected revenues and costs, DTC typically uses historical,
current, and expected usage and market trends to determine revenue
outlook and apply current budgeted assumptions on costs.
In addition to assessing the overall impact of fee changes at DTC,
the Board also considers impacts of fee changes from an individual
product/service category (e.g., Underwriting, Asset Services,
Participants Fund Maintenance) perspective, taking cost and capital
considerations relating to a given category into account. After
evaluation of DTC's short-term and long-term financial position in
consideration of expected Participant activity, revenues, cost of
funding, market volatility, and the financial markets more broadly, DTC
has determined that it should increase the overall amount it collects
from Participants through fees. In this regard, the proposed rule
change would increase certain fees relating to Participants Fund
maintenance and Underwriting Services, and it would eliminate and
consolidate other Asset Services fees included in the Fee Guide, to
better align cost and revenue, as described below.
Participant Fund Maintenance Fee Increase
DTC maintains a pool of funds used for liquidity purposes
consisting of mandatory and voluntary contributions by Participants
(``Participants Fund''). The Participants Fund creates liquidity and
collateral resources to support the business of DTC and to cover losses
and liabilities incident to that business. For this purpose, every
Participant has a Required Participants Fund Deposit based on the
Participant's activity at DTC. The Participants Fund is held in cash at
DTC and is used in the event a Participant fails to settle.
In support of maintaining the Participants Fund, DTC charges a
Participants Fund Maintenance Fee, which is a monthly fee calculated,
in arrears, as the product of (A) 0.25 percent and (B) the average of
each Participant's Actual Participants Fund Deposit, as of the end of
each day, for the month, multiplied by the number of days for that
month and divided by 360.\8\ DTC proposes to increase the rate used to
calculate the Participants Fund Maintenance Fee by 10 basis points from
0.25 percent to 0.35 percent. DTC is proposing this increase in order
to cover its costs for servicing the fund and to maintain the
appropriate low-margin markup above costs.
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\8\ See Fee Guide, supra note 6 at 20.
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All 193 Participants are projected to incur a 40 percent increase
to their
[[Page 976]]
individual Participants Fund Maintenance Fee as a result of the
increase. Of these Participants, six would see an increase between
$100,000 and $130,000; 27 would see an increase between $10,000 and
$100,000; and 160 would see an increase of less than $10,000.
Underwriting Fee Increase
DTC, through its Underwriting Department, serves the financial
industry by making securities eligible for depository services. Through
DTC, Participants have the ability to distribute new and secondary
offerings quickly and economically by electronic book-entry delivery
and settlement. These securities are then available for depository
services.
Due to decreasing issuance volumes since 2021, strategic
investments in modernization, and continued inflationary headwinds,
DTC's Underwriting fees, which have not changed in 10 years, are not
covering its costs. DTC proposes to amend the Fee Guide to increase the
Underwriting eligibility fees charged to Participants to better align
costs and revenue.
Specifically, DTC proposes to increase eligibility fees by
approximately 20 percent across the following Underwriting fees (bold,
underlined text indicates additions and bold, strikethrough text
indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN08JA24.000
Sixty-five Participants would see an increase in Underwriting fees.
Of these Participants, 14 would see an increase between $100,000 and
$800,000; 26 would see an increase between $10,000 and $100,000; and 25
would see an increase of less than $10,000.
Asset Services--Simplification and Consolidation of Fees
Asset Services is comprised of diverse asset events outside of
clearance and settlement. It encompasses over 1.3 million DTC-eligible
equity and debt securities, and provides efficient and effective
centralization, simplification, and automation in the handling of
physical securities. It also processes principal, income, and corporate
actions for these instruments.
DTC conducted an extensive review of the current DTC Fee Schedule
to ensure alignment with current practice and to streamline DTC's fee
structure for a better client experience. The proposed changes to both
eliminate and consolidate several Asset Services fees would improve
customer billing transparency and provide clearer guidance on when fees
are applied. The proposed changes also further reduce the complexity of
tiered fee structures and eliminate fees for outdated and non-value-add
services. These changes will not have a material impact on the total
dollar amount of Asset Services fees charged to Participants.
Specifically, the following entries in the Asset Services section
of the Fee Guide would be revised (bold, underlined text indicates
additions and bold, strikethrough text indicates deletions):
[[Page 977]]
[GRAPHIC] [TIFF OMITTED] TN08JA24.001
[[Page 978]]
[GRAPHIC] [TIFF OMITTED] TN08JA24.002
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Settlement Services
The following entries in the Settlement Services section of the Fee
Guide would be revised (bold, underlined text indicates additions and
bold strikethrough text indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN08JA24.003
[GRAPHIC] [TIFF OMITTED] TN08JA24.004
Participant Outreach
DTC has conducted ongoing outreach to each Participant in order to
provide them with notice of the proposed changes and the anticipated
impact for the Participant. The impact of the proposed changes was
provided to Participants using year to date July 2023 annualized data.
Participants asked clarifying questions but did not express concerns.
Implementation Timeframe
DTC would implement this proposal on January 1, 2024. To that
effect, a legend would be added to the Fee Guide stating there are
changes that have become effective upon filing with the but have not
yet been implemented. The
[[Page 980]]
proposed legend also would include a date on which such changes would
be implemented and the file number of this proposal, and state that,
once this proposal is implemented, the legend would automatically be
removed from the Fee Guide.
2. Statutory Basis
DTC believes this proposal is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, DTC believes the proposed
changes to modify fees charged to Participants for (i) Participants
Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and
(iv) Settlement Services, as described above, are consistent with
Section 17A(b)(3)(D) of the Act,\9\ for the reasons described below.
DTC also believes that the proposed changes to update the Fee Guide
with the new fees are consistent with Rule 17Ad-22(e)(23)(ii),\10\ as
promulgated under the Act, for the reasons described below.
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\9\ 15 U.S.C. 78q-1(b)(3)(D).
\10\ 17 CFR.17Ad-22(e)(23)(ii).
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Section 17A(b)(3)(D) of the Act requires, inter alia, that the
Rules provide for the equitable allocation of reasonable dues, fees,
and other charges among Participants.\11\ DTC believes the proposed
rule change to revise fees charged to Participants for (i) Participants
Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and
(iv) Settlement Services, would provide for the equitable allocation of
reasonable fees. Because all 193 Participants would see an increase in
fees, and those increases are equally shared (e.g., in the case of the
Participants Fund Maintenance with a consistent 40 percent increase per
Participant) and directly proportional to the Participants' use of
DTC's services (e.g., in the case of the Underwriting and Asset Service
fees), DTC believes the fees continue to be equitably allocated.
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\11\ 15 U.S.C. 78q-1(b)(3)(D).
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DTC also believes that the proposed fees would continue to be
reasonable under the described changes. As described above, DTC's fees
are cost-based plus a low-margin markup. As such the proposed fee
changes are simply designed to better align to the projected operating
costs and expenses of DTC relating to its services. For this reason,
DTC believes that the proposed fee changes, as described above, are
reasonable and consistent with Section 17A(b)(3)(D) of the Act.\12\
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\12\ Id.
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Rule 17Ad-22(e)(23)(ii) under the Act \13\ requires DTC to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency. The proposed fees would be clearly and transparently published
in the Fee Guide, which is available on a public website,\14\ thereby
enabling Participants to identify the fees and costs associated with
participating in DTC. As such, DTC believes the proposed rule change is
consistent with Rule 17Ad-22(e)(23)(ii) under the Act.\15\
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\13\ 17 CFR 240.17Ad-22(e)(23)(ii).
\14\ See supra note 6.
\15\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition
The proposed rule change may impact competition and that impact may
be a burden because it would result in increased fees paid by
Participants, as described above. However, DTC does not believe such a
burden would be significant because the fees would be charged equally
to all Participants that utilize DTC's services and would merely
reflect the Participants' activity at DTC. Regardless, DTC believes any
burden would be necessary and appropriate in furtherance of the
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the
Act.\16\
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\16\ 15 U.S.C. 78q-1(b)(3)(I).
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DTC believes any such burden would be necessary because the
proposed fee increases would better align the fees with DTC's
associated costs, helping DTC to achieve and maintain its net income
margin. Meanwhile, DTC also believes that any such burden would be
appropriate because the fees would continue to be equitably and
reasonably allocated among all Participants, as described above.
(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#44303625202d2a23252a202925362f213037043721276a232b32"><span class="__cf_email__" data-cfemail="e094928184898e87818e848d81928b859493a0938583ce878f96">[email protected]</span></a> or 202-551-5777.
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) of the Act and paragraph (f) 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.
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#0674736a632b65696b6b636872754675636528616970"><span class="__cf_email__" data-cfemail="c3b1b6afa6eea0acaeaea6adb7b083b0a6a0eda4acb5">[email protected]</span></a>. Please include
file number SR-DTC-2023-014 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-2023-014. 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="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
[[Page 981]]
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="https://www.dtcc.com/legal/sec-rule-filings">https://www.dtcc.com/legal/sec-rule-filings</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-2023-014 and should be submitted on or
before January 29, 2024.
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. 2024-00078 Filed 1-5-24; 8:45 am]
BILLING CODE 8011-01-P
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