Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of a Proposed Rule Change Relating to the Admission of Foreign Entities as Direct Depository Participants, 12485-12487 [E8-4401]
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Federal Register / Vol. 73, No. 46 / Friday, March 7, 2008 / Notices
the Exchange’s future reports on the
Pilot Program, the Exchange should
include analysis of (1) the impact of the
additional series on the Exchange’s
market and quote capacity, and (2) the
implementation and effects of the
delisting policy, including the number
of series eligible for delisting during the
period covered by the report, the
number of series actually delisted
during that period (pursuant to the
delisting policy or otherwise), and
documentation of any customer requests
to maintain QOS strikes that were
otherwise eligible for delisting.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (SR–CBOE–2007–
96), as modified by Amendment No. 1
thereto, be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–4389 Filed 3–6–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57392; File No. SR–DTC–
2007–16]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of a Proposed Rule Change
Relating to the Admission of Foreign
Entities as Direct Depository
Participants
February 27, 2008.
sroberts on PROD1PC70 with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
November 16, 2007, The Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) and on February 5,
2008, amended the proposed rule
change as described in Items I, II, and
III below, which items have been
prepared primarily by DTC. The
Commission is publishing this notice to
(4) any capacity problems or other problems that
arose during the operation of the Pilot Program and
how the Exchange addressed such problems; (5) any
complaints that the Exchange received during the
operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional
information that would assist in assessing the
operation of the Pilot Program.
10 15 U.S.C. 78s(b)(2).
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
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solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The proposed rule change would
amend DTC’s policy statement regarding
the admission of participants to permit
entities that are organized in a foreign
country and are not subject to U.S.
federal or state regulation (‘‘foreign
entities’’) to become eligible to become
direct DTC participants (‘‘Foreign Entity
Policy Statement’’).2
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
DTC 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. DTC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of such statements.3
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In 1990, DTC adopted a Policy
Statement on the Admission of
Participants (‘‘1990 Policy Statement’’)
to make clear that in determining
whether to grant access to its services,
DTC regards as a critical factor that an
applicant is subject to comprehensive
U.S. federal or state regulation relating
to, among other things, capital
adequacy, financial reporting and
recordkeeping, operating performance,
and business conduct.4 Generally under
the 1990 Policy Statement, unless an
applicant is subject to U.S. federal or
state regulatory agency oversight, the
applicant would not be eligible to
become a DTC participant.5 Since 1990,
2 The National Securities Clearing Corporation
(‘‘NSCC’’) has filed a similar proposed rule change
that would permit NSCC to adopt a similar policy
statement with respect to the admission of foreign
entities as members. Securities Exchange Act
Release No. 57391 (February 27, 2008) (File No. SR–
NSCC–2007–15).
3 The Commission has modified parts of these
statements.
4 Securities Exchange Act Release No. 28754
(January 8, 1991), 56 FR 1548 (January 15, 1991)
(File No. SR–DTC–90–01).
5 DTC recognized, however, that any person
designated by the Commission pursuant to Section
17A(b)(3)(B)(vi) of the Act, even if not subject to
such regulatory oversight, would be eligible for
admission. The 1990 Policy Statement was
approved by the Commission on January 8, 1991.
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12485
DTC has admitted a small number of
foreign entities where their obligations
to DTC have been guaranteed by
creditworthy DTC participants.
The purpose of the proposed Foreign
Entity Policy Statement is to establish
admissions criteria that will permit a
well-qualified foreign entity to become
a participant of DTC and to obtain direct
access to DTC’s services while assuring
that the unique risks associated with the
admission of foreign entities are
adequately addressed.6
The admission of foreign entities as
participants raises a number of unique
risks and issues, including that (1) the
entity is not subject to federal or state
regulation, (2) that the operation of the
laws of the entity’s home country and
time zone differences 7 may impede the
successful exercise of DTC’s rights and
remedies particularly in the event of the
entity’s failure to settle, and (3) financial
information about the foreign entity
made available to DTC for monitoring
purposes may be less adequate than the
financial information about U.S.-based
entities.
The Foreign Participant Policy
Statement would require that in
addition to executing the standard DTC
Participation Agreement the foreign
entity enter into a series of undertakings
and agreements that are designed to
address jurisdictional concerns and to
assure that DTC is provided with
audited financial information that is
acceptable to DTC.8 The proposed
policy statement would also require that
the foreign entity (1) be subject to
regulation in its home country and (2)
be in good standing with its home
country regulator.
The Foreign Participant Policy
Statement was previously approved by
the Commission on a temporary basis in
1997.9 As currently proposed, the
6 DTC’s proposed ‘‘Policy Statement on the
Admission of Non-U.S. Entities as Direct Depository
Participants’’ is attached as Exhibit 5 to its filing,
which can be found at https://www.dtcc.com/
downloads/legal/rule_filings/2007/dtc/2007–16.pdf.
7 Time zone differences may complicate
communications between a foreign participant and
its U.S. Settling Bank with respect to the timely
payment of the participant’s net debit to DTC
including intraday demands for payment. These
differences may also delay DTC’s receipt of
information available in the foreign participant’s
home country to others including its other creditors
about the foreign participant’s financial condition
on the basis of which DTC would have taken steps
to protect the interests of DTC and its participants.
8 In the Foreign Entity Policy Statement, DTC has
reserved the right to waive certain of these criteria
where such criteria are inappropriate to a particular
applicant or class of applicants (e.g., a foreign
government or international or national central
securities depositories).
9 Securities Exchange Act Release Nos. 38600
(May 9, 1997), 62 FR 27086 (May 16, 1997) (File No.
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Federal Register / Vol. 73, No. 46 / Friday, March 7, 2008 / Notices
sroberts on PROD1PC70 with NOTICES
Foreign Participant Policy Statement
would retain all the requirements of the
previous version with the exception of
the ‘‘special financial conditions’’
requirements, as explained below. It
would also include new requirements
with respect to non-U.S. GAAP financial
statements and anti-money laundering
(‘‘AML’’) risk.
The Foreign Entity Policy Statement
previously included ‘‘special financial
conditions’’ requirements applicable to
participants that were foreign entities.
The special financial conditions
requirements mandated that a foreign
entity have and maintain minimum net
capital of 100% of the minimum net
capital for the admission of a U.S.
entity. A foreign entity was also
required to have additional ‘‘special
collateral’’ in its account equal to fifty
percent of its net debit cap. Any net
debit of the foreign entity had to be
supported by the value of other, nonspecial collateral including securities
received by the participant valued in
accordance with DTC’s customary
haircuts. Except for U.S. Treasury
securities, which received a haircut of 2
percent, securities posted as special
collateral received a haircut of 50% of
their market value. The foreign entity
did not receive credit for special
collateral in DTC’s collateral monitor.
DTC now believes that its net debit cap,
collateral monitor, and other risk
management controls and procedures
applicable to all participants together
with the other requirements of the
Foreign Entity Policy Statement would
adequately limit DTC’s exposure in the
event of the failure to settle and
insolvency of a foreign participant
without the need for the special
financial conditions requirement.10
The Foreign Entity Policy Statement
also previously required foreign entities
to provide to DTC for financial
monitoring purposes audited financial
statements prepared in accordance with
U.S. generally accepted accounting
principles or other generally accepted
accounting principles that are
satisfactory to DTC. As it is currently
SR–DTC–96–13); 40064 (June 3, 1998), 63 FR 31818
(June 10, 1998) (File No. SR–DTC–98–11); 41466
(May 28, 1999), 64 FR 30077 (June 4, 1999) (File
No. SR–DTC–99–12); 42865 (May 30, 2000), 65 FR
36188 (June 7, 2000) (File No. SR–DTC–00–07);
44470 (June 22, 2001), 66 FR 34972 (July 2, 2001)
(File No. SR–DTC–2001–10). Approval of the
Foreign Participant Policy Statement as previously
filed and temporarily approved by the Commission
extended through May 31, 2002.
10 Additionally, in the Foreign Participant Policy
Statement, DTC has reserved the right to require a
foreign entity to deposit additional amounts to
DTC’s participants fund and the right to require a
letter of credit as the form of participant fund
collateral where DTC in its sole discretion believes
the entity presents legal risk.
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proposed, the Foreign Entity Policy
Statement retains this requirement but
to address the risk presented by
accepting financial statements prepared
in non-U.S. GAAP, DTC would increase
the existing minimum financial
requirements for any foreign entity
submitting its financial statements in
non-U.S. GAAP by a premium. The
premiums would be as follows:
(i) 11⁄2 times the existing requirement
for a foreign entity submitting financial
statements prepared in accordance with
International Financial Reporting
Standards (‘‘IFRS’’), the Companies Act
of 1985 (‘‘UK GAAP’’), or Canadian
GAAP;
(ii) 5 times the existing requirement
for a foreign entity submitting financial
statements prepared in accordance with
a European Union (‘‘EU’’) country
GAAP other than UK GAAP; and
(iii) 7 times the existing requirement
for a foreign entity submitting financial
statements prepared in accordance with
any other type of GAAP.
Finally, DTC is proposing to add a
new requirement to the Foreign Entity
Policy Statement that a foreign entity
must provide sufficient information to
DTC so that DTC can evaluate AML risk.
The proposed rule change is
consistent with the requirements of
Section 17A(b)(3)(F) of the Act. The
proposed policy does not unfairly
discriminate against foreign entities
seeking admission as participants
because it appropriately takes into
account the unique risks to DTC raised
by their admission.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
DTC perceives no impact on
competition by reason of the proposed
rule change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments from DTC
participants or others have not been
solicited or received on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
ninety days of such date 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:
PO 00000
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Sfmt 4703
(a) By order approve the 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
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–DTC–2007–16 on the
subject line.
Paper Comments:
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–DTC–2007–16. This file
number should be included on the
subject line if e-mail 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 Web site (https://www.sec.gov/
rules/sro.shtml). 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 inspection and copying 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 such filing also will be
available for inspection and copying at
the principal office of DTC. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–DTC–2007–16 and should
be submitted on or before March 28,
2008.
E:\FR\FM\07MRN1.SGM
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Federal Register / Vol. 73, No. 46 / Friday, March 7, 2008 / Notices
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–4401 Filed 3–6–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57413; File No. SR–FINRA–
2008–007]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Make Permanent a
Pilot Program That Increases Options
Position and Exercise Limits
March 3, 2008.
sroberts on PROD1PC70 with NOTICES
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 February
28, 2008, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
(f/k/a National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by FINRA.
FINRA has designated this proposal as
non-controversial under Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA seeks to amend NASD Rule
2860 (Options) to make permanent a
pilot program that increases options
position and exercise limits. In addition,
FINRA proposes to amend NASD IM–
2860–1 (Position Limits) to revise the
examples that illustrate the operation of
position limits with the proposed
permanent position limits. The text of
the proposed rule change is available on
FINRA’s Web site (https://
www.finra.org), at FINRA’s principal
office, and at the Commission’s Public
Reference Room.
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA 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. FINRA has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA is proposing amendments to
its options position and exercise limits
in NASD Rule 2860 to make permanent
a pilot program that increases position
and exercise limits for both
standardized and conventional options.5
In addition, FINRA proposes to amend
NASD IM–2860–1 (Position Limits) to
revise the examples that illustrate the
operation of position limits with the
proposed permanent position limits.
NASD Rule 2860(b)(3) subjects
standardized and conventional options
to one of five different position limits.
Options exercise limits, which are set
forth in NASD Rule 2860(b)(4), and
which incorporate by reference the
position limits in Rule 2860(b)(3), also
would increase. The original pilot
program became effective on March 30,
2005, and has been extended five times.
It was scheduled to expire on March 1,
2008.6 FINRA is proposing to make the
5 A ‘‘conventional option’’ is an option contract
not issued, or subject to issuance by, the Options
Clearing Corporation. See NASD Rule 2860(b)(2)(O).
Currently, position limits for standardized and
conventional options are the same with respect to
the same underlying security. The proposed rule
change would maintain this parity between
standardized and conventional options. FINRA has
maintained parity between conventional and
standardized options since 1999. See Securities
Exchange Act Release No. 40932 (January 11, 1999),
64 FR 2930, 2931 (January 19, 1999) (SR–NASD–
98–92). Before 1999, position limits on
conventional options were three times greater than
the limits for standardized options. See Securities
Exchange Act Release No. 40087 (June 12, 1998), 63
FR 33746 (June 19, 1998) (SR–NASD–98–23).
FINRA’s limits on standardized equity options
are applicable only to those members that are not
also members of the exchange on which the option
is traded; the limits on conventional options are
applicable to all FINRA members. NASD Rule
2860(b)(1)(A); see also Securities Exchange Act
Release No. 40932 (January 11, 1999), 64 FR 2930,
2931 (January 19, 1999) (SR–NASD–98–92).
6 See Securities Exchange Act Release Nos. 52271
(August 16, 2005), 70 FR 49344 (August 23, 2005)
(SR–NASD–2005–097); 53346 (February 22, 2006),
PO 00000
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Fmt 4703
Sfmt 4703
12487
pilot program permanent in order to
preserve the benefits to the marketplace
from the higher levels. The proposed
rule change also is substantively
identical to a proposal by the Chicago
Board Options Exchange, Inc. recently
approved by the Commission.7 FINRA
anticipates all other self-regulatory
organizations (‘‘SROs’’) with the pilot
program also will seek to make their
program permanent. Thus, the proposed
rule change will ensure that FINRA’s
position limits are consistent with those
of other SROs.
Position and Exercise Limits
The standard position limits were last
increased nine years ago, on December
31, 1998.8 Since that time, there has
been a steady increase in the number of
accounts that approach the position
limit or have been granted an exemption
to the applicable position limit. To the
best of FINRA’s knowledge, during the
operation of the pilot program, there
have been very few violations of the
position limits or exercise limits and
none of these violations were deemed to
be a result of manipulative activities.
Growth in Options Market
Since the last position limit increase,
there has been an exponential increase
in the overall volume in options trading.
Part of this volume is attributable to a
corresponding increase in the number of
overall market participants. This growth
in market participants has in turn
brought about additional depth and
increased liquidity in options trading.
FINRA has no reason to believe that the
current trading volume in equity
options will not continue. Rather,
FINRA expects continued options
volume growth as opportunities for
investors to participate in the options
markets increase and evolve. FINRA
believes that the non-pilot position and
exercise limits might constrain liquidity
in the options markets.
Manipulation
Since the last position limit increase,
and throughout the duration of the pilot
program, FINRA has not encountered
any significant regulatory issues
regarding the applicable position limits.
Moreover, FINRA believes that there is
a lack of evidence of market
71 FR 10580 (March 1, 2006) (SR–NASD–2006–
025); 54334 (August 18, 2006), 71 FR 50961 (August
28, 2006) (SR–NASD–2006–097); 55225 (February
1, 2007), 72 FR 6634 (February 12, 2007) (SR–
NASD–2007–007); and 56265 (August 15, 2007), 72
FR 47102 (August 22, 2007) (SR–FINRA–2007–002).
7 See Securities Exchange Act Release No. 57352
(February 19, 2008), 73 FR 10076 (February 25,
2008) (SR–CBOE–2008–07).
8 See Securities Exchange Act Release No. 40875
(December 31, 1998), 64 FR 1842 (January 12, 1999).
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]]>Agencies
[Federal Register Volume 73, Number 46 (Friday, March 7, 2008)]
[Notices]
[Pages 12485-12487]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-4401]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57392; File No. SR-DTC-2007-16]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change Relating to the Admission of
Foreign Entities as Direct Depository Participants
February 27, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 16, 2007, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') and on February 5, 2008, amended
the proposed rule change as described in Items I, II, and III below,
which items have been prepared primarily by DTC. 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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change would amend DTC's policy statement
regarding the admission of participants to permit entities that are
organized in a foreign country and are not subject to U.S. federal or
state regulation (``foreign entities'') to become eligible to become
direct DTC participants (``Foreign Entity Policy Statement'').\2\
---------------------------------------------------------------------------
\2\ The National Securities Clearing Corporation (``NSCC'') has
filed a similar proposed rule change that would permit NSCC to adopt
a similar policy statement with respect to the admission of foreign
entities as members. Securities Exchange Act Release No. 57391
(February 27, 2008) (File No. SR-NSCC-2007-15).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DTC 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. DTC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\3\
---------------------------------------------------------------------------
\3\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In 1990, DTC adopted a Policy Statement on the Admission of
Participants (``1990 Policy Statement'') to make clear that in
determining whether to grant access to its services, DTC regards as a
critical factor that an applicant is subject to comprehensive U.S.
federal or state regulation relating to, among other things, capital
adequacy, financial reporting and recordkeeping, operating performance,
and business conduct.\4\ Generally under the 1990 Policy Statement,
unless an applicant is subject to U.S. federal or state regulatory
agency oversight, the applicant would not be eligible to become a DTC
participant.\5\ Since 1990, DTC has admitted a small number of foreign
entities where their obligations to DTC have been guaranteed by
creditworthy DTC participants.
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 28754 (January 8, 1991),
56 FR 1548 (January 15, 1991) (File No. SR-DTC-90-01).
\5\ DTC recognized, however, that any person designated by the
Commission pursuant to Section 17A(b)(3)(B)(vi) of the Act, even if
not subject to such regulatory oversight, would be eligible for
admission. The 1990 Policy Statement was approved by the Commission
on January 8, 1991.
---------------------------------------------------------------------------
The purpose of the proposed Foreign Entity Policy Statement is to
establish admissions criteria that will permit a well-qualified foreign
entity to become a participant of DTC and to obtain direct access to
DTC's services while assuring that the unique risks associated with the
admission of foreign entities are adequately addressed.\6\
---------------------------------------------------------------------------
\6\ DTC's proposed ``Policy Statement on the Admission of Non-
U.S. Entities as Direct Depository Participants'' is attached as
Exhibit 5 to its filing, which can be found at https://www.dtcc.com/
downloads/legal/rule_filings/2007/dtc/2007-16.pdf.
---------------------------------------------------------------------------
The admission of foreign entities as participants raises a number
of unique risks and issues, including that (1) the entity is not
subject to federal or state regulation, (2) that the operation of the
laws of the entity's home country and time zone differences \7\ may
impede the successful exercise of DTC's rights and remedies
particularly in the event of the entity's failure to settle, and (3)
financial information about the foreign entity made available to DTC
for monitoring purposes may be less adequate than the financial
information about U.S.-based entities.
---------------------------------------------------------------------------
\7\ Time zone differences may complicate communications between
a foreign participant and its U.S. Settling Bank with respect to the
timely payment of the participant's net debit to DTC including
intraday demands for payment. These differences may also delay DTC's
receipt of information available in the foreign participant's home
country to others including its other creditors about the foreign
participant's financial condition on the basis of which DTC would
have taken steps to protect the interests of DTC and its
participants.
---------------------------------------------------------------------------
The Foreign Participant Policy Statement would require that in
addition to executing the standard DTC Participation Agreement the
foreign entity enter into a series of undertakings and agreements that
are designed to address jurisdictional concerns and to assure that DTC
is provided with audited financial information that is acceptable to
DTC.\8\ The proposed policy statement would also require that the
foreign entity (1) be subject to regulation in its home country and (2)
be in good standing with its home country regulator.
---------------------------------------------------------------------------
\8\ In the Foreign Entity Policy Statement, DTC has reserved the
right to waive certain of these criteria where such criteria are
inappropriate to a particular applicant or class of applicants
(e.g., a foreign government or international or national central
securities depositories).
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The Foreign Participant Policy Statement was previously approved by
the Commission on a temporary basis in 1997.\9\ As currently proposed,
the
[[Page 12486]]
Foreign Participant Policy Statement would retain all the requirements
of the previous version with the exception of the ``special financial
conditions'' requirements, as explained below. It would also include
new requirements with respect to non-U.S. GAAP financial statements and
anti-money laundering (``AML'') risk.
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\9\ Securities Exchange Act Release Nos. 38600 (May 9, 1997), 62
FR 27086 (May 16, 1997) (File No. SR-DTC-96-13); 40064 (June 3,
1998), 63 FR 31818 (June 10, 1998) (File No. SR-DTC-98-11); 41466
(May 28, 1999), 64 FR 30077 (June 4, 1999) (File No. SR-DTC-99-12);
42865 (May 30, 2000), 65 FR 36188 (June 7, 2000) (File No. SR-DTC-
00-07); 44470 (June 22, 2001), 66 FR 34972 (July 2, 2001) (File No.
SR-DTC-2001-10). Approval of the Foreign Participant Policy
Statement as previously filed and temporarily approved by the
Commission extended through May 31, 2002.
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The Foreign Entity Policy Statement previously included ``special
financial conditions'' requirements applicable to participants that
were foreign entities. The special financial conditions requirements
mandated that a foreign entity have and maintain minimum net capital of
100% of the minimum net capital for the admission of a U.S. entity. A
foreign entity was also required to have additional ``special
collateral'' in its account equal to fifty percent of its net debit
cap. Any net debit of the foreign entity had to be supported by the
value of other, non-special collateral including securities received by
the participant valued in accordance with DTC's customary haircuts.
Except for U.S. Treasury securities, which received a haircut of 2
percent, securities posted as special collateral received a haircut of
50% of their market value. The foreign entity did not receive credit
for special collateral in DTC's collateral monitor. DTC now believes
that its net debit cap, collateral monitor, and other risk management
controls and procedures applicable to all participants together with
the other requirements of the Foreign Entity Policy Statement would
adequately limit DTC's exposure in the event of the failure to settle
and insolvency of a foreign participant without the need for the
special financial conditions requirement.\10\
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\10\ Additionally, in the Foreign Participant Policy Statement,
DTC has reserved the right to require a foreign entity to deposit
additional amounts to DTC's participants fund and the right to
require a letter of credit as the form of participant fund
collateral where DTC in its sole discretion believes the entity
presents legal risk.
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The Foreign Entity Policy Statement also previously required
foreign entities to provide to DTC for financial monitoring purposes
audited financial statements prepared in accordance with U.S. generally
accepted accounting principles or other generally accepted accounting
principles that are satisfactory to DTC. As it is currently proposed,
the Foreign Entity Policy Statement retains this requirement but to
address the risk presented by accepting financial statements prepared
in non-U.S. GAAP, DTC would increase the existing minimum financial
requirements for any foreign entity submitting its financial statements
in non-U.S. GAAP by a premium. The premiums would be as follows:
(i) 1\1/2\ times the existing requirement for a foreign entity
submitting financial statements prepared in accordance with
International Financial Reporting Standards (``IFRS''), the Companies
Act of 1985 (``UK GAAP''), or Canadian GAAP;
(ii) 5 times the existing requirement for a foreign entity
submitting financial statements prepared in accordance with a European
Union (``EU'') country GAAP other than UK GAAP; and
(iii) 7 times the existing requirement for a foreign entity
submitting financial statements prepared in accordance with any other
type of GAAP.
Finally, DTC is proposing to add a new requirement to the Foreign
Entity Policy Statement that a foreign entity must provide sufficient
information to DTC so that DTC can evaluate AML risk.
The proposed rule change is consistent with the requirements of
Section 17A(b)(3)(F) of the Act. The proposed policy does not unfairly
discriminate against foreign entities seeking admission as participants
because it appropriately takes into account the unique risks to DTC
raised by their admission.
B. Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no impact on competition by reason of the proposed
rule change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments from DTC participants or others have not been
solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date 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 the 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
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-DTC-2007-16 on the subject line.
Paper Comments:
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-DTC-2007-16. This file
number should be included on the subject line if e-mail 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 Web site (https://www.sec.gov/rules/
sro.shtml). 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 inspection and
copying 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 such filing also will be available for
inspection and copying at the principal office of DTC. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-DTC-2007-16 and should be
submitted on or before March 28, 2008.
[[Page 12487]]
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-4401 Filed 3-6-08; 8:45 am]
BILLING CODE 8011-01-P
