Self-Regulatory Organizations; the Depository Trust Company; Order Approving Proposed Rule Change in Connection With the Modifications to Receiver Authorized Delivery and Reclaim Processing Value Limits by Transaction, 42991-42992 [2013-17209]

Download as PDF Federal Register / Vol. 78, No. 138 / Thursday, July 18, 2013 / Notices 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 Web site 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 NSCC and on NSCC’s Web site (https://www.dtcc.com/legal/rule_filings/ nscc/2013.php). 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–NSCC– 2013–09 and should be submitted on or before August 8, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Elizabeth M. Murphy, Secretary. [FR Doc. 2013–17178 Filed 7–17–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69985; File No. SR–DTC– 2013–04] Self-Regulatory Organizations; the Depository Trust Company; Order Approving Proposed Rule Change in Connection With the Modifications to Receiver Authorized Delivery and Reclaim Processing Value Limits by Transaction July 12, 2013. TKELLEY on DSK3SPTVN1PROD with NOTICES I. Introduction On May 17, 2013, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–DTC–2013–04 pursuant to Section 19(b)(1) of the Securities 7 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 17:20 Jul 17, 2013 Jkt 229001 Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The proposed rule change was published for comment in the Federal Register on June 5, 2013.3 The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. II. Description DTC filed the proposed rule change to modify its Rules & Procedures (‘‘Rules’’), with respect to Receiver Authorized Delivery (‘‘RAD’’) and reclaim transactions, to: (i) Lower limits against which valued Deliver Orders (‘‘DO’’) and Payment Orders (‘‘PO’’) 4 will be required to be accepted for receipt (i.e., ‘‘matched’’ for settlement); (ii) lower limits for same day reclaim transactions; and (iii) revise the process for RAD matching of stock loans and returns. Currently DOs and POs valued in amounts above $15 million and $1 million, respectively, are subject to the RAD process, which allows receivers to review and reject transactions that they do not recognize prior to processing for delivery. In contrast, lower value DOs and POs do not require the receiver’s acceptance prior to processing in accordance with DTC’s Rules; instead, such transactions may be returned by the receiver in a reclaim transaction, if the receiver does not recognize the DO or PO. While both the reclaim and RAD functionalities allow receiving DTC participants (‘‘Participants’’) to exercise control over which transactions to accept, reclaims tend to create uncertainty because transactions can be returned late in the day, when the original deliverer may have limited options to respond. Because such reclaims are permitted without regard to risk management controls, the Participant that initiated the original delivery versus payment may then incur a greater settlement obligation, increasing credit and liquidity risk to that Participant and to DTC.5 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Release No. 34–69666 (May 30, 2013), 78 FR 33876 (June 5, 2013). 4 A Deliver Order is a book-entry movement of a particular security between two DTC participants. A Payment Order is a method for settling funds amounts related to transactions and payments not associated with a Deliver Order. The defined term ‘‘DO’’ as used in this proposed rule change filing includes all valued Deliver Orders except for Deliver Orders of: (i) Money market instruments and (ii) institutional deliveries affirmed through Omgeo, both of which are not impacted by the proposed rule change. 5 DTC’s risk management controls, including Collateral Monitor and Net Debit Cap (as defined in DTC Rule 1), are designed so that DTC can effect system-wide settlement notwithstanding the failure PO 00000 1 15 2 17 Frm 00064 Fmt 4703 Sfmt 4703 42991 Under the proposal, DTC is changing RAD to require Participants to match all settlement-related transactions valued greater than $7.5 million for valued DOs and $500,000 for POs, prior to processing. Matched transactions will be processed through DTC subject to risk management controls.6 According to DTC the rule change will reduce the intraday uncertainty that may arise from reclaim transactions and any potential credit and liquidity risk from such reclaims. DTC also proposed a further revision to RAD for stock loan and stock loan return transactions. Currently, Participants may set bilateral and global limits for transactions subject to RAD which allow transactions with settlement values that are greater than DTC’s default limits, but less than the Participant’s defined bilateral and/or global limits, to be passively approved.7 Any established limits apply to all transactions with the applicable counterparties (on either a bilateral or global basis) for all transaction types subject to RAD. However, stock loan transactions (and stock loan returns) are often different from ordinary buys and sells, because stock loans are often agreed upon on a same-day basis (as opposed to T+3 settlement of purchases and sales). Taking this difference into account, in addition to the revisions described above, the rule changes will allow receiving Participants to establish bilateral and global RAD limits for stock loans and stock loan returns that are different from other transaction types.8 The DTC Settlement Services Guide will be revised to reflect the changes discussed above, and the effective date of the rule change will be announced to settle of its largest Participant or affiliated family of Participants. Net Debit Cap limits the net debit balance a Participant can incur so that the unpaid settlement obligation of the Participant, if any, cannot exceed DTC liquidity resources. The Collateral Monitor tests that a receiver has adequate collateral to secure the amount of its net debit balance so that DTC may borrow funds to cover that amount for system-wide settlement if the Participant defaults. 6 Each reclaim of a matched transaction that is attempted will be processed as an original instruction and be subject to risk management controls and receiver approval (the original deliverer) via RAD. 7 A bilateral limit established by a Participant applies to transactions from a specified deliverer. A global limit established by a Participant is applied to all valued DOs and POs to the Participant not otherwise subject to a bilateral limit. Transactions passively approved under such limits may not be reclaimed. 8 The use of a stock lending and return profile will be voluntary and, absent a profile, the Participant’s transactions will be subject to RAD as applicable to ordinary DOs, including the established DTC limits as well as Participant established bilateral and global limits as described above. E:\FR\FM\18JYN1.SGM 18JYN1 42992 Federal Register / Vol. 78, No. 138 / Thursday, July 18, 2013 / Notices through the issuance of a DTC Important Notice. SECURITIES AND EXCHANGE COMMISSION III. Discussion Section 19(b)(2)(C) of the Act 9 directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act 10 requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions. The Commission finds that the rule change is consistent with these requirements because it will enhance settlement certainty by increasing the number of deliveries which will be required to be approved by a receiving Participant prior to DTC processing, thereby reducing the intraday uncertainty that may arise from reclaim transactions and any potential credit and liquidity risk from such reclaims and facilitating the prompt and accurate clearance and settlement of securities transactions. [Release No. 34–69981; File No. SR–CME– 2013–08] IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 11 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (File No. SR– DTC–2013–04) be, and hereby is, approved.13 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The text of the proposed change is below. Italicized text indicates additions; bracketed text indicates deletions. * * * * * TO: Clearing Member Firms; Back Office Managers FROM: CME Clearing DATE: June ll, 2013 ADVISORY #: 13–XXX SUBJECT: CDS Clearing Member Risk Limits Effective July 15, 2013, CME Clearing will use technology automation to impose risk limits on Clearing Members for Credit Default Swap (CDS) Products. Pre-trade credit limits for CDS trade For the Commission by the Division of Trading and Markets, pursuant to delegated authority.14 Elizabeth M. Murphy, Secretary. [FR Doc. 2013–17209 Filed 7–17–13; 8:45 am] BILLING CODE 8011–01–P Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Existing CDS Credit Limits July 12, 2013. 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 June 28, 2013, Chicago Mercantile Exchange Inc. (‘‘CME’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II and III below, which Items have been prepared primarily by CME. CME filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(1) 4 thereunder, so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. submission at the Clearing Member Firm level will now be automated. As you know, Clearing Member Firms currently have the ability to set CME-hosted credit limits for CDS on a customer account by customer account basis. With this change, CME Group will automate CDS credit limits on a Clearing Member Firm level, in addition to continuing to allow clearing member firms to maintain customer account by customer account credit limits. This is similar to the process that CME Clearing has in place for its interest rate swap offering, except this limit is based on margin. CME Clearing will determine one maintenance margin limit for each Clearing Member Firm’s customer and house origins. The utilization of this limit will be based on the same margin methodology that CME Clearing currently uses on a daily basis to calculate margin for each clearing member firm. Please note that this limit will be a daily limit and will be based on trades executed for the current trade date only. In other words, the calculation is reset daily, and it does not reflect the exposure of any open trades prior to the current trade date. Three hypothetical examples of the calculation of the utilization are outlined below: Trade 1: Customer A executes a buyprotection $100M notional CDXHY20 5yr trade with Clearing Member Firm B equivalent to $5M in margin for the current trade date. Trade 2: Customer C then executes a sell-protection $100M notional CDXHY20 5yr trade with Clearing Member Firm B for the current trade date. Example 1: Credit Utilization—Same Trade Dates After trade 1 Clearing Member Firm B House Origin ....................................................................................... Clearing Member Firm B Customer Origin .................................................................................. TKELLEY on DSK3SPTVN1PROD with NOTICES Now, if the 2nd trade was executed on the following trade date: 9 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 11 15 U.S.C. 78q–1. 12 15 U.S.C. 78s(b)(2). VerDate Mar<15>2010 17:20 Jul 17, 2013 Jkt 229001 $5M 5M Example 2: Credit Utilization— Different Trade Dates 13 In approving the proposed rule change, the Commission considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 17 CFR 200.30–3(a)(12). 10 15 After trade 2 PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(1). 2 17 E:\FR\FM\18JYN1.SGM 18JYN1 $0M (offsetting). 0M (offsetting).

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 138 (Thursday, July 18, 2013)]
[Notices]
[Pages 42991-42992]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17209]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69985; File No. SR-DTC-2013-04]


Self-Regulatory Organizations; the Depository Trust Company; 
Order Approving Proposed Rule Change in Connection With the 
Modifications to Receiver Authorized Delivery and Reclaim Processing 
Value Limits by Transaction

July 12, 2013.

I. Introduction

    On May 17, 2013, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change SR-DTC-2013-04 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on June 5, 2013.\3\ The Commission did not receive 
any comments on the proposed rule change. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Release No. 34-69666 (May 30, 2013), 78 FR 33876 (June 5, 
2013).
---------------------------------------------------------------------------

II. Description

    DTC filed the proposed rule change to modify its Rules & Procedures 
(``Rules''), with respect to Receiver Authorized Delivery (``RAD'') and 
reclaim transactions, to: (i) Lower limits against which valued Deliver 
Orders (``DO'') and Payment Orders (``PO'') \4\ will be required to be 
accepted for receipt (i.e., ``matched'' for settlement); (ii) lower 
limits for same day reclaim transactions; and (iii) revise the process 
for RAD matching of stock loans and returns.
---------------------------------------------------------------------------

    \4\ A Deliver Order is a book-entry movement of a particular 
security between two DTC participants. A Payment Order is a method 
for settling funds amounts related to transactions and payments not 
associated with a Deliver Order. The defined term ``DO'' as used in 
this proposed rule change filing includes all valued Deliver Orders 
except for Deliver Orders of: (i) Money market instruments and (ii) 
institutional deliveries affirmed through Omgeo, both of which are 
not impacted by the proposed rule change.
---------------------------------------------------------------------------

    Currently DOs and POs valued in amounts above $15 million and $1 
million, respectively, are subject to the RAD process, which allows 
receivers to review and reject transactions that they do not recognize 
prior to processing for delivery. In contrast, lower value DOs and POs 
do not require the receiver's acceptance prior to processing in 
accordance with DTC's Rules; instead, such transactions may be returned 
by the receiver in a reclaim transaction, if the receiver does not 
recognize the DO or PO. While both the reclaim and RAD functionalities 
allow receiving DTC participants (``Participants'') to exercise control 
over which transactions to accept, reclaims tend to create uncertainty 
because transactions can be returned late in the day, when the original 
deliverer may have limited options to respond. Because such reclaims 
are permitted without regard to risk management controls, the 
Participant that initiated the original delivery versus payment may 
then incur a greater settlement obligation, increasing credit and 
liquidity risk to that Participant and to DTC.\5\
---------------------------------------------------------------------------

    \5\ DTC's risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in DTC Rule 1), are designed so that 
DTC can effect system-wide settlement notwithstanding the failure to 
settle of its largest Participant or affiliated family of 
Participants. Net Debit Cap limits the net debit balance a 
Participant can incur so that the unpaid settlement obligation of 
the Participant, if any, cannot exceed DTC liquidity resources. The 
Collateral Monitor tests that a receiver has adequate collateral to 
secure the amount of its net debit balance so that DTC may borrow 
funds to cover that amount for system-wide settlement if the 
Participant defaults.
---------------------------------------------------------------------------

    Under the proposal, DTC is changing RAD to require Participants to 
match all settlement-related transactions valued greater than $7.5 
million for valued DOs and $500,000 for POs, prior to processing. 
Matched transactions will be processed through DTC subject to risk 
management controls.\6\ According to DTC the rule change will reduce 
the intraday uncertainty that may arise from reclaim transactions and 
any potential credit and liquidity risk from such reclaims.
---------------------------------------------------------------------------

    \6\ Each reclaim of a matched transaction that is attempted will 
be processed as an original instruction and be subject to risk 
management controls and receiver approval (the original deliverer) 
via RAD.
---------------------------------------------------------------------------

    DTC also proposed a further revision to RAD for stock loan and 
stock loan return transactions. Currently, Participants may set 
bilateral and global limits for transactions subject to RAD which allow 
transactions with settlement values that are greater than DTC's default 
limits, but less than the Participant's defined bilateral and/or global 
limits, to be passively approved.\7\ Any established limits apply to 
all transactions with the applicable counterparties (on either a 
bilateral or global basis) for all transaction types subject to RAD. 
However, stock loan transactions (and stock loan returns) are often 
different from ordinary buys and sells, because stock loans are often 
agreed upon on a same-day basis (as opposed to T+3 settlement of 
purchases and sales). Taking this difference into account, in addition 
to the revisions described above, the rule changes will allow receiving 
Participants to establish bilateral and global RAD limits for stock 
loans and stock loan returns that are different from other transaction 
types.\8\
---------------------------------------------------------------------------

    \7\ A bilateral limit established by a Participant applies to 
transactions from a specified deliverer. A global limit established 
by a Participant is applied to all valued DOs and POs to the 
Participant not otherwise subject to a bilateral limit. Transactions 
passively approved under such limits may not be reclaimed.
    \8\ The use of a stock lending and return profile will be 
voluntary and, absent a profile, the Participant's transactions will 
be subject to RAD as applicable to ordinary DOs, including the 
established DTC limits as well as Participant established bilateral 
and global limits as described above.
---------------------------------------------------------------------------

    The DTC Settlement Services Guide will be revised to reflect the 
changes discussed above, and the effective date of the rule change will 
be announced

[[Page 42992]]

through the issuance of a DTC Important Notice.

III. Discussion

    Section 19(b)(2)(C) of the Act \9\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. Section 17A(b)(3)(F) of the Act \10\ requires, 
among other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions. The Commission finds that the rule change is consistent 
with these requirements because it will enhance settlement certainty by 
increasing the number of deliveries which will be required to be 
approved by a receiving Participant prior to DTC processing, thereby 
reducing the intraday uncertainty that may arise from reclaim 
transactions and any potential credit and liquidity risk from such 
reclaims and facilitating the prompt and accurate clearance and 
settlement of securities transactions.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \11\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-DTC-2013-04) be, 
and hereby is, approved.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).
    \13\ In approving the proposed rule change, the Commission 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-17209 Filed 7-17-13; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.