Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Regarding the Acknowledgment of End-of-Day Net-Net Settlement Balances by Settling Banks, 74819-74822 [2015-30245]
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Federal Register / Vol. 80, No. 229 / Monday, November 30, 2015 / Notices
Plan, please see https://
www.globalchange.gov/strategic-plan.
would also make other changes to the
Guide as set forth below.
Ted Wackler,
Deputy Chief of Staff and Assistant Director.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
[FR Doc. 2015–30292 Filed 11–27–15; 8:45 am]
BILLING CODE 3270–F6–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76510; File No. SR–DTC–
2015–011]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of Proposed Rule Change
Regarding the Acknowledgment of
End-of-Day Net-Net Settlement
Balances by Settling Banks
November 23, 2015.
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 November
16, 2015, 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 DTC. DTC filed the proposed rule
change pursuant to section 19(b)(2) 3 of
the Act thereunder. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change would
amend the DTC Settlement Service
Guide (‘‘Guide’’) to provide that any
Settling Bank that does not affirmatively
acknowledge by the Acknowledgment
Cutoff Time (as defined below) its endof-day net-net settlement balance 4 or
notify DTC of its refusal to settle for one
or more Participants for which it is the
designated Settling Bank, would be
deemed to have acknowledged its endof-day net-net settlement balance.5 DTC
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(2).
4 The end-of-day net-net settlement balance for
each Settling Bank reflects (i) a net credit amount
due to the Settling Bank from DTC, (ii) a net debit
amount due from the Settling Bank to DTC, or (iii)
a zero balance so that no payment is due to or from
the Settling Bank. In accordance with the
timeframes set forth in the Guide, DTC’s end-of-day
funds settlement process begins with the posting by
DTC of ‘‘final settlement figures’’ at approximately
3:45 p.m. each Business Day unless extended.
5 Terms not otherwise defined herein have the
meaning set forth in the DTC Rules (the ‘‘Rules’’),
available at https://www.dtcc.com/legal/rules-andprocedures.aspx.>
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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.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The purpose of this proposed rule
change is to mitigate a risk to DTC in
settlement relating to a Settling Bank’s
failure to take the action required to
acknowledge its end-of-day net-net
settlement balance, or notify DTC of a
refusal to settle for any Participant for
which it is the designated Settling Bank,
by the Acknowledgment Cutoff Time (as
defined below).
Background
The DTC end-of-day net settlement
structure depends upon the use of
Settling Banks.6 Each Participant must
designate a Settling Bank to settle on its
behalf. Any Participant that is a bank
may settle for itself.7 Today, a Settling
Bank that settles for other Participants
must acknowledge its end-of-day net-net
settlement balance for the group of
Participants for which it settles, or
notify DTC if it refuses to settle for any
Participant for which it is the
designated Settling Bank, by the later of
4:15 p.m. and the time that is 30
minutes after the Settling Bank end-ofday net-net settlement balances are first
made available by DTC
(‘‘Acknowledgment Cutoff Time’’).8
If a Settling Bank notifies DTC that it
refuses to settle for a Participant, DTC
would recalculate the Settling Bank’s
net-net settlement balance by excluding
the net settlement balance of the
Participant for which the Settling Bank
6 See the Guide at pp. 17–18,
available at https://www.dtcc.com/∼/media/Files/
Downloads/legal/service-guides/Settlement.pdf for
an overview of the end-of-day net settlement
process.
7 See Rule 9(B), supra note 5.
8 Currently, a Settling Bank that settles only for
itself may opt out of the requirement to
acknowledge its balance, but it cannot refuse to
settle for itself.
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refused to settle.9 DTC would then
provide the Settling Bank with its
adjusted net-net settlement balance
(‘‘Post-Refusal Adjusted Balance’’). The
Settling Bank may not refuse to settle for
any other Participant on that day and
must immediately respond to DTC to
acknowledge its Post-Refusal Adjusted
Balance.
After the Acknowledgment Cutoff
Time and any adjustments, DTC will
prepare and submit to the National
Settlement Service (‘‘NSS’’) provided by
the Federal Reserve Banks (individually
and collectively, the ‘‘Fed’’) a file (‘‘NSS
File’’) reflecting the net debits or credits
from and to all Settling Banks. NSS will
process a debit or credit of each Settling
Bank’s Fed account (‘‘Fed Account’’), as
applicable.10
Today, failure of a Settling Bank to
timely respond to DTC after posting of
final settlement figures creates
uncertainty with respect to timely
completion of settlement at DTC. The
proposed rule change is intended to
address this issue as discussed below.
Proposal
To promote settlement certainty, DTC
is proposing to treat a Settling Bank that
fails to timely provide its affirmative
acknowledgement of its end-of-day netnet settlement balance or notify DTC of
its refusal to settle for one or more
Participants for which it is the
designated Settling Bank, as having
been deemed to acknowledge its end-ofday net-net settlement balance.
DTC proposes to modify the Guide to
provide that a Settling Bank that (i) fails
to affirmatively acknowledge its end-ofday net-net settlement balance, or (ii)
does not notify DTC of its refusal to
settle on behalf of a Participant or
Participants for which it is the
designated Settling Bank, by the
Acknowledgement Cutoff Time, would
be deemed to have acknowledged its
end-of-day net-net settlement balance.11
9 Any Participant for which its designated
Settling Bank has refused to settle on its behalf
remains obligated to DTC for the payment of any
net debit balance and must make another
arrangement to timely pay that amount by Fedwire.
10 The Guide currently provides that if NSS is
unavailable then, if instructed by DTC, Settling
Banks in a net-net debit balance must remit
payments to DTC via Fedwire by the later of 5:00
p.m. or 1 hour after net settlement balances are first
made available. This provision would be clarified
to note an operational detail that all such payments
must be remitted prior to the close of Fedwire.
11 DTC would provide reminders to Settling
Banks when they have not affirmatively
acknowledged their settlement balance.
Notwithstanding delivery of reminders, once a
Settling Bank is deemed to have acknowledged its
balance, it may not notify DTC of a refusal to settle
for a Participant for which it is the designated
Settling Bank.
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The Settling Bank’s balance would then,
in the ordinary course of settlement
processing, be debited from or credited
to its Fed Account through the NSS
process. Likewise, DTC proposes that
the Guide provide that a Settling Bank
that fails to acknowledge immediately
upon receipt its Post-Refusal Adjusted
Balance, if any, would be deemed to
have acknowledged its Post-Refusal
Adjusted Balance and the Post-Refusal
Adjusted Balance would then, in the
ordinary course of settlement
processing, be debited from or credited
to its designated Fed Account through
the NSS process.
DTC would continue to maintain
flexibility and allow for a Settling Bank
to request extra time if the Settling Bank
has a reason that it cannot affirmatively
acknowledge or refuse its net-net
settlement balance so long as the
Settling Bank notifies DTC accordingly
at or before the Acknowledgement
Cutoff Time, or, in the case of a PostRefusal Adjusted Balance, it notifies
DTC immediately where it is unable to
affirmatively acknowledge its PostRefusal Adjusted Balance. In this regard,
the Guide would be updated to clarify
that the Settling Bank is required to
notify DTC of its request for extra time
via a dedicated DTC Settlement phone
‘‘hotline’’ prior to the Acknowledgment
Cutoff Time. In the event that DTC
provides the Settling Bank with a PostRefusal Adjusted Balance, the Settling
Bank would be required to notify DTC
of its request for extra time immediately
via the hotline. Any Settling Bank that
timely complies with this notification
requirement would not be deemed to
have acknowledged its net-net
Settlement Balance or its Post-Refusal
Adjusted Balance.12
If, after the initial release of final
settlement figures, a Settling Bank’s netnet settlement balance is adjusted for
any reason, other than as a result of the
Settling Bank’s refusal to settle, then the
Acknowledgment Cutoff Time for that
Settling Bank would be extended to 30
minutes after DTC advises the Settling
Bank of the adjusted net-net settlement
balance.
DTC would attempt to contact the
Settling Bank if DTC does not receive a
response in the form of (i) an
acknowledgment or refusal prior to the
Acknowledgment Cutoff Time, (ii) an
immediate acknowledgment of a PostRefusal Adjusted Balance, or (iii) a
notification from the Settling Bank that
it cannot acknowledge or refuse, as
12 If the problem is due to a connectivity issue
with DTC, DTC may then direct the Settling Bank
to submit its acknowledgement/refusal instruction
via email or as otherwise specified by DTC at that
time.
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described in the preceding paragraph.13
If DTC is able to contact the Settling
Bank and the Settling Bank notifies DTC
that it cannot, at that time, acknowledge
or refuse its net-net settlement balance,
or Post-Refusal Adjusted Balance, as
applicable, then the Settling Bank
would not be deemed to have
acknowledged its net-net settlement
balance. However, if the Settling Bank
cannot be reached, the Settling Bank
would be deemed to have acknowledged
its net-net settlement balance or PostRefusal Adjusted Balance, as applicable.
DTC would update the Guide to
clarify that each Settling Bank must
ensure that it maintains accurate contact
details with DTC so that DTC may
contact the Settling Bank regarding
settlement issues. Settling Banks must
update any contact details by contacting
their DTC Relationship Manager.
The Fed’s cutoff for NSS processing,
unless extended, is 5:30 p.m. In order to
facilitate timely processing of the NSS
File, DTC would maintain discretion to
exclude a Settling Bank’s balance from
the NSS File if the Settling Bank (i) (A)
does not acknowledge its net-net
settlement balance by the
Acknowledgment Cutoff Time, or (B)
does not immediately acknowledge its
Post-Refusal Adjusted Balance; and (ii)
is not deemed to have acknowledged its
net-net settlement balance or PostRefusal Adjusted Balance because it has
notified DTC that it is unable to
affirmatively acknowledge its net-net
settlement balance or to refuse to settle
on behalf of a Participant. If DTC
proceeds to process the NSS File
excluding the Settling Bank’s debit
balance, then the Settling Bank must
pay the debit balance via Fedwire. If
DTC proceeds to process the NSS File
excluding the Settling Bank’s credit
balance, then DTC would pay the credit
balance via Fedwire after the Settling
Bank acknowledges its settlement
balance.
The text of the Guide would also state
that a Settling Bank which settles on
behalf of others that timely notifies DTC
that it cannot acknowledge or refuse its
end-of-day net-net settlement balance
would not be assessed a flat fee for
failure to acknowledge or notify DTC of
its refusal to settle. However, such a
Settling Bank would be charged interest
with respect to any borrowing DTC is
required to make to complete settlement
that day for any Participant that the
Settling Bank settles on behalf of, if the
Settling Bank has not timely refused to
settle for that Participant.
13 DTC uses the most recent contact information
provided by the Settling Bank to its DTC
Relationship Manager for this purpose.
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Additionally, DTC would revise the
Guide to:
(i) clarify that it is DTC’s Settlement
Operations group that controls and
coordinates the settling of Participant
and Settling Bank accounts on DTC’s
systems;
(ii) define the Federal Reserve Banks
individually and collectively within the
Guide’s text as the ‘‘Fed’’ unless
indicated otherwise;
(iii) clarify text for descriptive
purposes, and consistent with the Rules,
that Participants make formal
arrangements for a Settling Bank to be
designated as the Settling Bank to settle
with DTC on the Participant’s behalf;
(iv) clarify that certain online reports
DTC provides Participants and Settling
Banks through the processing day reflect
‘‘intraday’’ gross debits and credits, and
net debit and credit balances;
(v) clarify that a Settling Bank’s endof-day net-net settlement balance
includes the Settling Bank’s own
settlement obligations as a Participant if
it settles for itself;
(vi) add text for the purpose of
context, consistent with the Rules, that
each Participant is obligated to settle
timely with DTC and if its Settling Bank
refuses to settle for it then it must make
alternative arrangements to make
payment to DTC via Fedwire, [sic]
(vii) add text for the purpose of
context, consistent with the Rules, that
a Participant that acts as its own Settling
Bank may not refuse to settle for itself
and that it will be in default if it does
not fund its settlement obligation;
(viii) for clarity, change the heading to
an existing example of how a Settling
Bank’s settlement balance is calculated
from ‘‘Settlement Example’’ to
‘‘Example of the Calculation of a DTC
Settling Bank’s Net-Net Settlement
Balance’’;
(ix) remove the provision from the
Guide indicating that that a Settling
Bank that settles only for itself would
need to affirmatively opt out in order to
not be required to affirmatively
acknowledge its settlement balance, and
add text simply stating that a Settling
Bank that settles only for itself would
not be required to acknowledge its
settlement balance;
(x) clarify the interest charged to
Participants for a failure to settle;
(xi) delete references to a Settling
Bank’s failure to timely settle its
settlement balance from being referred
to as a ‘‘failure to settle’’ and remove
references to related procedures as being
‘‘failure-to-settle’’ procedures, as the
terminology could be confused with an
individual Participant’s failure to meet
its settlement obligation;
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(xii) rewrite text in the Guide in light
of the proposed changes, as applicable,
including Addendum A of the Guide, to
incorporate proposed changes,
consolidate text, clarify text for
readability and eliminate duplication;
(xiii) clarify certain Settling Bank and
settlement processing timeframes;
(xiv) apply initial capitalization as
appropriate for the terms ‘‘Participant’’
and ‘‘Settling Bank’’ where they are
used as defined terms;
(xv) remove references to Participant
Terminal System (PTS) functions,
which are no longer used for DTC
settlement processing; and
(xvi) insert the title of the Guide on
the Guide’s front page.
Implementation
The effective date of the proposed
rule change would be announced via a
DTC Important Notice.
jstallworth on DSK7TPTVN1PROD with NOTICES
2. Statutory Basis
Section 17A(b)(3)(F) 14 of the Act
requires that the rules of the clearing
agency be designed, inter alia, to
promote the prompt and accurate
clearance and settlement of securities
transactions. DTC believes that the
proposed rule change is consistent with
this provision of the Act because the
proposed rule change would reduce
delays in the settlement process by
allowing DTC to collect net debits and
release net credits within scheduled
timeframes despite the failure of a
Settling Bank to affirmatively
acknowledge its end-of-day net-net
settlement balance or notify DTC of its
refusal to settle for a Participant for
which it is the designated Settling Bank
on a timely basis.
Rule 17Ad–22(d)(5) 15 promulgated
under the Act requires, inter alia, that
a clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to,
as applicable, employ money settlement
arrangements that eliminate or strictly
limit the clearing agency’s settlement
bank risks, that is, its credit and
liquidity risks from the use of banks to
effect money settlements with its
participants; and require funds transfers
to the clearing agency to be final when
effected. DTC believes the proposed rule
change is consistent with this provision
because it would reduce DTC’s credit
and liquidity risk by mitigating the risk
that end-of-day net-net debit settlement
balances would not be paid due to the
failure of a Settling Bank to respond to
14 15
15 17
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(d)(5).
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DTC after posting of final settlement
figures.
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
impact, or impose any burden, on
competition because the proposed rule
change applies to all Settling Banks and
would not have an impact on Settling
Banks’ current ability to timely
acknowledge their net-net settlement
balances or notify DTC of a refusal to
settle on behalf of a Participant.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
DTC filed a substantially similar
proposed rule change on April 15, 2015
(‘‘April Rule Filing’’),16 which was
subsequently withdrawn.17
The Commission received a favorable
written comment to the April Rule
Filing.18 DTC also received written
comments in connection with the April
Rule Filing from a Participant that is a
Settling Bank for other Participants. The
Participant commented to the effect that
it was expecting, but the April Rule
Filing did not clearly state, that a
Settling Bank (i) will be granted an
extension to acknowledge its net-net
settlement balance whenever it is
requested prior to DTC processing the
NSS File, and (ii) will not be charged a
fee in situations where such an
extension has been requested. In order
to fully consider these comments DTC
withdrew the April Rule Filing.
With respect to (i) above, in order to
avoid wider disruption to the DTC
settlement process and the industry,
DTC must have the discretion to
promptly complete settlement for the
Settling Banks that have timely
acknowledged or have been deemed to
have acknowledged their respective netnet settlement balances. Therefore,
although DTC can grant limited
extensions, DTC cannot grant an
indefinite extension to a Settling Bank
to acknowledge its balance prior to DTC
processing the NSS File.19
16 Securities Exchange Act Release No. 74830
(April 29, 2015), 80 FR 25727 (May 5, 2015) (File
No. SR–DTC–2015–003).
17 Securities Exchange Act Release No. 74380
(July 7, 2015), 80 FR 40116 (July 13, 2015) (File No.
SR–DTC–2015–003).
18 Letter from Suzanne Shatto (May 3, 2015),
available at https://www.sec.gov/comments/sr-dtc2015-003/dtc2015003.shtml.
19 As stated above, DTC would maintain
flexibility to allow for a Settling Bank to request
extra time if the Settling Bank cannot affirmatively
acknowledge or refuse, so long as the Settling Bank
promptly notifies DTC at or before the
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With respect to (ii) above, the
proposed rule change adds text to the
Guide so that a Settling Bank that timely
notifies DTC that it cannot acknowledge
or refuse its net-net settlement balance
will not be charged a flat fee for failure
to acknowledge its balance. However
the Settling Bank may be charged
interest.
To the extent any additional written
comments are received by DTC on the
proposed rule change, DTC will forward
them to the Commission.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate 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 or disapprove
such 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 email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2015–011 on the subject line.
Paper Comments
• 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–2015–011. 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 Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
Acknowledgement Cutoff Time or upon receipt of
an Adjusted Balance.
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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 DTC and on DTCC’s Web site
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–
2015–011 and should be submitted on
or before December 21, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–30245 Filed 11–27–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Dated: November 25, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015–30481 Filed 11–25–15; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76507; File No. SR–ISE–
2015–41]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend the Schedule of
Fees
November 23, 2015.
Sunshine Act Meeting
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listed for the Closed Meeting in closed
session.
The subject matter of the Closed
Meeting will be:
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings;
Adjudicatory matters;
Resolution of litigation claims; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact the Office of the Secretary at
(202) 551–5400.
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold a Closed Meeting on
Thursday, December 3, 2015 at 2:00
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Aguilar, as duty
officer, voted to consider the items
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
10, 2015, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or
‘‘ISE’’) filed with the Securities and
Exchange Commission the proposed
rule change, as described in Items I, II,
and III below, which Items have been
prepared by the self-regulatory
organization. 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
ISE proposes to amend the Schedule
of Fees as described in more detail
below. The text of the proposed rule
change is available on the Exchange’s
Internet Web site at https://www.ise.com,
at the principal office of the Exchange,
1 15
20 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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
self-regulatory organization 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
The purpose of the proposed rule
change is to amend the Schedule of Fees
to introduce a new set of rebates to the
Qualified Contingent Cross (‘‘QCC’’)
and/or other solicited crossing orders,
including solicited orders executed in
the Solicitation, Facilitation or Price
Improvement Mechanisms, pricing
initiative that offers rebates to members
who execute a specified volume of QCC
and other solicited crossing orders in a
month. This new set of rebates, as
proposed, offers a lower rebate to
members that execute a specified
volume of QCC and solicited orders
between two Priority Customers 3
(‘‘‘Customer to Customer’ Orders’’). The
Exchange notes that there is no change
to how volume is calculated for the
volume tiers. Thus, members will
continue to obtain the tier level based
on all QCC and/or solicited crossing
orders’ originating side volume.
Members will receive the Non‘‘Customer to Customer’’ Order 4 rebate
for their Non-‘‘Customer to Customer’’
Orders and the ‘‘Customer to Customer’’
Order rebate for their ‘‘Customer to
Customer’’ Orders.
Currently, the Exchange offers
members rebates in QCC and/or other
solicited crossing orders (including
‘‘Customer to Customer’’ Orders), i.e.
orders executed in the Solicitation,
3 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
4 ‘‘Non-‘Customer to Customer’ Orders’’ are QCC
and/or other solicited crossing orders, including
solicited orders executed in the Solicitation,
Facilitation or Price Improvement Mechanisms, and
excluding ‘‘Customer to Customer’’ Orders.
E:\FR\FM\30NON1.SGM
30NON1
]]>Agencies
[Federal Register Volume 80, Number 229 (Monday, November 30, 2015)]
[Notices]
[Pages 74819-74822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30245]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76510; File No. SR-DTC-2015-011]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change Regarding the Acknowledgment
of End-of-Day Net-Net Settlement Balances by Settling Banks
November 23, 2015.
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 November 16, 2015, 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 DTC. DTC filed the proposed rule change pursuant to
section 19(b)(2) \3\ of the Act thereunder. 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would amend the DTC Settlement Service
Guide (``Guide'') to provide that any Settling Bank that does not
affirmatively acknowledge by the Acknowledgment Cutoff Time (as defined
below) its end-of-day net-net settlement balance \4\ or notify DTC of
its refusal to settle for one or more Participants for which it is the
designated Settling Bank, would be deemed to have acknowledged its end-
of-day net-net settlement balance.\5\ DTC would also make other changes
to the Guide as set forth below.
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\4\ The end-of-day net-net settlement balance for each Settling
Bank reflects (i) a net credit amount due to the Settling Bank from
DTC, (ii) a net debit amount due from the Settling Bank to DTC, or
(iii) a zero balance so that no payment is due to or from the
Settling Bank. In accordance with the timeframes set forth in the
Guide, DTC's end-of-day funds settlement process begins with the
posting by DTC of ``final settlement figures'' at approximately 3:45
p.m. each Business Day unless extended.
\5\ Terms not otherwise defined herein have the meaning set
forth in the DTC Rules (the ``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx.>
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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, 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.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to mitigate a risk to
DTC in settlement relating to a Settling Bank's failure to take the
action required to acknowledge its end-of-day net-net settlement
balance, or notify DTC of a refusal to settle for any Participant for
which it is the designated Settling Bank, by the Acknowledgment Cutoff
Time (as defined below).
Background
The DTC end-of-day net settlement structure depends upon the use of
Settling Banks.\6\ Each Participant must designate a Settling Bank to
settle on its behalf. Any Participant that is a bank may settle for
itself.\7\ Today, a Settling Bank that settles for other Participants
must acknowledge its end-of-day net-net settlement balance for the
group of Participants for which it settles, or notify DTC if it refuses
to settle for any Participant for which it is the designated Settling
Bank, by the later of 4:15 p.m. and the time that is 30 minutes after
the Settling Bank end-of-day net-net settlement balances are first made
available by DTC (``Acknowledgment Cutoff Time'').\8\
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\6\ See the Guide at pp. 17-18, available at https://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf for an overview of the end-of-day net settlement
process.
\7\ See Rule 9(B), supra note 5.
\8\ Currently, a Settling Bank that settles only for itself may
opt out of the requirement to acknowledge its balance, but it cannot
refuse to settle for itself.
---------------------------------------------------------------------------
If a Settling Bank notifies DTC that it refuses to settle for a
Participant, DTC would recalculate the Settling Bank's net-net
settlement balance by excluding the net settlement balance of the
Participant for which the Settling Bank refused to settle.\9\ DTC would
then provide the Settling Bank with its adjusted net-net settlement
balance (``Post-Refusal Adjusted Balance''). The Settling Bank may not
refuse to settle for any other Participant on that day and must
immediately respond to DTC to acknowledge its Post-Refusal Adjusted
Balance.
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\9\ Any Participant for which its designated Settling Bank has
refused to settle on its behalf remains obligated to DTC for the
payment of any net debit balance and must make another arrangement
to timely pay that amount by Fedwire.
---------------------------------------------------------------------------
After the Acknowledgment Cutoff Time and any adjustments, DTC will
prepare and submit to the National Settlement Service (``NSS'')
provided by the Federal Reserve Banks (individually and collectively,
the ``Fed'') a file (``NSS File'') reflecting the net debits or credits
from and to all Settling Banks. NSS will process a debit or credit of
each Settling Bank's Fed account (``Fed Account''), as applicable.\10\
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\10\ The Guide currently provides that if NSS is unavailable
then, if instructed by DTC, Settling Banks in a net-net debit
balance must remit payments to DTC via Fedwire by the later of 5:00
p.m. or 1 hour after net settlement balances are first made
available. This provision would be clarified to note an operational
detail that all such payments must be remitted prior to the close of
Fedwire.
---------------------------------------------------------------------------
Today, failure of a Settling Bank to timely respond to DTC after
posting of final settlement figures creates uncertainty with respect to
timely completion of settlement at DTC. The proposed rule change is
intended to address this issue as discussed below.
Proposal
To promote settlement certainty, DTC is proposing to treat a
Settling Bank that fails to timely provide its affirmative
acknowledgement of its end-of-day net-net settlement balance or notify
DTC of its refusal to settle for one or more Participants for which it
is the designated Settling Bank, as having been deemed to acknowledge
its end-of-day net-net settlement balance.
DTC proposes to modify the Guide to provide that a Settling Bank
that (i) fails to affirmatively acknowledge its end-of-day net-net
settlement balance, or (ii) does not notify DTC of its refusal to
settle on behalf of a Participant or Participants for which it is the
designated Settling Bank, by the Acknowledgement Cutoff Time, would be
deemed to have acknowledged its end-of-day net-net settlement
balance.\11\
[[Page 74820]]
The Settling Bank's balance would then, in the ordinary course of
settlement processing, be debited from or credited to its Fed Account
through the NSS process. Likewise, DTC proposes that the Guide provide
that a Settling Bank that fails to acknowledge immediately upon receipt
its Post-Refusal Adjusted Balance, if any, would be deemed to have
acknowledged its Post-Refusal Adjusted Balance and the Post-Refusal
Adjusted Balance would then, in the ordinary course of settlement
processing, be debited from or credited to its designated Fed Account
through the NSS process.
---------------------------------------------------------------------------
\11\ DTC would provide reminders to Settling Banks when they
have not affirmatively acknowledged their settlement balance.
Notwithstanding delivery of reminders, once a Settling Bank is
deemed to have acknowledged its balance, it may not notify DTC of a
refusal to settle for a Participant for which it is the designated
Settling Bank.
---------------------------------------------------------------------------
DTC would continue to maintain flexibility and allow for a Settling
Bank to request extra time if the Settling Bank has a reason that it
cannot affirmatively acknowledge or refuse its net-net settlement
balance so long as the Settling Bank notifies DTC accordingly at or
before the Acknowledgement Cutoff Time, or, in the case of a Post-
Refusal Adjusted Balance, it notifies DTC immediately where it is
unable to affirmatively acknowledge its Post-Refusal Adjusted Balance.
In this regard, the Guide would be updated to clarify that the Settling
Bank is required to notify DTC of its request for extra time via a
dedicated DTC Settlement phone ``hotline'' prior to the Acknowledgment
Cutoff Time. In the event that DTC provides the Settling Bank with a
Post-Refusal Adjusted Balance, the Settling Bank would be required to
notify DTC of its request for extra time immediately via the hotline.
Any Settling Bank that timely complies with this notification
requirement would not be deemed to have acknowledged its net-net
Settlement Balance or its Post-Refusal Adjusted Balance.\12\
---------------------------------------------------------------------------
\12\ If the problem is due to a connectivity issue with DTC, DTC
may then direct the Settling Bank to submit its acknowledgement/
refusal instruction via email or as otherwise specified by DTC at
that time.
---------------------------------------------------------------------------
If, after the initial release of final settlement figures, a
Settling Bank's net-net settlement balance is adjusted for any reason,
other than as a result of the Settling Bank's refusal to settle, then
the Acknowledgment Cutoff Time for that Settling Bank would be extended
to 30 minutes after DTC advises the Settling Bank of the adjusted net-
net settlement balance.
DTC would attempt to contact the Settling Bank if DTC does not
receive a response in the form of (i) an acknowledgment or refusal
prior to the Acknowledgment Cutoff Time, (ii) an immediate
acknowledgment of a Post-Refusal Adjusted Balance, or (iii) a
notification from the Settling Bank that it cannot acknowledge or
refuse, as described in the preceding paragraph.\13\ If DTC is able to
contact the Settling Bank and the Settling Bank notifies DTC that it
cannot, at that time, acknowledge or refuse its net-net settlement
balance, or Post-Refusal Adjusted Balance, as applicable, then the
Settling Bank would not be deemed to have acknowledged its net-net
settlement balance. However, if the Settling Bank cannot be reached,
the Settling Bank would be deemed to have acknowledged its net-net
settlement balance or Post-Refusal Adjusted Balance, as applicable.
---------------------------------------------------------------------------
\13\ DTC uses the most recent contact information provided by
the Settling Bank to its DTC Relationship Manager for this purpose.
---------------------------------------------------------------------------
DTC would update the Guide to clarify that each Settling Bank must
ensure that it maintains accurate contact details with DTC so that DTC
may contact the Settling Bank regarding settlement issues. Settling
Banks must update any contact details by contacting their DTC
Relationship Manager.
The Fed's cutoff for NSS processing, unless extended, is 5:30 p.m.
In order to facilitate timely processing of the NSS File, DTC would
maintain discretion to exclude a Settling Bank's balance from the NSS
File if the Settling Bank (i) (A) does not acknowledge its net-net
settlement balance by the Acknowledgment Cutoff Time, or (B) does not
immediately acknowledge its Post-Refusal Adjusted Balance; and (ii) is
not deemed to have acknowledged its net-net settlement balance or Post-
Refusal Adjusted Balance because it has notified DTC that it is unable
to affirmatively acknowledge its net-net settlement balance or to
refuse to settle on behalf of a Participant. If DTC proceeds to process
the NSS File excluding the Settling Bank's debit balance, then the
Settling Bank must pay the debit balance via Fedwire. If DTC proceeds
to process the NSS File excluding the Settling Bank's credit balance,
then DTC would pay the credit balance via Fedwire after the Settling
Bank acknowledges its settlement balance.
The text of the Guide would also state that a Settling Bank which
settles on behalf of others that timely notifies DTC that it cannot
acknowledge or refuse its end-of-day net-net settlement balance would
not be assessed a flat fee for failure to acknowledge or notify DTC of
its refusal to settle. However, such a Settling Bank would be charged
interest with respect to any borrowing DTC is required to make to
complete settlement that day for any Participant that the Settling Bank
settles on behalf of, if the Settling Bank has not timely refused to
settle for that Participant.
Additionally, DTC would revise the Guide to:
(i) clarify that it is DTC's Settlement Operations group that
controls and coordinates the settling of Participant and Settling Bank
accounts on DTC's systems;
(ii) define the Federal Reserve Banks individually and collectively
within the Guide's text as the ``Fed'' unless indicated otherwise;
(iii) clarify text for descriptive purposes, and consistent with
the Rules, that Participants make formal arrangements for a Settling
Bank to be designated as the Settling Bank to settle with DTC on the
Participant's behalf;
(iv) clarify that certain online reports DTC provides Participants
and Settling Banks through the processing day reflect ``intraday''
gross debits and credits, and net debit and credit balances;
(v) clarify that a Settling Bank's end-of-day net-net settlement
balance includes the Settling Bank's own settlement obligations as a
Participant if it settles for itself;
(vi) add text for the purpose of context, consistent with the
Rules, that each Participant is obligated to settle timely with DTC and
if its Settling Bank refuses to settle for it then it must make
alternative arrangements to make payment to DTC via Fedwire, [sic]
(vii) add text for the purpose of context, consistent with the
Rules, that a Participant that acts as its own Settling Bank may not
refuse to settle for itself and that it will be in default if it does
not fund its settlement obligation;
(viii) for clarity, change the heading to an existing example of
how a Settling Bank's settlement balance is calculated from
``Settlement Example'' to ``Example of the Calculation of a DTC
Settling Bank's Net-Net Settlement Balance'';
(ix) remove the provision from the Guide indicating that that a
Settling Bank that settles only for itself would need to affirmatively
opt out in order to not be required to affirmatively acknowledge its
settlement balance, and add text simply stating that a Settling Bank
that settles only for itself would not be required to acknowledge its
settlement balance;
(x) clarify the interest charged to Participants for a failure to
settle;
(xi) delete references to a Settling Bank's failure to timely
settle its settlement balance from being referred to as a ``failure to
settle'' and remove references to related procedures as being
``failure-to-settle'' procedures, as the terminology could be confused
with an individual Participant's failure to meet its settlement
obligation;
[[Page 74821]]
(xii) rewrite text in the Guide in light of the proposed changes,
as applicable, including Addendum A of the Guide, to incorporate
proposed changes, consolidate text, clarify text for readability and
eliminate duplication;
(xiii) clarify certain Settling Bank and settlement processing
timeframes;
(xiv) apply initial capitalization as appropriate for the terms
``Participant'' and ``Settling Bank'' where they are used as defined
terms;
(xv) remove references to Participant Terminal System (PTS)
functions, which are no longer used for DTC settlement processing; and
(xvi) insert the title of the Guide on the Guide's front page.
Implementation
The effective date of the proposed rule change would be announced
via a DTC Important Notice.
2. Statutory Basis
Section 17A(b)(3)(F) \14\ of the Act requires that the rules of the
clearing agency be designed, inter alia, to promote the prompt and
accurate clearance and settlement of securities transactions. DTC
believes that the proposed rule change is consistent with this
provision of the Act because the proposed rule change would reduce
delays in the settlement process by allowing DTC to collect net debits
and release net credits within scheduled timeframes despite the failure
of a Settling Bank to affirmatively acknowledge its end-of-day net-net
settlement balance or notify DTC of its refusal to settle for a
Participant for which it is the designated Settling Bank on a timely
basis.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
Rule 17Ad-22(d)(5) \15\ promulgated under the Act requires, inter
alia, that a clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to, as applicable,
employ money settlement arrangements that eliminate or strictly limit
the clearing agency's settlement bank risks, that is, its credit and
liquidity risks from the use of banks to effect money settlements with
its participants; and require funds transfers to the clearing agency to
be final when effected. DTC believes the proposed rule change is
consistent with this provision because it would reduce DTC's credit and
liquidity risk by mitigating the risk that end-of-day net-net debit
settlement balances would not be paid due to the failure of a Settling
Bank to respond to DTC after posting of final settlement figures.
---------------------------------------------------------------------------
\15\ 17 CFR 240.17Ad-22(d)(5).
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
DTC does not believe that the proposed rule change would have any
impact, or impose any burden, on competition because the proposed rule
change applies to all Settling Banks and would not have an impact on
Settling Banks' current ability to timely acknowledge their net-net
settlement balances or notify DTC of a refusal to settle on behalf of a
Participant.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
DTC filed a substantially similar proposed rule change on April 15,
2015 (``April Rule Filing''),\16\ which was subsequently withdrawn.\17\
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\16\ Securities Exchange Act Release No. 74830 (April 29, 2015),
80 FR 25727 (May 5, 2015) (File No. SR-DTC-2015-003).
\17\ Securities Exchange Act Release No. 74380 (July 7, 2015),
80 FR 40116 (July 13, 2015) (File No. SR-DTC-2015-003).
---------------------------------------------------------------------------
The Commission received a favorable written comment to the April
Rule Filing.\18\ DTC also received written comments in connection with
the April Rule Filing from a Participant that is a Settling Bank for
other Participants. The Participant commented to the effect that it was
expecting, but the April Rule Filing did not clearly state, that a
Settling Bank (i) will be granted an extension to acknowledge its net-
net settlement balance whenever it is requested prior to DTC processing
the NSS File, and (ii) will not be charged a fee in situations where
such an extension has been requested. In order to fully consider these
comments DTC withdrew the April Rule Filing.
---------------------------------------------------------------------------
\18\ Letter from Suzanne Shatto (May 3, 2015), available at
https://www.sec.gov/comments/sr-dtc-2015-003/dtc2015003.shtml.
---------------------------------------------------------------------------
With respect to (i) above, in order to avoid wider disruption to
the DTC settlement process and the industry, DTC must have the
discretion to promptly complete settlement for the Settling Banks that
have timely acknowledged or have been deemed to have acknowledged their
respective net-net settlement balances. Therefore, although DTC can
grant limited extensions, DTC cannot grant an indefinite extension to a
Settling Bank to acknowledge its balance prior to DTC processing the
NSS File.\19\
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\19\ As stated above, DTC would maintain flexibility to allow
for a Settling Bank to request extra time if the Settling Bank
cannot affirmatively acknowledge or refuse, so long as the Settling
Bank promptly notifies DTC at or before the Acknowledgement Cutoff
Time or upon receipt of an Adjusted Balance.
---------------------------------------------------------------------------
With respect to (ii) above, the proposed rule change adds text to
the Guide so that a Settling Bank that timely notifies DTC that it
cannot acknowledge or refuse its net-net settlement balance will not be
charged a flat fee for failure to acknowledge its balance. However the
Settling Bank may be charged interest.
To the extent any additional written comments are received by DTC
on the proposed rule change, DTC will forward them to the Commission.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate 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 or disapprove such 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 email to rule-comments@sec.gov. Please include
File Number SR-DTC-2015-011 on the subject line.
Paper Comments
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-2015-011. 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 Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements
[[Page 74822]]
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 DTC and on DTCC's Web site
(https://dtcc.com/legal/sec-rule-filings.aspx). 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-2015-011 and should be submitted on
or before December 21, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30245 Filed 11-27-15; 8:45 am]
BILLING CODE 8011-01-P
