Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow DTC To Automate the Process for Participants To Submit Eligibility Requests for the DTC Custody Service, 79543-79546 [2016-27236]
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Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
ISEGemini–2016–13 and should be
submitted on or before December 5,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Brent J. Fields,
Secretary.
[FR Doc. 2016–27237 Filed 11–10–16; 8:45 am]
BILLING CODE 8011–01–P
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79252; File No. SR–DTC–
2016–011]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Allow DTC
To Automate the Process for
Participants To Submit Eligibility
Requests for the DTC Custody Service
November 7, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4,2 notice is
hereby given that on October 28, 2016,
The Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the clearing
agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) 3
of the Act and Rule 19b–4(f)(4) 4
thereunder. The proposed rule change
was effective upon filing with the
Commission. 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 5 would
amend the DTC Custody Service Guide
(‘‘Custody Guide’’) 6 to allow DTC to (i)
enhance the process by which
Participants submit requests to make
Securities, and assets that are not
Securities (‘‘Non-Security Assets’’), as
applicable, eligible for deposit into the
22 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).
4 17 CFR 240.19b–4(f)(4).
5 Capitalized terms not otherwise defined herein
have the respective meanings set forth in the DTC
Rules, By-laws and Organization Certificate
(‘‘Rules’’), available at https://www.dtcc.com/legal/
rules-and-procedures.aspx.
6 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/Custody.pdf.
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1 15
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Custody Service (‘‘Custody Eligibility
Requests’’) and (ii) add functionality for
Participants to inquire as to whether a
particular issue is eligible for the
Custody Service. Upon its
implementation, the proposed rule
change would enhance efficiencies for
Participants and DTC by providing a
secure, centralized environment for the
submission of Custody Eligibility
Requests.
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
In order for DTC to accept a Security
or a Non-Security Asset, as applicable,
for deposit into the Custody Service,
DTC requires that the Security or NonSecurity Asset be made eligible for the
Custody Service pursuant to a Custody
Eligibility Request.7 The proposed rule
change would allow DTC to transfer the
existing request method for Custody
Eligibility Requests by which
Participants submit requests via email,
to an Internet-based application
(‘‘Application’’), as more fully described
below (‘‘Enhanced Process’’).8 Upon
implementation, the Enhanced Process
would (i) promote a more secure
environment by providing for the
submission and processing of Custody
Eligibility Requests through the
Application,9 and (ii) enhance
efficiencies for DTC by reducing the
7 Once the Security or Non-Security Asset subject
of the Custody Eligibility Request is made eligible
by DTC for deposit into the Custody Service,
additional deposits of that Security or Non-Security
Asset by the requesting Participant or other
Participants may be made without requiring
submission of another Custody Eligibility Request.
8 The Custody Guide provides that Custody
Service functions may become accessible via webbased services as announced by DTC via Important
Notice from time to time. See Custody Guide, supra
note 6 at 4. DTC would announce the proposed rule
change via Important Notice.
9 The Application has been designed to provide
a secure, centralized online system managed by
DTC, whereas Participant security protocols for the
transmission of emails may vary.
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79543
manual processing of Custody Eligibility
requests, as more fully described below.
Background
The Custody Service enables
Participants that hold (i) Securities that
(A) are not presently eligible for bookentry services at DTC and/or (B) would
otherwise be eligible for DTC book-entry
services but are not registered in the
name of DTC’s nominee, Cede & Co.,
and/or (ii) certain Non-Security Assets,
to deposit those Securities and/or NonSecurity Assets with DTC for safekeeping, in accordance with
requirements set forth in the Custody
Guide.10 Securities and Non-Security
Assets deposited through the Custody
Service are maintained in DTC’s secure
vault in a Participant’s name or a
Participant’s customer’s name (i.e., they
are not transferred into DTC’s nominee
name, Cede & Co).11 In addition, once a
Security is deposited into the Custody
Service, DTC may perform limited
depository services relating to the
Security including physical processing
for the Security on a Participant’s
behalf, such as facilitating the transfer of
Security Certificates, and providing
services available through the Custody
Reorganization Service.12
The proposed rule change would
amend the Custody Guide to allow DTC
to implement the Enhanced Process by
moving the processing of Custody
Eligibility Requests to the Application
and replacing certain manual processes,
as more fully described below.
Existing Process
In order for an issue to be made
eligible for deposit to the Custody
Service, a Participant must submit a
Custody Eligibility Request to DTC. The
Custody Eligibility Request is submitted
by email and must include certain data
elements (‘‘Data Elements’’) 13 and a
10 See Custody Guide for the types of Securities
and Non-Security Assets eligible for deposit to the
Custody Service (‘‘Custody Eligible Security
Types’’), supra note 6, at 5,12.
11 Cede & Co. is the holder of record of Securities
eligible for DTC’s book-entry services.
12 See Custody Guide, supra note 6, 14–17
(providing Procedures for the Custody
Reorganization Service). The limited depository
services provided by DTC as described above relate
only to securities processing functions and do not
apply to Non-Security Assets.
13 Data Elements include DTC Participant
Number (to identify the Participant making the
Custody Eligibility Request), CUSIP (if available);
Sub-Issue Type (required); description of the
Security or Non-Security Asset (‘‘Security
Description’’) (required); U.S/Non U.S. (This field is
required for corporate debt and equity issues. All
certificates of deposit and collateralized mortgage
obligations must be U.S. issues. For municipal
securities, this field is set to U.S. and is not
updateable); Issuer Country of Origin (required for
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Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
copy of the Security Certificate to be
deposited or, if the asset to be deposited
is a Non-Security Asset, other assetrelated documentation evidencing the
asset to be deposited. Upon receipt of a
Custody Eligibility Request, DTC
reviews the Data Elements and the
Security Certificate or other assetrelated documentation, as applicable, to
determine whether the Security or NonSecurity Asset is a Custody Eligible
Security Type.14 If the Security or NonSecurity, as applicable, is a Custody
Eligible Security Type and otherwise
complies with DTC’s Rules on
eligibility,15 DTC will make it eligible
for Custody services by adding it to the
DTC Custody security master file
(‘‘Custody Master File’’). For those
eligible Securities or Non-Security
Assets without an assigned CUSIP, DTC
establishes the CUSIP for the Security,
or other Non-Security Asset, as
applicable, in DTC’s system. The
validation, CUSIP assignment and
communication with the Participant are
all manually processed by DTC. Once a
Security or Non-Security Asset is made
eligible for deposit into the Custody
Service, the Participant may deliver the
physical Security Certificate or other
asset-related documentation, as
applicable, either by hand, or via
overnight mail, for deposit into DTC’s
secure vault.16
mstockstill on DSK3G9T082PROD with NOTICES
Enhanced Process
Pursuant to the proposed rule change,
Custody Eligibility Requests would be
submitted by Participants to DTC using
the Enhanced Process through the
Application. DTC would eliminate the
ability to submit Custody Eligibility
Requests by email. Participants would
continue to provide the same
information through the Application
that they currently provide through
email, including the Data Elements and
a copy of the Security Certificate or
other asset-related documentation they
are seeking to make eligible.17 In
addition, the Application would offer
Participants seeking to make multiple
Custody Eligibility Requests the option
to submit a spreadsheet containing the
Data Elements for all the Securities and
Non-Security Assets for which
eligibility is being requested as one
submission.18
Once the Custody Eligibility Request
is submitted, DTC would validate the
Data Elements to determine whether the
Security or Non-Security Asset, as
applicable, is a Custody Eligible
Security Type, as DTC does today. DTC
would send an automated email to
notify the Participant if a Custody
Eligibility Request requires further
review by DTC prior to adding the
Security or Non-Security Asset, as
applicable, to the Custody system as
eligible for deposit. DTC may require
other information it deems necessary to
complete its processing of a Custody
Eligibility Request. If DTC requires
additional information to complete its
review of a Custody Eligibility Request,
or otherwise identifies an issue that may
affect processing of the Custody
Eligibility Request (e.g., incorrect SubIssue type, an issue regarding
compliance with sanctions administered
and enforced by the Office of Foreign
Assets Control of the U.S. Department of
the Treasury (‘‘OFAC’’), the listing of a
Security on the issuer list maintained by
OFAC,19 etc.), DTC staff would contact
the Participant in this regard directly by
phone and/or in writing.20
If a Security or Non-Security Asset
subject of the Custody Eligibility
Request is eligible for deposit in the
Custody Service but has not been
assigned a CUSIP prior to submission of
the Custody Eligibility Request to the
Application, DTC would assign a CUSIP
as it does today.21 DTC would then
notify the Participant through an
automated email message that the
Security or Non-Security Asset is
eligible for the Custody Service, and add
the Security or Non-Security Asset to
corporate debt and equity issue types); State of
Incorporation (required for all U.S. issues); Dated
Date (required for corporate debt and municipal
security types); Accrual Date (required for corporate
debt and municipal security types); Certificate Type
(required and defaulted to R for Registered, can be
updated to Bearer or Interchangeable, as
applicable); Maturity Date (required for corporate
debt, municipal securities and warrants); Interest
Rate (required for corporate debt and municipal
security types); Name of Paying Agent (required for
corporate debt and municipal security types); and
Exercise Price (required for warrants).
14 See Custody Guide, supra note 10.
15 See Rule 5, supra note 5.
16 See Custody Guide, supra note 6 at 10–14
(setting forth Procedures for the deposit of
Securities and Non-Security Assets to the Custody
Service).
17 If the request does not contain the required
Data Elements, and the Security Certificate or other
asset-related documentation, as applicable, then the
Application would prompt the Participant to
resubmit the inquiry with all required Data
Elements, and the Security Certificate or other
asset-related documentation, as applicable. Today,
the Participant is notified in this regard only after
DTC has reviewed the email request.
18 Currently, each Custody Eligibility Request
must be submitted individually. This feature would
assist Participants performing large conversions,
including those moving Custody functions from
their own facility to DTC’s Custody Service.
19 See Rule 2, Section 8, and Rule 5, Section 1,
supra note 5.
20 The Custody Guide would state that
Participants with questions regarding this process
should call the DTC Underwriting Hotline phone
number.
21 CUSIPS [sic] assigned by DTC would be
viewable on the Application screen.
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17:26 Nov 10, 2016
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the Custody Master File. The Participant
may then deliver the physical Security
Certificate or, for a Non-Security Asset,
other asset-related documentation, as
applicable, to DTC for deposit into
DTC’s secure vault in the same manner
that it would today.
Implementation of the Enhanced
Process would provide enhanced
efficiency and a more secure system for
submission and review of Custody
Eligibility Requests to Participants and
DTC in relation to the current emailbased method. First, as described above,
the Application would enhance security
in transmission of Custody Eligibility
Requests by using a secure online
system instead of the current email
method. Second, use of the Application
for this purpose would enhance
transparency for Participants with
respect to the status of their individual
Custody Eligibility Requests.22 Third,
the migration of the submission of
Custody Eligibility Requests from an
email-based method to using the
Application would enhance processing
efficiencies at DTC by providing an
automated and centralized means for
DTC to receive and manage Eligibility
Request Documents.
Eligibility Inquiry Capability
The Application would also offer a
new inquiry capability (‘‘Custody
Eligibility Inquiry Function’’) for
Participants’ use that would allow them
to directly view whether a Security or
Non-Security Asset is already eligible
for deposit into the Custody Service.
The Participant would make the inquiry
by entering certain search criteria
(‘‘Search Criteria’’). The Custody
Eligibility Inquiry Function, in addition
to providing Participants the ability to
search by CUSIP and Security
Description or Non-Security Asset,
would also provide the capability to use
other Search Criteria to narrow the
search.23 If the applicable Security or
Non-Security Asset is eligible for the
Custody Service, the Participant would
know that it can proceed with its
deposit without first requesting
eligibility. This feature would provide a
Participant that needs to verify
eligibility of a Security or Non-Security
Asset before depositing it a real-time
view into whether the Security is
already on the Custody Master File
22 The Application would provide Participants
with the ability to view the status of their Custody
Eligibility Requests online.
23 The Search Criteria include CUSIP or partial
CUSIP (at least 6 characters), and Security
Description (at least 3 characters). Additional
Search Criteria would allow the Participant to
narrow the results including the Security Interest
Rate range, Maturity Date range, Dated Date range
and Sub-Issue Type.
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Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
without having to inquire with DTC by
phone or email.
Proposed Rule Changes
The Custody Guide does not currently
contain a section describing Custody
Eligibility Requests and the process for
submitting them. Pursuant to the
proposed rule change, DTC would
amend the text of the Custody Guide to
add a section in this regard, and:
(i) Provide the Procedures for the
Enhanced Process as described above;
(ii) provide that (a) if a Participant
seeking to make a Security or other asset
eligible for the Custody Service does not
know whether the Security or asset is
currently eligible for deposit in DTC’s
Custody Service, the Participant should
verify the eligibility status using the
online Custody Eligibility Inquiry
Function through the Application, as
defined below and (b) if the Security or
asset is not eligible then the Participant
must, prior to depositing it at DTC,
submit a request to DTC to make the
Security or asset eligible for the Custody
Service using the Custody Eligibility
Application. [sic]
(iii) provide the Procedures for the
Custody Eligibility Inquiry Function as
described above; and
(iv) state that Participants must have
access to DTC’s online web-based portal
(‘‘Portal’’) and the Application in order
to submit Custody Eligibility Requests
and make Custody Eligibility
Inquiries.24
mstockstill on DSK3G9T082PROD with NOTICES
Implementation
The proposed rule change would be
implemented in phases whereby
Participants using the Custody Service
would be migrated to use the
Application to submit Custody
Eligibility Requests over a period of
approximately two months beginning on
October 31, 2016 (‘‘Effective Date’’).
Migration to the Application for all
Participants that use the Custody
Service would be expected to be
completed by the end of December
2016. However, email submission of
Custody Eligibility Requests would
remain available to Participants as a
valid method to submit Custody
Eligibility Requests until the later of (i)
January 31, 2017 and (ii) 30 calendar
days following the date all Participants
using the Custody Service have
migrated to be able to submit Custody
Eligibility Requests using the Custody
Eligibility Application (‘‘Final Effective
24 The Custody Guide would provide that
Participants that require assistance in accessing the
Portal and/or Application should contact their DTC
Relationship Manager.
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17:26 Nov 10, 2016
Jkt 241001
Date’’).25 On and after the Final
Effective Date, DTC would not accept
such email requests and Custody
Eligibility Requests would be required
to be submitted through the Custody
Eligibility Application only. The
Custody Guide text as proposed would
contain a footnote reflecting the above
regarding the Final Effective Date and
state that the footnote would be deleted
as of the Final Effective Date.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act 26
requires that the rules of the clearing
agency be designed, inter alia, in
general, to protect investors and the
public interest. DTC believes the
proposed rule change is consistent with
this provision because (i) having
Custody Eligibility Requests submitted
through the Application would promote
efficient and secure delivery and
processing of such requests in order to
facilitate making Securities and NonSecurity Assets, as applicable, eligible
for deposit into the Custody Service by
Participants on behalf of themselves and
their customers, and (ii) the proposed
online functionality would facilitate
enhanced transparency for Participants
in their use of the Custody Service on
behalf of themselves and their
customers. Thus, by (i) facilitating
efficient and secure submission of
Custody Eligibility Requests, which in
turn would facilitate the ability of
Participants to deposit customer assets
in DTC’s secure vault, and (ii) providing
for enhanced transparency to
Participants in this regard, the proposed
rule change would protect investors and
the public interest.
Rule 17Ad–22(d)(6) promulgated
under the Act 27 requires that each
registered clearing agency shall
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to, as applicable, be
cost-effective in meeting the
requirements of participants while
maintaining safe and secure operations.
DTC believes that the proposed rule
change is consistent with Rule 17Ad–
22(d)(6) because (i) by enhancing the
efficiency of the processing of Custody
Eligibility Requests without increasing
costs to Participants to access the
service,28 the proposed rule change
would be cost-effective in meeting
requirements of Participants, and (ii) by
processing Custody Eligibility Requests
through the Application, a centralized
25 The Final Effective Date would be announced
via a DTC Important Notice.
26 15 U.S.C. 78q–1(b)(3)(F).
27 17 CFR 240.17Ad–22(d)(6).
28 DTC would not charge Participants a fee for
access to the Application.
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79545
and secure online application, DTC
would maintain safe and secure
operations with respect to transmission
and processing of such requests.
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
adverse impact, or impose any burden,
on competition because DTC would not
charge a fee for access to the
Application and therefore the proposal
would not impose additional costs on
Participants in this regard. In addition,
the process for Participants to register
for the Application is identical to that
used by Participants to register for DTC
web-based services generally.29 DTC has
discussed the proposal with Participants
using the Custody Service and is
conducting user testing on the
Application prior to implementation on
a Participant-by-Participant basis.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received from Members,
Participants, or Others
DTC has not solicited and does not
intend to solicit, comments regarding
the proposed rule change. DTC has not
received any unsolicited written
comments from interested parties. To
the extent DTC receives written
comments on the proposed rule change,
DTC will forward such comments to the
Commission. DTC has conducted
industry outreach with respect to the
proposal including discussions with the
Securities Processing Advisory Board
(SPAB), whose members account for
over 70 percent of the overall Custody
Service activity at DTC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 30 of the Act and paragraph
(f) of Rule 19b–4 31 thereunder. At any
time within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
29 Participants using DTC web-based services,
such as the Application, make use of super access
coordinators who are persons at the Participant firm
authorized to grant other individuals at the
Participant firm to access DTC web-based services
on behalf of the Participant. All Participants using
the Custody Service currently have appointed super
access coordinators.
30 15 U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f).
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or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
mstockstill on DSK3G9T082PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–DTC–2016–011. 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
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–
2016–011 and should be submitted on
or before December 5, 2016.
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:26 Nov 10, 2016
[FR Doc. 2016–27236 Filed 11–10–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79257; File No. 265–29]
• 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–2016–011 on the subject line.
32 17
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Brent J. Fields,
Secretary.
Jkt 241001
Equity Market Structure Advisory
Committee
Securities and Exchange
Commission.
ACTION: Notice of meeting.
AGENCY:
The Securities and Exchange
Commission Equity Market Structure
Advisory Committee is providing notice
that it will hold a public meeting on
Tuesday, November 29, 2016, in MultiPurpose Room LL–006 at the
Commission’s headquarters, 100 F
Street NE., Washington, DC. The
meeting will begin at 9:30 a.m. (EST)
and will be open to the public. The
public portions of the meeting will be
webcast on the Commission’s Web site
at www.sec.gov. Persons needing special
accommodations to take part because of
a disability should notify the contact
person listed below. The public is
invited to submit written statements to
the Committee. The meeting will focus
on recommendations and updates from
the four subcommittees.
DATES: The public meeting will be held
on Tuesday, November 29, 2016.
Written statements should be received
on or before November 23, 2016.
ADDRESSES: The meeting will be held at
the Commission’s headquarters, 100 F
Street NE., Washington, DC. Written
statements may be submitted by any of
the following methods:
SUMMARY:
Electronic Statements
• Use the Commission’s Internet
submission form (https://www.sec.gov/
rules/other.shtml); or
• Send an email message to rulecomments@sec.gov. Please include File
Number 265–29 on the subject line; or
Paper Statements
• Send paper statements in triplicate
to Brent J. Fields, Federal Advisory
Committee Management Officer,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File No.
265–29. This file number should be
included on the subject line if email is
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used. To help us process and review
your statement more efficiently, please
use only one method. The Commission
will post all statements on the
Commission’s Internet Web site at SEC
Web site at (https://www.sec.gov/
comments/265-29/265-29.shtml).
Statements also will be available for
Web site viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE., Room 1580,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Arisa Tinaves Kettig, Senior Special
Counsel, at (202) 551–5676, Division of
Trading and Markets, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–7010.
SUPPLEMENTARY INFORMATION: In
accordance with Section 10(a) of the
Federal Advisory Committee Act, 5
U.S.C.–App. 1, and the regulations
thereunder, Stephen Luparello,
Designated Federal Officer of the
Committee, has ordered publication of
this notice.
Dated: November 8, 2016.
Brent J. Fields,
Committee Management Officer.
[FR Doc. 2016–27265 Filed 11–10–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79249; File No. SR–Phlx–
2016–86]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Order Granting
Approval of Proposed Rule Change To
Delete or Amend Rule Language
Relating to Specialists and Registered
Options Traders
November 7, 2016.
I. Introduction
On August 12, 2016, NASDAQ PHLX
LLC (‘‘Exchange’’ or ‘‘Phlx’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to delete or
amend its rules relating to specialists
and Registered Options Traders
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
E:\FR\FM\14NON1.SGM
14NON1
]]>Agencies
[Federal Register Volume 81, Number 219 (Monday, November 14, 2016)]
[Notices]
[Pages 79543-79546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27236]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79252; File No. SR-DTC-2016-011]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Allow DTC To Automate the Process for Participants To Submit
Eligibility Requests for the DTC Custody Service
November 7, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4,\2\ notice is hereby given that on October
28, 2016, The Depository Trust Company (``DTC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II and III below, which Items have been
prepared by the clearing agency. DTC filed the proposed rule change
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(4) \4\
thereunder. The proposed rule change was effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ would amend the DTC Custody Service
Guide (``Custody Guide'') \6\ to allow DTC to (i) enhance the process
by which Participants submit requests to make Securities, and assets
that are not Securities (``Non-Security Assets''), as applicable,
eligible for deposit into the Custody Service (``Custody Eligibility
Requests'') and (ii) add functionality for Participants to inquire as
to whether a particular issue is eligible for the Custody Service. Upon
its implementation, the proposed rule change would enhance efficiencies
for Participants and DTC by providing a secure, centralized environment
for the submission of Custody Eligibility Requests.
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\5\ Capitalized terms not otherwise defined herein have the
respective meanings set forth in the DTC Rules, By-laws and
Organization Certificate (``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
\6\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Custody.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
In order for DTC to accept a Security or a Non-Security Asset, as
applicable, for deposit into the Custody Service, DTC requires that the
Security or Non-Security Asset be made eligible for the Custody Service
pursuant to a Custody Eligibility Request.\7\ The proposed rule change
would allow DTC to transfer the existing request method for Custody
Eligibility Requests by which Participants submit requests via email,
to an Internet-based application (``Application''), as more fully
described below (``Enhanced Process'').\8\ Upon implementation, the
Enhanced Process would (i) promote a more secure environment by
providing for the submission and processing of Custody Eligibility
Requests through the Application,\9\ and (ii) enhance efficiencies for
DTC by reducing the manual processing of Custody Eligibility requests,
as more fully described below.
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\7\ Once the Security or Non-Security Asset subject of the
Custody Eligibility Request is made eligible by DTC for deposit into
the Custody Service, additional deposits of that Security or Non-
Security Asset by the requesting Participant or other Participants
may be made without requiring submission of another Custody
Eligibility Request.
\8\ The Custody Guide provides that Custody Service functions
may become accessible via web-based services as announced by DTC via
Important Notice from time to time. See Custody Guide, supra note 6
at 4. DTC would announce the proposed rule change via Important
Notice.
\9\ The Application has been designed to provide a secure,
centralized online system managed by DTC, whereas Participant
security protocols for the transmission of emails may vary.
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Background
The Custody Service enables Participants that hold (i) Securities
that (A) are not presently eligible for book-entry services at DTC and/
or (B) would otherwise be eligible for DTC book-entry services but are
not registered in the name of DTC's nominee, Cede & Co., and/or (ii)
certain Non-Security Assets, to deposit those Securities and/or Non-
Security Assets with DTC for safe-keeping, in accordance with
requirements set forth in the Custody Guide.\10\ Securities and Non-
Security Assets deposited through the Custody Service are maintained in
DTC's secure vault in a Participant's name or a Participant's
customer's name (i.e., they are not transferred into DTC's nominee
name, Cede & Co).\11\ In addition, once a Security is deposited into
the Custody Service, DTC may perform limited depository services
relating to the Security including physical processing for the Security
on a Participant's behalf, such as facilitating the transfer of
Security Certificates, and providing services available through the
Custody Reorganization Service.\12\
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\10\ See Custody Guide for the types of Securities and Non-
Security Assets eligible for deposit to the Custody Service
(``Custody Eligible Security Types''), supra note 6, at 5,12.
\11\ Cede & Co. is the holder of record of Securities eligible
for DTC's book-entry services.
\12\ See Custody Guide, supra note 6, 14-17 (providing
Procedures for the Custody Reorganization Service). The limited
depository services provided by DTC as described above relate only
to securities processing functions and do not apply to Non-Security
Assets.
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The proposed rule change would amend the Custody Guide to allow DTC
to implement the Enhanced Process by moving the processing of Custody
Eligibility Requests to the Application and replacing certain manual
processes, as more fully described below.
Existing Process
In order for an issue to be made eligible for deposit to the
Custody Service, a Participant must submit a Custody Eligibility
Request to DTC. The Custody Eligibility Request is submitted by email
and must include certain data elements (``Data Elements'')[hairsp]\13\
and a
[[Page 79544]]
copy of the Security Certificate to be deposited or, if the asset to be
deposited is a Non-Security Asset, other asset-related documentation
evidencing the asset to be deposited. Upon receipt of a Custody
Eligibility Request, DTC reviews the Data Elements and the Security
Certificate or other asset-related documentation, as applicable, to
determine whether the Security or Non-Security Asset is a Custody
Eligible Security Type.\14\ If the Security or Non-Security, as
applicable, is a Custody Eligible Security Type and otherwise complies
with DTC's Rules on eligibility,\15\ DTC will make it eligible for
Custody services by adding it to the DTC Custody security master file
(``Custody Master File''). For those eligible Securities or Non-
Security Assets without an assigned CUSIP, DTC establishes the CUSIP
for the Security, or other Non-Security Asset, as applicable, in DTC's
system. The validation, CUSIP assignment and communication with the
Participant are all manually processed by DTC. Once a Security or Non-
Security Asset is made eligible for deposit into the Custody Service,
the Participant may deliver the physical Security Certificate or other
asset-related documentation, as applicable, either by hand, or via
overnight mail, for deposit into DTC's secure vault.\16\
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\13\ Data Elements include DTC Participant Number (to identify
the Participant making the Custody Eligibility Request), CUSIP (if
available); Sub-Issue Type (required); description of the Security
or Non-Security Asset (``Security Description'') (required); U.S/Non
U.S. (This field is required for corporate debt and equity issues.
All certificates of deposit and collateralized mortgage obligations
must be U.S. issues. For municipal securities, this field is set to
U.S. and is not updateable); Issuer Country of Origin (required for
corporate debt and equity issue types); State of Incorporation
(required for all U.S. issues); Dated Date (required for corporate
debt and municipal security types); Accrual Date (required for
corporate debt and municipal security types); Certificate Type
(required and defaulted to R for Registered, can be updated to
Bearer or Interchangeable, as applicable); Maturity Date (required
for corporate debt, municipal securities and warrants); Interest
Rate (required for corporate debt and municipal security types);
Name of Paying Agent (required for corporate debt and municipal
security types); and Exercise Price (required for warrants).
\14\ See Custody Guide, supra note 10.
\15\ See Rule 5, supra note 5.
\16\ See Custody Guide, supra note 6 at 10-14 (setting forth
Procedures for the deposit of Securities and Non-Security Assets to
the Custody Service).
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Enhanced Process
Pursuant to the proposed rule change, Custody Eligibility Requests
would be submitted by Participants to DTC using the Enhanced Process
through the Application. DTC would eliminate the ability to submit
Custody Eligibility Requests by email. Participants would continue to
provide the same information through the Application that they
currently provide through email, including the Data Elements and a copy
of the Security Certificate or other asset-related documentation they
are seeking to make eligible.\17\ In addition, the Application would
offer Participants seeking to make multiple Custody Eligibility
Requests the option to submit a spreadsheet containing the Data
Elements for all the Securities and Non-Security Assets for which
eligibility is being requested as one submission.\18\
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\17\ If the request does not contain the required Data Elements,
and the Security Certificate or other asset-related documentation,
as applicable, then the Application would prompt the Participant to
resubmit the inquiry with all required Data Elements, and the
Security Certificate or other asset-related documentation, as
applicable. Today, the Participant is notified in this regard only
after DTC has reviewed the email request.
\18\ Currently, each Custody Eligibility Request must be
submitted individually. This feature would assist Participants
performing large conversions, including those moving Custody
functions from their own facility to DTC's Custody Service.
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Once the Custody Eligibility Request is submitted, DTC would
validate the Data Elements to determine whether the Security or Non-
Security Asset, as applicable, is a Custody Eligible Security Type, as
DTC does today. DTC would send an automated email to notify the
Participant if a Custody Eligibility Request requires further review by
DTC prior to adding the Security or Non-Security Asset, as applicable,
to the Custody system as eligible for deposit. DTC may require other
information it deems necessary to complete its processing of a Custody
Eligibility Request. If DTC requires additional information to complete
its review of a Custody Eligibility Request, or otherwise identifies an
issue that may affect processing of the Custody Eligibility Request
(e.g., incorrect Sub-Issue type, an issue regarding compliance with
sanctions administered and enforced by the Office of Foreign Assets
Control of the U.S. Department of the Treasury (``OFAC''), the listing
of a Security on the issuer list maintained by OFAC,\19\ etc.), DTC
staff would contact the Participant in this regard directly by phone
and/or in writing.\20\
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\19\ See Rule 2, Section 8, and Rule 5, Section 1, supra note 5.
\20\ The Custody Guide would state that Participants with
questions regarding this process should call the DTC Underwriting
Hotline phone number.
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If a Security or Non-Security Asset subject of the Custody
Eligibility Request is eligible for deposit in the Custody Service but
has not been assigned a CUSIP prior to submission of the Custody
Eligibility Request to the Application, DTC would assign a CUSIP as it
does today.\21\ DTC would then notify the Participant through an
automated email message that the Security or Non-Security Asset is
eligible for the Custody Service, and add the Security or Non-Security
Asset to the Custody Master File. The Participant may then deliver the
physical Security Certificate or, for a Non-Security Asset, other
asset-related documentation, as applicable, to DTC for deposit into
DTC's secure vault in the same manner that it would today.
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\21\ CUSIPS [sic] assigned by DTC would be viewable on the
Application screen.
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Implementation of the Enhanced Process would provide enhanced
efficiency and a more secure system for submission and review of
Custody Eligibility Requests to Participants and DTC in relation to the
current email-based method. First, as described above, the Application
would enhance security in transmission of Custody Eligibility Requests
by using a secure online system instead of the current email method.
Second, use of the Application for this purpose would enhance
transparency for Participants with respect to the status of their
individual Custody Eligibility Requests.\22\ Third, the migration of
the submission of Custody Eligibility Requests from an email-based
method to using the Application would enhance processing efficiencies
at DTC by providing an automated and centralized means for DTC to
receive and manage Eligibility Request Documents.
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\22\ The Application would provide Participants with the ability
to view the status of their Custody Eligibility Requests online.
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Eligibility Inquiry Capability
The Application would also offer a new inquiry capability
(``Custody Eligibility Inquiry Function'') for Participants' use that
would allow them to directly view whether a Security or Non-Security
Asset is already eligible for deposit into the Custody Service. The
Participant would make the inquiry by entering certain search criteria
(``Search Criteria''). The Custody Eligibility Inquiry Function, in
addition to providing Participants the ability to search by CUSIP and
Security Description or Non-Security Asset, would also provide the
capability to use other Search Criteria to narrow the search.\23\ If
the applicable Security or Non-Security Asset is eligible for the
Custody Service, the Participant would know that it can proceed with
its deposit without first requesting eligibility. This feature would
provide a Participant that needs to verify eligibility of a Security or
Non-Security Asset before depositing it a real-time view into whether
the Security is already on the Custody Master File
[[Page 79545]]
without having to inquire with DTC by phone or email.
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\23\ The Search Criteria include CUSIP or partial CUSIP (at
least 6 characters), and Security Description (at least 3
characters). Additional Search Criteria would allow the Participant
to narrow the results including the Security Interest Rate range,
Maturity Date range, Dated Date range and Sub-Issue Type.
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Proposed Rule Changes
The Custody Guide does not currently contain a section describing
Custody Eligibility Requests and the process for submitting them.
Pursuant to the proposed rule change, DTC would amend the text of the
Custody Guide to add a section in this regard, and:
(i) Provide the Procedures for the Enhanced Process as described
above;
(ii) provide that (a) if a Participant seeking to make a Security
or other asset eligible for the Custody Service does not know whether
the Security or asset is currently eligible for deposit in DTC's
Custody Service, the Participant should verify the eligibility status
using the online Custody Eligibility Inquiry Function through the
Application, as defined below and (b) if the Security or asset is not
eligible then the Participant must, prior to depositing it at DTC,
submit a request to DTC to make the Security or asset eligible for the
Custody Service using the Custody Eligibility Application. [sic]
(iii) provide the Procedures for the Custody Eligibility Inquiry
Function as described above; and
(iv) state that Participants must have access to DTC's online web-
based portal (``Portal'') and the Application in order to submit
Custody Eligibility Requests and make Custody Eligibility
Inquiries.\24\
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\24\ The Custody Guide would provide that Participants that
require assistance in accessing the Portal and/or Application should
contact their DTC Relationship Manager.
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Implementation
The proposed rule change would be implemented in phases whereby
Participants using the Custody Service would be migrated to use the
Application to submit Custody Eligibility Requests over a period of
approximately two months beginning on October 31, 2016 (``Effective
Date''). Migration to the Application for all Participants that use the
Custody Service would be expected to be completed by the end of
December 2016. However, email submission of Custody Eligibility
Requests would remain available to Participants as a valid method to
submit Custody Eligibility Requests until the later of (i) January 31,
2017 and (ii) 30 calendar days following the date all Participants
using the Custody Service have migrated to be able to submit Custody
Eligibility Requests using the Custody Eligibility Application (``Final
Effective Date'').\25\ On and after the Final Effective Date, DTC would
not accept such email requests and Custody Eligibility Requests would
be required to be submitted through the Custody Eligibility Application
only. The Custody Guide text as proposed would contain a footnote
reflecting the above regarding the Final Effective Date and state that
the footnote would be deleted as of the Final Effective Date.
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\25\ The Final Effective Date would be announced via a DTC
Important Notice.
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2. Statutory Basis
Section 17A(b)(3)(F) of the Act \26\ requires that the rules of the
clearing agency be designed, inter alia, in general, to protect
investors and the public interest. DTC believes the proposed rule
change is consistent with this provision because (i) having Custody
Eligibility Requests submitted through the Application would promote
efficient and secure delivery and processing of such requests in order
to facilitate making Securities and Non-Security Assets, as applicable,
eligible for deposit into the Custody Service by Participants on behalf
of themselves and their customers, and (ii) the proposed online
functionality would facilitate enhanced transparency for Participants
in their use of the Custody Service on behalf of themselves and their
customers. Thus, by (i) facilitating efficient and secure submission of
Custody Eligibility Requests, which in turn would facilitate the
ability of Participants to deposit customer assets in DTC's secure
vault, and (ii) providing for enhanced transparency to Participants in
this regard, the proposed rule change would protect investors and the
public interest.
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\26\ 15 U.S.C. 78q-1(b)(3)(F).
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Rule 17Ad-22(d)(6) promulgated under the Act \27\ requires that
each registered clearing agency shall establish, implement, maintain
and enforce written policies and procedures reasonably designed to, as
applicable, be cost-effective in meeting the requirements of
participants while maintaining safe and secure operations. DTC believes
that the proposed rule change is consistent with Rule 17Ad-22(d)(6)
because (i) by enhancing the efficiency of the processing of Custody
Eligibility Requests without increasing costs to Participants to access
the service,\28\ the proposed rule change would be cost-effective in
meeting requirements of Participants, and (ii) by processing Custody
Eligibility Requests through the Application, a centralized and secure
online application, DTC would maintain safe and secure operations with
respect to transmission and processing of such requests.
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\27\ 17 CFR 240.17Ad-22(d)(6).
\28\ DTC would not charge Participants a fee for access to the
Application.
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(B) Clearing Agency's Statement on Burden on Competition
DTC does not believe that the proposed rule change would have any
adverse impact, or impose any burden, on competition because DTC would
not charge a fee for access to the Application and therefore the
proposal would not impose additional costs on Participants in this
regard. In addition, the process for Participants to register for the
Application is identical to that used by Participants to register for
DTC web-based services generally.\29\ DTC has discussed the proposal
with Participants using the Custody Service and is conducting user
testing on the Application prior to implementation on a Participant-by-
Participant basis.
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\29\ Participants using DTC web-based services, such as the
Application, make use of super access coordinators who are persons
at the Participant firm authorized to grant other individuals at the
Participant firm to access DTC web-based services on behalf of the
Participant. All Participants using the Custody Service currently
have appointed super access coordinators.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received from Members, Participants, or Others
DTC has not solicited and does not intend to solicit, comments
regarding the proposed rule change. DTC has not received any
unsolicited written comments from interested parties. To the extent DTC
receives written comments on the proposed rule change, DTC will forward
such comments to the Commission. DTC has conducted industry outreach
with respect to the proposal including discussions with the Securities
Processing Advisory Board (SPAB), whose members account for over 70
percent of the overall Custody Service activity at DTC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \30\ of the Act and paragraph (f) of Rule 19b-4 \31\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors,
[[Page 79546]]
or otherwise in furtherance of the purposes of the Act.
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f).
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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-2016-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-DTC-2016-011. 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 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-2016-011 and should be
submitted on or before December 5, 2016.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27236 Filed 11-10-16; 8:45 am]
BILLING CODE 8011-01-P
