Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Establish a Sub-Account for Use With the DTCC Euroclear Global Collateral Ltd Collateral Management Service and Provide for the Authorization of a Representative To Receive Information About the Sub-Account, 15081-15085 [2017-05853]

Download as PDF Federal Register / Vol. 82, No. 56 / Friday, March 24, 2017 / Notices All submissions should refer to File Number SR–C2–2017–010. 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 the Exchange. 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–C2– 2017–010 and should be submitted on or before April 14, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–05854 Filed 3–23–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 9, 2017, 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. 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 consists of amendments to Rules, By-Laws and Organization Certificate of The Depository Trust Company (the ‘‘DTC Rules’’) 3 in order to add new Rule 35 (CMS Reporting) which would provide that any DTC Participant that is, or is acting on behalf of, a user of certain collateral management services (‘‘CMS’’) 4 of DTCC Euroclear Global Collateral Ltd. (‘‘DEGCL’’) 5 may establish one or more sub-Accounts for use in connection with CMS (each, a ‘‘CMS Sub-Account’’). A DTC Participant that establishes a CMS SubAccount pursuant to the proposed rule (a ‘‘CMS Participant’’) would thereby: (i) Authorize DEGCL to receive account and transactional information and reports with respect to the CMS SubAccount, and (ii) direct DTC to provide such information and reports to DEGCL, as described in detail below. 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Each capitalized term not otherwise defined herein has its respective meaning as set forth in the Rules, By-Laws and Organization Certificate of The Depository Trust Company (the ‘‘DTC Rules’’), available at https://www.dtcc.com/legal/rules-andprocedures.aspx. 4 In particular, there will be a CMS option authorizing DEGCL, on behalf of the CMS User, to propose collateral allocations to satisfy counterparty obligations of the CMS User, referred to by DEGCL as the ‘‘Allocation Option’’ and further explained below. 5 DEGCL is a joint venture of The Depository Trust & Clearing Corporation (‘‘DTCC’’), the corporate parent of DTC, and Euroclear S.A./N.V. (‘‘Euroclear’’), the corporate parent of Euroclear Bank, described further below. DTC understands that CMS will be operated by Euroclear Bank and other entities in the Euroclear group, as service providers to DEGCL, in accordance with appropriate agreements between them. 2 17 jstallworth on DSK7TPTVN1PROD with NOTICES [Release No. 34–80280; File No. SR–DTC– 2017–001] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Establish a Sub-Account for Use With the DTCC Euroclear Global Collateral Ltd Collateral Management Service and Provide for the Authorization of a Representative To Receive Information About the Sub-Account March 20, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 35 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 13:56 Mar 23, 2017 Jkt 241001 PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 15081 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 The proposal would add new Rule 35 (CMS Reporting), which would provide that any DTC Participant that is, or is acting on behalf of, a user of DEGCL CMS may establish one or more CMS Sub-Accounts. A CMS Participant would thereby: (i) Authorize DEGCL to receive account and transactional information and reports with respect to the CMS Sub-Account, and (ii) direct DTC to provide such information and reports to DEGCL, as described below. (i) Background (a) DEGCL DEGCL was formed in the United Kingdom (‘‘UK’’), and is authorized by the Financial Conduct Authority (‘‘FCA’’) 6 in the UK as a ‘‘service company’’ in accordance with applicable law of the UK.7 DEGCL was formed for the purpose of offering global information, record keeping, and processing services for derivatives collateral transactions and other types of financing transactions. DEGCL seeks to provide services to buy-side and sellside financial institutions that seek increased efficiency in the availability and deployment of collateral and streamlined margin processing, in light 6 The FCA is an independent public body that regulates 56,000 financial services firms and financial markets in the UK financial services firms in the UK. It is accountable to the UK Treasury, which is responsible for the UK’s financial system, and to Parliament. 7 DEGCL was authorized as a ‘‘service company’’ by the FCA on March 29, 2016. A ‘‘service company,’’ as defined in the FCA Handbook, Glossary, is: ‘‘[A] firm whose only permitted activities are making arrangements with a view to transactions in investments, and agreeing to carry on that regulated activity, and whose Part 4A permission: (a) Incorporates a limitation substantially to the effect that the firm carry on regulated activities only with market counterparties or intermediate customers; and (b) includes requirements substantially to the effect that the firm must not: (i) Guarantee, or otherwise accept responsibility for, the performance, by a participant in arrangements made by the firm in carrying on regulated activities, of obligations undertaken by that participant in connection with those arrangements; or (ii) approve any financial promotion on behalf of any other person or any specified class of persons; or (iii) in carrying on its regulated activities, provide services otherwise than in accordance with documents (of a kind specified in the requirement) provided by the firm to the FCA.’’ FCA Handbook, Glossary, available at https://www.handbook.fca.org.uk/handbook/ glossary. E:\FR\FM\24MRN1.SGM 24MRN1 15082 Federal Register / Vol. 82, No. 56 / Friday, March 24, 2017 / Notices of new and enhanced regulatory requirements.8 These requirements have resulted in increased capital requirements, mandatory central clearing of more derivative transactions, and new margining rules for bilateral trades, driving a significant increased demand for high quality collateral, and for efficient and effective deployment of collateral. jstallworth on DSK7TPTVN1PROD with NOTICES (b) DEGCL CMS Options DEGCL performs information and record-keeping services for CMS users who have entered into user agreements with DEGCL for this purpose (‘‘CMS Users’’). CMS Users are financial institutions that are counterparties to agreements establishing obligations between them to provide securities collateral with respect to swaps or other types of financing transactions. These bilateral swap or other financing agreements are entered into by such counterparties outside, and independently, of DEGCL or DTC.9 DEGCL will provide two CMS service options for the selection of collateral to satisfy these external collateral obligations. For use of these options at DEGCL, both counterparties must agree 8 See Basel III liquidity rules (Basel Committee on Banking Supervision, Basel III: A global framework for more resilient banks and the banking system, December 2010 and revised June 2011; Basel Committee on Banking Supervision, Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools, January 2013; Basel Committee on Banking Supervision, Basel III: The net stable funding ratio, October 2014, available at www.bis.org/bcbs/basel3.htm), as well as recent regulatory changes by the Commodity Futures Trading Commission (Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 635 (January 6, 2016); 17 CFR 23 and 140), the U.S. prudential regulators (Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (November 30, 2015); 12 CFR parts 45, 237, 349, 624 and 1221. The U.S. prudential regulators include: Office of the Comptroller of the Currency—Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit Administration, and the Federal Housing Finance Agency), European Market Infrastructure Regulation (European Supervisory Authorities’ (ESAs) Final Draft Regulatory Technical Standards on riskmitigation techniques for OTC-derivative contracts not cleared by a CCP under Article 11(15) of Regulation (EU) No 648/2012 (EMIR), available at https://www.eba.europa.eu/documents/10180/ 1398349/RTS+on+Risk+Mitigation+Techniques+for +OTC+contracts+%28JC-2016-+18%29.pdf/fb0b 3387-3366-4c56-9e25-74b2a4997e1d), and the Basel Committee on Banking Supervision (‘‘BCBS’’) and the International Organization of Securities Commissions (‘‘IOSCO’’) (BCBS–IOSCO, Margin requirements for non-centrally cleared derivatives (March 2015), available at https://www.bis.org/bcbs/ publ/d317.htm). 9 A CMS User will typically be a major financial institution or buy-side investor that is a bank, broker dealer, or investment company. CMS Users will enter into a Collateral Management Service Agreement with DEGCL, which includes general terms of conditions and operating procedures (‘‘CMS Agreement’’). VerDate Sep<11>2014 13:56 Mar 23, 2017 Jkt 241001 with DEGCL to apply the same collateral selection option to a transaction between them. The first option is referred to by DEGCL as the ‘‘Standard Option’’ (also referred to as ‘‘self-select’’). The Standard Option relates to securities collateral at any U.S. settlement location and does not depend on the proposed rule change. It is described in this rule filing for informational purposes only. The second collateral selection option is referred to by DEGCL as the ‘‘Allocation Option’’ (also referred to as ‘‘auto-select’’). This option relates to securities collateral held at DTC; the offering of this option by DEGCL depends on, and is subject to, approval of the proposed rule change. The CMS User with the obligation to deliver collateral must be a CMS Participant under the proposed rule change, or the customer of a CMS Participant acting on its behalf.10 The CMS User that is the counterparty receiving collateral must also be either a DTC Participant or the customer of a DTC Participant acting on its behalf.11 (c) Standard Option, for Securities Collateral Held at Various Settlement Locations CMS Users may elect the Standard Option for securities held at any applicable settlement location, including custodial banks and DTC. Under the Standard Option, a CMS User will have the option to specify to DEGCL, obligation by obligation, what collateral to transfer with respect to each counterparty collateral obligation and at what settlement location, hence ‘‘self-select.’’ DEGCL will process the information it receives from the CMS User and generate proposed settlement instructions for the transfer of such collateral at the applicable settlement location. DEGCL will send its proposed settlement instructions to the CMS User and/or its agent, referred to by DEGCL as a designated settlement service provider (‘‘DSSP’’).12 The DSSP will 10 As further described below, a CMS SubAccount is an account from which securities collateral may be delivered by a CMS Participant pursuant to the Allocation Option. 11 The receiving DTC Participant is not a ‘‘CMS Participant’’ as defined in proposed Rule 35. 12 DSSP is a DEGCL concept, not a DTC defined term. DTC understands that, pursuant to the CMS Agreement, a CMS User must either appoint a DSSP or act as its own DSSP, and the DSSP, as agent of the CMS User, is responsible for receiving the proposed settlement instructions (and other information) from DEGCL, and acting on such information in the manner agreed by the CMS User and its DSSP. If the applicable settlement location is DTC, the DSSP must be a DTC Participant that may instruct DTC in accordance with DTC Rules and Procedures. Because the Standard Option does not depend on a CMS Sub-Account, such DTC PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 determine whether to issue the proposed settlement instructions to the applicable settlement location. For the Standard Option applied to securities collateral for which DTC is the applicable settlement location, DEGCL will not receive any information from DTC and, therefore, this option is not subject to the proposed rule change. The CMS User will self-report information to DEGCL. (c) Allocation Option for Securities Collateral Held at DTC The Allocation Option would only be used in connection with Eligible Securities held at DTC in a CMS SubAccount by a CMS Participant (‘‘CMS Securities’’). The CMS Participant may be a CMS User acting for itself or a DTC Participant acting on behalf of a CMS User as the CMS Participant.13 As described below, the Allocation Option is dependent on DEGCL receiving certain information from DTC for the applicable CMS Sub-Account of the applicable CMS Participant. The proposed rule change provides a mechanism for a CMS Participant to authorize DEGCL as its ‘‘CMS Representative’’ to receive the necessary information from DTC, and to direct DTC to provide DEGCL with that information, as described in detail below. (ii) Proposed Rule Change (a) The Proposed Rule Change Would Establish Dedicated CMS Sub-Accounts at DTC for CMS Participants and Provide That a CMS Participant Authorizes DEGCL, as its CMS Representative, To Receive Certain Information About its CMS SubAccounts and Directs DTC To Provide the Information to DEGCL, as its CMS Representative The proposed rule change would allow a CMS Participant to establish one or more CMS Sub-Accounts. A CMS Participant would, from time to time, instruct DTC to transfer Securities from its Account to its CMS Sub-Account, to be available for allocation by DEGCL to delivery or pledge by book-entry at DTC in accordance with DTC Rules and Procedures (including risk management controls),14 in satisfaction of the various Participant is not a CMS Participant for purposes of the proposed rule change. 13 DTC understands that, for purposes of the Allocation Option, DEGCL would consider the CMS Participant to be the DSSP. 14 DTC risk management controls, including Collateral Monitor and Net Debit Cap (as defined in Rule 1, Section 1 of the DTC Rules), are designed so that DTC may complete system-wide settlement notwithstanding the failure to settle of its largest Participant or Affiliated Family of Participants. The E:\FR\FM\24MRN1.SGM 24MRN1 Federal Register / Vol. 82, No. 56 / Friday, March 24, 2017 / Notices jstallworth on DSK7TPTVN1PROD with NOTICES collateral obligations of the CMS Participant or the CMS User on behalf of which the CMS Participant is acting. By establishing a CMS Sub-Account, a CMS Participant would be: (a) Authorizing DEGCL, as its CMS Representative, to receive the information defined below regarding CMS Securities credited to the CMS Sub-Account at the time of the report (‘‘CMS Report’’), and regarding any Delivery or Pledge from, or Delivery or Release to, the CMS Sub-Account (‘‘CMS Delivery Information’’); 15 (b) representing and warranting that it is duly authorized to instruct DTC to provide the CMS Reports and CMS Delivery Information about such CMS Sub-Account to the CMS Representative; (c) directing DTC to provide the CMS Reports and CMS Delivery Information to DEGCL; 16 and (d) representing and warranting that it would conduct business in such CMS Sub-Account as provided in proposed Rule 35, and otherwise pursuant to the DTC Rules and Procedures, and in compliance with applicable law. The CMS Report would include, with respect to the CMS Securities credited to a CMS Sub-Account of such CMS Participant at the time of such report, the following information: (a) The CUSIP, ISIN, or other identification number of the CMS Securities and (b) the number of shares or other units or principal amount of the CMS Securities. CMS Delivery Information would be provided in real time, and would Collateral Monitor tests whether a Participant has sufficient collateral for DTC to pledge or liquidate if that Participant were to fail to meet its settlement obligation. Pursuant to these controls under applicable DTC Rules and Procedures, any Delivery instruction order to a CMS Sub-Account that would cause the CMS Participant to exceed its Net Debit Cap or to have insufficient DTC Collateral to secure its obligations to DTC, would not be processed by DTC. Deliveries would be processed in the same order and with the same priority as otherwise provided in the DTC Rules and Procedures, i.e., such Deliveries would not take precedence over any other type of Delivery in the DTC system. 15 Each CMS Participant would continue to be liable as principal for the actions of its CMS Representative and would indemnify DTC against any claim or loss arising from any act or omission of its CMS Representative, or arising from DTC’s provision of the CMS Report and CMS Delivery Information to DEGCL or the receipt and use thereof by DEGCL, except to the extent caused directly by DTC’s gross negligence or willful misconduct. 16 The CMS Report and CMS Delivery Information would be transmitted to DEGCL using DTCC’s existing Common Data Transfer Service (‘‘CDTS’’) over a dedicated BT Radianz link. CDTS is DTCC’s proprietary file input and output management system. It enables DTCC to securely and reliably automate the exchange of files over a network link with its Participants, Members, and third-parties. See CDTS User Guide and Schemas, available at https://www.dtcc.com/∼/media/Files/Downloads/ Settlement-Asset-Services/Underwriting/CDTS.zip. BT Radianz is an existing DTCC network service provider. VerDate Sep<11>2014 13:56 Mar 23, 2017 Jkt 241001 include, with respect to (i) each Delivery or Pledge of CMS Securities from, or (ii) Delivery or Release of CMS Securities to a CMS Sub-Account, a copy of any Delivery, Pledge, or Release message with respect to the CMS SubAccount, including the following information: (x) The CUSIP, ISIN, or other identification number of such CMS Securities and (y) the number of shares or other units or principal amount of such CMS Securities. (b) The Proposed Rule Change Supports a CMS Participant’s Use of the DEGCL CMS Allocation Option As explained above, once the CMS Participant establishes a CMS SubAccount, DTC would send CMS Reports and CMS Delivery Information for that CMS Sub-Account to DEGCL. The CMS Reports and CMS Delivery Information would provide DEGCL with up-to-date snapshots of the Securities credited to the CMS Sub-Account to identify to DEGCL the available CMS Securities from which it could propose allocations for Delivery or Pledge by book-entry at DTC in accordance with DTC Rules and Procedures (including risk management controls) and for DEGCL to maintain such information and records as it has agreed with CMS Users that it will maintain. DEGCL would review the Securities credited to a CMS Sub-Account and verify, through a series of algorithms, which CMS Securities in the CMS SubAccount meet the collateral obligations of the applicable CMS User to its several counterparties that are CMS Users that have agreed to the Allocation Option. Based on the results, DEGCL would formulate a set of proposed settlement instructions for the Deliveries and/or Pledges of the CMS Securities in accordance with the DTC Rules and Procedures, including risk management controls.17 DEGCL would then transmit the proposed settlement instructions to the CMS Participant, acting on its own behalf or on behalf of a CMS User; the CMS Participant would determine whether to submit the proposed settlement instruction(s) to DTC. That is, the CMS Participant remains responsible for deciding whether to submit the proposed settlement instructions. Once the CMS Participant submits the settlement instruction to DTC, DEGCL would receive the corresponding Delivery Information and update its records accordingly. (c) Proposed Rule The proposed rule change would add Rule 35 to the DTC Rules, to provide for: 17 See PO 00000 supra note 12. Frm 00064 Fmt 4703 Sfmt 4703 15083 i. The defined terms applicable to the proposed Rule 35,18 ii. the establishment and maintenance of one or more CMS Sub-Accounts for each CMS Participant; iii. each CMS Participant’s authorization of DEGCL as its CMS Representative; iv. each CMS Participant’s representation and warranty that it is duly authorized to instruct DTC to provide the CMS Reports and CMS Delivery Information about such CMS Sub-Account to the CMS Representative, and that it would conduct business in such CMS SubAccount as provided in proposed Rule 35 and otherwise pursuant to the DTC Rules and Procedures, and in compliance with applicable law; v. information to be provided by DTC to the CMS Representative of the CMS Participant, specifically, the CMS Report and CMS Delivery Information; vi. Deliveries of Securities by a CMS Participant from an Account of the CMS Participant to its CMS Sub-Account, and Deliveries and Pledges from its CMS Sub-Account; vii. each CMS Participant’s liability as principal for the actions of its CMS Representative with respect to all matters provided under proposed Rule 35 or otherwise; viii. DTC’s disclaimer of liability to: (x) Any CMS Participant as a result of providing the CMS Report and CMS Delivery Information to its CMS Representative pursuant to proposed Rule 35; (y) the CMS Representative or any CMS Participant as a result of (i) any loss relating to proposed Rule 35, unless caused directly by DTC’s gross negligence, willful misconduct, or violation of federal securities laws for which there is a private right of action or (ii) any force majeure, market disruption, or technical malfunction, or (z) any third party for any reason; and ix. indemnification of DTC by the CMS Participant for any loss arising from any act or omission of its CMS Representative, or arising from the provision of the CMS Report and CMS Delivery Information to its CMS Representative or the receipt and use thereof by the CMS Representative, except to the extent caused directly by DTC’s gross negligence or willful misconduct. 18 The defined terms would be CMS, CMS Delivery Information, CMS Participant, CMS Report, CMS Representative, CMS Securities, CMS Sub-Account, DEGCL, and DTCC, as discussed above. E:\FR\FM\24MRN1.SGM 24MRN1 15084 Federal Register / Vol. 82, No. 56 / Friday, March 24, 2017 / Notices jstallworth on DSK7TPTVN1PROD with NOTICES Implementation Timeframe DTC will implement the proposed rule change upon approval of this filing by the Commission. 2. Statutory Basis DTC believes that the proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder applicable to DTC, in particular Section 17A(b)(3)(F) of the Act,19 and Rule 17Ad–22(d)(7) promulgated thereunder.20 Section 17A(b)(3)(F) of the Act 21 requires, inter alia, that the DTC Rules be designed to promote the prompt and accurate clearance and settlement of securities transactions. By looking across transactions of a CMS User with multiple counterparties, the Allocation Option would offer efficiency by automating the selection of appropriate securities collateral to satisfy applicable collateral obligations. Proposed Rule 35 would provide a mechanism for DTC to provide information on behalf of CMS Participants to DEGCL, so that they may avail themselves of the efficiency of the Allocation Option and would not need to transmit delivery and position information to DEGCL. By supporting this efficiency in the collateral sector, DTC is helping to streamline the settlement of the increasing volume of collateral transactions, thereby promoting the prompt and accurate clearance and settlement, consistent with the requirements of the Act, in particular Section 17A(b)(3)(F), cited above. Rule 17Ad–22(d)(7) promulgated under the Act 22 requires that a registered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to evaluate the potential sources of risks that can arise when the clearing agency establishes links either cross-border or domestically to clear or settle trades, and ensure that the risks are managed prudently on an ongoing basis. In developing this proposal, DTC evaluated the market, liquidity, operational, and information security, technology, and privacy risks that could arise in allowing CMS Participants to establish a CMS SubAccount and allow DTC to provide information to DEGCL in support of the Allocation Option. Such risks include data error from the communication link or the external communication of a CMS Participant’s proprietary information. DTC determined that the identified risks 19 15 U.S.C. 78q–1(b)(3)(F). 20 17 CFR 240.17Ad–22(d)(7). 21 15 U.S.C. 78q–1(b)(3)(F). 22 17 CFR 240.17Ad–22(d)(7). VerDate Sep<11>2014 13:56 Mar 23, 2017 Jkt 241001 are mitigated because (i) the Allocation Option would not require any material change to DTC’s settlement framework, technology or operating procedures including existing settlement cycles and risk management controls; (ii) DTCC’s Technology Risk Management existing control procedures will manage data integrity and authorization provisioning to mitigate information and technology risk; and (iii) DEGCL is only receiving CMS Reports and CMS Delivery Information from a CMS Sub-Account specifically designated for this purpose by a CMS Participant. As a result, the CMS Sub-Account activity and reporting should be well monitored. Accordingly, DTC believes the proposed Rule 35 is consistent with DTC’s obligations under Rule 17Ad–22(d)(7), cited above. (B) Clearing Agency’s Statement on Burden on Competition DTC believes that the proposed rule change would not impose any burden on competition with respect to fees charged by DTC for the CMS SubAccount and associated reporting because there would be no new or increased fees imposed. For transactions into and out of the CMS Sub-Account, standard, existing transaction fees would apply. In addition, DTC believes that the proposed rule change would not impose any burden on competition with respect to access to the proposed service. The proposed service is optional and would be available to all DTC Participants that choose to be CMS Users of the Allocation Option (or DTC Participants’ customers that choose to be CMS Users of the Allocation Option and agree that such DTC Participants will act on their behalf in respect of this activity). However, DTC recognizes that the proposed rule is tailored to support a specialized service available only to such CMS Users. DTC relies on the representations of DEGCL that it provides open access to diverse CMS Users and thus, indirectly, the benefits of the proposed rule change should be available on a broad basis to industry members requiring such services, not imposing a burden on competition in this respect. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not been solicited or received. DTC will notify the Commission of any written comments received by DTC. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 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–2017–001 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–2017–001. 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 E:\FR\FM\24MRN1.SGM 24MRN1 Federal Register / Vol. 82, No. 56 / Friday, March 24, 2017 / Notices 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– 2017–001 and should be submitted on or before April 14, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–05853 Filed 3–23–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736 jstallworth on DSK7TPTVN1PROD with NOTICES Extension: Regulation 14N and Schedule 14N, SEC File No. 270–598, OMB Control No. 3235–0655 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Schedule 14N (17 CFR 240.14n–101) requires the filing of certain information with the Commission by shareholders who submit a nominee or nominees for director pursuant to applicable state law, or a company’s governing documents. Schedule 14N provides notice to the company of the shareholder’s or shareholder group’s intent to have the company include the shareholder’s or shareholder group’s nominee or nominees for director in the company’s proxy materials. This information is intended to assist shareholders in making an informed voting decision with regards to any nominee or nominees put forth by a nominating shareholder or group, by allowing shareholders to gauge the nominating shareholder’s interest in the company, longevity of ownership, and intent with regard to continued ownership in the company. We estimate that Schedule 14N takes approximately 40 hours per response and will be filed by approximately 10 issuers annually. In addition, we estimate that 75% of the 40 hours per response (30 hours per response) is prepared by the issuer for an annual reporting burden of 300 hours (30 hours per response × 10 responses). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following Web site, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or send an email to: PRA_Mailbox@ sec.gov. Comments must be submitted to OMB within 30 days of this notice. CFR 200.30–3(a)(12). VerDate Sep<11>2014 13:56 Mar 23, 2017 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules related to complex orders. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.cboe.com/AboutCBOE/CBOELegal RegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 Exchange 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 [FR Doc. 2017–05880 Filed 3–23–17; 8:45 am] 1. Purpose BILLING CODE 8011–01–P The Exchange proposes to amend its rules related to complex orders to: (i) Simplify the definitions of the complex order types that may be made available on a class-by-class basis and remove references to certain specific complex order types that will no longer be defined; (ii) with respect to complex orders in open outcry, set forth applicable ratios for an order to be eligible for complex order priority within applicable priority rules; (iii) with respect to complex orders in open outcry, make explicit the priority applicable when there are other complex orders or quotes represented at the same net price, whether such other orders or quotes are in the complex order book (‘‘COB’’) or being represented in open outcry; and (iv) with respect to complex orders in open outcry, clarify the applicable minimum increment. First, with respect to definitions, the Exchange proposes to amend Rule 6.53 to remove the definitions of spread order, combination order, straddle order and ratio order and replace them with a more general definition of a complex SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80279; File No. SR–CBOE– 2017–019] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to Complex Orders March 20, 2017. 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 March 7, 2017, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The 2 17 Jkt 241001 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Dated: March 21, 2017. Eduardo A. Aleman, Assistant Secretary. 1 15 23 17 15085 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00066 Fmt 4703 Sfmt 4703 E:\FR\FM\24MRN1.SGM 24MRN1

Agencies

[Federal Register Volume 82, Number 56 (Friday, March 24, 2017)]
[Notices]
[Pages 15081-15085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05853]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80280; File No. SR-DTC-2017-001]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Establish a Sub-Account for 
Use With the DTCC Euroclear Global Collateral Ltd Collateral Management 
Service and Provide for the Authorization of a Representative To 
Receive Information About the Sub-Account

March 20, 2017.
    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 March 9, 2017, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to Rules, By-Laws 
and Organization Certificate of The Depository Trust Company (the ``DTC 
Rules'') \3\ in order to add new Rule 35 (CMS Reporting) which would 
provide that any DTC Participant that is, or is acting on behalf of, a 
user of certain collateral management services (``CMS'') \4\ of DTCC 
Euroclear Global Collateral Ltd. (``DEGCL'') \5\ may establish one or 
more sub-Accounts for use in connection with CMS (each, a ``CMS Sub-
Account''). A DTC Participant that establishes a CMS Sub-Account 
pursuant to the proposed rule (a ``CMS Participant'') would thereby: 
(i) Authorize DEGCL to receive account and transactional information 
and reports with respect to the CMS Sub-Account, and (ii) direct DTC to 
provide such information and reports to DEGCL, as described in detail 
below.
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    \3\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company (the ``DTC 
Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ In particular, there will be a CMS option authorizing DEGCL, 
on behalf of the CMS User, to propose collateral allocations to 
satisfy counterparty obligations of the CMS User, referred to by 
DEGCL as the ``Allocation Option'' and further explained below.
    \5\ DEGCL is a joint venture of The Depository Trust & Clearing 
Corporation (``DTCC''), the corporate parent of DTC, and Euroclear 
S.A./N.V. (``Euroclear''), the corporate parent of Euroclear Bank, 
described further below. DTC understands that CMS will be operated 
by Euroclear Bank and other entities in the Euroclear group, as 
service providers to DEGCL, in accordance with appropriate 
agreements between them.
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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
    The proposal would add new Rule 35 (CMS Reporting), which would 
provide that any DTC Participant that is, or is acting on behalf of, a 
user of DEGCL CMS may establish one or more CMS Sub-Accounts. A CMS 
Participant would thereby: (i) Authorize DEGCL to receive account and 
transactional information and reports with respect to the CMS Sub-
Account, and (ii) direct DTC to provide such information and reports to 
DEGCL, as described below.
(i) Background
(a) DEGCL
    DEGCL was formed in the United Kingdom (``UK''), and is authorized 
by the Financial Conduct Authority (``FCA'') \6\ in the UK as a 
``service company'' in accordance with applicable law of the UK.\7\ 
DEGCL was formed for the purpose of offering global information, record 
keeping, and processing services for derivatives collateral 
transactions and other types of financing transactions. DEGCL seeks to 
provide services to buy-side and sell-side financial institutions that 
seek increased efficiency in the availability and deployment of 
collateral and streamlined margin processing, in light

[[Page 15082]]

of new and enhanced regulatory requirements.\8\ These requirements have 
resulted in increased capital requirements, mandatory central clearing 
of more derivative transactions, and new margining rules for bilateral 
trades, driving a significant increased demand for high quality 
collateral, and for efficient and effective deployment of collateral.
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    \6\ The FCA is an independent public body that regulates 56,000 
financial services firms and financial markets in the UK financial 
services firms in the UK. It is accountable to the UK Treasury, 
which is responsible for the UK's financial system, and to 
Parliament.
    \7\ DEGCL was authorized as a ``service company'' by the FCA on 
March 29, 2016. A ``service company,'' as defined in the FCA 
Handbook, Glossary, is: ``[A] firm whose only permitted activities 
are making arrangements with a view to transactions in investments, 
and agreeing to carry on that regulated activity, and whose Part 4A 
permission: (a) Incorporates a limitation substantially to the 
effect that the firm carry on regulated activities only with market 
counterparties or intermediate customers; and (b) includes 
requirements substantially to the effect that the firm must not: (i) 
Guarantee, or otherwise accept responsibility for, the performance, 
by a participant in arrangements made by the firm in carrying on 
regulated activities, of obligations undertaken by that participant 
in connection with those arrangements; or (ii) approve any financial 
promotion on behalf of any other person or any specified class of 
persons; or (iii) in carrying on its regulated activities, provide 
services otherwise than in accordance with documents (of a kind 
specified in the requirement) provided by the firm to the FCA.'' FCA 
Handbook, Glossary, available at https://www.handbook.fca.org.uk/handbook/glossary.
    \8\ See Basel III liquidity rules (Basel Committee on Banking 
Supervision, Basel III: A global framework for more resilient banks 
and the banking system, December 2010 and revised June 2011; Basel 
Committee on Banking Supervision, Basel III: The Liquidity Coverage 
Ratio and liquidity risk monitoring tools, January 2013; Basel 
Committee on Banking Supervision, Basel III: The net stable funding 
ratio, October 2014, available at www.bis.org/bcbs/basel3.htm), as 
well as recent regulatory changes by the Commodity Futures Trading 
Commission (Margin Requirements for Uncleared Swaps for Swap Dealers 
and Major Swap Participants, 81 FR 635 (January 6, 2016); 17 CFR 23 
and 140), the U.S. prudential regulators (Margin and Capital 
Requirements for Covered Swap Entities, 80 FR 74840 (November 30, 
2015); 12 CFR parts 45, 237, 349, 624 and 1221. The U.S. prudential 
regulators include: Office of the Comptroller of the Currency--
Treasury, Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, Farm Credit Administration, and the 
Federal Housing Finance Agency), European Market Infrastructure 
Regulation (European Supervisory Authorities' (ESAs) Final Draft 
Regulatory Technical Standards on risk-mitigation techniques for 
OTC-derivative contracts not cleared by a CCP under Article 11(15) 
of Regulation (EU) No 648/2012 (EMIR), available at https://www.eba.europa.eu/documents/10180/1398349/RTS+on+Risk+Mitigation+Techniques+for+OTC+contracts+%28JC-2016-+18%29.pdf/fb0b3387-3366-4c56-9e25-74b2a4997e1d), and the Basel 
Committee on Banking Supervision (``BCBS'') and the International 
Organization of Securities Commissions (``IOSCO'') (BCBS-IOSCO, 
Margin requirements for non-centrally cleared derivatives (March 
2015), available at https://www.bis.org/bcbs/publ/d317.htm).
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(b) DEGCL CMS Options
    DEGCL performs information and record-keeping services for CMS 
users who have entered into user agreements with DEGCL for this purpose 
(``CMS Users''). CMS Users are financial institutions that are 
counterparties to agreements establishing obligations between them to 
provide securities collateral with respect to swaps or other types of 
financing transactions. These bilateral swap or other financing 
agreements are entered into by such counterparties outside, and 
independently, of DEGCL or DTC.\9\
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    \9\ A CMS User will typically be a major financial institution 
or buy-side investor that is a bank, broker dealer, or investment 
company. CMS Users will enter into a Collateral Management Service 
Agreement with DEGCL, which includes general terms of conditions and 
operating procedures (``CMS Agreement'').
---------------------------------------------------------------------------

    DEGCL will provide two CMS service options for the selection of 
collateral to satisfy these external collateral obligations. For use of 
these options at DEGCL, both counterparties must agree with DEGCL to 
apply the same collateral selection option to a transaction between 
them.
    The first option is referred to by DEGCL as the ``Standard Option'' 
(also referred to as ``self-select''). The Standard Option relates to 
securities collateral at any U.S. settlement location and does not 
depend on the proposed rule change. It is described in this rule filing 
for informational purposes only.
    The second collateral selection option is referred to by DEGCL as 
the ``Allocation Option'' (also referred to as ``auto-select''). This 
option relates to securities collateral held at DTC; the offering of 
this option by DEGCL depends on, and is subject to, approval of the 
proposed rule change. The CMS User with the obligation to deliver 
collateral must be a CMS Participant under the proposed rule change, or 
the customer of a CMS Participant acting on its behalf.\10\ The CMS 
User that is the counterparty receiving collateral must also be either 
a DTC Participant or the customer of a DTC Participant acting on its 
behalf.\11\
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    \10\ As further described below, a CMS Sub-Account is an account 
from which securities collateral may be delivered by a CMS 
Participant pursuant to the Allocation Option.
    \11\ The receiving DTC Participant is not a ``CMS Participant'' 
as defined in proposed Rule 35.
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(c) Standard Option, for Securities Collateral Held at Various 
Settlement Locations
    CMS Users may elect the Standard Option for securities held at any 
applicable settlement location, including custodial banks and DTC. 
Under the Standard Option, a CMS User will have the option to specify 
to DEGCL, obligation by obligation, what collateral to transfer with 
respect to each counterparty collateral obligation and at what 
settlement location, hence ``self-select.'' DEGCL will process the 
information it receives from the CMS User and generate proposed 
settlement instructions for the transfer of such collateral at the 
applicable settlement location. DEGCL will send its proposed settlement 
instructions to the CMS User and/or its agent, referred to by DEGCL as 
a designated settlement service provider (``DSSP'').\12\ The DSSP will 
determine whether to issue the proposed settlement instructions to the 
applicable settlement location.
---------------------------------------------------------------------------

    \12\ DSSP is a DEGCL concept, not a DTC defined term. DTC 
understands that, pursuant to the CMS Agreement, a CMS User must 
either appoint a DSSP or act as its own DSSP, and the DSSP, as agent 
of the CMS User, is responsible for receiving the proposed 
settlement instructions (and other information) from DEGCL, and 
acting on such information in the manner agreed by the CMS User and 
its DSSP. If the applicable settlement location is DTC, the DSSP 
must be a DTC Participant that may instruct DTC in accordance with 
DTC Rules and Procedures. Because the Standard Option does not 
depend on a CMS Sub-Account, such DTC Participant is not a CMS 
Participant for purposes of the proposed rule change.
---------------------------------------------------------------------------

    For the Standard Option applied to securities collateral for which 
DTC is the applicable settlement location, DEGCL will not receive any 
information from DTC and, therefore, this option is not subject to the 
proposed rule change. The CMS User will self-report information to 
DEGCL.
(c) Allocation Option for Securities Collateral Held at DTC
    The Allocation Option would only be used in connection with 
Eligible Securities held at DTC in a CMS Sub-Account by a CMS 
Participant (``CMS Securities''). The CMS Participant may be a CMS User 
acting for itself or a DTC Participant acting on behalf of a CMS User 
as the CMS Participant.\13\ As described below, the Allocation Option 
is dependent on DEGCL receiving certain information from DTC for the 
applicable CMS Sub-Account of the applicable CMS Participant. The 
proposed rule change provides a mechanism for a CMS Participant to 
authorize DEGCL as its ``CMS Representative'' to receive the necessary 
information from DTC, and to direct DTC to provide DEGCL with that 
information, as described in detail below.
---------------------------------------------------------------------------

    \13\ DTC understands that, for purposes of the Allocation 
Option, DEGCL would consider the CMS Participant to be the DSSP.
---------------------------------------------------------------------------

(ii) Proposed Rule Change
(a) The Proposed Rule Change Would Establish Dedicated CMS Sub-Accounts 
at DTC for CMS Participants and Provide That a CMS Participant 
Authorizes DEGCL, as its CMS Representative, To Receive Certain 
Information About its CMS Sub-Accounts and Directs DTC To Provide the 
Information to DEGCL, as its CMS Representative
    The proposed rule change would allow a CMS Participant to establish 
one or more CMS Sub-Accounts. A CMS Participant would, from time to 
time, instruct DTC to transfer Securities from its Account to its CMS 
Sub-Account, to be available for allocation by DEGCL to delivery or 
pledge by book-entry at DTC in accordance with DTC Rules and Procedures 
(including risk management controls),\14\ in satisfaction of the 
various

[[Page 15083]]

collateral obligations of the CMS Participant or the CMS User on behalf 
of which the CMS Participant is acting.
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    \14\ DTC risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in Rule 1, Section 1 of the DTC 
Rules), are designed so that DTC may complete system-wide settlement 
notwithstanding the failure to settle of its largest Participant or 
Affiliated Family of Participants. The Collateral Monitor tests 
whether a Participant has sufficient collateral for DTC to pledge or 
liquidate if that Participant were to fail to meet its settlement 
obligation. Pursuant to these controls under applicable DTC Rules 
and Procedures, any Delivery instruction order to a CMS Sub-Account 
that would cause the CMS Participant to exceed its Net Debit Cap or 
to have insufficient DTC Collateral to secure its obligations to 
DTC, would not be processed by DTC. Deliveries would be processed in 
the same order and with the same priority as otherwise provided in 
the DTC Rules and Procedures, i.e., such Deliveries would not take 
precedence over any other type of Delivery in the DTC system.
---------------------------------------------------------------------------

    By establishing a CMS Sub-Account, a CMS Participant would be: (a) 
Authorizing DEGCL, as its CMS Representative, to receive the 
information defined below regarding CMS Securities credited to the CMS 
Sub-Account at the time of the report (``CMS Report''), and regarding 
any Delivery or Pledge from, or Delivery or Release to, the CMS Sub-
Account (``CMS Delivery Information''); \15\ (b) representing and 
warranting that it is duly authorized to instruct DTC to provide the 
CMS Reports and CMS Delivery Information about such CMS Sub-Account to 
the CMS Representative; (c) directing DTC to provide the CMS Reports 
and CMS Delivery Information to DEGCL; \16\ and (d) representing and 
warranting that it would conduct business in such CMS Sub-Account as 
provided in proposed Rule 35, and otherwise pursuant to the DTC Rules 
and Procedures, and in compliance with applicable law.
---------------------------------------------------------------------------

    \15\ Each CMS Participant would continue to be liable as 
principal for the actions of its CMS Representative and would 
indemnify DTC against any claim or loss arising from any act or 
omission of its CMS Representative, or arising from DTC's provision 
of the CMS Report and CMS Delivery Information to DEGCL or the 
receipt and use thereof by DEGCL, except to the extent caused 
directly by DTC's gross negligence or willful misconduct.
    \16\ The CMS Report and CMS Delivery Information would be 
transmitted to DEGCL using DTCC's existing Common Data Transfer 
Service (``CDTS'') over a dedicated BT Radianz link. CDTS is DTCC's 
proprietary file input and output management system. It enables DTCC 
to securely and reliably automate the exchange of files over a 
network link with its Participants, Members, and third-parties. See 
CDTS User Guide and Schemas, available at https://www.dtcc.com/~/
media/Files/Downloads/Settlement-Asset-Services/Underwriting/
CDTS.zip. BT Radianz is an existing DTCC network service provider.
---------------------------------------------------------------------------

    The CMS Report would include, with respect to the CMS Securities 
credited to a CMS Sub-Account of such CMS Participant at the time of 
such report, the following information: (a) The CUSIP, ISIN, or other 
identification number of the CMS Securities and (b) the number of 
shares or other units or principal amount of the CMS Securities. CMS 
Delivery Information would be provided in real time, and would include, 
with respect to (i) each Delivery or Pledge of CMS Securities from, or 
(ii) Delivery or Release of CMS Securities to a CMS Sub-Account, a copy 
of any Delivery, Pledge, or Release message with respect to the CMS 
Sub-Account, including the following information: (x) The CUSIP, ISIN, 
or other identification number of such CMS Securities and (y) the 
number of shares or other units or principal amount of such CMS 
Securities.
(b) The Proposed Rule Change Supports a CMS Participant's Use of the 
DEGCL CMS Allocation Option
    As explained above, once the CMS Participant establishes a CMS Sub-
Account, DTC would send CMS Reports and CMS Delivery Information for 
that CMS Sub-Account to DEGCL. The CMS Reports and CMS Delivery 
Information would provide DEGCL with up-to-date snapshots of the 
Securities credited to the CMS Sub-Account to identify to DEGCL the 
available CMS Securities from which it could propose allocations for 
Delivery or Pledge by book-entry at DTC in accordance with DTC Rules 
and Procedures (including risk management controls) and for DEGCL to 
maintain such information and records as it has agreed with CMS Users 
that it will maintain.
    DEGCL would review the Securities credited to a CMS Sub-Account and 
verify, through a series of algorithms, which CMS Securities in the CMS 
Sub-Account meet the collateral obligations of the applicable CMS User 
to its several counterparties that are CMS Users that have agreed to 
the Allocation Option. Based on the results, DEGCL would formulate a 
set of proposed settlement instructions for the Deliveries and/or 
Pledges of the CMS Securities in accordance with the DTC Rules and 
Procedures, including risk management controls.\17\ DEGCL would then 
transmit the proposed settlement instructions to the CMS Participant, 
acting on its own behalf or on behalf of a CMS User; the CMS 
Participant would determine whether to submit the proposed settlement 
instruction(s) to DTC. That is, the CMS Participant remains responsible 
for deciding whether to submit the proposed settlement instructions. 
Once the CMS Participant submits the settlement instruction to DTC, 
DEGCL would receive the corresponding Delivery Information and update 
its records accordingly.
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    \17\ See supra note 12.
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(c) Proposed Rule
    The proposed rule change would add Rule 35 to the DTC Rules, to 
provide for:
    i. The defined terms applicable to the proposed Rule 35,\18\
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    \18\ The defined terms would be CMS, CMS Delivery Information, 
CMS Participant, CMS Report, CMS Representative, CMS Securities, CMS 
Sub-Account, DEGCL, and DTCC, as discussed above.
---------------------------------------------------------------------------

    ii. the establishment and maintenance of one or more CMS Sub-
Accounts for each CMS Participant;
    iii. each CMS Participant's authorization of DEGCL as its CMS 
Representative;
    iv. each CMS Participant's representation and warranty that it is 
duly authorized to instruct DTC to provide the CMS Reports and CMS 
Delivery Information about such CMS Sub-Account to the CMS 
Representative, and that it would conduct business in such CMS Sub-
Account as provided in proposed Rule 35 and otherwise pursuant to the 
DTC Rules and Procedures, and in compliance with applicable law;
    v. information to be provided by DTC to the CMS Representative of 
the CMS Participant, specifically, the CMS Report and CMS Delivery 
Information;
    vi. Deliveries of Securities by a CMS Participant from an Account 
of the CMS Participant to its CMS Sub-Account, and Deliveries and 
Pledges from its CMS Sub-Account;
    vii. each CMS Participant's liability as principal for the actions 
of its CMS Representative with respect to all matters provided under 
proposed Rule 35 or otherwise;
    viii. DTC's disclaimer of liability to: (x) Any CMS Participant as 
a result of providing the CMS Report and CMS Delivery Information to 
its CMS Representative pursuant to proposed Rule 35; (y) the CMS 
Representative or any CMS Participant as a result of (i) any loss 
relating to proposed Rule 35, unless caused directly by DTC's gross 
negligence, willful misconduct, or violation of federal securities laws 
for which there is a private right of action or (ii) any force majeure, 
market disruption, or technical malfunction, or (z) any third party for 
any reason; and
    ix. indemnification of DTC by the CMS Participant for any loss 
arising from any act or omission of its CMS Representative, or arising 
from the provision of the CMS Report and CMS Delivery Information to 
its CMS Representative or the receipt and use thereof by the CMS 
Representative, except to the extent caused directly by DTC's gross 
negligence or willful misconduct.

[[Page 15084]]

Implementation Timeframe
    DTC will implement the proposed rule change upon approval of this 
filing by the Commission.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder 
applicable to DTC, in particular Section 17A(b)(3)(F) of the Act,\19\ 
and Rule 17Ad-22(d)(7) promulgated thereunder.\20\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
    \20\ 17 CFR 240.17Ad-22(d)(7).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act \21\ requires, inter alia, that the 
DTC Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions. By looking across transactions 
of a CMS User with multiple counterparties, the Allocation Option would 
offer efficiency by automating the selection of appropriate securities 
collateral to satisfy applicable collateral obligations. Proposed Rule 
35 would provide a mechanism for DTC to provide information on behalf 
of CMS Participants to DEGCL, so that they may avail themselves of the 
efficiency of the Allocation Option and would not need to transmit 
delivery and position information to DEGCL. By supporting this 
efficiency in the collateral sector, DTC is helping to streamline the 
settlement of the increasing volume of collateral transactions, thereby 
promoting the prompt and accurate clearance and settlement, consistent 
with the requirements of the Act, in particular Section 17A(b)(3)(F), 
cited above.
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(d)(7) promulgated under the Act \22\ requires that a 
registered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to evaluate the 
potential sources of risks that can arise when the clearing agency 
establishes links either cross-border or domestically to clear or 
settle trades, and ensure that the risks are managed prudently on an 
ongoing basis. In developing this proposal, DTC evaluated the market, 
liquidity, operational, and information security, technology, and 
privacy risks that could arise in allowing CMS Participants to 
establish a CMS Sub-Account and allow DTC to provide information to 
DEGCL in support of the Allocation Option. Such risks include data 
error from the communication link or the external communication of a 
CMS Participant's proprietary information. DTC determined that the 
identified risks are mitigated because (i) the Allocation Option would 
not require any material change to DTC's settlement framework, 
technology or operating procedures including existing settlement cycles 
and risk management controls; (ii) DTCC's Technology Risk Management 
existing control procedures will manage data integrity and 
authorization provisioning to mitigate information and technology risk; 
and (iii) DEGCL is only receiving CMS Reports and CMS Delivery 
Information from a CMS Sub-Account specifically designated for this 
purpose by a CMS Participant. As a result, the CMS Sub-Account activity 
and reporting should be well monitored. Accordingly, DTC believes the 
proposed Rule 35 is consistent with DTC's obligations under Rule 17Ad-
22(d)(7), cited above.
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    \22\ 17 CFR 240.17Ad-22(d)(7).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change would not impose any 
burden on competition with respect to fees charged by DTC for the CMS 
Sub-Account and associated reporting because there would be no new or 
increased fees imposed. For transactions into and out of the CMS Sub-
Account, standard, existing transaction fees would apply. In addition, 
DTC believes that the proposed rule change would not impose any burden 
on competition with respect to access to the proposed service. The 
proposed service is optional and would be available to all DTC 
Participants that choose to be CMS Users of the Allocation Option (or 
DTC Participants' customers that choose to be CMS Users of the 
Allocation Option and agree that such DTC Participants will act on 
their behalf in respect of this activity). However, DTC recognizes that 
the proposed rule is tailored to support a specialized service 
available only to such CMS Users. DTC relies on the representations of 
DEGCL that it provides open access to diverse CMS Users and thus, 
indirectly, the benefits of the proposed rule change should be 
available on a broad basis to industry members requiring such services, 
not imposing a burden on competition in this respect.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission of any written 
comments received by DTC.

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-2017-001 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-2017-001. 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

[[Page 15085]]

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-2017-001 and should be 
submitted on or before April 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05853 Filed 3-23-17; 8:45 am]
 BILLING CODE 8011-01-P
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