Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Establish a Swap Margin Segregation Account for the Segregation of Swap Margin With Respect to Deposited Securities, 29350-29354 [2017-13489]

Download as PDF 29350 Federal Register / Vol. 82, No. 123 / Wednesday, June 28, 2017 / Notices order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In this instance, the Exchange is proposing to provide a new, higher, Program rebate, which will require a member to provide significant Consolidated Volume together with a significant increase to its Consolidated Volume over a baseline amount of Consolidated Volume it had in August 2016. This proposed rebate is designed to provide incentive to members to increase their participation on the Exchange. Participation in the Program is completely voluntary and the criteria will ensure that all members that qualify for the Program have both shown a significant increase in their participation on the Exchange and are providing significant overall participation on the Exchange. Ultimately, if members conclude that the qualification requirements are set too high, or the rebate too low, it is likely that the Exchange will realize very little benefit from the incentive. If the proposed rebate is successful in increasing participation on the Exchange, then other trading venues may also make a similar rebate available to their participants. Thus, the Exchange does not believe that the proposed rule change will impose any burden on competition whatsoever, but rather believes that the proposal is procompetitive. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. asabaliauskas on DSKBBXCHB2PROD with NOTICES 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)(ii) of the Act.14 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 14 15 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: 17:22 Jun 27, 2017 Jkt 241001 • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2017–060 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2017–060. 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 (http://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– NASDAQ–2017–060, and should be submitted on or before July 19, 2017. PO 00000 Frm 00077 Fmt 4703 [FR Doc. 2017–13473 Filed 6–27–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Eduardo A. Aleman, Assistant Secretary. Sfmt 4703 [Release No. 34–81001; File No. SR–DTC– 2017–009] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Establish a Swap Margin Segregation Account for the Segregation of Swap Margin With Respect to Deposited Securities June 22, 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 June 15, 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. DTC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) 4 thereunder. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change by DTC would add new Rule 36 (Segregated Accounts for Swap Margin) (‘‘Proposed Rule 36’’) to provide Accounts 5 for the segregation of Securities held at DTC that are intended to be Pledged as swap margin in conformity with certain regulations applicable to swap counterparties posting swap margin. The proposal would allow Participants to transfer Deposited Securities to an Account (‘‘Swap Margin Segregation Account’’) of a Pledgee designated for the purpose of segregating interests in Deposited Securities securing margin 15 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)(6). 5 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 http://www.dtcc.com/legal/rules-andprocedures.aspx. 1 15 E:\FR\FM\28JNN1.SGM 28JNN1 Federal Register / Vol. 82, No. 123 / Wednesday, June 28, 2017 / Notices obligations with respect to uncleared swaps 6 and security-based swaps 7 (‘‘Swap Margin’’) subject to applicable Swap Margin Segregation Rules (defined below). A Swap Margin Segregation Account would be maintained by DTC for, and at the instruction of, the Pledgee 8 (‘‘Swap Margin Pledgee’’). II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. DTC has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose asabaliauskas on DSKBBXCHB2PROD with NOTICES The proposal would add Proposed Rule 36 to provide Accounts for the segregation of Securities held at DTC that are intended to be Pledged as swap margin in conformity with certain regulations applicable to swap counterparties posting swap margin. The proposal would allow Participants to transfer Deposited Securities to a Swap Margin Segregation Account of a Pledgee designated for the purpose of segregating Swap Margin subject to applicable Swap Margin Segregation Rules (defined below). A Swap Margin Segregation Account would be maintained by DTC for, and at the instruction of, the Swap Margin Pledgee. 6 A Pledgee may be a bank, trust company, broker-dealer, or other Person approved by DTC that enters into an agreement with DTC that is satisfactory to DTC. A Pledgee may be a Participant, if it satisfies the further conditions of the DTC Rules. See Rule 1 and Rule 2, Section 3, supra note 1. A Pledgee that is not a Participant may not receive a Pledge Versus Payment. Rule 2, Section 3, supra note 1. 7 ‘‘Security-based swap’’ is defined to include a swap based on a single security or loan or on a narrow-based security index. See 15 U.S.C. 78c(a)(68). 8 ‘‘Swap’’ is defined to include interest rate swaps, commodity-based swaps, equity swaps and credit default swaps. See 7 U.S.C. 1a(47). ‘‘Uncleared swaps’’ and ‘‘non-cleared swaps’’ mean swaps that are not directly or indirectly, submitted to and cleared by a derivatives clearing organization (‘‘DCO’’) registered with the Commission. See 7 U.S.C. 1a(7) (‘‘The term ‘cleared swap’ means any swap that is, directly or indirectly, submitted to and cleared by a derivatives clearing organization registered with the Commission.’’). VerDate Sep<11>2014 17:22 Jun 27, 2017 Jkt 241001 A. Existing DTC Pledge Services Currently, a Participant (‘‘Pledgor’’) may instruct DTC to Pledge Securities from its Account to the Account of a Pledgee (‘‘Pledgee Account’’), in order to Pledge such Securities to such Pledgee.9 A Pledge may be (i) free of payment, where no funds are transferred through DTC, or (ii) versus payment through DTC net funds settlement in the ordinary course of business. The Pledgor continues to own the Securities, subject to the Pledge, and the Pledgee may Release the Pledged Securities to the Pledgor. The DTC Rules further provide that the Pledgee may exercise Control 10 of the Pledged Securities by instructing DTC to transfer the Pledged Securities to its Participant Account (if it is a Participant) or to the Account of another Participant, in either case, without the further consent of the Pledgor.11 Securities credited to a Pledgee Account are not subject to any lien or any claim of DTC and cannot be designated as or included in Collateral for any obligation of the Pledgor or the Pledgee to DTC.’’ 12 DTC also offers a shared-control Account for Pledges (‘‘Shared Control Account’’).13 A Shared Control Account differs from an ordinary Pledgee Account in that the Pledgor has the flexibility to transfer the Securities in a Shared Control Account without obtaining the Pledgee’s Release of the Securities. The proposed rule change would build on these existing Pledge services to expressly accommodate the requirements of the Swap Margin 9 A Pledge under DTC Rules effects the transfer to the Pledgee of a limited interest in the Pledged Securities, which may be a security interest if the Pledgor and Pledgee have an agreement outside of DTC that constitutes a security agreement under applicable law and as to which the other requirements for attachment and enforceability of a security interest have been satisfied. See, e.g., N.Y. U.C.C. Law § 9–203. The characterization of any Pledge depends on agreements between the Pledgor and the Pledgee made outside of DTC. DTC does not inquire into the terms and conditions of those agreements but affords its Participants the means to Pledge the Securities by book-entry and, thereby, to perfect any properly created security interest with Control. See, e.g., N.Y. U.C.C. Law § 8–106 and § 9– 106. 10 Under the DTC Rules, the term ‘‘Control’’ has the meaning given to the term ‘‘control’’ in N.Y. U.C.C. Law § 8–106. DTC Rule 1, Section 1, supra note 5. 11 By giving such an instruction to DTC, the Pledgee represents that it is acting in accordance with applicable law and agreements. Rule 9(B), Section 1, supra note 5. Typically, a Pledgee would take this step in the event of a default of the Pledgor under the outside agreements governing the Pledge. 12 See DTC Rule 4(A), supra note 5. 13 See DTC Settlement Service Guide, p.15, available at http://www.dtcc.com/∼/media/Files/ Downloads/legal/service-guides/Settlement.pdf. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 29351 Segregation Rules, as further described below. B. Swap Margin Segregation Rules The Prudential Regulators, as defined below, and the CFTC have adopted rules (the ‘‘Swap Margin Segregation Rules’’) 14 that require that registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants (‘‘Swap Entities’’) post Swap Margin with respect to swap agreements 15 for uncleared swaps and/or uncleared securities-based swaps that are subject to the Swap Margin Segregation Rules.16 Under the Swap Margin Segregation Rules, the Swap Margin must be segregated at a third-party custodian that is neither one of the swap counterparties nor an affiliate 17 of 14 In 2015, the Office of the Comptroller of the Currency (‘‘OCC’’), the Board of Governors of the Federal Reserve System (‘‘FRB’’), the Federal Deposit Insurance Corporation (‘‘FDIC’’), the Farm Credit Administration (‘‘FCA’’) and the Federal Housing Finance Agency (‘‘FHFA’’) (collectively, the ‘‘Prudential Regulators’’) adopted joint margin rules (the ‘‘Bank Margin Rules’’). See Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (November 30, 2015). Each Prudential Regulator has codified its rule within its respective title of the Code of Federal Regulations. Specifically, the Prudential Regulators codified the rules as follows: 12 CFR 45 (OCC); 12 CFR 237 (FRB); 12 CFR 349 (FDIC); 12 CFR 624 (FCA); and 12 CFR 1221 (FHFA). In addition, the Commodity Futures Trading Commission (‘‘CFTC’’) subsequently adopted its own version of margin rules substantially similar to the Bank Margin Rules (the ‘‘CFTC Margin Rules’’). See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (January 6, 2016) (codified at17 CFR 23, 140). The Bank Margin Rules apply to a Swap Entity that, pursuant to section 1a(39) of the Commodity Exchange Act, has a Prudential Regulator. The CFTC Margin Rules apply to a Swap Entity that does not have a Prudential Regulator. Under the Bank Margin Rules, a covered swap includes, subject to certain grandfathering and cross-border provisions, any (i) swap that is not cleared by a DCO that is registered or exempt from registration with the CFTC or (ii) security-based swap that is not cleared by a clearing agency that is registered or exempt from registration with the Commission. Under the CFTC Margin Rules, a covered swap includes, subject to certain grandfathering and cross-border provisions, any swap that is not cleared by a DCO that is registered or exempt from registration with the CFTC. Non-cleared securitybased swaps entered into by a registered securitybased swap dealer or major security-based swap participant that does not have a Prudential Regulator will be subject to margin rules to be adopted by the Commission. 15 A ‘‘swap agreement’’ is a customized, bilateral agreement that transfer risk from one party to the other and is negotiated privately between the two counterparties and then booked directly with each other. See ISDA Product Descriptions and Frequently Asked Questions, available at http:// www.isda.org/educat/faqs.html. 16 DTC is not subject to the Swap Margin Segregation Rules. 17 Under the Swap Margin Segregation Rules, a company is an affiliate of another company if (1) either company consolidates the other on financial E:\FR\FM\28JNN1.SGM Continued 28JNN1 29352 Federal Register / Vol. 82, No. 123 / Wednesday, June 28, 2017 / Notices either of the swap counterparties (‘‘Unaffiliated Swap Margin Custodian’’) 18 pursuant to a custody agreement with such Swap Margin Custodian (‘‘Swap Margin Custody Agreement’’) that meets prescribed standards.19 In particular, the Swap Margin Segregation Rules require, among other things, that the Swap Margin Custody Agreement prohibit the Unaffiliated Swap Margin Custodian from rehypothecating, repledging, reusing, or otherwise transferring (through securities lending, securities borrowing, repurchase agreement, reverse repurchase agreement or other means) the collateral held by the Unaffiliated Swap Margin Custodian.20 C. Proposed Rule 36 asabaliauskas on DSKBBXCHB2PROD with NOTICES In light of these requirements, in order to facilitate use of DTC by Participants and Pledgees that are subject to the Swap Margin Segregation Rules, DTC designed Proposed Rule 36 to provide an express set of provisions that track the requirements of the Swap Margin Segregation Rules. Proposed Rule 36 would (i) provide that a Swap Margin Pledgee may establish a Swap Margin Segregation Account which would operate as a Pledgee Account,21 and (ii) set forth how the operation of such Swap Margin Segregation Account satisfies the conditions of the regulatory requirements for posting Swap Margin at an Unaffiliated Swap Margin Custodian. The proposed rule change would add Rule 36 to the DTC Rules, which would statements prepared in accordance with U.S. Generally Accepted Accounting Principles, the International Financial Reporting Standards, or other similar standards; (2) both companies are consolidated with a third company on a financial statement prepared in accordance with such principles or standards; or (3) for a company that is not subject to such principles or standards, if consolidation as described in (1) or (2) of this definition would have occurred if such principles or standards had applied. See Bank Margin Rules §_.2; CFTC Margin Rules, 17 CFR 23.151. In addition, under the Prudential Regulators version of the Swap Margin Segregation Rules, a company is an affiliate of another company if the applicable Prudential Regulator has determined that a company is an affiliate of another company, based on the Prudential Regulator’s conclusion that either company provides significant support to, or is materially subject to the risks or losses of, the other company. See Bank Margin Rules §_.2. Under these definitions, DTC would not be an affiliate of any Participant or Pledgee. 18 See Bank Margin Rules §_.7; CFTC Margin Rules, 17 CFR 23.157. 19 See Bank Margin Rules §_.7(c); CFTC Margin Rules, 17 CFR 23.157(c). 20 Id. 21 A Swap Margin Segregation Account would be a Pledgee Account, and all DTC Rules and Procedures applicable to a Pledgee Account would be applicable to a Swap Margin Segregation Account. VerDate Sep<11>2014 17:22 Jun 27, 2017 Jkt 241001 provide for a number of items, as described below. 1. Proposed Rule 36 would provide for the establishment and maintenance of one or more Swap Margin Segregation Accounts by a Swap Margin Pledgee, for the purpose of holding Swap Margin. There would be two types of Swap Margin Segregation Accounts: i. A Swap Margin Segregation Account with respect to which only the Swap Margin Pledgee may issue instructions (‘‘Restricted Access Swap Margin Account’’); and ii. a Swap Margin Segregation Account with respect to which either a Swap Margin Pledgee or Swap Margin Pledgor may issue instructions (‘‘Shared Access Swap Margin Account’’). The purpose of a Shared Access Swap Margin Account, like the Shared Control Account referred to above, would be to provide the Swap Margin Pledgor a mechanism to transfer the Swap Margin Securities from the Shared Access Swap Margin Account without obtaining the consent of the Swap Margin Pledgee, if the Swap Margin Pledgee were in default in accordance with the agreements of the parties to the relevant swap or security-based swap.22 2. Proposed Rule 36 would provide for the instruction of a Swap Margin Pledgor to DTC to: i. Transfer Swap Margin from an account of the Swap Margin Pledgor (‘‘Swap Margin Origination Account’’) to a Restricted Access Swap Margin Account or Shared Access Swap Margin Account of a Swap Margin Pledgee, free of payment through the facilities of DTC. By issuing such an instruction, the Swap Margin Pledgor would be representing to DTC that the instruction complies with the Swap Margin Segregation Rules and the Swap Agreement of the parties; and ii. transfer Swap Margin from a Shared Access Swap Margin Account of a Swap Margin Pledgee back to the relevant Swap Margin Origination Account of the Swap Margin Pledgor, free of payment. By issuing such an instruction, the Swap Margin Pledgor would be representing to DTC that the instruction complies with the Swap Margin Segregation Rules and the Swap Agreement of the parties. 3. Proposed Rule 36 would provide for the instruction of a Swap Margin Pledgee to DTC to: i. Transfer Swap Margin from a Swap Margin Segregation Account of the 22 DTC would not monitor any such default but the action by the Swap Margin Pledgor in releasing or retrieving its Pledged Swap Margin Securities would constitute the representation and warranty that it is acting in accordance with its counterparty agreement. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 Swap Margin Pledgee back to the relevant Swap Margin Origination Account of a Swap Margin Pledgor, free of payment. By issuing such instruction, the Swap Margin Pledgee would be representing to DTC that the instruction complies with the Swap Margin Segregation Rules and the Swap Agreement of the parties; and ii. transfer Swap Margin from a Swap Margin Segregation Account of the Swap Margin Pledgee to another Account of the Swap Margin Pledgee, free of payment. By issuing such instruction, the Swap Margin Pledgee would be representing to DTC that the instruction complies with the Swap Margin Segregation Rules and the Swap Agreement of the parties. 4. Proposed Rule 36 would provide for the covenants of DTC that: i. Swap Margin held in a Swap Margin Segregation Account of a Swap Margin Pledgee shall be held by DTC free and clear of any security interest, lien or other claim by DTC to secure any obligation of any Swap Margin Pledgor or Swap Margin Pledgee to DTC; and ii. DTC shall not rehypothecate, repledge, reuse or otherwise transfer (through securities lending, securities borrowing, repurchase agreement, reverse repurchase agreement or other means) any such Swap Margin. Proposed Rule 36 would provide for DTC’s disclaimer of liability: i. To any Swap Margin Pledgee as a result of DTC acting on an instruction from any Swap Margin Pledgor (i) to transfer Swap Margin from a Swap Margin Origination Account of the Swap Margin Pledgor to a Swap Margin Segregation Account of the Swap Margin Pledgee or (ii) to transfer Swap Margin from a Shared Access Swap Margin Account of the Swap Margin Pledgee back to the relevant Swap Margin Origination Account of the Swap Margin Pledgor even if DTC receives a conflicting instruction from the Swap Margin Pledgee to transfer such Swap Margin from such Shared Access Swap Margin Account to another Account of the Swap Margin Pledgee; ii. to any Swap Margin Pledgor as a result of DTC acting on an instruction from any Swap Margin Pledgee (i) to transfer Swap Margin from a Swap Margin Segregation Account of the Swap Margin Pledgee back to the relevant Swap Margin Origination Account of the Swap Margin Pledgor, (ii) to transfer Swap Margin from a Restricted Access Swap Margin Account of the Swap Margin Pledgee to another Account of the Swap Margin Pledgee, or (iii) to transfer Swap Margin from a Shared Access Swap Margin Account of the Swap Margin Pledgee to another E:\FR\FM\28JNN1.SGM 28JNN1 Federal Register / Vol. 82, No. 123 / Wednesday, June 28, 2017 / Notices Account of the Swap Margin Pledgee even if DTC receives a conflicting instruction from the Swap Margin Pledgor to transfer such Swap Margin from such Shared Access Pledgee Account back to the relevant Swap Margin Origination Account of the Swap Margin Pledgor; iii. to any Swap Margin Pledgor or Swap Margin Pledgee as a result of (i) any loss or liability suffered or incurred by such Swap Margin Pledgor or Swap Margin Pledgee arising out of or relating to the matters subject to Rule 36, unless caused directly by the gross negligence or willful misconduct of DTC or by a violation of Federal securities law by DTC for which there is a private rule of action, or (ii) any force majeure, market disruption or technical malfunction that prevents DTC from performing its obligations to such Swap Margin Pledgor or Swap Margin Pledgee pursuant to Rule 36; or iv. to any third party (including any customer of any Swap Margin Pledgor or Swap Margin Pledgee) for any reason. asabaliauskas on DSKBBXCHB2PROD with NOTICES Implementation Timeframe The proposed rule change would be implemented 30 days after the date of filing, or such shorter time as the Commission may designate. 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 23 and Rule 17Ad–22(e)(21) thereunder.24 Section 17A(b)(3)(F) of the Act requires, inter alia, that the rules of the clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.25 By providing for Accounts and Pledges expressly designed to satisfy the parameters of the Swap Margin Segregation Rules, the proposed rule change affords the efficiency of DTC book-entry transfers for the satisfaction of the Swap Margin Segregation Rules with respect to Deposited Securities held at DTC, thereby promoting the prompt and accurate clearance and settlement of these securities transactions, consistent with the requirements of the Act, in particular Section 17A(b)(3)(F), cited above. Rule 17Ad–22(e)(21) requires, inter alia, that each covered clearing agency establish, implement, maintain and enforce written policies and procedures U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(21). 25 15 U.S.C. 78q–1(b)(3)(F). reasonably designed to be efficient and effective in meeting the requirements of its participants and the markets it serves.26 Pursuant to the proposed rule change, the DTC Rules would be updated to provide a transparent framework for the segregation of Swap Margin at DTC, and therefore is designed to meet the requirements of Participants and Pledgees that are subject to the Swap Margin Segregation Rules, consistent with the requirements of Rule 17Ad–22(e)(21), cited above. public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. (B) Clearing Agency’s Statement on Burden on Competition • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– DTC–2017–009 on the subject line. DTC does not believe that the proposed rule change would have any impact, or impose any burden, on competition because the proposed rule and its features are available to all Participants and Pledgees equally on a non-discriminatory basis. Swap Margin Pledgors and Swap Margin Pledgees will be charged fees applicable to the maintenance of Accounts and transaction fees that are not different from established published fees. (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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 27 and Rule 19b–4(f)(6) thereunder.28 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 23 15 26 17 24 17 27 15 VerDate Sep<11>2014 17:22 Jun 27, 2017 CFR 240.17Ad–22(e)(21). U.S.C. 78s(b)(3)(A). 28 17 CFR 240.19b–4(f)(6). Jkt 241001 29353 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 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 Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–DTC–2017–009. 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 (http://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 (http://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–2017–009 and should be submitted on or before July 19, 2017. E:\FR\FM\28JNN1.SGM 28JNN1 29354 Federal Register / Vol. 82, No. 123 / Wednesday, June 28, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–13489 Filed 6–27–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80999; File No. SR–ISE– 2017–59] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section III of the Schedule of Fees June 22, 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 June 19, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Section III of the Schedule of Fees to eliminate FX Option fees and rebates for trades executed on June 12–30, 2017. The text of the proposed rule change is available on the Exchange’s Web site at www.ise.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. asabaliauskas on DSKBBXCHB2PROD with NOTICES 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. 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:22 Jun 27, 2017 Jkt 241001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend Section III of the Schedule of Fees to eliminate FX Option fees and rebates for trades executed on June 12–30, 2017 in connection with the migration of the Exchange’s trading system to the Nasdaq INET technology, which is scheduled to begin on June 12, 2017.3 The Exchange will launch its replatformed INET trading system beginning with FX Options on June 12, 2017. The Exchange proposes to eliminate fees and rebates for trades in FX Options executed on the INET trading system from June 12–30, 2017. Because the Exchange is eliminating fees and rebates for trades in these products, during this period trades in FX Options will not be counted towards a member’s tier for June activity. The proposed change would allow the Exchange to bill June fees solely based on activity traded on the current T7 trading system,4 and is an inducement for members to trade the first symbols launched on the INET trading system as there would be no transaction fees for doing so. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,5 in general, and Section 6(b)(4) of the Act,6 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. The Exchange believes that it is reasonable and equitable to eliminate fees and rebates for FX Options during the initial launch of the Exchange’s replatformed trading system. Eliminating FX Option fees and rebates during this period will simplify the Exchange’s billing and serve as an inducement for members to trade the first symbols migrated to the INET trading system. Because the Exchange is offering free executions in these symbols, volume executed in FX Options on June 12–30, 2017 will not be counted towards any 3 See Securities Exchange Act Release No. 80432 (April 11, 2017), 82 FR 18191 (April 17, 2017) (SR– ISE–2017–03). 4 Additional symbols may be rolled out on the INET trading system later in June. The Exchange intends to eliminate fees and rebates for those symbols in a later proposed rule change to be filed prior to their introduction on INET. 5 15 U.S.C. 78f. 6 15 U.S.C. 78f(b)(4). PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 volume based tiers. Similar treatment was afforded to the first symbol launched on the Nasdaq GEMX, LLC INET trading system.7 The Exchange believes that these two changes will be attractive to members that trade on the new INET trading system. The Exchange also believes that this proposed change is not unfairly discriminatory as it will apply to FX Options trades that are executed by all members. As noted above, FX Options were selected for this treatment as those products will be the first symbols traded on the INET trading system. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,8 the Exchange does not believe that the proposed rule change will impose any burden on intermarket or intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change is intended to ease members’ transition to the re-platformed INET trading system and is not designed to have any significant competitive impact. The Exchange operates in a highly competitive market in which market participants can readily direct their order flow to competing venues. In such an environment, the Exchange must continually review, and consider adjusting, its fees and rebates to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed fee changes reflect this competitive environment. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 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)(ii) of the Act,9 and Rule 19b–4(f)(2) 10 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of 7 See Securities Exchange Act Release No. 80184 (March 9, 2017), 82 FR 13893 (March 15, 2017) (SR– ISEGemini–2017–09) 8 15 U.S.C. 78f(b)(8). 9 15 U.S.C. 78s(b)(3)(A)(ii). 10 17 CFR 240.19b–4(f)(2). E:\FR\FM\28JNN1.SGM 28JNN1

Agencies

[Federal Register Volume 82, Number 123 (Wednesday, June 28, 2017)]
[Notices]
[Pages 29350-29354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13489]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81001; File No. SR-DTC-2017-009]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Establish a Swap Margin 
Segregation Account for the Segregation of Swap Margin With Respect to 
Deposited Securities

June 22, 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 June 15, 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. DTC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) \4\ 
thereunder. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by DTC would add new Rule 36 (Segregated 
Accounts for Swap Margin) (``Proposed Rule 36'') to provide Accounts 
\5\ for the segregation of Securities held at DTC that are intended to 
be Pledged as swap margin in conformity with certain regulations 
applicable to swap counterparties posting swap margin. The proposal 
would allow Participants to transfer Deposited Securities to an Account 
(``Swap Margin Segregation Account'') of a Pledgee designated for the 
purpose of segregating interests in Deposited Securities securing 
margin

[[Page 29351]]

obligations with respect to uncleared swaps \6\ and security-based 
swaps \7\ (``Swap Margin'') subject to applicable Swap Margin 
Segregation Rules (defined below). A Swap Margin Segregation Account 
would be maintained by DTC for, and at the instruction of, the Pledgee 
\8\ (``Swap Margin Pledgee'').
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    \5\ 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 http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ A Pledgee may be a bank, trust company, broker-dealer, or 
other Person approved by DTC that enters into an agreement with DTC 
that is satisfactory to DTC. A Pledgee may be a Participant, if it 
satisfies the further conditions of the DTC Rules. See Rule 1 and 
Rule 2, Section 3, supra note 1. A Pledgee that is not a Participant 
may not receive a Pledge Versus Payment. Rule 2, Section 3, supra 
note 1.
    \7\ ``Security-based swap'' is defined to include a swap based 
on a single security or loan or on a narrow-based security index. 
See 15 U.S.C. 78c(a)(68).
    \8\ ``Swap'' is defined to include interest rate swaps, 
commodity-based swaps, equity swaps and credit default swaps. See 7 
U.S.C. 1a(47). ``Uncleared swaps'' and ``non-cleared swaps'' mean 
swaps that are not directly or indirectly, submitted to and cleared 
by a derivatives clearing organization (``DCO'') registered with the 
Commission. See 7 U.S.C. 1a(7) (``The term `cleared swap' means any 
swap that is, directly or indirectly, submitted to and cleared by a 
derivatives clearing organization registered with the 
Commission.'').
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, DTC included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposal would add Proposed Rule 36 to provide Accounts for the 
segregation of Securities held at DTC that are intended to be Pledged 
as swap margin in conformity with certain regulations applicable to 
swap counterparties posting swap margin. The proposal would allow 
Participants to transfer Deposited Securities to a Swap Margin 
Segregation Account of a Pledgee designated for the purpose of 
segregating Swap Margin subject to applicable Swap Margin Segregation 
Rules (defined below). A Swap Margin Segregation Account would be 
maintained by DTC for, and at the instruction of, the Swap Margin 
Pledgee.
A. Existing DTC Pledge Services
    Currently, a Participant (``Pledgor'') may instruct DTC to Pledge 
Securities from its Account to the Account of a Pledgee (``Pledgee 
Account''), in order to Pledge such Securities to such Pledgee.\9\ A 
Pledge may be (i) free of payment, where no funds are transferred 
through DTC, or (ii) versus payment through DTC net funds settlement in 
the ordinary course of business.
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    \9\ A Pledge under DTC Rules effects the transfer to the Pledgee 
of a limited interest in the Pledged Securities, which may be a 
security interest if the Pledgor and Pledgee have an agreement 
outside of DTC that constitutes a security agreement under 
applicable law and as to which the other requirements for attachment 
and enforceability of a security interest have been satisfied. See, 
e.g., N.Y. U.C.C. Law Sec.  9-203. The characterization of any 
Pledge depends on agreements between the Pledgor and the Pledgee 
made outside of DTC. DTC does not inquire into the terms and 
conditions of those agreements but affords its Participants the 
means to Pledge the Securities by book-entry and, thereby, to 
perfect any properly created security interest with Control. See, 
e.g., N.Y. U.C.C. Law Sec.  8-106 and Sec.  9-106.
---------------------------------------------------------------------------

    The Pledgor continues to own the Securities, subject to the Pledge, 
and the Pledgee may Release the Pledged Securities to the Pledgor. The 
DTC Rules further provide that the Pledgee may exercise Control \10\ of 
the Pledged Securities by instructing DTC to transfer the Pledged 
Securities to its Participant Account (if it is a Participant) or to 
the Account of another Participant, in either case, without the further 
consent of the Pledgor.\11\ Securities credited to a Pledgee Account 
are not subject to any lien or any claim of DTC and cannot be 
designated as or included in Collateral for any obligation of the 
Pledgor or the Pledgee to DTC.'' \12\
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    \10\ Under the DTC Rules, the term ``Control'' has the meaning 
given to the term ``control'' in N.Y. U.C.C. Law Sec.  8-106. DTC 
Rule 1, Section 1, supra note 5.
    \11\ By giving such an instruction to DTC, the Pledgee 
represents that it is acting in accordance with applicable law and 
agreements. Rule 9(B), Section 1, supra note 5. Typically, a Pledgee 
would take this step in the event of a default of the Pledgor under 
the outside agreements governing the Pledge.
    \12\ See DTC Rule 4(A), supra note 5.
---------------------------------------------------------------------------

    DTC also offers a shared-control Account for Pledges (``Shared 
Control Account'').\13\ A Shared Control Account differs from an 
ordinary Pledgee Account in that the Pledgor has the flexibility to 
transfer the Securities in a Shared Control Account without obtaining 
the Pledgee's Release of the Securities.
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    \13\ See DTC Settlement Service Guide, p.15, available at http:/
/www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf.
---------------------------------------------------------------------------

    The proposed rule change would build on these existing Pledge 
services to expressly accommodate the requirements of the Swap Margin 
Segregation Rules, as further described below.
B. Swap Margin Segregation Rules
    The Prudential Regulators, as defined below, and the CFTC have 
adopted rules (the ``Swap Margin Segregation Rules'') \14\ that require 
that registered swap dealers, major swap participants, security-based 
swap dealers and major security-based swap participants (``Swap 
Entities'') post Swap Margin with respect to swap agreements \15\ for 
uncleared swaps and/or uncleared securities-based swaps that are 
subject to the Swap Margin Segregation Rules.\16\ Under the Swap Margin 
Segregation Rules, the Swap Margin must be segregated at a third-party 
custodian that is neither one of the swap counterparties nor an 
affiliate \17\ of

[[Page 29352]]

either of the swap counterparties (``Unaffiliated Swap Margin 
Custodian'') \18\ pursuant to a custody agreement with such Swap Margin 
Custodian (``Swap Margin Custody Agreement'') that meets prescribed 
standards.\19\ In particular, the Swap Margin Segregation Rules 
require, among other things, that the Swap Margin Custody Agreement 
prohibit the Unaffiliated Swap Margin Custodian from rehypothecating, 
repledging, reusing, or otherwise transferring (through securities 
lending, securities borrowing, repurchase agreement, reverse repurchase 
agreement or other means) the collateral held by the Unaffiliated Swap 
Margin Custodian.\20\
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    \14\ In 2015, the Office of the Comptroller of the Currency 
(``OCC''), the Board of Governors of the Federal Reserve System 
(``FRB''), the Federal Deposit Insurance Corporation (``FDIC''), the 
Farm Credit Administration (``FCA'') and the Federal Housing Finance 
Agency (``FHFA'') (collectively, the ``Prudential Regulators'') 
adopted joint margin rules (the ``Bank Margin Rules''). See Margin 
and Capital Requirements for Covered Swap Entities, 80 FR 74840 
(November 30, 2015). Each Prudential Regulator has codified its rule 
within its respective title of the Code of Federal Regulations. 
Specifically, the Prudential Regulators codified the rules as 
follows: 12 CFR 45 (OCC); 12 CFR 237 (FRB); 12 CFR 349 (FDIC); 12 
CFR 624 (FCA); and 12 CFR 1221 (FHFA). In addition, the Commodity 
Futures Trading Commission (``CFTC'') subsequently adopted its own 
version of margin rules substantially similar to the Bank Margin 
Rules (the ``CFTC Margin Rules''). See Margin Requirements for 
Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 
636 (January 6, 2016) (codified at17 CFR 23, 140). The Bank Margin 
Rules apply to a Swap Entity that, pursuant to section 1a(39) of the 
Commodity Exchange Act, has a Prudential Regulator. The CFTC Margin 
Rules apply to a Swap Entity that does not have a Prudential 
Regulator. Under the Bank Margin Rules, a covered swap includes, 
subject to certain grandfathering and cross-border provisions, any 
(i) swap that is not cleared by a DCO that is registered or exempt 
from registration with the CFTC or (ii) security-based swap that is 
not cleared by a clearing agency that is registered or exempt from 
registration with the Commission. Under the CFTC Margin Rules, a 
covered swap includes, subject to certain grandfathering and cross-
border provisions, any swap that is not cleared by a DCO that is 
registered or exempt from registration with the CFTC. Non-cleared 
security-based swaps entered into by a registered security-based 
swap dealer or major security-based swap participant that does not 
have a Prudential Regulator will be subject to margin rules to be 
adopted by the Commission.
    \15\ A ``swap agreement'' is a customized, bilateral agreement 
that transfer risk from one party to the other and is negotiated 
privately between the two counterparties and then booked directly 
with each other. See ISDA Product Descriptions and Frequently Asked 
Questions, available at http://www.isda.org/educat/faqs.html.
    \16\ DTC is not subject to the Swap Margin Segregation Rules.
    \17\ Under the Swap Margin Segregation Rules, a company is an 
affiliate of another company if (1) either company consolidates the 
other on financial statements prepared in accordance with U.S. 
Generally Accepted Accounting Principles, the International 
Financial Reporting Standards, or other similar standards; (2) both 
companies are consolidated with a third company on a financial 
statement prepared in accordance with such principles or standards; 
or (3) for a company that is not subject to such principles or 
standards, if consolidation as described in (1) or (2) of this 
definition would have occurred if such principles or standards had 
applied. See Bank Margin Rules Sec. _.2; CFTC Margin Rules, 17 CFR 
23.151. In addition, under the Prudential Regulators version of the 
Swap Margin Segregation Rules, a company is an affiliate of another 
company if the applicable Prudential Regulator has determined that a 
company is an affiliate of another company, based on the Prudential 
Regulator's conclusion that either company provides significant 
support to, or is materially subject to the risks or losses of, the 
other company. See Bank Margin Rules Sec. _.2. Under these 
definitions, DTC would not be an affiliate of any Participant or 
Pledgee.
    \18\ See Bank Margin Rules Sec. _.7; CFTC Margin Rules, 17 CFR 
23.157.
    \19\ See Bank Margin Rules Sec. _.7(c); CFTC Margin Rules, 17 
CFR 23.157(c).
    \20\ Id.
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C. Proposed Rule 36
    In light of these requirements, in order to facilitate use of DTC 
by Participants and Pledgees that are subject to the Swap Margin 
Segregation Rules, DTC designed Proposed Rule 36 to provide an express 
set of provisions that track the requirements of the Swap Margin 
Segregation Rules. Proposed Rule 36 would (i) provide that a Swap 
Margin Pledgee may establish a Swap Margin Segregation Account which 
would operate as a Pledgee Account,\21\ and (ii) set forth how the 
operation of such Swap Margin Segregation Account satisfies the 
conditions of the regulatory requirements for posting Swap Margin at an 
Unaffiliated Swap Margin Custodian.
---------------------------------------------------------------------------

    \21\ A Swap Margin Segregation Account would be a Pledgee 
Account, and all DTC Rules and Procedures applicable to a Pledgee 
Account would be applicable to a Swap Margin Segregation Account.
---------------------------------------------------------------------------

    The proposed rule change would add Rule 36 to the DTC Rules, which 
would provide for a number of items, as described below.
    1. Proposed Rule 36 would provide for the establishment and 
maintenance of one or more Swap Margin Segregation Accounts by a Swap 
Margin Pledgee, for the purpose of holding Swap Margin. There would be 
two types of Swap Margin Segregation Accounts:
    i. A Swap Margin Segregation Account with respect to which only the 
Swap Margin Pledgee may issue instructions (``Restricted Access Swap 
Margin Account''); and
    ii. a Swap Margin Segregation Account with respect to which either 
a Swap Margin Pledgee or Swap Margin Pledgor may issue instructions 
(``Shared Access Swap Margin Account''). The purpose of a Shared Access 
Swap Margin Account, like the Shared Control Account referred to above, 
would be to provide the Swap Margin Pledgor a mechanism to transfer the 
Swap Margin Securities from the Shared Access Swap Margin Account 
without obtaining the consent of the Swap Margin Pledgee, if the Swap 
Margin Pledgee were in default in accordance with the agreements of the 
parties to the relevant swap or security-based swap.\22\
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    \22\ DTC would not monitor any such default but the action by 
the Swap Margin Pledgor in releasing or retrieving its Pledged Swap 
Margin Securities would constitute the representation and warranty 
that it is acting in accordance with its counterparty agreement.
---------------------------------------------------------------------------

    2. Proposed Rule 36 would provide for the instruction of a Swap 
Margin Pledgor to DTC to:
    i. Transfer Swap Margin from an account of the Swap Margin Pledgor 
(``Swap Margin Origination Account'') to a Restricted Access Swap 
Margin Account or Shared Access Swap Margin Account of a Swap Margin 
Pledgee, free of payment through the facilities of DTC. By issuing such 
an instruction, the Swap Margin Pledgor would be representing to DTC 
that the instruction complies with the Swap Margin Segregation Rules 
and the Swap Agreement of the parties; and
    ii. transfer Swap Margin from a Shared Access Swap Margin Account 
of a Swap Margin Pledgee back to the relevant Swap Margin Origination 
Account of the Swap Margin Pledgor, free of payment. By issuing such an 
instruction, the Swap Margin Pledgor would be representing to DTC that 
the instruction complies with the Swap Margin Segregation Rules and the 
Swap Agreement of the parties.
    3. Proposed Rule 36 would provide for the instruction of a Swap 
Margin Pledgee to DTC to:
    i. Transfer Swap Margin from a Swap Margin Segregation Account of 
the Swap Margin Pledgee back to the relevant Swap Margin Origination 
Account of a Swap Margin Pledgor, free of payment. By issuing such 
instruction, the Swap Margin Pledgee would be representing to DTC that 
the instruction complies with the Swap Margin Segregation Rules and the 
Swap Agreement of the parties; and
    ii. transfer Swap Margin from a Swap Margin Segregation Account of 
the Swap Margin Pledgee to another Account of the Swap Margin Pledgee, 
free of payment. By issuing such instruction, the Swap Margin Pledgee 
would be representing to DTC that the instruction complies with the 
Swap Margin Segregation Rules and the Swap Agreement of the parties.
    4. Proposed Rule 36 would provide for the covenants of DTC that:
    i. Swap Margin held in a Swap Margin Segregation Account of a Swap 
Margin Pledgee shall be held by DTC free and clear of any security 
interest, lien or other claim by DTC to secure any obligation of any 
Swap Margin Pledgor or Swap Margin Pledgee to DTC; and
    ii. DTC shall not rehypothecate, repledge, reuse or otherwise 
transfer (through securities lending, securities borrowing, repurchase 
agreement, reverse repurchase agreement or other means) any such Swap 
Margin.
    Proposed Rule 36 would provide for DTC's disclaimer of liability:
    i. To any Swap Margin Pledgee as a result of DTC acting on an 
instruction from any Swap Margin Pledgor (i) to transfer Swap Margin 
from a Swap Margin Origination Account of the Swap Margin Pledgor to a 
Swap Margin Segregation Account of the Swap Margin Pledgee or (ii) to 
transfer Swap Margin from a Shared Access Swap Margin Account of the 
Swap Margin Pledgee back to the relevant Swap Margin Origination 
Account of the Swap Margin Pledgor even if DTC receives a conflicting 
instruction from the Swap Margin Pledgee to transfer such Swap Margin 
from such Shared Access Swap Margin Account to another Account of the 
Swap Margin Pledgee;
    ii. to any Swap Margin Pledgor as a result of DTC acting on an 
instruction from any Swap Margin Pledgee (i) to transfer Swap Margin 
from a Swap Margin Segregation Account of the Swap Margin Pledgee back 
to the relevant Swap Margin Origination Account of the Swap Margin 
Pledgor, (ii) to transfer Swap Margin from a Restricted Access Swap 
Margin Account of the Swap Margin Pledgee to another Account of the 
Swap Margin Pledgee, or (iii) to transfer Swap Margin from a Shared 
Access Swap Margin Account of the Swap Margin Pledgee to another

[[Page 29353]]

Account of the Swap Margin Pledgee even if DTC receives a conflicting 
instruction from the Swap Margin Pledgor to transfer such Swap Margin 
from such Shared Access Pledgee Account back to the relevant Swap 
Margin Origination Account of the Swap Margin Pledgor;
    iii. to any Swap Margin Pledgor or Swap Margin Pledgee as a result 
of (i) any loss or liability suffered or incurred by such Swap Margin 
Pledgor or Swap Margin Pledgee arising out of or relating to the 
matters subject to Rule 36, unless caused directly by the gross 
negligence or willful misconduct of DTC or by a violation of Federal 
securities law by DTC for which there is a private rule of action, or 
(ii) any force majeure, market disruption or technical malfunction that 
prevents DTC from performing its obligations to such Swap Margin 
Pledgor or Swap Margin Pledgee pursuant to Rule 36; or
    iv. to any third party (including any customer of any Swap Margin 
Pledgor or Swap Margin Pledgee) for any reason.
Implementation Timeframe
    The proposed rule change would be implemented 30 days after the 
date of filing, or such shorter time as the Commission may designate.
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 \23\ 
and Rule 17Ad-22(e)(21) thereunder.\24\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, inter alia, that the 
rules of the clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\25\ By 
providing for Accounts and Pledges expressly designed to satisfy the 
parameters of the Swap Margin Segregation Rules, the proposed rule 
change affords the efficiency of DTC book-entry transfers for the 
satisfaction of the Swap Margin Segregation Rules with respect to 
Deposited Securities held at DTC, thereby promoting the prompt and 
accurate clearance and settlement of these securities transactions, 
consistent with the requirements of the Act, in particular Section 
17A(b)(3)(F), cited above.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(21) requires, inter alia, that each covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to be efficient and 
effective in meeting the requirements of its participants and the 
markets it serves.\26\ Pursuant to the proposed rule change, the DTC 
Rules would be updated to provide a transparent framework for the 
segregation of Swap Margin at DTC, and therefore is designed to meet 
the requirements of Participants and Pledgees that are subject to the 
Swap Margin Segregation Rules, consistent with the requirements of Rule 
17Ad-22(e)(21), cited above.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

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

    DTC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition because the proposed rule 
and its features are available to all Participants and Pledgees equally 
on a non-discriminatory basis. Swap Margin Pledgors and Swap Margin 
Pledgees will be charged fees applicable to the maintenance of Accounts 
and transaction fees that are not different from established published 
fees.

(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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \27\ and 
Rule 19b-4(f)(6) thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6).
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    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, 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-DTC-2017-009 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2017-009. 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 (http://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 (http://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-2017-009 and 
should be submitted on or before July 19, 2017.


[[Page 29354]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13489 Filed 6-27-17; 8:45 am]
 BILLING CODE 8011-01-P