Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Procedures in the DTC Settlement Service Guide Relating to the Intra-Month Collection of Required Participants Fund Deposits, 1046-1050 [2018-00159]

Download as PDF 1046 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES 3652(g). On December 29, 2017, the Postal Service filed its FY 2017 Annual Report to Congress in Docket No. ACR2017.1 The FY 2017 Annual Report includes the Postal Service’s FY 2018 annual performance plan (FY 2018 Plan) and FY 2017 annual performance report (FY 2017 Report). FY 2017 Annual Report at 13–28. The FY 2018 Plan reviews the Postal Service’s plans for FY 2018. The FY 2017 Report discusses the Postal Service’s progress during FY 2017 toward its four performance goals: • High-Quality Service • Excellent Customer Experiences • Safe Workplace and Engaged Workforce • Financial Health Each year, the Commission must evaluate whether the Postal Service met the performance goals established in the annual performance plan and annual performance report. 39 U.S.C. 3653(d). The Commission may also ‘‘provide recommendations to the Postal Service related to the protection or promotion of public policy objectives set out in’’ title 39. Id. Since Docket No. ACR2013, the Commission has evaluated whether the Postal Service met its performance goals in reports separate from the Annual Compliance Determination.2 The Commission continues this current practice to provide a more in-depth analysis of the Postal Service’s progress toward meetings its performance goals and plans to improve performance in future years. To facilitate this review, the Commission invites public comment on the following issues: • Did the Postal Service meet its performance goals in FY 2017? • Do the FY 2017 Report and the FY 2018 Plan meet applicable statutory requirements, including 39 U.S.C. 2803 and 2804? • What recommendations should the Commission provide to the Postal Service that relate to protecting or promoting public policy objectives in title 39? 1 United States Postal Service FY 2017 Annual Report to Congress, Library Reference USPS–FY17– 17, December 29, 2017 (FY 2017 Annual Report). 2 See Docket No. ACR2013, Postal Regulatory Commission, Review of Postal Service FY 2013 Performance Report and FY 2014 Performance Plan, July 7, 2014; Docket No. ACR2014, Postal Regulatory Commission, Analysis of the Postal Service’s FY 2014 Program Performance Report and FY 2015 Performance Plan, July 7, 2015; Docket No. ACR2015, Postal Regulatory Commission, Analysis of the Postal Service’s FY 2015 Annual Performance Report and FY 2016 Performance Plan, May 4, 2016; Docket No. ACR2016, Postal Regulatory Commission, Analysis of the Postal Service’s FY 2016 Annual Performance Report and FY 2017 Performance Plan, April 27, 2017. VerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 • What recommendations or observations should the Commission make concerning the Postal Service’s strategic initiatives? 3 • What other matters are relevant to the Commission’s analysis of the FY 2017 Report and the FY 2018 Plan under 39 U.S.C. 3653(d)? For the Board. Dated: January 5, 2018. Martha P. Rico, Secretary to the Board. II. Request for Comments SECURITIES AND EXCHANGE COMMISSION Comments by interested persons are due no later than February 8, 2018. Reply comments are due no later than February 22, 2018. Pursuant to 39 U.S.C. 505, Katalin K. Clendenin is appointed to serve as Public Representative to represent the interests of the general public in this proceeding with respect to issues related to the Commission’s analysis of the FY 2017 Report and the FY 2018 Plan. It is ordered: 1. The Commission invites public comment on the Postal Service’s FY 2017 Report and FY 2018 Plan. 2. Pursuant to 39 U.S.C. 505, the Commission appoints Katalin K. Clendenin to serve as Public Representative to represent the interests of the general public in this proceeding with respect to issues related to the Commission’s analysis of the FY 2017 Report and the FY 2018 Plan. 3. Comments are due no later than February 8, 2018. 4. Reply comments are due no later than February 22, 2018. 5. The Secretary shall arrange for publication of this order in the Federal Register. By the Commission. Stacy L. Ruble, Secretary. [FR Doc. 2018–00165 Filed 1–8–18; 8:45 am] BILLING CODE 7710–FW–P RAILROAD RETIREMENT BOARD Sunshine Act; Notice of Public Meeting Notice is hereby given that the Railroad Retirement Board will hold a meeting on January 24, 2018, 10:00 a.m. at the Board’s meeting room on the 8th floor of its headquarters building, 844 North Rush Street, Chicago, Illinois, 60611. The agenda for this meeting follows: Portion open to the public: (1) Executive Committee Reports The person to contact for more information is Martha P. Rico, Secretary to the Board, Phone No. 312–751–4920. PO 00000 FY 2017 Annual Report at 27–28. Frm 00034 Fmt 4703 Sfmt 4703 BILLING CODE 7905–01–P [Release No. 34–82434; File No. SR–DTC– 2017–024] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Procedures in the DTC Settlement Service Guide Relating to the Intra-Month Collection of Required Participants Fund Deposits January 3, 2018. III. Ordering Paragraphs 3 See [FR Doc. 2018–00254 Filed 1–5–18; 4:15 pm] 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 December 22, 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 the clearing agency. 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 of DTC is annexed hereto as Exhibit 5.3 The proposed rule change would amend the Procedures, set forth in the Settlement Guide, relating to the amount a Participant is required to Deposit to the Participants Fund to satisfy a deficiency in its Required Participants Fund Deposit (‘‘Deficiency’’),4 as a result of an 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 (‘‘Rules’’), available at https://www.dtcc.com/legal/rules-andprocedures.aspx and the DTC Settlement Service Guide (‘‘Settlement Guide’’), available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ service-guides/Settlement.pdf. 4 The Required Participants Fund Deposit of a Participant is the amount the Participant is required to Deposit to the Participants Fund pursuant to Section 1 of Rule 4. Rule 4, Section 1, supra note 3. The Participants Fund, described more fully below, is provided for in Rule 4. Rule 4, supra note 3. Deposit, in this context, pursuant to Section 1 of Rule 1, means causing the appropriate amount in cash to be paid to DTC for credit to the Participants Fund pursuant to Section 1 of Rule 4. Rule 1, Section 1, supra note 3. The Settlement Guide, 2 17 E:\FR\FM\09JAN1.SGM 09JAN1 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES increase in its Required Participants Fund Deposit calculated on an intramonth basis, i.e., on a Business Day 5 other than the last Business Day of a month, as described below. Specifically, the proposed rule change would codify in the Settlement Guide the practice currently followed by DTC, to determine the ‘‘Reference Amount’’ (as defined below) used by DTC, in conjunction with the existing methodology that determines whether a Participant must Deposit an additional amount to the Participants Fund to satisfy a Deficiency that occurs intra-month.6 In addition, the proposed rule change would codify a practice used by DTC relating to calculating a threshold amount, for any intra-month increase in the Required Participants Fund Deposit for a Participant that has been placed on the Watch List 7 (‘‘Watch List Threshold’’), to determine whether the Participant must Deposit an additional amount to the Participants Fund to satisfy a Deficiency that occurs intra-month. The proposed rule change would provide that the Watch List Threshold would be lower than the Standard Threshold (as defined below).8 The proposed rule which is proposed to be amended hereby, sets forth Procedures for the calculation and payment of the Required Participants Fund Deposit. See Settlement Guide, supra note 3 at 47–50. Procedures, in this context, pursuant to Section 1 of Rule 1, means ‘‘the Procedures, service guides, and regulations of DTC adopted pursuant to Rule 27, as amended from time to time.’’ Rule 1, Section 1, supra note 3. The Settlement Guide constitutes Procedures of DTC, as defined in the Rules. See Settlement Guide, supra note 3 at 1. 5 The term ‘‘Business Day’’ means any day on which DTC is open for business. Rule 1, Section 1, supra note 3. 6 See Settlement Guide, supra note 3 at 50–51 (describing this methodology). 7 The term ‘‘Watch List’’ means, at any time and from time to time, the list of Participants whose credit ratings derived from the Credit Risk Rating Matrix are 5, 6 or 7, as well as Participants that, based on the Corporation’s consideration of relevant factors, including those set forth in Section 10 of Rule 2, are deemed by the Corporation to pose a heightened risk to the Corporation and its Participants. Rule 1, Section 1, supra note 3. Rule 1 states: ‘‘The term ‘‘Credit Risk Rating Matrix’’ means a matrix of credit ratings of Participants specified in Section 10(a) of Rule 2. The matrix is developed by the Corporation to evaluate the credit risk such Participants pose to the Corporation and its Participants and is based on factors determined to be relevant by the Corporation from time to time, which factors are designed to collectively reflect the financial and operational condition of a Participant. These factors include (i) quantitative factors, such as capital, assets, earnings, and liquidity, and (ii) qualitative factors, such as management quality, market position/environment, and capital and liquidity risk management.’’ Id. 8 Pursuant to the Settlement Guide, if there is a significant increase to the Participant’s Required Participants Fund Deposit as calculated on an intramonth Business Day, such that the increase meets a certain threshold amount (‘‘Standard Threshold’’), the Participant is required to Deposit the difference between its Actual Participants Fund Deposit and VerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 change would also include technical and clarifying changes to the text of the Settlement Guide (a) for enhanced readability, (b) to make grammatical corrections, and (c) to add new section headings, as discussed 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 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 proposed rule change would amend the Procedures set forth in the Settlement Guide relating to the amount a Participant is required to Deposit 9 to the Participants Fund to satisfy a Deficiency, due to an increase to its Required Participants Fund Deposit, as calculated on an intra-month basis, as described below.10 Specifically, the proposed rule change would codify the practices currently followed by DTC with respect to (i) determining the Reference Amount for a Participant (as described below) and (ii) the application of the Watch List Threshold, as described below. The proposed rule change would also include technical and clarifying changes to the text of the Settlement Guide (a) for enhanced readability, (b) to make grammatical corrections, and (c) to add new section headings, as discussed below. Background DTC maintains a cash Participants Fund in an aggregate amount based on maintaining liquidity resources sufficient to complete net settlement among non-defaulting Participants if a Participant, or Affiliated Family of Participants, with the largest net settlement obligation failed to settle.11 its Required Participants Fund Deposit. See Settlement Guide, supra note 3 at 50–51. 9 Deposit, in this context, pursuant to Section 1 of Rule 1, means causing the appropriate amount in cash to be paid to DTC for credit to the Participants Fund pursuant to Section 1 of Rule 4. Rule 1, Section 1, supra note 3. 10 See Id. 11 The DTC net settlement system and the Rules are structured so that the net settlement obligation PO 00000 Frm 00035 Fmt 4703 Sfmt 4703 1047 The Settlement Guide describes the methodology for the calculation and procedures for payment of Required Participants Fund Deposits.12 The aggregate Required Participants Fund Deposits must equal $1.15 billion (BN); however, Participants may make Voluntary Participants Fund Deposits to support their activity.13 The minimum Required Participants Fund Deposit for each Participant is $7,500.14 The Required Participants Fund Deposit for each Participant is calculated based on a 60 business-day rolling average (‘‘60day Rolling Average’’) of the Participant’s highest intra-day Net Debit Balance peaks, to allocate ratably the first $450 million (‘‘MM’’) of the aggregate Participants Fund.15 An additional algorithm proportionally allocates an additional $700 MM among Participants whose Affiliated Family’s Net Debit Caps exceed $2.15 BN.16 If a Participant defaults, its Actual Participants Fund Deposit (the Required Participants Fund Deposit plus its Voluntary Participants Fund Deposit) may be applied to satisfy any liability or loss due to its default, including liquidity to complete settlement.17 The Required Participants Fund Deposit of each Participant is calculated on a daily basis.18 As the calculation of the Required Participants Fund Deposit of a Participant takes into account the 60-day Rolling Average, however, the Required Participants Fund Deposit remains stable and does not undergo material change from day-to-day. Therefore, the Settlement Guide only requires collection of the full amount of any Deficiency on a monthly basis unless an increase to its Required Participants Fund Deposit as calculated intra-month exceeds the Standard Threshold.19 In this regard, a Participant of a Participant (its Net Debit Balance) is limited by its Net Debit Cap. See Settlement Guide, supra note 3 at 65. The maximum Net Debit Cap of any Participant is $1.8 BN and the maximum Net Debit Cap for an Affiliated Family of Participants is $2.85 BN. See Settlement Guide, supra note 3 at 65–66. These limits are determined based on liquidity resources available to DTC in the cash Participants Fund or under a committed line of credit from a syndicate of commercial lenders for $1.9 BN (‘‘Line of Credit’’). Id. 12 Settlement Guide, supra note 3 at 47–50. 13 Rule 4, Section 3, supra note 3. The term ‘‘Voluntary Participants Fund Deposit’’ of a Participant means, any amount the Participant has Deposited to the Participants Fund in excess of its Required Participants Fund Deposit. Rule 1, Section 1, supra note 3. 14 Settlement Guide, supra note 3 at 47–50. 15 Id. 16 Id. 17 See Rule 4, supra note 3. See also Settlement Guide, supra note 3 at 47–50. 18 Rule 4, Section 1, supra note 3. 19 See Settlement Guide, supra note 3 at 50–51. E:\FR\FM\09JAN1.SGM 09JAN1 1048 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices must satisfy any Deficiency as calculated on the last Business Day of a month. Pursuant to the Settlement Guide, if there is a significant increase to the Participant’s Required Participants Fund Deposit as calculated on an intramonth Business Day, such that the increase meets the Standard Threshold, the Participant is required to Deposit the difference between its Actual Participants Fund Deposit and its Required Participants Fund Deposit.20 The Standard Threshold is met when the difference between the Participant’s Required Participants Fund Deposit and the Reference Amount (a) equals or exceeds $500,000 and (b) represents a percentage increase of 25 percent or more over the Reference Amount.21 sradovich on DSK3GMQ082PROD with NOTICES Proposed Rule Changes As mentioned above, the proposed rule change would amend the Procedures set forth in the Settlement Guide relating to the amount a Participant is required to Deposit to the Participants Fund to satisfy a Deficiency, due to an increase to its Required Participants Fund Deposit, as calculated on an intra-month basis.22 Specifically, as mentioned above, the proposed rule change would codify the practices currently followed by DTC with respect to (i) determining the Reference Amount for a Participant (as described below) and (ii) the application of the Watch List Threshold, as described below. The proposed rule change would also include technical and clarifying changes to the text of the Settlement Guide (a) for enhanced readability, (b) to make grammatical corrections, and (c) to add new section headings, as discussed below. Proposed Clarification of Reference Amount The Settlement Guide does not specify the Reference Amount used for the purpose of determining the Standard Threshold. In practice, DTC designates the Reference Amount for a Participant to be the Participant’s Required Participants Fund Deposit relating to the most recent event that required the Participant to Deposit an additional amount to the Participants Fund. This would be the most recent occurrence, as it relates to the Participant, of (a) a month-end calculation, (b) an intramonth calculation that meets the Standard Threshold resulting in a collection of a Deficiency, or (c) an adjustment to the Participant’s Required 20 See Id. Id. 22 See Id. 21 See VerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 Participants Fund Deposit pursuant to Rule 9(A),23 as described below. Pursuant to the proposed rule change, DTC would codify this practice, and would update it to take into account increases that a Participant would be required to Deposit because of an increase in its Required Participants Fund Deposit that meets the Watch List Threshold, as described below. In this regard, the proposed rule change would amend the Settlement Guide to state that the Reference Amount for the determination of the Standard Threshold and the Watch List Threshold for a Participant, on a given intra-month Business Day, would equal the Participant’s Required Participants Fund Deposit as previously calculated on the latter of: (a) The last Business Day of the prior month; (b) the most recent intra-month Business Day (prior to the then current Business Day), when the amount resulting from daily calculation of the Participant’s Required Participants Fund Deposit met or exceeded either the Standard Threshold or the Watch List Threshold and a deficit collection was effectuated pursuant to the intra-month collection procedures specified in the Settlement Guide; or (c) the most recent intra-month Business Day (prior to the then current Business Day) when DTC effected an adjustment to the Participant’s Required Participants Fund Deposit pursuant to Rule 9(A).24 Proposed Watch List Threshold Pursuant to the Rules and Settlement Guide, DTC maintains the ability to seek additional assurances 25 and tools allowing it to conduct enhanced surveillance 26 of Participants that present heighted risk to DTC. In this regard, DTC uses the Credit Risk Rating Matrix, the Watch List and the enhanced surveillance to manage and monitor default risks of Participants on an ongoing basis.27 The level and frequency of such monitoring for a Participant is determined by the Participant’s risk of default as assessed by DTC.28 Participants that are deemed by DTC to pose a heightened risk to DTC and its Participants are subject to, 23 Rule 9(A), Section 2, supra note 3. See also Settlement Guide, supra note 1 at 50 (describing adjustments that may be made pursuant to Rule 9(A). 24 Rule 9(A), Section 2, supra note 3. 25 Infra note 30. 26 Infra note 29. 27 See Securities Exchange Act Release No. 80734 (May 19, 2017), 82 FR 24177 (May 25, 2017) (SR– DTC–2017–002) 28 See Id. PO 00000 Frm 00036 Fmt 4703 Sfmt 4703 among other things, closer and more frequent monitoring and enhanced reporting requirements.29 In addition to the above, pursuant to Rule 9(A), if DTC becomes concerned with a Participant’s operational or financial soundness, DTC may require adequate assurances of financial or operational capacity from the Participant, as a risk mitigant,30 including requiring the Participant to Deposit an additional amount to the Participants Fund.31 Any additional requirements are designed to provide appropriate incentives to affected Participant(s) to address the underlying condition or activity. In determining whether it is appropriate to require a Participant to Deposit an additional amount to the Participants Fund for a Participant, DTC takes into account credit, market, operational or other concerns regarding the Participant. Typically, the following factors may be considered, including: (i) The Participant’s liquidity arrangements; (ii) the Participant’s overall financial condition; (iii) published news or reports and/or regulatory observations relating to the Participant; and (iv) the Participant’s internal credit rating, if any.32 As a further mitigant of risks presented by Participants that present heightened risk to DTC, and in light of the fact that a Participant’s internal credit rating is a contributing factor to both DTC’s determination to add a Participant to the Watch List and/or make an adjustment with respect to the Participant’s Required Participants Required Participants Fund Deposit, the proposed rule change would amend the Settlement Guide to add the Watch List Threshold. 29 Rule 2, Section 10, supra note 3. Section 10 of Rule 2 states: ‘‘A Participant being subject to enhanced surveillance or being placed on the Watch List shall result in more thorough monitoring of the Participant’s financial condition and/or operational capability, which could include, for example, on-site visits or additional due diligence information requests from the Corporation. In addition, the Corporation may require a Participant placed on the Watch List and/or subject to enhanced surveillance to make more frequent financial disclosures, including, without limitation, interim and/or pro forma reports. Participants that are subject to enhanced surveillance are also reported to the Corporation’s management committees and regularly reviewed by a crossfunctional team comprised of senior management of the Corporation. The Corporation may also take such additional actions with regard to any Participant (including a Participant placed on the Watch List and/or subject to enhanced surveillance) as are permitted by the Rules and Procedures.’’ Id. 30 Rule 9(A), Section 2, supra note 3. 31 Any such additional amount shall be part of the Required Participants Fund Deposit of the Participant. See Rule 4, Section 1(a), supra note 3. 32 See Settlement Guide, supra note 3 at 50. E:\FR\FM\09JAN1.SGM 09JAN1 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices As mentioned above, the proposed rule change relating to the Watch List Threshold would reflect criteria DTC currently uses in practice for Participants that have been placed on the Watch List, to determine whether a Participant that has been placed on the Watch List must Deposit additional amount to the Participants Fund to satisfy a Deficiency. The Watch List Threshold is lower than the Standard Threshold and, when met, would require the Participant to Deposit the full amount of any Deficiency. The proposed rule change would add text to the Settlement Guide stating that the Watch List Threshold would apply to a Participant if its Required Participants Fund Deposit increases and the difference between the Required Participants Fund Deposit and the Reference Amount equals or is greater than 10 percent of the Reference Amount. Technical and Clarifying Changes The proposed rule change would also include technical and clarifying changes to the text of the ‘‘Settlement of Participants Fund Deposits’’ section of the Settlement Guide: (a) To revise and re-order existing text for enhanced readability and flow of content; (b) to add subheadings with respect to provisions relating to (i) settlement of Required Participants Fund Deposits calculated at the end of a month, (ii) collection of Required Participants Fund Deposits calculated on an intra-month basis, (iii) return of any amount by which a Participant’s Actual Participants Fund Deposit exceeds its Required Participants Fund Deposit; (c) to revise informal references to terms already defined in the Rules to use the actual defined terms, as applicable, including changing references from (i) ‘‘requirement’’ to ‘‘Required Participants Fund Deposit, (ii) referring informally to a Participant’s ‘‘deposit’’ to ‘‘Actual Participants Fund Deposit’’ and (iii) ‘‘business day’’ to ‘‘Business Day’’; and (d) to make grammatical corrections. sradovich on DSK3GMQ082PROD with NOTICES Implementation Timeframe The proposed rule change would be effective upon approval of the proposed rule change by the Commission. 2. Statutory Basis Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as amended (‘‘Act’’) 33 requires, inter alia, that the Rules promote the prompt and accurate clearance and settlement of securities 33 15 U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 transactions. DTC believes that the proposed rule changes are consistent with this provision because they would (i) add provisions in the Settlement Guide that provide for, among other things, the criteria currently used by DTC to determine whether a Participant must increase the amount of its Actual Participants Fund Deposit on an intramonth basis, and (ii) include technical and clarifying changes to the text of the Settlement Guide (a) for enhanced readability, (b) to make grammatical corrections and (c) to add new section headings, as discussed above. In this regard, the proposed changes would enhance the transparency and clarity of the applicable provisions of the Settlement Guide, which would facilitate stakeholders’ ability to understand DTC’s criteria the determination of whether a Participant would be required to make an additional Deposit to the Participants Fund based on the intra-month calculation of its Required Participants Fund Deposit. As mentioned above, the Participants Fund provides DTC with the liquidity to complete end-of-day settlement notwithstanding the failure to settle of the Participant or Affiliated Family of Participants with the largest settlement obligation. Therefore, by providing stakeholders with enhanced transparency with regard to the criteria and related Procedures related to whether a Participant must Deposit additional amounts to satisfy a Deficiency, DTC believes that the proposed rule change would promote the prompt and accurate clearance and settlement of securities transactions consistent with Section 17A(b)(3)(F) of the Act. The proposed rule change is also designed to be consistent with Rule 17Ad–22(e)(23)(ii) of the Act.34 Rule 17Ad–22(e)(ii) requires DTC, inter alia, to establish, implement, maintain and enforce written policies and procedures reasonably designed to provide sufficient information to enable participants to identify and evaluate the risks and material costs they incur by participating in the covered clearing agency.35 As discussed above, the proposed rule change would (i) provide greater transparency in the Settlement Guide with respect to, the methodology used by DTC to determine whether a Participant must Deposit an additional amount to the Participants Fund based on an intra-month calculation of its Required Participants Fund Deposit and (ii) make other clarifying changes for readability and grammatical changes to the text of the Settlement Guide in this regard. By providing for greater transparency and clarity in this regard, DTC believes that the proposed rule change is consistent with Rule 17Ad– 22(e)(23)(ii), cited above. (B) Clearing Agency’s Statement on Burden on Competition DTC does not believe that the proposed rule change to add provisions to the Settlement Guide relating to the Watch List Threshold, as discussed above, would impact competition.36 The proposed rule change codifies a procedure that is consistent with the existing core concept relating to DTC’s authority to impose an adjustment on a Required Participants Fund Deposit on a Participant because of its internal credit rating,37 i.e., relating to Credit Risk Rating Matrix, which determines a Participant’s placement on the Watch List, as described above. Based on the foregoing, DTC believes that the proposed rule change relating to addition of provisions to the Settlement Guide relating to the Watch List Threshold would not have any impact on competition. DTC does not believe that the proposed rule change to codify in the Settlement Guide the criteria DTC currently uses to determine the Reference Amount would impact competition.38 The proposed rule change consists of changes to the Settlement Guide that do not alter the methodology by which Required Participants Fund Deposits are calculated and collected. Based on the foregoing, DTC believes that the proposed rule change clarifying the criteria for determining the Reference Amount would not have any impact on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to this proposed rule change have not been solicited or received. DTC will notify the Commission of any written comments received by DTC. 36 15 34 17 CFR 240.17Ad–22(e)(23)(ii). 35 DTC is a ‘‘covered clearing agency’’ as defined by new Rule 17Ad–22(a)(5) and must comply with subsection (e) of Rule 17Ad–22. See Securities Exchange Act Release No. 78961 (September 28, 2016), 81 FR 70786 (October 13, 2016) (S7–03–14). PO 00000 Frm 00037 Fmt 4703 Sfmt 4703 1049 U.S.C. 78q–1(b)(3)(I). Settlement Guide at 50 (stating that a Participant’s internal credit rating is a factor DTC may take into consideration in determining whether to increase the Participant’s Required Participants Fund Deposit, pursuant to Rule 9(A), cited above). 38 Supra note 36. 37 See E:\FR\FM\09JAN1.SGM 09JAN1 1050 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 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. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. 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: • 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–2017–024 on the subject line. sradovich on DSK3GMQ082PROD with NOTICES Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to File Number SR–DTC–2017–024. 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 website (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 website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, 15:58 Jan 08, 2018 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.39 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–00159 Filed 1–8–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82436; File No. SR– CboeBZX–2017–022] Electronic Comments VerDate Sep<11>2014 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 website (https://dtcc.com/legal/sec-rulefilings.aspx). All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–DTC– 2017–024 and should be submitted on or before January 30, 2018. Jkt 244001 Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Risk Controls and Modify Rules 21.1, 21.10, and 21.17 in Connection With Technology Migration of Cboe Exchanges January 3, 2018. 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 December 21, 2017, Cboe BZX Exchange, Inc. (the ‘‘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 Exchange has designated this proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6)(iii) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 39 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)(iii). 1 15 PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to update Rule 21.1, Rule 21.10, and Rule 21.17 to make modifications to the Exchange’s rules and functionality applicable to the Exchange’s options platform (‘‘BZX Options’’) in preparation for the technology migration of the Exchange’s affiliated options exchanges onto the same technology as the Exchange. The text of the proposed rule change is available at the Exchange’s website at www.markets.cboe.com, at the principal office of the Exchange, 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 parts of such statements. (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose In 2016, the Exchange and its affiliates Cboe BYX Exchange, Inc. (‘‘BYX’’), Cboe EDGA Exchange, Inc. (‘‘EDGA’’), and Cboe EDGX Exchange, Inc. (‘‘EDGX’’) received approval to affect a merger (the ‘‘Merger’’) of the Exchange’s then-current indirect parent company, Bats Global Markets, Inc., with Cboe Global Markets f/k/a CBOE Holdings, Inc. (‘‘Cboe’’), the direct parent of Cboe Exchange, Inc. (‘‘Cboe Options’’) and Cboe C2 Exchange, Inc. (‘‘C2 Options’’, and together with the Exchange, EDGX, and Cboe Options the ‘‘Cboe Affiliated Exchanges’’).5 The Cboe Affiliated Exchanges are working to align certain system functionality, retaining only intended differences between the Cboe Affiliated Exchanges, 5 See Securities Exchange Act Release No. 79585 (December 16, 2016), 81 FR 93988 (December 22, 2016) (SR–BatsBZX–2016–68; SR–BatsBYX–2016– 29; SR–BatsEDGA–2016–24; SR–BatsEDGX–2016– 60). The Exchange notes that BYX and EDGA are also affiliated exchanges but do not operate options platforms and thus the integration described in this proposal is inapplicable to such exchanges. E:\FR\FM\09JAN1.SGM 09JAN1

Agencies

[Federal Register Volume 83, Number 6 (Tuesday, January 9, 2018)]
[Notices]
[Pages 1046-1050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00159]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82434; File No. SR-DTC-2017-024]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Amend Procedures in the DTC 
Settlement Service Guide Relating to the Intra-Month Collection of 
Required Participants Fund Deposits

January 3, 2018.
    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 December 22, 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 the clearing agency. 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 of DTC is annexed hereto as Exhibit 5.\3\ 
The proposed rule change would amend the Procedures, set forth in the 
Settlement Guide, relating to the amount a Participant is required to 
Deposit to the Participants Fund to satisfy a deficiency in its 
Required Participants Fund Deposit (``Deficiency''),\4\ as a result of 
an

[[Page 1047]]

increase in its Required Participants Fund Deposit calculated on an 
intra-month basis, i.e., on a Business Day \5\ other than the last 
Business Day of a month, as described below. Specifically, the proposed 
rule change would codify in the Settlement Guide the practice currently 
followed by DTC, to determine the ``Reference Amount'' (as defined 
below) used by DTC, in conjunction with the existing methodology that 
determines whether a Participant must Deposit an additional amount to 
the Participants Fund to satisfy a Deficiency that occurs intra-
month.\6\ In addition, the proposed rule change would codify a practice 
used by DTC relating to calculating a threshold amount, for any intra-
month increase in the Required Participants Fund Deposit for a 
Participant that has been placed on the Watch List \7\ (``Watch List 
Threshold''), to determine whether the Participant must Deposit an 
additional amount to the Participants Fund to satisfy a Deficiency that 
occurs intra-month. The proposed rule change would provide that the 
Watch List Threshold would be lower than the Standard Threshold (as 
defined below).\8\ The proposed rule change would also include 
technical and clarifying changes to the text of the Settlement Guide 
(a) for enhanced readability, (b) to make grammatical corrections, and 
(c) to add new section headings, as discussed 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 
(``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx and the DTC Settlement Service Guide (``Settlement 
Guide''), available at https://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Settlement.pdf.
    \4\ The Required Participants Fund Deposit of a Participant is 
the amount the Participant is required to Deposit to the 
Participants Fund pursuant to Section 1 of Rule 4. Rule 4, Section 
1, supra note 3. The Participants Fund, described more fully below, 
is provided for in Rule 4. Rule 4, supra note 3. Deposit, in this 
context, pursuant to Section 1 of Rule 1, means causing the 
appropriate amount in cash to be paid to DTC for credit to the 
Participants Fund pursuant to Section 1 of Rule 4. Rule 1, Section 
1, supra note 3. The Settlement Guide, which is proposed to be 
amended hereby, sets forth Procedures for the calculation and 
payment of the Required Participants Fund Deposit. See Settlement 
Guide, supra note 3 at 47-50. Procedures, in this context, pursuant 
to Section 1 of Rule 1, means ``the Procedures, service guides, and 
regulations of DTC adopted pursuant to Rule 27, as amended from time 
to time.'' Rule 1, Section 1, supra note 3. The Settlement Guide 
constitutes Procedures of DTC, as defined in the Rules. See 
Settlement Guide, supra note 3 at 1.
    \5\ The term ``Business Day'' means any day on which DTC is open 
for business. Rule 1, Section 1, supra note 3.
    \6\ See Settlement Guide, supra note 3 at 50-51 (describing this 
methodology).
    \7\ The term ``Watch List'' means, at any time and from time to 
time, the list of Participants whose credit ratings derived from the 
Credit Risk Rating Matrix are 5, 6 or 7, as well as Participants 
that, based on the Corporation's consideration of relevant factors, 
including those set forth in Section 10 of Rule 2, are deemed by the 
Corporation to pose a heightened risk to the Corporation and its 
Participants. Rule 1, Section 1, supra note 3. Rule 1 states: ``The 
term ``Credit Risk Rating Matrix'' means a matrix of credit ratings 
of Participants specified in Section 10(a) of Rule 2. The matrix is 
developed by the Corporation to evaluate the credit risk such 
Participants pose to the Corporation and its Participants and is 
based on factors determined to be relevant by the Corporation from 
time to time, which factors are designed to collectively reflect the 
financial and operational condition of a Participant. These factors 
include (i) quantitative factors, such as capital, assets, earnings, 
and liquidity, and (ii) qualitative factors, such as management 
quality, market position/environment, and capital and liquidity risk 
management.'' Id.
    \8\ Pursuant to the Settlement Guide, if there is a significant 
increase to the Participant's Required Participants Fund Deposit as 
calculated on an intra-month Business Day, such that the increase 
meets a certain threshold amount (``Standard Threshold''), the 
Participant is required to Deposit the difference between its Actual 
Participants Fund Deposit and its Required Participants Fund 
Deposit. See Settlement Guide, supra note 3 at 50-51.
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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 proposed rule change would amend the Procedures set forth in 
the Settlement Guide relating to the amount a Participant is required 
to Deposit \9\ to the Participants Fund to satisfy a Deficiency, due to 
an increase to its Required Participants Fund Deposit, as calculated on 
an intra-month basis, as described below.\10\ Specifically, the 
proposed rule change would codify the practices currently followed by 
DTC with respect to (i) determining the Reference Amount for a 
Participant (as described below) and (ii) the application of the Watch 
List Threshold, as described below. The proposed rule change would also 
include technical and clarifying changes to the text of the Settlement 
Guide (a) for enhanced readability, (b) to make grammatical 
corrections, and (c) to add new section headings, as discussed below.
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    \9\ Deposit, in this context, pursuant to Section 1 of Rule 1, 
means causing the appropriate amount in cash to be paid to DTC for 
credit to the Participants Fund pursuant to Section 1 of Rule 4. 
Rule 1, Section 1, supra note 3.
    \10\ See Id.
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Background
    DTC maintains a cash Participants Fund in an aggregate amount based 
on maintaining liquidity resources sufficient to complete net 
settlement among non-defaulting Participants if a Participant, or 
Affiliated Family of Participants, with the largest net settlement 
obligation failed to settle.\11\ The Settlement Guide describes the 
methodology for the calculation and procedures for payment of Required 
Participants Fund Deposits.\12\ The aggregate Required Participants 
Fund Deposits must equal $1.15 billion (BN); however, Participants may 
make Voluntary Participants Fund Deposits to support their 
activity.\13\ The minimum Required Participants Fund Deposit for each 
Participant is $7,500.\14\ The Required Participants Fund Deposit for 
each Participant is calculated based on a 60 business-day rolling 
average (``60-day Rolling Average'') of the Participant's highest 
intra-day Net Debit Balance peaks, to allocate ratably the first $450 
million (``MM'') of the aggregate Participants Fund.\15\ An additional 
algorithm proportionally allocates an additional $700 MM among 
Participants whose Affiliated Family's Net Debit Caps exceed $2.15 
BN.\16\ If a Participant defaults, its Actual Participants Fund Deposit 
(the Required Participants Fund Deposit plus its Voluntary Participants 
Fund Deposit) may be applied to satisfy any liability or loss due to 
its default, including liquidity to complete settlement.\17\
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    \11\ The DTC net settlement system and the Rules are structured 
so that the net settlement obligation of a Participant (its Net 
Debit Balance) is limited by its Net Debit Cap. See Settlement 
Guide, supra note 3 at 65. The maximum Net Debit Cap of any 
Participant is $1.8 BN and the maximum Net Debit Cap for an 
Affiliated Family of Participants is $2.85 BN. See Settlement Guide, 
supra note 3 at 65-66. These limits are determined based on 
liquidity resources available to DTC in the cash Participants Fund 
or under a committed line of credit from a syndicate of commercial 
lenders for $1.9 BN (``Line of Credit''). Id.
    \12\ Settlement Guide, supra note 3 at 47-50.
    \13\ Rule 4, Section 3, supra note 3. The term ``Voluntary 
Participants Fund Deposit'' of a Participant means, any amount the 
Participant has Deposited to the Participants Fund in excess of its 
Required Participants Fund Deposit. Rule 1, Section 1, supra note 3.
    \14\ Settlement Guide, supra note 3 at 47-50.
    \15\ Id.
    \16\ Id.
    \17\ See Rule 4, supra note 3. See also Settlement Guide, supra 
note 3 at 47-50.
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    The Required Participants Fund Deposit of each Participant is 
calculated on a daily basis.\18\ As the calculation of the Required 
Participants Fund Deposit of a Participant takes into account the 60-
day Rolling Average, however, the Required Participants Fund Deposit 
remains stable and does not undergo material change from day-to-day. 
Therefore, the Settlement Guide only requires collection of the full 
amount of any Deficiency on a monthly basis unless an increase to its 
Required Participants Fund Deposit as calculated intra-month exceeds 
the Standard Threshold.\19\ In this regard, a Participant

[[Page 1048]]

must satisfy any Deficiency as calculated on the last Business Day of a 
month.
---------------------------------------------------------------------------

    \18\ Rule 4, Section 1, supra note 3.
    \19\ See Settlement Guide, supra note 3 at 50-51.
---------------------------------------------------------------------------

    Pursuant to the Settlement Guide, if there is a significant 
increase to the Participant's Required Participants Fund Deposit as 
calculated on an intra-month Business Day, such that the increase meets 
the Standard Threshold, the Participant is required to Deposit the 
difference between its Actual Participants Fund Deposit and its 
Required Participants Fund Deposit.\20\ The Standard Threshold is met 
when the difference between the Participant's Required Participants 
Fund Deposit and the Reference Amount (a) equals or exceeds $500,000 
and (b) represents a percentage increase of 25 percent or more over the 
Reference Amount.\21\
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    \20\ See Id.
    \21\ See Id.
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Proposed Rule Changes
    As mentioned above, the proposed rule change would amend the 
Procedures set forth in the Settlement Guide relating to the amount a 
Participant is required to Deposit to the Participants Fund to satisfy 
a Deficiency, due to an increase to its Required Participants Fund 
Deposit, as calculated on an intra-month basis.\22\ Specifically, as 
mentioned above, the proposed rule change would codify the practices 
currently followed by DTC with respect to (i) determining the Reference 
Amount for a Participant (as described below) and (ii) the application 
of the Watch List Threshold, as described below. The proposed rule 
change would also include technical and clarifying changes to the text 
of the Settlement Guide (a) for enhanced readability, (b) to make 
grammatical corrections, and (c) to add new section headings, as 
discussed below.
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    \22\ See Id.
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Proposed Clarification of Reference Amount
    The Settlement Guide does not specify the Reference Amount used for 
the purpose of determining the Standard Threshold. In practice, DTC 
designates the Reference Amount for a Participant to be the 
Participant's Required Participants Fund Deposit relating to the most 
recent event that required the Participant to Deposit an additional 
amount to the Participants Fund. This would be the most recent 
occurrence, as it relates to the Participant, of (a) a month-end 
calculation, (b) an intra-month calculation that meets the Standard 
Threshold resulting in a collection of a Deficiency, or (c) an 
adjustment to the Participant's Required Participants Fund Deposit 
pursuant to Rule 9(A),\23\ as described below. Pursuant to the proposed 
rule change, DTC would codify this practice, and would update it to 
take into account increases that a Participant would be required to 
Deposit because of an increase in its Required Participants Fund 
Deposit that meets the Watch List Threshold, as described below. In 
this regard, the proposed rule change would amend the Settlement Guide 
to state that the Reference Amount for the determination of the 
Standard Threshold and the Watch List Threshold for a Participant, on a 
given intra-month Business Day, would equal the Participant's Required 
Participants Fund Deposit as previously calculated on the latter of:
---------------------------------------------------------------------------

    \23\ Rule 9(A), Section 2, supra note 3. See also Settlement 
Guide, supra note 1 at 50 (describing adjustments that may be made 
pursuant to Rule 9(A).
---------------------------------------------------------------------------

    (a) The last Business Day of the prior month;
    (b) the most recent intra-month Business Day (prior to the then 
current Business Day), when the amount resulting from daily calculation 
of the Participant's Required Participants Fund Deposit met or exceeded 
either the Standard Threshold or the Watch List Threshold and a deficit 
collection was effectuated pursuant to the intra-month collection 
procedures specified in the Settlement Guide; or
    (c) the most recent intra-month Business Day (prior to the then 
current Business Day) when DTC effected an adjustment to the 
Participant's Required Participants Fund Deposit pursuant to Rule 
9(A).\24\
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    \24\ Rule 9(A), Section 2, supra note 3.
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Proposed Watch List Threshold
    Pursuant to the Rules and Settlement Guide, DTC maintains the 
ability to seek additional assurances \25\ and tools allowing it to 
conduct enhanced surveillance \26\ of Participants that present 
heighted risk to DTC.
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    \25\ Infra note 30.
    \26\ Infra note 29.
---------------------------------------------------------------------------

    In this regard, DTC uses the Credit Risk Rating Matrix, the Watch 
List and the enhanced surveillance to manage and monitor default risks 
of Participants on an ongoing basis.\27\ The level and frequency of 
such monitoring for a Participant is determined by the Participant's 
risk of default as assessed by DTC.\28\ Participants that are deemed by 
DTC to pose a heightened risk to DTC and its Participants are subject 
to, among other things, closer and more frequent monitoring and 
enhanced reporting requirements.\29\
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    \27\ See Securities Exchange Act Release No. 80734 (May 19, 
2017), 82 FR 24177 (May 25, 2017) (SR-DTC-2017-002)
    \28\ See Id.
    \29\ Rule 2, Section 10, supra note 3. Section 10 of Rule 2 
states: ``A Participant being subject to enhanced surveillance or 
being placed on the Watch List shall result in more thorough 
monitoring of the Participant's financial condition and/or 
operational capability, which could include, for example, on-site 
visits or additional due diligence information requests from the 
Corporation. In addition, the Corporation may require a Participant 
placed on the Watch List and/or subject to enhanced surveillance to 
make more frequent financial disclosures, including, without 
limitation, interim and/or pro forma reports. Participants that are 
subject to enhanced surveillance are also reported to the 
Corporation's management committees and regularly reviewed by a 
cross-functional team comprised of senior management of the 
Corporation. The Corporation may also take such additional actions 
with regard to any Participant (including a Participant placed on 
the Watch List and/or subject to enhanced surveillance) as are 
permitted by the Rules and Procedures.'' Id.
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    In addition to the above, pursuant to Rule 9(A), if DTC becomes 
concerned with a Participant's operational or financial soundness, DTC 
may require adequate assurances of financial or operational capacity 
from the Participant, as a risk mitigant,\30\ including requiring the 
Participant to Deposit an additional amount to the Participants 
Fund.\31\ Any additional requirements are designed to provide 
appropriate incentives to affected Participant(s) to address the 
underlying condition or activity.
---------------------------------------------------------------------------

    \30\ Rule 9(A), Section 2, supra note 3.
    \31\ Any such additional amount shall be part of the Required 
Participants Fund Deposit of the Participant. See Rule 4, Section 
1(a), supra note 3.
---------------------------------------------------------------------------

    In determining whether it is appropriate to require a Participant 
to Deposit an additional amount to the Participants Fund for a 
Participant, DTC takes into account credit, market, operational or 
other concerns regarding the Participant. Typically, the following 
factors may be considered, including: (i) The Participant's liquidity 
arrangements; (ii) the Participant's overall financial condition; (iii) 
published news or reports and/or regulatory observations relating to 
the Participant; and (iv) the Participant's internal credit rating, if 
any.\32\
---------------------------------------------------------------------------

    \32\ See Settlement Guide, supra note 3 at 50.
---------------------------------------------------------------------------

    As a further mitigant of risks presented by Participants that 
present heightened risk to DTC, and in light of the fact that a 
Participant's internal credit rating is a contributing factor to both 
DTC's determination to add a Participant to the Watch List and/or make 
an adjustment with respect to the Participant's Required Participants 
Required Participants Fund Deposit, the proposed rule change would 
amend the Settlement Guide to add the Watch List Threshold.

[[Page 1049]]

    As mentioned above, the proposed rule change relating to the Watch 
List Threshold would reflect criteria DTC currently uses in practice 
for Participants that have been placed on the Watch List, to determine 
whether a Participant that has been placed on the Watch List must 
Deposit additional amount to the Participants Fund to satisfy a 
Deficiency. The Watch List Threshold is lower than the Standard 
Threshold and, when met, would require the Participant to Deposit the 
full amount of any Deficiency. The proposed rule change would add text 
to the Settlement Guide stating that the Watch List Threshold would 
apply to a Participant if its Required Participants Fund Deposit 
increases and the difference between the Required Participants Fund 
Deposit and the Reference Amount equals or is greater than 10 percent 
of the Reference Amount.
Technical and Clarifying Changes
    The proposed rule change would also include technical and 
clarifying changes to the text of the ``Settlement of Participants Fund 
Deposits'' section of the Settlement Guide:
    (a) To revise and re-order existing text for enhanced readability 
and flow of content;
    (b) to add subheadings with respect to provisions relating to (i) 
settlement of Required Participants Fund Deposits calculated at the end 
of a month, (ii) collection of Required Participants Fund Deposits 
calculated on an intra-month basis, (iii) return of any amount by which 
a Participant's Actual Participants Fund Deposit exceeds its Required 
Participants Fund Deposit;
    (c) to revise informal references to terms already defined in the 
Rules to use the actual defined terms, as applicable, including 
changing references from (i) ``requirement'' to ``Required Participants 
Fund Deposit, (ii) referring informally to a Participant's ``deposit'' 
to ``Actual Participants Fund Deposit'' and (iii) ``business day'' to 
``Business Day''; and
    (d) to make grammatical corrections.
Implementation Timeframe
    The proposed rule change would be effective upon approval of the 
proposed rule change by the Commission.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as 
amended (``Act'') \33\ requires, inter alia, that the Rules promote the 
prompt and accurate clearance and settlement of securities 
transactions. DTC believes that the proposed rule changes are 
consistent with this provision because they would (i) add provisions in 
the Settlement Guide that provide for, among other things, the criteria 
currently used by DTC to determine whether a Participant must increase 
the amount of its Actual Participants Fund Deposit on an intra-month 
basis, and (ii) include technical and clarifying changes to the text of 
the Settlement Guide (a) for enhanced readability, (b) to make 
grammatical corrections and (c) to add new section headings, as 
discussed above. In this regard, the proposed changes would enhance the 
transparency and clarity of the applicable provisions of the Settlement 
Guide, which would facilitate stakeholders' ability to understand DTC's 
criteria the determination of whether a Participant would be required 
to make an additional Deposit to the Participants Fund based on the 
intra-month calculation of its Required Participants Fund Deposit. As 
mentioned above, the Participants Fund provides DTC with the liquidity 
to complete end-of-day settlement notwithstanding the failure to settle 
of the Participant or Affiliated Family of Participants with the 
largest settlement obligation. Therefore, by providing stakeholders 
with enhanced transparency with regard to the criteria and related 
Procedures related to whether a Participant must Deposit additional 
amounts to satisfy a Deficiency, DTC believes that the proposed rule 
change would promote the prompt and accurate clearance and settlement 
of securities transactions consistent with Section 17A(b)(3)(F) of the 
Act.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed rule change is also designed to be consistent with 
Rule 17Ad-22(e)(23)(ii) of the Act.\34\ Rule 17Ad-22(e)(ii) requires 
DTC, inter alia, to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide sufficient 
information to enable participants to identify and evaluate the risks 
and material costs they incur by participating in the covered clearing 
agency.\35\ As discussed above, the proposed rule change would (i) 
provide greater transparency in the Settlement Guide with respect to, 
the methodology used by DTC to determine whether a Participant must 
Deposit an additional amount to the Participants Fund based on an 
intra-month calculation of its Required Participants Fund Deposit and 
(ii) make other clarifying changes for readability and grammatical 
changes to the text of the Settlement Guide in this regard. By 
providing for greater transparency and clarity in this regard, DTC 
believes that the proposed rule change is consistent with Rule 17Ad-
22(e)(23)(ii), cited above.
---------------------------------------------------------------------------

    \34\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \35\ DTC is a ``covered clearing agency'' as defined by new Rule 
17Ad-22(a)(5) and must comply with subsection (e) of Rule 17Ad-22. 
See Securities Exchange Act Release No. 78961 (September 28, 2016), 
81 FR 70786 (October 13, 2016) (S7-03-14).
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change to add 
provisions to the Settlement Guide relating to the Watch List 
Threshold, as discussed above, would impact competition.\36\ The 
proposed rule change codifies a procedure that is consistent with the 
existing core concept relating to DTC's authority to impose an 
adjustment on a Required Participants Fund Deposit on a Participant 
because of its internal credit rating,\37\ i.e., relating to Credit 
Risk Rating Matrix, which determines a Participant's placement on the 
Watch List, as described above. Based on the foregoing, DTC believes 
that the proposed rule change relating to addition of provisions to the 
Settlement Guide relating to the Watch List Threshold would not have 
any impact on competition.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78q-1(b)(3)(I).
    \37\ See Settlement Guide at 50 (stating that a Participant's 
internal credit rating is a factor DTC may take into consideration 
in determining whether to increase the Participant's Required 
Participants Fund Deposit, pursuant to Rule 9(A), cited above).
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change to codify in the 
Settlement Guide the criteria DTC currently uses to determine the 
Reference Amount would impact competition.\38\ The proposed rule change 
consists of changes to the Settlement Guide that do not alter the 
methodology by which Required Participants Fund Deposits are calculated 
and collected. Based on the foregoing, DTC believes that the proposed 
rule change clarifying the criteria for determining the Reference 
Amount would not have any impact on competition.
---------------------------------------------------------------------------

    \38\ Supra note 36.
---------------------------------------------------------------------------

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

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

[[Page 1050]]

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.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.

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 [email protected]. Please include 
File Number SR-DTC-2017-024 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-2017-024. 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 website (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 website 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 website 
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2017-024 and should be submitted on 
or before January 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00159 Filed 1-8-18; 8:45 am]
 BILLING CODE 8011-01-P
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