Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Rule 35 To Provide for Designated Accounts for Use With Designated Collateral Management Service Providers, 35044-35048 [2018-15769]
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35044
Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15766 Filed 7–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83667; File No. SR–DTC–
2018–006]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of Proposed Rule Change To
Amend Rule 35 To Provide for
Designated Accounts for Use With
Designated Collateral Management
Service Providers
July 18, 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 July 9,
2018, 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
would amend Rule 35 3 to permit a
Participant or Pledgee to designate one
or more collateral management service
providers,4 acting on behalf of the
Participant or Pledgee, to receive reports
and information from, and provide
certain instructions to, DTC with respect
to specified Accounts of the Participant
or Pledgee. In addition, the proposed
rule change would make ministerial
changes to Rule 35, as discussed below.
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Each capitalized term not otherwise defined
herein has its respective meaning as set forth in the
Rules, By-Laws and Organization Certificate of The
Depository Trust Company (the ‘‘Rules’’), available
at https://www.dtcc.com/legal/rules-andprocedures.aspx.
4 Collateral management generally involves
calculating collateral requirements and facilitating
the transfer of collateral between counterparties.
See Securities Exchange Act Release No. 64796
(July 1, 2011), 76 FR 39963, 39964 (July 7, 2011)
(S7–28–11).
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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 of DTC
would amend Rule 35 to permit a
Participant or Pledgee to designate one
or more collateral management service
providers, acting on behalf of the
Participant or Pledgee, to receive reports
and information from, and provide
certain instructions to, DTC with respect
to specified Accounts of the Participant
or Pledgee. In addition, the proposed
rule change would make ministerial
changes to Rule 35, as discussed below.
A. Background
i. Rule 35
On May 4, 2017, the Commission
approved a DTC rule change that added
Rule 35.5 DTC introduced Rule 35 at the
request of DTCC Euroclear Global
Collateral Ltd. (‘‘DEGCL’’) 6 in
accordance with DEGCL specifications.
The purpose of Rule 35 was to permit
a Participant to authorize DEGCL to
receive certain reports and information
with respect to Securities held by the
Participant at DTC in one or more subaccounts (each, a ‘‘CMS Sub-Account’’)
so that DEGCL might provide collateral
management services with respect to
such Securities.7
5 See Securities Exchange Act Release No. 80598
(May 4, 2017), 82 FR 21837 (May 10, 2017) (SR–
DTC–2017–001).
6 DEGCL is a joint venture of The Depository
Trust & Clearing Corporation, the corporate parent
of DTC, and Euroclear S.A./N.V. and was formed for
the purpose of offering global information, record
keeping, and processing services for derivatives
collateral transactions and other types of financing
transactions. DEGCL offers service options for the
selection of collateral to satisfy the collateral
obligations of its users (‘‘DEGCL CMS’’). One option
relates exclusively to Securities held at DTC, and
is dependent on Rule 35. For more information on
DEGCL and DEGCL CMS, see Securities Exchange
Act Release No. 80280 (March 20, 2017), 82 FR
15081 (March 24, 2017) (SR–DTC–2017–001).
7 Rule 35 provides that by establishing a CMS
Sub-Account, a Participant authorizes DEGCL to
receive from DTC (x) a ‘‘CMS Report,’’ which
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As DEGCL sought to expand its
activities under Rule 35, which would
have required one or more amendments
to the rule, DTC considered whether a
more comprehensive approach to Rule
35 might better serve the collateral
management needs of its Participants
and Pledgees.
ii. Proposed Rule Changes
The proposed rule change to amend
Rule 35 would apply to any collateral
management service provider that
satisfies the requirements of the rule,
and to any Account designated by a
Participant or Pledgee. The amended
rule would authorize DTC to provide
information to the collateral
management service provider (as it does
for DEGCL currently) but, further, to act
on instructions of the collateral
management service provider.
More specifically, the proposed rule
change would:
(1) Introduce the concept of a
‘‘CMSP,’’ a collateral management
service provider designated to DTC by a
Participant or Pledgee to act on behalf
of the Participant or Pledgee under the
proposed rule. The concept of a CMSP
would replace the singular designation
of DEGCL to act under this rule; 8
(2) Introduce the concept of a ‘‘CMSP
Account,’’ an Account of a Participant
or Pledgee that the Participant or
Pledgee, respectively, has designated as
subject to the proposed rule. The scope
of a CMSP Account would replace the
narrower concept of the existing CMS
Sub-Account; 9
(3) Add the concept of a ‘‘CMSP
Instruction,’’ an instruction of a CMSP
to DTC for the Delivery, Pledge, or
Release of Securities to or from a CMSP
Account for which the CMSP is
designated under the proposed rule; and
(4) Introduce the defined terms
‘‘CMSP Position Report’’ and ‘‘CMSP
Information’’ (collectively, ‘‘CMSP
provides information regarding Securities credited
to the CMS Sub-Account of such Participant at the
time of the report, and (y) ‘‘CMS Delivery
Information,’’ which provides real-time information
regarding any Delivery or Pledge from, or Delivery
or Release to, the CMS Sub-Account of such
Participant.
8 DTC understands that DEGCL expects to be a
CMSP under proposed Rule 35 and expects to offer
collateral management services under the amended
rule.
9 Rule 35 currently requires that a designated
Account must be a sub-Account, and can only be
designated by a Participant, which were DEGCL
specifications. By expanding the rule to Accounts
more generally, which could be designated by any
Participant or Pledgee, the proposed rule would
provide a Participant or a Pledgee flexibility to
choose among CMSPs with different models for
collateral management services and to structure its
Accounts in a manner that aligns most efficiently
with its collateral management needs and the
specifications of its designated CMSP(s).
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Reports’’). These reports are analogous
to the CMS Report and CMS Delivery
Information, respectively, provided to
DEGCL under Rule 35.
B. Proposed Rule
i. CMSP
Proposed Section 2 of Rule 35 would
set forth the requirements to be a
CMSP.10 Proposed Section 2 would
provide that a partnership, corporation
or other organization or entity may
become a CMSP for purposes of
proposed Rule 35 if it satisfies the
following requirements: (a) It is
designated to DTC by one or more
Participants or Pledgees as a collateral
management service provider for
purposes of Rule 35; (b) it (i) satisfies at
least one of the qualifications set forth
in Section 1(a)–(h) of Rule 3 11 or (ii) is
organized in a country other than the
United States, is regulated by a financial
regulatory authority in the country in
which it is organized, and demonstrates
that it has notified the Commission in
writing of its intention to operate under
Rule 35; 12 and (c) it establishes a
10 See
supra note 8.
1(a)–(h) of Rule 3 provide the
qualifications for a partnership, corporation or other
organization or entity to be eligible to become a
Participant. Specifically, it must satisfy at least one
of the following qualifications: ‘‘(a) it is a
corporation which engages in clearance and
settlement activities and which is a subsidiary of a
national securities exchange or national securities
association registered under the Exchange Act; (b)
it is a member or member organization in good
standing of a corporation described in paragraph (a)
above; (c) it is a corporation which is authorized
pursuant to Article 8 of the Uniform Commercial
Code, or other similar statutory provision in effect
in the jurisdiction in which such corporation
engages in business, to engage in the business of
effecting the transfer or pledge of Securities by
book-entry and which engages in such business; (d)
it is a bank or trust company which is subject to
supervision or regulation pursuant to the provisions
of Federal or State banking laws or any subsidiary
of such a bank or trust company or a bank holding
company or any subsidiary of a bank holding
company; (e) it is an insurance company subject to
supervision or regulation pursuant to the provisions
of State insurance laws; (f) it is an investment
company registered under section 8 of the
Investment Company Act; (g) it is a pension fund
or other employee benefit fund; or (h) if it does not
qualify under paragraphs (a) through (g) above, it
is (i) a financial institution which demonstrates to
the Board of Directors that its business and
capabilities are such that it could reasonably expect
material benefit from direct access to the
Corporation’s services or (ii) a broker-dealer
registered under the Exchange Act.’’ Supra note 3.
12 In order to protect DTC, its Participants and
Pledgees, a collateral management service provider
that wishes to act under proposed Rule 35 would
need to be subject to regulatory oversight
comparable to a Participant, as provided in
proposed Section 2(b)(i) of Rule 35, or, if the entity
is organized in a country other than the United
States (a ‘‘non-U.S. entity’’), it would need to be
regulated by a financial regulatory authority in the
country in which it is organized, as provided in
proposed Section 2(b)(ii) of Rule 35. Further, the
proposed rule change would require that, in order
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connection to DTC in accordance with
the reasonable requirements of DTC in
order to be able to receive position and
transaction information and to submit
instructions to DTC in accordance with
the Rules and Procedures.13
Proposed Section 2 of Rule 35 would
also provide that DTC may decline to
accept an entity as a CMSP if it would
present material risk to DTC, its
Participants and Pledgees, or impose
material costs to DTC. For illustrative
purposes only, some examples of
circumstances in which DTC might
reject a collateral management service
provider as a CMSP may include,
without limitation, circumstances in
which DTC reasonably believes that
acceptance of the collateral management
service provider as a CMSP would (i)
subject DTC to additional legal or
regulatory regimes, to which it is not
otherwise subject; (ii) expose DTC to
additional technology risk; or (iii) cause
DTC to be in violation of applicable law
or regulation.
ii. CMSP Accounts
The proposed rule change would
amend Rule 35 to allow either a
Participant or a Pledgee to designate any
Account as a CMSP Account. The key
feature of a CMSP Account is that it
allows the designated CMSP access and
authority to provide instruction to DTC
(as further described below) for the
Delivery, Pledge, or Release of
Securities on behalf of a Participant or
Pledgee, as applicable. The proposed
rule change would specify that, with
respect to a CMSP Account, a
Participant or Pledgee would retain the
right to instruct DTC as otherwise
provided in the Rules and Procedures.
Pursuant to proposed Section 3 of
Rule 35, a Participant or Pledgee would
be able to designate one or more CMSP
Accounts and, concurrently, designate
one or more CMSPs with respect to each
CMSP Account. The designation of a
CMSP with respect to a CMSP Account
to be eligible to become a CMSP, the non-U.S. entity
must notify the Commission in writing of its
intention to operate under proposed Rule 35. While
DTC reserves the right to request documentation
and/or information relating to a collateral
management service provider’s compliance with the
requirements of proposed Section 2 of Rule 35, it
would be the sole responsibility of the Participant
or Pledgee to evaluate and choose an appropriate
collateral management service provider that, at a
minimum, satisfies the requirements. Under
proposed Section 2 of Rule 35, the designating
Participant or Pledgee would remain liable as
principal for the actions of its designated CMSP(s)
on its behalf, and would indemnify DTC for any
loss, liability, or expense as a result of any claim
arising from (i) any act or omission of the CMSP,
(ii) the provision of CMSP Reports to the CMSP by
DTC, or (iii) DTC’s compliance with instructions of
the CMSP.
13 See infra note 15.
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35045
by a Participant or Pledgee would
constitute:
(1) The appointment of the CMSP by
the Participant or Pledgee of the CMSP
to act on its behalf under Rule 35;
(2) the authorization of the appointed
CMSP by the Participant or Pledgee to
receive CMSP Reports and to provide
CMSP Instructions;
(3) the authorization of DTC by the
Participant or Pledgee to act in
accordance with any CMSP Instruction
of such CMSP; and
(4) the representation and warranty of
the Participant or Pledgee that it is duly
authorized to instruct DTC to provide
CMSP Reports to the CMSP and to act
in accordance with any CMSP
Instruction.
With the exception of references to
Pledgees and to the new concept of
CMSP Instruction, these authorizations,
representations, and warranties would
substantially track Rule 35, as
previously adopted.
In addition, the proposed rule change
would not substantially alter the
liability and indemnification provisions
in Rule 35. The proposed rule change
would provide that each Participant and
Pledgee that designates a CMSP with
respect to a CMSP Account would
indemnify DTC, and any nominee of
DTC, against any loss, liability or
expense as a result of any claim arising
from the compliance of DTC with CMSP
Instructions, except to the extent such
loss, liability, or expense is caused
directly by the DTC’s gross negligence
or willful misconduct.
iii. CMSP Reports
As discussed above, Rule 35 currently
provides a mechanism for a Participant
to authorize DEGCL to receive position
and transaction information from DTC,
in the form of CMS Reports and CMS
Delivery Information.14 The proposed
rule change would permit a Participant
or Pledgee to designate a CMSP that
would be authorized to receive CMSP
Reports and give CMSP Instructions
with respect to CMSP Accounts for
which the CMSP is designated. The
CMSP Position Report and CMSP
Information are analogous to the reports
provided to DEGCL under existing Rule
35 (defined as the CMS Report and CMS
Delivery Information, respectively).15
14 See
supra note 7.
proposed rule change would not alter the
provision in Rule 35 that states that DTC will
provide the CMSP Reports ‘‘through such dedicated
communications channels, satisfactory to [DTC] in
its sole discretion, as [DTC] shall afford for this
purpose.’’ Typically, DTC would have
infrastructure and operations that it would use to
transmit information to, or receive information
from, CMSPs under proposed Rule 35. DTC would
15 The
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Existing Rule 35 defines ‘‘CMS
Delivery Information’’ to mean, ‘‘with
respect to CMS Securities and any
Delivery or Pledge thereof from, or
Delivery or Release thereof to, a CMS
Sub-Account, a copy of any Delivery,
Pledge, or Release message sent to the
CMS Participant by DTC, including the
following information: (x) the CUSIP,
ISIN, or other identification number of
such CMS Securities, and (y) the
number of shares or other units or
principal amount of such CMS
Securities.’’ This definition was drafted
to align with DEGCL specifications.
Pursuant to the proposed rule change,
the definition would be drafted in more
general terms to provide flexibility for
the different collateral management
service offerings of CMSPs (in addition
to DEGCL). Pursuant to the proposed
rule change, ‘‘CMSP Information’’
would mean, ‘‘with respect to a CMSP
Account of a Participant or Pledgee, a
copy of any message sent to the
Participant or Pledgee by the
Corporation.’’ These messages would
include, but would not be limited to, the
Delivery, Pledge, and Release messages
referenced in the definition of CMS
Delivery Information in existing Rule
35.
Similarly, existing Rule 35 defines
‘‘CMS Report’’ to mean, ‘‘with respect to
a CMS Participant and its CMS SubAccount, the following information
identifying the CMS Securities that are,
at the time of such report, credited to
such CMS Sub-Account: (i) The CUSIP,
ISIN, or other identification number of
the CMS Securities, and (ii) the number
of shares or other units or principal
amount of the CMS Securities.’’ This
definition was drafted to align with
DEGCL specifications. Pursuant to the
proposed rule change, ‘‘(i) the CUSIP,
ISIN, or other identification number of
the CMS Securities, and (ii) the number
of shares or other units or principal
amount of the CMS Securities’’ would
be deleted from the definition.
Finally, similar to existing Rule 35,
proposed Rule 35 would provide that
DTC would have no liability to any
Participant or Pledgee as a result of
providing one or more CMSP Reports to
any CMSP pursuant to proposed Section
5 of Rule 35.
consider requests from CMSPs for alternative
methods of connectivity, taking into account factors
that may include, but are not limited to, operational
feasibility, user demand, and cost. In such a
situation, the applicable CMSP would be
responsible for all development, integration,
implementation, and additional operating costs
related to such alternate method of transmission.
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iv. CMSP Instructions
The proposed rule change would
further amend Rule 35 to provide that
a CMSP designated by a Participant or
Pledgee with respect to a CMSP
Account would be authorized to instruct
DTC, on behalf of the Participant or
Pledgee, for the Delivery, Pledge, or
Release of Securities credited to such
CMSP Account, as applicable.16 CMSP
Instructions would be subject to the
terms and conditions of the Rules and
the Procedures applicable to Deliveries,
Pledges, and Releases of Securities
generally, including risk management
controls.17 The purpose of this proposed
change is to streamline collateral
processing by CMSPs by allowing them
to receive information directly from
DTC and to take direct action on that
information through CMSP Instructions,
on behalf of Participants and Pledgees.
Pursuant to the proposed rule change,
the right of any CMSP to instruct DTC
with respect to a CMSP Account would
not preclude instructions by the
Participant or Pledgee itself, or CMSP
Instructions by another CMSP, with
respect to the same CMSP Account.
Furthermore, Rule 35 would provide
that DTC has no liability (i) to a
Participant or Pledgee for acting in
accordance with, or relying upon, CMSP
Instructions, or (ii) to any CMSP as a
result of DTC acting in accordance with,
or relying upon, instructions of any
other Person, including, but not limited
to, the Participant or Pledgee or any
other designated CMSP.
C. Proposed Rule Changes
In connection with the foregoing, DTC
proposes to make the following changes
(including ministerial changes) to Rule
35.
Title. DTC is proposing to replace the
current title ‘‘CMS Reporting’’ with
16 For a CMSP Account of a Participant, that
would include Delivery or Pledge. For a CMSP
Account of a Pledgee, that would include Delivery
or Release.
17 DTC risk management controls, including
Collateral Monitor and Net Debit Cap (as defined in
Rule 1, Section 1 of the Rules), are designed so that
DTC may complete system-wide settlement
notwithstanding the failure to settle of its largest
Participant or Affiliated Family of Participants. The
Collateral Monitor tests whether a Participant has
sufficient collateral for DTC to pledge or liquidate
if that Participant were to fail to meet its settlement
obligation. Pursuant to these controls under
applicable DTC Rules and Procedures, DTC would
not process any Delivery or Pledge instruction order
from a CMSP Account that would cause the
Participant to exceed its Net Debit Cap or to have
insufficient DTC Collateral to secure its obligations
to DTC. Deliveries would be processed in the same
order and with the same priority as otherwise
provided in the Rules and Procedures (i.e., such
Deliveries and Pledges would not take precedence
over any other type of Delivery or Pledge in the
DTC system).
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‘‘CMSP Reports and Instructions,’’ to
reflect the amended substance of the
proposed rule.
Section 1. For stylistic consistency,
DTC is proposing to insert the title
‘‘Certain Defined Terms’’ for Section 1.
For the reasons explained above, DTC is
further proposing to (i) delete the
definitions of CMS, CMS Participant,
CMS Representative, CMS Securities,
DEGCL, and DTCC; (ii) add definitions
for CMSP, CMSP Account, CMSP
Instruction, and CMSP Reports; (iii)
replace the defined term ‘‘CMS Delivery
Information’’ with ‘‘CMSP Information’’
and simplify the definition by referring
to ‘‘a copy of any message sent to the
Participant or Pledgee’’ with respect to
a CMSP Account, instead of ‘‘a copy of
any Delivery, Pledge, or Release
message sent to the CMS Participant by
DTC, including the following
information: (x) the CUSIP, ISIN, or
other identification number of such
CMS Securities, and (y) the number of
shares or other units or principal
amount of such CMS Securities’’; and
(iv) replace the defined term ‘‘CMS
Report’’ with ‘‘CMSP Position Report’’
and simplify the definition by removing
the DEGCL specifications of ‘‘(i) the
CUSIP, ISIN, or other identification
number of the CMS Securities, and (ii)
the number of shares or other units or
principal amount of the CMS
Securities.’’
Proposed Section 2 (New). DTC is
proposing to insert a new proposed
Section 2, titled ‘‘Qualification as a
CMSP.’’ As discussed above, Section 2
would set forth the requirements that an
entity must satisfy to become a CMSP.
Section 2 (Proposed Section 3). DTC
is proposing to renumber Section 2 to
Section 3, and to change the title of
proposed Section 3 to ‘‘CMSP
Accounts.’’ DTC is further proposing to
modify subsection (a) to delete DEGCL
CMS-specific terms and to reflect that (i)
a Participant or Pledgee can designate
one or more CMSP Accounts, as well as
designate one or more CMSPs for each
CMSP Account, and (ii) the designation
of a CMSP with respect to a CMSP
Account by a Participant or Pledgee
would constitute: (1) The appointment
of the CMSP by the Participant or
Pledgee of the CMSP to act on its behalf
under Proposed Rule 35; (2) the
authorization of the appointed CMSP by
the Participant or Pledgee to receive
CMSP Reports and to provide CMSP
Instructions; (3) the authorization of
DTC by the Participant or Pledgee to act
in accordance with any CMSP
Instructions of such CMSP; and (4) the
representation and warranty of the
Participant or Pledgee that it is duly
authorized to instruct DTC to provide
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CMSP Reports to the CMSP and to act
in accordance with CMSP Instructions.
DTC is further proposing to modify
subsection (b) to remove CMS-specific
references, to reflect the inclusion of
Pledgees, CMSPs, and CMSP Instruction
in the proposed rule, and to make
ministerial changes. Additionally, DTC
proposes to remove subsection (c) as it
would be no longer relevant because it
relates exclusively to DEGCL.
Section 3 (Proposed Section 4). DTC
is proposing to renumber Section 3 as
Section 4, and to change the title of the
section to ‘‘Instructions on a CMSP
Account.’’ DTC is further proposing to
(i) modify subsection (a) to remove
provisions relating to the transfer of
Securities to a CMS Sub-Account, and
to insert a provision stating that a
Participant or Pledgee retains its right to
instruct DTC with respect to its CMSP
Account, and (ii) modify subsection (b)
to remove provisions relating to the
transfer of Securities to a CMS SubAccount, and to insert a provision
specifying that a CMSP may instruct the
Delivery, Pledge, or Release of
Securities to or from a CMSP Account
for which it is designated pursuant to
proposed Section 3 of Rule 35. Further,
DTC proposes to insert proposed
subsection (c) that would state that all
Deliveries, Pledges, and Releases to or
from a CMSP Account would be subject
to the terms and conditions of the Rules
and Procedures applicable to Deliveries,
Pledges, and Releases of Securities
generally.
Section 4. DTC proposes to delete this
section, as it relates to DEGCL
specifications for a CMS Report and
would no longer be relevant.
Section 5. DTC is proposing to replace
the current title of ‘‘CMS Delivery
Information’’ with ‘‘CMSP Reports.’’
DTC is further proposing to insert
proposed subsection (a) to provide for
the provision of CMSP Position Reports
and CMSP Information to each CMSP
for each CMSP Account for which it is
designated. DTC additionally proposes
to delete the following language,
because it relates to DEGCL-specific
requirements: ‘‘CMS Delivery
Information. The Corporation shall, for
purposes of CMS, provide CMS Delivery
Information to the CMS Representative,
in real-time, with respect to (i) each
Delivery or Pledge from, and (ii)
Delivery or Release to, any CMS SubAccount.’’ Further, DTC proposes to
incorporate the remaining language of
Section 5, modified to conform with the
defined terms of the proposed rule
change, into proposed subsection (b).
Section 6. DTC is proposing to modify
the section to (i) add references to
CMSPs, Pledgees, CMSP Reports, and
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CMSP Instructions, (ii) remove
references to CMS Participant, CMS
Report, Delivery Information, and CMS
Representative, and (iii) update a crossreference relating to CMSP Reports. DTC
is further proposing to add disclaimers
of liability to (i) a Participant or Pledgee
for acting in accordance with, or relying
upon, CMSP Instructions, or (ii) any
CMSP as a result of DTC acting in
accordance with, or relying upon,
instructions of any other Person,
including, but not limited to, the
Participant or Pledgee or any other
designated CMSP, with respect to a
CMSP Account.
For additional clarity, DTC is also
proposing to make ministerial changes
to (i) update articles, pronouns, and
determiners, and (ii) modify language
for stylistic conformity within the
proposed rule.
Implementation Timeframe
DTC will implement the proposed
rule change two Business Days after
approval of this filing by the
Commission. Participants would be
advised of the implementation date of
this proposed rule change through the
issuance of a DTC Important Notice.
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.18
Section 17A(b)(3)(F) of the Act 19
requires, inter alia, that the Rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions. By amending
Rule 35 (i) to expand its application to
CMSPs generally, and (ii) to provide
that Pledgees, in addition to
Participants, may designate an Account
under Rule 35, the proposed rule change
would provide any Participant or
Pledgee the opportunity to choose one
or more CMSPs that align most
efficiently with its specific collateral
management needs and to structure its
Accounts accordingly. In addition, by
amending Rule 35 to permit any
Participant or Pledgee to designate one
or more CMSPs to provide CMSP
Instructions to DTC with respect to a
CMSP Account, the proposed rule
change would reduce the number of
actions that a Participant or Pledgee that
has a CMSP would need to take in order
to effect the settlement of collateral
transactions at DTC, thereby adding
efficiency by providing straight-through
PO 00000
18 15
submission and processing of settlement
instructions by a CMSP without further
actions by the Participant or Pledgee.
Further, for enhanced clarity, the
proposed rule change would make
ministerial changes to Rule 35 so the
processes relating to CMSPs are clear
and consistent. Therefore, by (i)
providing Participants and Pledgees the
opportunity to choose a CMSP that
aligns most efficiently with its needs,
(ii) providing streamlined submission
and processing of settlement
instructions by a CMSP on behalf of the
Participant or Pledgee, and (iii)
providing a clear and consistent rule
relating to CMSPs, the proposed rule
change is designed to improve
efficiency in the processing and
settlement of collateral transactions,
thereby promoting the prompt and
accurate clearance and settlement of
securities transactions, consistent with
the requirements of the Act, in
particular Section 17A(b)(3)(F).
Rule 17Ad–22(e)(21) promulgated
under the Act requires, inter alia, that
each covered clearing agency shall
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.20 By amending Rule 35 to permit
a Participant or Pledgee to designate one
or more CMSPs to provide CMSP
Instructions to DTC with respect to a
CMSP Account, the proposed rule
change would provide (i) an efficient
mechanism for a Participant or Pledgee
to designate collateral management
service providers for its Account at
DTC, and (ii) flexibility to a Participant
or Pledgee to structure its Accounts in
a manner that is most effective for the
collateral management needs of that
Participant or Pledgee and for the
specifications of its designated CMSP(s),
and is therefore designed to be efficient
and effective in meeting the
requirements of Participants, consistent
with the requirements of the Act, in
particular Rule 17Ad–22(e)(21).
(B) Clearing Agency’s Statement on
Burden on Competition
DTC believes that the proposed rule
change to amend Rule 35 to (i) expand
its application to CMSPs generally, (ii)
provide that Pledgees, in addition to
Participants, may designate an Account
under Rule 35, and (iii) provide for
CMSP Instructions to DTC with respect
to a CMSP Account, would have an
impact on competition by potentially
promoting competition, and would not
U.S.C. 78q–1(b)(3)(F).
19 Id.
Frm 00067
20 17
Fmt 4703
Sfmt 4703
35047
E:\FR\FM\24JYN1.SGM
CFR 240.17Ad–22(e)(21).
24JYN1
35048
Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Notices
impose a burden on competition.21 By
removing provisions particular to
DEGCL only, and providing that any
Participant or Pledgee can designate a
CMSP for a CMSP Account, the
proposed rule change would (i) offer
collateral management service providers
(in addition to DEGCL) the opportunity
to provide collateral management
services to Participants and Pledgees
under proposed Rule 35, and (ii)
provide any Participant or Pledgee the
opportunity to choose from among
competing collateral management
service providers. In addition, by
providing that a Participant or Pledgee
can designate one or more CMSPs to
provide CMSP Instructions to DTC with
respect to a CMSP Account for which it
is designated, the proposed rule change
would provide CMSPs the opportunity
to include direct messaging to DTC as
part of their services to Participants or
Pledgees. Therefore, DTC believes that
the proposed rule change would not
impose a burden on competition but
may promote competition.
DTC does not believe that the
proposed ministerial changes to Rule 35
would have any impact on competition
because these clarifications would
merely make changes for accuracy and
consistency and therefore would not
affect the rights and obligations of any
Participant or Pledgee or other
interested party.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to the
proposed rule change have not been
solicited or received. DTC will notify
the Commission of any written
comments received by DTC.
jstallworth on DSKBBY8HB2PROD with 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.
21 15
U.S.C. 78q–1(b)(3)(I).
VerDate Sep<11>2014
13:59 Jul 23, 2018
Jkt 244001
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2018–006 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–2018–006. 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-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–
2018–006 and should be submitted on
or before August 14, 2018.
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15769 Filed 7–23–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83665; File No. SR–ICEEU–
2018–009]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
CDS End-of-Day Price Discovery
Policy (‘‘Price Discovery Policy’’)
July 18, 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 July 11,
2018, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I, II and III
below, which Items have been prepared
by ICE Clear Europe. 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, Security-Based Swap
Submission, or Advance Notice
ICE Clear Europe proposes to modify
certain provisions of its Price Discovery
Policy related to the bid-offer width
(‘‘BOW’’) methodology for pricing single
name credit default swap (‘‘CDS’’)
contracts. These revisions do not require
any changes to the ICE Clear Europe
Clearing Rules or Procedures.3
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change, Security-Based
Swap Submission or Advance Notice
In its filing with the Commission, ICE
Clear Europe 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. ICE
Clear Europe has prepared summaries,
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Capitalized terms used but not defined herein
have the meanings specified in the ICE Clear
Europe Clearing Rules.
1 15
E:\FR\FM\24JYN1.SGM
24JYN1
]]>Agencies
[Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)]
[Notices]
[Pages 35044-35048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15769]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83667; File No. SR-DTC-2018-006]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change To Amend Rule 35 To Provide
for Designated Accounts for Use With Designated Collateral Management
Service Providers
July 18, 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 July 9, 2018, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change of DTC would amend Rule 35 \3\ to permit a
Participant or Pledgee to designate one or more collateral management
service providers,\4\ acting on behalf of the Participant or Pledgee,
to receive reports and information from, and provide certain
instructions to, DTC with respect to specified Accounts of the
Participant or Pledgee. In addition, the proposed rule change would
make ministerial changes to Rule 35, as discussed below.
---------------------------------------------------------------------------
\3\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth in the Rules, By-Laws and
Organization Certificate of The Depository Trust Company (the
``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
\4\ Collateral management generally involves calculating
collateral requirements and facilitating the transfer of collateral
between counterparties. See Securities Exchange Act Release No.
64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (S7-28-11).
---------------------------------------------------------------------------
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 of DTC would amend Rule 35 to permit a
Participant or Pledgee to designate one or more collateral management
service providers, acting on behalf of the Participant or Pledgee, to
receive reports and information from, and provide certain instructions
to, DTC with respect to specified Accounts of the Participant or
Pledgee. In addition, the proposed rule change would make ministerial
changes to Rule 35, as discussed below.
A. Background
i. Rule 35
On May 4, 2017, the Commission approved a DTC rule change that
added Rule 35.\5\ DTC introduced Rule 35 at the request of DTCC
Euroclear Global Collateral Ltd. (``DEGCL'') \6\ in accordance with
DEGCL specifications. The purpose of Rule 35 was to permit a
Participant to authorize DEGCL to receive certain reports and
information with respect to Securities held by the Participant at DTC
in one or more sub-accounts (each, a ``CMS Sub-Account'') so that DEGCL
might provide collateral management services with respect to such
Securities.\7\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 80598 (May 4, 2017),
82 FR 21837 (May 10, 2017) (SR-DTC-2017-001).
\6\ DEGCL is a joint venture of The Depository Trust & Clearing
Corporation, the corporate parent of DTC, and Euroclear S.A./N.V.
and was formed for the purpose of offering global information,
record keeping, and processing services for derivatives collateral
transactions and other types of financing transactions. DEGCL offers
service options for the selection of collateral to satisfy the
collateral obligations of its users (``DEGCL CMS''). One option
relates exclusively to Securities held at DTC, and is dependent on
Rule 35. For more information on DEGCL and DEGCL CMS, see Securities
Exchange Act Release No. 80280 (March 20, 2017), 82 FR 15081 (March
24, 2017) (SR-DTC-2017-001).
\7\ Rule 35 provides that by establishing a CMS Sub-Account, a
Participant authorizes DEGCL to receive from DTC (x) a ``CMS
Report,'' which provides information regarding Securities credited
to the CMS Sub-Account of such Participant at the time of the
report, and (y) ``CMS Delivery Information,'' which provides real-
time information regarding any Delivery or Pledge from, or Delivery
or Release to, the CMS Sub-Account of such Participant.
---------------------------------------------------------------------------
As DEGCL sought to expand its activities under Rule 35, which would
have required one or more amendments to the rule, DTC considered
whether a more comprehensive approach to Rule 35 might better serve the
collateral management needs of its Participants and Pledgees.
ii. Proposed Rule Changes
The proposed rule change to amend Rule 35 would apply to any
collateral management service provider that satisfies the requirements
of the rule, and to any Account designated by a Participant or Pledgee.
The amended rule would authorize DTC to provide information to the
collateral management service provider (as it does for DEGCL currently)
but, further, to act on instructions of the collateral management
service provider.
More specifically, the proposed rule change would:
(1) Introduce the concept of a ``CMSP,'' a collateral management
service provider designated to DTC by a Participant or Pledgee to act
on behalf of the Participant or Pledgee under the proposed rule. The
concept of a CMSP would replace the singular designation of DEGCL to
act under this rule; \8\
---------------------------------------------------------------------------
\8\ DTC understands that DEGCL expects to be a CMSP under
proposed Rule 35 and expects to offer collateral management services
under the amended rule.
---------------------------------------------------------------------------
(2) Introduce the concept of a ``CMSP Account,'' an Account of a
Participant or Pledgee that the Participant or Pledgee, respectively,
has designated as subject to the proposed rule. The scope of a CMSP
Account would replace the narrower concept of the existing CMS Sub-
Account; \9\
---------------------------------------------------------------------------
\9\ Rule 35 currently requires that a designated Account must be
a sub-Account, and can only be designated by a Participant, which
were DEGCL specifications. By expanding the rule to Accounts more
generally, which could be designated by any Participant or Pledgee,
the proposed rule would provide a Participant or a Pledgee
flexibility to choose among CMSPs with different models for
collateral management services and to structure its Accounts in a
manner that aligns most efficiently with its collateral management
needs and the specifications of its designated CMSP(s).
---------------------------------------------------------------------------
(3) Add the concept of a ``CMSP Instruction,'' an instruction of a
CMSP to DTC for the Delivery, Pledge, or Release of Securities to or
from a CMSP Account for which the CMSP is designated under the proposed
rule; and
(4) Introduce the defined terms ``CMSP Position Report'' and ``CMSP
Information'' (collectively, ``CMSP
[[Page 35045]]
Reports''). These reports are analogous to the CMS Report and CMS
Delivery Information, respectively, provided to DEGCL under Rule 35.
B. Proposed Rule
i. CMSP
Proposed Section 2 of Rule 35 would set forth the requirements to
be a CMSP.\10\ Proposed Section 2 would provide that a partnership,
corporation or other organization or entity may become a CMSP for
purposes of proposed Rule 35 if it satisfies the following
requirements: (a) It is designated to DTC by one or more Participants
or Pledgees as a collateral management service provider for purposes of
Rule 35; (b) it (i) satisfies at least one of the qualifications set
forth in Section 1(a)-(h) of Rule 3 \11\ or (ii) is organized in a
country other than the United States, is regulated by a financial
regulatory authority in the country in which it is organized, and
demonstrates that it has notified the Commission in writing of its
intention to operate under Rule 35; \12\ and (c) it establishes a
connection to DTC in accordance with the reasonable requirements of DTC
in order to be able to receive position and transaction information and
to submit instructions to DTC in accordance with the Rules and
Procedures.\13\
---------------------------------------------------------------------------
\10\ See supra note 8.
\11\ Sections 1(a)-(h) of Rule 3 provide the qualifications for
a partnership, corporation or other organization or entity to be
eligible to become a Participant. Specifically, it must satisfy at
least one of the following qualifications: ``(a) it is a corporation
which engages in clearance and settlement activities and which is a
subsidiary of a national securities exchange or national securities
association registered under the Exchange Act; (b) it is a member or
member organization in good standing of a corporation described in
paragraph (a) above; (c) it is a corporation which is authorized
pursuant to Article 8 of the Uniform Commercial Code, or other
similar statutory provision in effect in the jurisdiction in which
such corporation engages in business, to engage in the business of
effecting the transfer or pledge of Securities by book-entry and
which engages in such business; (d) it is a bank or trust company
which is subject to supervision or regulation pursuant to the
provisions of Federal or State banking laws or any subsidiary of
such a bank or trust company or a bank holding company or any
subsidiary of a bank holding company; (e) it is an insurance company
subject to supervision or regulation pursuant to the provisions of
State insurance laws; (f) it is an investment company registered
under section 8 of the Investment Company Act; (g) it is a pension
fund or other employee benefit fund; or (h) if it does not qualify
under paragraphs (a) through (g) above, it is (i) a financial
institution which demonstrates to the Board of Directors that its
business and capabilities are such that it could reasonably expect
material benefit from direct access to the Corporation's services or
(ii) a broker-dealer registered under the Exchange Act.'' Supra note
3.
\12\ In order to protect DTC, its Participants and Pledgees, a
collateral management service provider that wishes to act under
proposed Rule 35 would need to be subject to regulatory oversight
comparable to a Participant, as provided in proposed Section 2(b)(i)
of Rule 35, or, if the entity is organized in a country other than
the United States (a ``non-U.S. entity''), it would need to be
regulated by a financial regulatory authority in the country in
which it is organized, as provided in proposed Section 2(b)(ii) of
Rule 35. Further, the proposed rule change would require that, in
order to be eligible to become a CMSP, the non-U.S. entity must
notify the Commission in writing of its intention to operate under
proposed Rule 35. While DTC reserves the right to request
documentation and/or information relating to a collateral management
service provider's compliance with the requirements of proposed
Section 2 of Rule 35, it would be the sole responsibility of the
Participant or Pledgee to evaluate and choose an appropriate
collateral management service provider that, at a minimum, satisfies
the requirements. Under proposed Section 2 of Rule 35, the
designating Participant or Pledgee would remain liable as principal
for the actions of its designated CMSP(s) on its behalf, and would
indemnify DTC for any loss, liability, or expense as a result of any
claim arising from (i) any act or omission of the CMSP, (ii) the
provision of CMSP Reports to the CMSP by DTC, or (iii) DTC's
compliance with instructions of the CMSP.
\13\ See infra note 15.
---------------------------------------------------------------------------
Proposed Section 2 of Rule 35 would also provide that DTC may
decline to accept an entity as a CMSP if it would present material risk
to DTC, its Participants and Pledgees, or impose material costs to DTC.
For illustrative purposes only, some examples of circumstances in which
DTC might reject a collateral management service provider as a CMSP may
include, without limitation, circumstances in which DTC reasonably
believes that acceptance of the collateral management service provider
as a CMSP would (i) subject DTC to additional legal or regulatory
regimes, to which it is not otherwise subject; (ii) expose DTC to
additional technology risk; or (iii) cause DTC to be in violation of
applicable law or regulation.
ii. CMSP Accounts
The proposed rule change would amend Rule 35 to allow either a
Participant or a Pledgee to designate any Account as a CMSP Account.
The key feature of a CMSP Account is that it allows the designated CMSP
access and authority to provide instruction to DTC (as further
described below) for the Delivery, Pledge, or Release of Securities on
behalf of a Participant or Pledgee, as applicable. The proposed rule
change would specify that, with respect to a CMSP Account, a
Participant or Pledgee would retain the right to instruct DTC as
otherwise provided in the Rules and Procedures.
Pursuant to proposed Section 3 of Rule 35, a Participant or Pledgee
would be able to designate one or more CMSP Accounts and, concurrently,
designate one or more CMSPs with respect to each CMSP Account. The
designation of a CMSP with respect to a CMSP Account by a Participant
or Pledgee would constitute:
(1) The appointment of the CMSP by the Participant or Pledgee of
the CMSP to act on its behalf under Rule 35;
(2) the authorization of the appointed CMSP by the Participant or
Pledgee to receive CMSP Reports and to provide CMSP Instructions;
(3) the authorization of DTC by the Participant or Pledgee to act
in accordance with any CMSP Instruction of such CMSP; and
(4) the representation and warranty of the Participant or Pledgee
that it is duly authorized to instruct DTC to provide CMSP Reports to
the CMSP and to act in accordance with any CMSP Instruction.
With the exception of references to Pledgees and to the new concept
of CMSP Instruction, these authorizations, representations, and
warranties would substantially track Rule 35, as previously adopted.
In addition, the proposed rule change would not substantially alter
the liability and indemnification provisions in Rule 35. The proposed
rule change would provide that each Participant and Pledgee that
designates a CMSP with respect to a CMSP Account would indemnify DTC,
and any nominee of DTC, against any loss, liability or expense as a
result of any claim arising from the compliance of DTC with CMSP
Instructions, except to the extent such loss, liability, or expense is
caused directly by the DTC's gross negligence or willful misconduct.
iii. CMSP Reports
As discussed above, Rule 35 currently provides a mechanism for a
Participant to authorize DEGCL to receive position and transaction
information from DTC, in the form of CMS Reports and CMS Delivery
Information.\14\ The proposed rule change would permit a Participant or
Pledgee to designate a CMSP that would be authorized to receive CMSP
Reports and give CMSP Instructions with respect to CMSP Accounts for
which the CMSP is designated. The CMSP Position Report and CMSP
Information are analogous to the reports provided to DEGCL under
existing Rule 35 (defined as the CMS Report and CMS Delivery
Information, respectively).\15\
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\14\ See supra note 7.
\15\ The proposed rule change would not alter the provision in
Rule 35 that states that DTC will provide the CMSP Reports ``through
such dedicated communications channels, satisfactory to [DTC] in its
sole discretion, as [DTC] shall afford for this purpose.''
Typically, DTC would have infrastructure and operations that it
would use to transmit information to, or receive information from,
CMSPs under proposed Rule 35. DTC would consider requests from CMSPs
for alternative methods of connectivity, taking into account factors
that may include, but are not limited to, operational feasibility,
user demand, and cost. In such a situation, the applicable CMSP
would be responsible for all development, integration,
implementation, and additional operating costs related to such
alternate method of transmission.
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[[Page 35046]]
Existing Rule 35 defines ``CMS Delivery Information'' to mean,
``with respect to CMS Securities and any Delivery or Pledge thereof
from, or Delivery or Release thereof to, a CMS Sub-Account, a copy of
any Delivery, Pledge, or Release message sent to the CMS Participant by
DTC, including the following information: (x) the CUSIP, ISIN, or other
identification number of such CMS Securities, and (y) the number of
shares or other units or principal amount of such CMS Securities.''
This definition was drafted to align with DEGCL specifications.
Pursuant to the proposed rule change, the definition would be drafted
in more general terms to provide flexibility for the different
collateral management service offerings of CMSPs (in addition to
DEGCL). Pursuant to the proposed rule change, ``CMSP Information''
would mean, ``with respect to a CMSP Account of a Participant or
Pledgee, a copy of any message sent to the Participant or Pledgee by
the Corporation.'' These messages would include, but would not be
limited to, the Delivery, Pledge, and Release messages referenced in
the definition of CMS Delivery Information in existing Rule 35.
Similarly, existing Rule 35 defines ``CMS Report'' to mean, ``with
respect to a CMS Participant and its CMS Sub-Account, the following
information identifying the CMS Securities that are, at the time of
such report, credited to such CMS Sub-Account: (i) The CUSIP, ISIN, or
other identification number of the CMS Securities, and (ii) the number
of shares or other units or principal amount of the CMS Securities.''
This definition was drafted to align with DEGCL specifications.
Pursuant to the proposed rule change, ``(i) the CUSIP, ISIN, or other
identification number of the CMS Securities, and (ii) the number of
shares or other units or principal amount of the CMS Securities'' would
be deleted from the definition.
Finally, similar to existing Rule 35, proposed Rule 35 would
provide that DTC would have no liability to any Participant or Pledgee
as a result of providing one or more CMSP Reports to any CMSP pursuant
to proposed Section 5 of Rule 35.
iv. CMSP Instructions
The proposed rule change would further amend Rule 35 to provide
that a CMSP designated by a Participant or Pledgee with respect to a
CMSP Account would be authorized to instruct DTC, on behalf of the
Participant or Pledgee, for the Delivery, Pledge, or Release of
Securities credited to such CMSP Account, as applicable.\16\ CMSP
Instructions would be subject to the terms and conditions of the Rules
and the Procedures applicable to Deliveries, Pledges, and Releases of
Securities generally, including risk management controls.\17\ The
purpose of this proposed change is to streamline collateral processing
by CMSPs by allowing them to receive information directly from DTC and
to take direct action on that information through CMSP Instructions, on
behalf of Participants and Pledgees.
---------------------------------------------------------------------------
\16\ For a CMSP Account of a Participant, that would include
Delivery or Pledge. For a CMSP Account of a Pledgee, that would
include Delivery or Release.
\17\ DTC risk management controls, including Collateral Monitor
and Net Debit Cap (as defined in Rule 1, Section 1 of the Rules),
are designed so that DTC may complete system-wide settlement
notwithstanding the failure to settle of its largest Participant or
Affiliated Family of Participants. The Collateral Monitor tests
whether a Participant has sufficient collateral for DTC to pledge or
liquidate if that Participant were to fail to meet its settlement
obligation. Pursuant to these controls under applicable DTC Rules
and Procedures, DTC would not process any Delivery or Pledge
instruction order from a CMSP Account that would cause the
Participant to exceed its Net Debit Cap or to have insufficient DTC
Collateral to secure its obligations to DTC. Deliveries would be
processed in the same order and with the same priority as otherwise
provided in the Rules and Procedures (i.e., such Deliveries and
Pledges would not take precedence over any other type of Delivery or
Pledge in the DTC system).
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Pursuant to the proposed rule change, the right of any CMSP to
instruct DTC with respect to a CMSP Account would not preclude
instructions by the Participant or Pledgee itself, or CMSP Instructions
by another CMSP, with respect to the same CMSP Account. Furthermore,
Rule 35 would provide that DTC has no liability (i) to a Participant or
Pledgee for acting in accordance with, or relying upon, CMSP
Instructions, or (ii) to any CMSP as a result of DTC acting in
accordance with, or relying upon, instructions of any other Person,
including, but not limited to, the Participant or Pledgee or any other
designated CMSP.
C. Proposed Rule Changes
In connection with the foregoing, DTC proposes to make the
following changes (including ministerial changes) to Rule 35.
Title. DTC is proposing to replace the current title ``CMS
Reporting'' with ``CMSP Reports and Instructions,'' to reflect the
amended substance of the proposed rule.
Section 1. For stylistic consistency, DTC is proposing to insert
the title ``Certain Defined Terms'' for Section 1. For the reasons
explained above, DTC is further proposing to (i) delete the definitions
of CMS, CMS Participant, CMS Representative, CMS Securities, DEGCL, and
DTCC; (ii) add definitions for CMSP, CMSP Account, CMSP Instruction,
and CMSP Reports; (iii) replace the defined term ``CMS Delivery
Information'' with ``CMSP Information'' and simplify the definition by
referring to ``a copy of any message sent to the Participant or
Pledgee'' with respect to a CMSP Account, instead of ``a copy of any
Delivery, Pledge, or Release message sent to the CMS Participant by
DTC, including the following information: (x) the CUSIP, ISIN, or other
identification number of such CMS Securities, and (y) the number of
shares or other units or principal amount of such CMS Securities''; and
(iv) replace the defined term ``CMS Report'' with ``CMSP Position
Report'' and simplify the definition by removing the DEGCL
specifications of ``(i) the CUSIP, ISIN, or other identification number
of the CMS Securities, and (ii) the number of shares or other units or
principal amount of the CMS Securities.''
Proposed Section 2 (New). DTC is proposing to insert a new proposed
Section 2, titled ``Qualification as a CMSP.'' As discussed above,
Section 2 would set forth the requirements that an entity must satisfy
to become a CMSP.
Section 2 (Proposed Section 3). DTC is proposing to renumber
Section 2 to Section 3, and to change the title of proposed Section 3
to ``CMSP Accounts.'' DTC is further proposing to modify subsection (a)
to delete DEGCL CMS-specific terms and to reflect that (i) a
Participant or Pledgee can designate one or more CMSP Accounts, as well
as designate one or more CMSPs for each CMSP Account, and (ii) the
designation of a CMSP with respect to a CMSP Account by a Participant
or Pledgee would constitute: (1) The appointment of the CMSP by the
Participant or Pledgee of the CMSP to act on its behalf under Proposed
Rule 35; (2) the authorization of the appointed CMSP by the Participant
or Pledgee to receive CMSP Reports and to provide CMSP Instructions;
(3) the authorization of DTC by the Participant or Pledgee to act in
accordance with any CMSP Instructions of such CMSP; and (4) the
representation and warranty of the Participant or Pledgee that it is
duly authorized to instruct DTC to provide
[[Page 35047]]
CMSP Reports to the CMSP and to act in accordance with CMSP
Instructions. DTC is further proposing to modify subsection (b) to
remove CMS-specific references, to reflect the inclusion of Pledgees,
CMSPs, and CMSP Instruction in the proposed rule, and to make
ministerial changes. Additionally, DTC proposes to remove subsection
(c) as it would be no longer relevant because it relates exclusively to
DEGCL.
Section 3 (Proposed Section 4). DTC is proposing to renumber
Section 3 as Section 4, and to change the title of the section to
``Instructions on a CMSP Account.'' DTC is further proposing to (i)
modify subsection (a) to remove provisions relating to the transfer of
Securities to a CMS Sub-Account, and to insert a provision stating that
a Participant or Pledgee retains its right to instruct DTC with respect
to its CMSP Account, and (ii) modify subsection (b) to remove
provisions relating to the transfer of Securities to a CMS Sub-Account,
and to insert a provision specifying that a CMSP may instruct the
Delivery, Pledge, or Release of Securities to or from a CMSP Account
for which it is designated pursuant to proposed Section 3 of Rule 35.
Further, DTC proposes to insert proposed subsection (c) that would
state that all Deliveries, Pledges, and Releases to or from a CMSP
Account would be subject to the terms and conditions of the Rules and
Procedures applicable to Deliveries, Pledges, and Releases of
Securities generally.
Section 4. DTC proposes to delete this section, as it relates to
DEGCL specifications for a CMS Report and would no longer be relevant.
Section 5. DTC is proposing to replace the current title of ``CMS
Delivery Information'' with ``CMSP Reports.'' DTC is further proposing
to insert proposed subsection (a) to provide for the provision of CMSP
Position Reports and CMSP Information to each CMSP for each CMSP
Account for which it is designated. DTC additionally proposes to delete
the following language, because it relates to DEGCL-specific
requirements: ``CMS Delivery Information. The Corporation shall, for
purposes of CMS, provide CMS Delivery Information to the CMS
Representative, in real-time, with respect to (i) each Delivery or
Pledge from, and (ii) Delivery or Release to, any CMS Sub-Account.''
Further, DTC proposes to incorporate the remaining language of Section
5, modified to conform with the defined terms of the proposed rule
change, into proposed subsection (b).
Section 6. DTC is proposing to modify the section to (i) add
references to CMSPs, Pledgees, CMSP Reports, and CMSP Instructions,
(ii) remove references to CMS Participant, CMS Report, Delivery
Information, and CMS Representative, and (iii) update a cross-reference
relating to CMSP Reports. DTC is further proposing to add disclaimers
of liability to (i) a Participant or Pledgee for acting in accordance
with, or relying upon, CMSP Instructions, or (ii) any CMSP as a result
of DTC acting in accordance with, or relying upon, instructions of any
other Person, including, but not limited to, the Participant or Pledgee
or any other designated CMSP, with respect to a CMSP Account.
For additional clarity, DTC is also proposing to make ministerial
changes to (i) update articles, pronouns, and determiners, and (ii)
modify language for stylistic conformity within the proposed rule.
Implementation Timeframe
DTC will implement the proposed rule change two Business Days after
approval of this filing by the Commission. Participants would be
advised of the implementation date of this proposed rule change through
the issuance of a DTC Important Notice.
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.\18\
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Act \19\ requires, inter alia, that the
Rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions. By amending Rule 35 (i) to
expand its application to CMSPs generally, and (ii) to provide that
Pledgees, in addition to Participants, may designate an Account under
Rule 35, the proposed rule change would provide any Participant or
Pledgee the opportunity to choose one or more CMSPs that align most
efficiently with its specific collateral management needs and to
structure its Accounts accordingly. In addition, by amending Rule 35 to
permit any Participant or Pledgee to designate one or more CMSPs to
provide CMSP Instructions to DTC with respect to a CMSP Account, the
proposed rule change would reduce the number of actions that a
Participant or Pledgee that has a CMSP would need to take in order to
effect the settlement of collateral transactions at DTC, thereby adding
efficiency by providing straight-through submission and processing of
settlement instructions by a CMSP without further actions by the
Participant or Pledgee. Further, for enhanced clarity, the proposed
rule change would make ministerial changes to Rule 35 so the processes
relating to CMSPs are clear and consistent. Therefore, by (i) providing
Participants and Pledgees the opportunity to choose a CMSP that aligns
most efficiently with its needs, (ii) providing streamlined submission
and processing of settlement instructions by a CMSP on behalf of the
Participant or Pledgee, and (iii) providing a clear and consistent rule
relating to CMSPs, the proposed rule change is designed to improve
efficiency in the processing and settlement of collateral transactions,
thereby promoting the prompt and accurate clearance and settlement of
securities transactions, consistent with the requirements of the Act,
in particular Section 17A(b)(3)(F).
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\19\ Id.
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Rule 17Ad-22(e)(21) promulgated under the Act requires, inter alia,
that each covered clearing agency shall 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.\20\ By amending Rule 35 to permit a
Participant or Pledgee to designate one or more CMSPs to provide CMSP
Instructions to DTC with respect to a CMSP Account, the proposed rule
change would provide (i) an efficient mechanism for a Participant or
Pledgee to designate collateral management service providers for its
Account at DTC, and (ii) flexibility to a Participant or Pledgee to
structure its Accounts in a manner that is most effective for the
collateral management needs of that Participant or Pledgee and for the
specifications of its designated CMSP(s), and is therefore designed to
be efficient and effective in meeting the requirements of Participants,
consistent with the requirements of the Act, in particular Rule 17Ad-
22(e)(21).
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\20\ 17 CFR 240.17Ad-22(e)(21).
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change to amend Rule 35 to (i)
expand its application to CMSPs generally, (ii) provide that Pledgees,
in addition to Participants, may designate an Account under Rule 35,
and (iii) provide for CMSP Instructions to DTC with respect to a CMSP
Account, would have an impact on competition by potentially promoting
competition, and would not
[[Page 35048]]
impose a burden on competition.\21\ By removing provisions particular
to DEGCL only, and providing that any Participant or Pledgee can
designate a CMSP for a CMSP Account, the proposed rule change would (i)
offer collateral management service providers (in addition to DEGCL)
the opportunity to provide collateral management services to
Participants and Pledgees under proposed Rule 35, and (ii) provide any
Participant or Pledgee the opportunity to choose from among competing
collateral management service providers. In addition, by providing that
a Participant or Pledgee can designate one or more CMSPs to provide
CMSP Instructions to DTC with respect to a CMSP Account for which it is
designated, the proposed rule change would provide CMSPs the
opportunity to include direct messaging to DTC as part of their
services to Participants or Pledgees. Therefore, DTC believes that the
proposed rule change would not impose a burden on competition but may
promote competition.
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\21\ 15 U.S.C. 78q-1(b)(3)(I).
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DTC does not believe that the proposed ministerial changes to Rule
35 would have any impact on competition because these clarifications
would merely make changes for accuracy and consistency and therefore
would not affect the rights and obligations of any Participant or
Pledgee or other interested party.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to the proposed rule change have not been
solicited or received. DTC will notify the Commission of any written
comments received by DTC.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2018-006 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-2018-006. 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-2018-006 and should be submitted on
or before August 14, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15769 Filed 7-23-18; 8:45 am]
BILLING CODE 8011-01-P
