Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of Proposed Rule Change To Amend Rule 35 To Provide for Designated Accounts for Use With Designated Collateral Management Service Providers, 44377-44381 [2018-18784]
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18826 Filed 8–29–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83940; File No. SR–DTC–
2018–006]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Granting Approval of Proposed Rule
Change To Amend Rule 35 To Provide
for Designated Accounts for Use With
Designated Collateral Management
Service Providers
August 24, 2018.
On July 9, 2018, The Depository Trust
Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–DTC–2018–006 pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder.2 The proposed rule change
was published for comment in the
Federal Register on July 24, 2018.3 The
Commission did not receive any
comment letters on the proposed rule
change. For the reasons discussed
below, the Commission approves the
proposed rule change.
I. Description of the Proposed Rule
Change
The proposed rule change would
amend the Rules, By-Laws and
Organization Certificate of The
Depository Trust Company (‘‘DTC
Rules’’) 4 to revise DTC’s current Rule
35—CMS Reporting (‘‘Rule 35’’).
A. Background
Currently, Rule 35 provides that a
Participant of DTC (‘‘Participant’’) may
establish a collateral management
service (‘‘CMS’’) 5 sub-account (‘‘CMS
Sub-Account’’), which authorizes DTCC
Euroclear Global Collateral Ltd.
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No.83667
(July 18, 2018), 83 FR 35044 (July 24, 2018) (SR–
DTC–2018–006) (‘‘Notice’’).
4 Available at https://www.dtcc.com/legal/rulesand-procedures.aspx. Each capitalized term not
otherwise defined herein has its respective meaning
as set forth in the DTC Rules.
5 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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(‘‘DEGCL’’) 6 to receive from DTC (i) a
CMS report that provides information
regarding securities credited to the CMS
Sub-Account of such Participant at the
time of the report (‘‘CMS Report’’), and
(ii) CMS delivery information that
provides real-time information
regarding any delivery or pledge from,
or delivery or release to, the CMS SubAccount (‘‘CMS Delivery
Information’’).7
B. The Proposed Rule Change
DTC proposes five changes to Rule 35:
(1) Adding the term ‘‘CMSP’’ (i.e., a
CMS provider) and its associated
function; (2) adding the term ‘‘CMSP
Accounts’’ and its associated function;
(3) adding the term ‘‘CMSP Reports’’
and its associated function; (4)
authorizing a CMSP to submit CMSP
instructions (‘‘CMSP Instructions’’) on
behalf of a Participant or a Pledgee of
DTC (‘‘Pledgee’’); and (5) making
ministerial changes to conform with the
proposed changes, as well as making
stylistic edits.8 Each of these proposed
changes is described below.
1. CMSP
The proposal would add to Rule 35
the term and function of a CMSP, which
a Participant or Pledgee could then
designate to act on its behalf under the
rule, pursuant to the proposed changes.9
The term CMSP would replace the
existing, singular designation of DEGCL
to act under Rule 35 as a collateral
management provider.10 A partnership,
corporation, or other organization or
entity could become a CMSP, under the
proposed changes to Rule 35, if it
satisfies three proposed criteria: (1) One
or more Participants or Pledgees
designate the entity as a CMSP for
purposes of Rule 35; (2) the entity (i)
satisfies at least one of the qualifications
set forth in Section 1(a)–(h) of Rule 3 11
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’’). See
Securities Exchange Act Release No. 80280 (March
20, 2017), 82 FR 15081 (March 24, 2017) (SR–DTC–
2017–001) (‘‘CMS Order’’) (providing additional
information on DEGCL and DEGCL CMS). One
option relates exclusively to Securities held at DTC,
and is dependent on Rule 35. Id.
7 CMS Order, 82 FR at 21838.
8 Notice, 83 FR at 35044–45.
9 Notice, 83 FR at 35045.
10 Id.
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. See DTC Rules, Rule 3, Sections 1(a)–
(h), supra note 4.
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44377
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 (3) the
entity 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 DTC
Rules and Procedures.13
As proposed, 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.14 DTC states that
some examples of circumstances in
which DTC might reject an applicant as
a CMSP include when DTC reasonably
believes that acceptance of the applicant
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.15
2. CMSP Account
The proposed rule change would add
the term and function of a ‘‘CMSP
Account’’ to Rule 35.16 Currently, Rule
35 requires a Participant looking to
utilize the services offered through Rule
35 to designate an account for such
12 DTC states that in order to protect DTC, its
Participants and Pledgees, a CMSP that wishes to
act under the proposed changes to 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. Notice, 83 FR
at 35045. 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 Rule 35, as modified by the proposed
changes. Id. While DTC reserves the right to request
documentation and/or information relating to a
CMSP’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 CMSP that, at
a minimum, satisfies the requirements. Id. 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. Id.
13 Id.
14 Id.
15 Id.
16 Id.
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purposes (i.e., a CMS Sub-Account).17 A
Pledgee, however, is not permitted to
designate a CMS Sub-Account under the
existing Rule 35.
The proposed CMSP Account would
replace the concept of the existing CMS
Sub-Account and would allow either a
Participant or a Pledgee to designate any
account as a CMSP Account.18 Once
established, a CMSP Account would
allow 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.19 As proposed, a Participant
or Pledgee could designate one or more
CMSP Accounts and, concurrently,
designate one or more CMSPs with
respect to each CMSP Account.20
A Participant’s or Pledgee’s
designation of a CMSP for a CMSP
Account would serve four functions: (1)
The appointment of the CMSP to act on
its Participant’s or Pledgee’s behalf for
the purposes of Rule 35; (2) the
authorization of the CMSP to receive
CMSP Reports and to provide CMSP
Instructions on behalf of its Participant
or Pledgee; (3) the authorization of DTC
to act in accordance with any CMSP
Instruction of a Participant’s or
Pledgee’s designated 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.21
The proposed rule change would not
substantially alter the current liability
and indemnification provisions
provided for in Rule 35.22 Specifically,
the proposed rule change would provide
that each Participant and Pledgee that
designates a CMSP 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.23
3. CMSP Reports
Rule 35 currently authorizes DEGCL,
and only DEGCL, to receive position
17 Id.
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18 Id.
19 Id. 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 DTC Rules and
Procedures. Id.
20 Id.
21 Id.
22 Id.
23 Id.
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and transaction information from DTC
on behalf of a Participant in the form of
CMS Delivery Information and CMS
Reports.24 The proposed rule change
would permit a Participant or Pledgee to
authorize a CMSP, which may or may
not be DEGCL, to receive CMSP Reports
(with respect to CMSP Accounts for
which the CMSP is designated).25 The
CMSP Information and CMSP Position
Report are analogous to the reports
currently provided to DEGCL under
Rule 35 (i.e., CMS Report and CMS
Delivery Information, respectively).26
Currently, 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.’’ 27 DTC states that this
definition was drafted to align with
DEGCL specifications.28
Pursuant to the proposed rule change,
the definition of ‘‘CMSP Information’’
would be drafted in more general terms
to provide flexibility for the different
collateral management service offerings
of CMSPs (in addition to DEGCL).29
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.’’ 30 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 35.31
Similarly, Rule 35 currently 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.’’ 32 DTC
states that this definition was drafted to
24 Id.
25 Id.
26 Id.
27 Notice,
83 FR at 35046.
28 Id.
29 Id.
30 Id.
31 Id.
32 Id.
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align with DEGCL specifications.33
Pursuant to the proposed rule change,
the specific language ‘‘(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 of ‘‘CMSP
Position Reports.’’ 34
Finally, similar to what is provided
for in Rule 35 today, the proposed
changes 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
35.35
4. CMSP Instructions
The proposed rule change would
provide that a CMSP would be
authorized to instruct DTC, on behalf of
the Participant or Pledgee, for the
Delivery, Pledge, or Release of securities
credited to such Participant or Pledgee’s
CMSP Account, as applicable.36 CMSP
Instructions would be subject to the
terms and conditions of the DTC Rules
and Procedures applicable to Deliveries,
Pledges, and Releases of securities
generally, including risk management
controls.37 DTC states that 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.38
The proposal would not preclude
instructions by the Participant or
Pledgee itself, or CMSP Instructions by
another CMSP, with respect to the same
33 Id.
34 Id.
35 Id.
36 For a CMSP Account of a Participant, that
would include Delivery or Pledge. Id. For a CMSP
Account of a Pledgee, that would include Delivery
or Release. Id.
37 DTC states that its 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. Id. 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. Id. Pursuant
to these controls under applicable DTC Rules and
Procedures, DTC states that it 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. Id. DTC
states that Deliveries would be processed in the
same order and with the same priority as otherwise
provided in the DTC Rules and Procedures (i.e.,
such Deliveries and Pledges would not take
precedence over any other type of Delivery or
Pledge in the DTC system). Id.
38 Id.
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CMSP Account.39 Furthermore, the
proposed changes to 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.40
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5. Ministerial Changes
In connection with the foregoing, DTC
proposes the following ministerial
changes to Rule 35 in order to conform
the existing rule text to the proposed
changes, as well as to make stylistic
edits: 41
Title. DTC proposes to replace the
current title ‘‘CMS Reporting’’ with
‘‘CMSP Reports and Instructions,’’ to
reflect the amended substance of the
proposed rule.42
Section 1. For stylistic consistency,
DTC proposes to insert the title ‘‘Certain
Defined Terms’’ for Section 1.43 DTC
further proposes 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.’’ 44
Proposed Section 2 (New). DTC
proposes to insert a new proposed
Section 2, titled ‘‘Qualification as a
CMSP.’’ 45 This section would identify
the aforementioned requirements that
39 Id.
41 Id.
42 Id.
43 Id.
44 Id.
45 Id.
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Information’’ with ‘‘CMSP Reports.’’ 55
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.56 DTC additionally
proposes to delete language relating to
DEGCL-specific requirements regarding
‘‘CMS Delivery Information.’’ 57 Further,
DTC proposes to incorporate the
remaining language of Section 5,
modified to conform to the defined
terms of the proposed rule change, into
proposed subsection (b).58
Section 6. DTC proposes 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 crossreference relating to CMSP Reports.59
DTC further proposes 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.60
For additional clarity, DTC also
proposes to make ministerial changes to
(i) update articles, pronouns, and
determiners, and (ii) modify language
for stylistic conformity within the
proposed rule.61
II. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 62
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and
rules and regulations thereunder
applicable to such organization. The
Commission believes the proposal is
consistent with the Act, specifically
Section 17A(b)(3)(F) of the Act and Rule
17Ad–22(e)(21) under the Act.63
55 Id.
46 Id.
56 Id.
47 Id.
57 Id.
48 Notice,
58 Id.
83 FR at 35046–7.
49 Notice, 83 FR at 35047.
50 Id.
51 Id.
52 Id.
53 Id.
54 Id.
40 Id.
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an entity must satisfy to become a
CMSP.46
Section 2 (Proposed Section 3). DTC
proposes to renumber Section 2 to
Section 3, and to change the title of
proposed Section 3 to ‘‘CMSP
Accounts.’’ 47 DTC also proposes 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) as noted above,
describe what the designation of a
CMSP entails, with respect to a CMSP
Account by a Participant or Pledgee
would constitute.48 DTC further
proposes 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.49 Additionally, DTC proposes
to remove subsection (c) as it would be
no longer relevant because it relates
exclusively to DEGCL.50
Section 3 (Proposed Section 4). DTC
proposes to renumber Section 3 as
Section 4, and to change the title of the
section to ‘‘Instructions on a CMSP
Account.’’ 51 DTC further proposes 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 35.52 Further, DTC
proposes to insert the new 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 DTC Rules and
Procedures applicable to Deliveries,
Pledges, and Releases of securities
generally.53
Section 4. DTC proposes to delete this
section, as it relates to DEGCL
specifications for a CMS Report.54
Section 5. DTC proposes to replace
the current title of ‘‘CMS Delivery
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59 Id.
60 Id.
61 Id.
62 15
63 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F); 17 CFR 240.17Ad–
22(20).
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A. Consistency With Section 17A
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Act 64
Section 17A(b)(3)(F) of the
requires, inter alia, that the rules of the
clearing agency be designed to promote
the prompt and accurate clearance and
settlement of securities transactions.
As described above, DTC proposes to
make five core changes to Rule 35. First,
DTC proposes to no longer reference
DEGCL as the sole CMS provider under
Rule 35 but, instead, to reference the
new term CMSP and its associated
functions. Specifically, the proposed
change would allow any otherwise
eligible partnership, corporation, or
other organization or entity that meets
the proposed criteria to offer collateral
management services through DTC for
the purpose of Rule 35. The
Commission believes that by expanding
Rule 35 to include a broader concept of
a CMSP, not just one specific CMSP
(i.e., DEGCL), the proposed change (i)
opens up the opportunity for other
collateral management providers to
compete in offering their services under
Rule 35, and (ii) affords Participants and
Pledgees the opportunity to evaluate
whether another entity could better
meet its collateral management
requirements. By increasing the
opportunity for competition and
selection, the proposed change should
help collateral management providers,
Participants, and Pledgees be better
positioned to more efficiently effect the
settlement of collateral transactions
under Rule 35. Therefore, the change
would help promote the prompt and
accurate clearance and settlement of
securities transactions.
Second, as described above, DTC
proposes to add to Rule 35 the term
CMSP Account and its associated
functions. As proposed, a CMSP
Account would allow Pledgees, not just
Participants, to use collateral
management service offerings of CMSPs
for the purposes of Rule 35. By
establishing the ability for Pledgees to
utilize collateral management services
under Rule 35, through the proposed
CMSP Account, the proposal affords
Pledgees the same opportunities to
manage such collateral transactions
through DTC as Participants. The
Commission believes that expanding
Rule 35 to include Pledgees should help
Pledgees more efficiently effect the
settlement of their collateral
transactions at DTC, thus helping to
promote the prompt and accurate
clearance and settlement of such
securities transactions.
Third, as described above, DTC
proposes to add to Rule 35 the term
64 15
U.S.C. 78q–1(b)(3)(F).
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CMSP Reports and its associated
functions; namely, the CMSP Position
Report and the CMSP Information. The
CMSP Position Report would enable the
CMSP to know what securities are
credited to a Participant or Pledgee’s
CMSP Account each day, while the
CMSP Information would allow the
CMSP to know the Participant’s or the
Pledgee’s real-time correspondence with
DTC. These two reports are designed to
furnish the CMSP with information
needed to calculate collateral
requirements and facilitate the transfer
of collateral between counterparties. As
such, the Commission believes that the
CMSP Position Report and CMSP
Information would assist CMSPs in
providing collateral management
services, and thereby, promote the
prompt and accurate clearance and
settlement of those securities
transactions.
Fourth, as described above, the
proposed rule change would allow a
CMSP to instruct DTC to Deliver,
Pledge, or Release securities credited to
a CMSP Account, on behalf of a
Participant or Pledgee. In doing so, the
proposed rule change should help
reduce the number of actions that a
Participant or Pledgee that uses a CMSP
would need to take in order to effect the
settlement of collateral transactions at
DTC. The Commission believes that the
proposal would thereby help add
efficiency to the clearance and
settlement process by providing
straight-through submission and
processing of settlement instructions by
a CMSP, without further actions by the
Participant or Pledgee. As such, the
proposed CMSP Instructions would
help promote the prompt and accurate
clearance and settlement of securities
transactions.
Fifth, as described above, the proposal
would make ministerial changes to Rule
35 to conform the existing language in
Rule 35 to the proposed changes. The
proposal would also make various
stylistic edits to the rule text. These
changes are designed to help ensure that
the final rule text is coherent and all
cross-references within the rule text are
current. The Commission believes the
ministerial and stylistic changes thereby
would help Participants and Pledgees to
better understand their rights and
obligations with respect to the collateral
management services provide under
Rule 35. Therefore, the changes would
help promote the prompt and accurate
clearance and settlement of such
transactions.
As each of the aforementioned
changes is designed to promote the
prompt and accurate clearance and
settlement of securities transactions, the
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Fmt 4703
Sfmt 4703
Commission finds that the proposal is
consistent with the requirements
Section 17A(b)(3)(F).
B. Consistency With Rule 17Ad–
22(e)(21)
Rule 17Ad–22(e)(21) promulgated
under the Act requires, inter alia, a
covered clearing agency 65 to 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.66
As described above, the proposal
would amend Rule 35 to, generally, (i)
broaden what entities may serve as a
CMSP, (ii) allow Participants and
Pledgees to utilize the services offered
by Rule 35, (iii) and permit Participants
and Pledgees to designate one or more
CMSPs, with respect to a CMSP
Account, to provide CMSP Instructions,
as well as receive CMSP Information
and CMSP Position Reports. With these
proposed changes, the Commission
believes that the proposal would grant
both Participants and Pledgees the
flexibility to establish and structure
their respective CMSP Accounts,
including the eligible CMSP that would
service the accounts, in a manner that
is most effective and efficient for the
collateral management needs of that
Participant or Pledgee and for the
specifications of its designated CMSP(s).
The proposed rule change also would
make ministerial revisions and stylistic
edits to Rule 35, as described above.
These changes are designed to help
Participants and Pledgees better
understand their rights and obligations
with respect to the services offered
under Rule 35. By helping Participants
and Pledgees better understand their
rights and obligations with respect to
Rule 35, the Commission believes that
the proposed changes are designed to be
efficient and effective in meeting the
requirements of Participants and
Pledgees that take advantage of DTC’s
collateral management services under
Rule 35.
65 A ‘‘covered clearing agency’’ means, among
other things, a clearing agency registered with the
Commission under Section 17A of the Exchange
Act (15 U.S.C. 78q–1 et seq.) that is designated
systemically important by the Financial Stability
Oversight Counsel (‘‘FSOC’’) pursuant to the
Payment, Clearing, and Settlement Supervision Act
of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR
240.17Ad–22(a)(5)–(6). On July 18, 2012, FSOC
designated DTC as systemically important. U.S.
Department of the Treasury, ‘‘FSOC Makes First
Designations in Effort to Protect Against Future
Financial Crises,’’ available at https://
www.treasury.gov/press-center/press-releases/
Pages/tg1645.asp. Therefore, DTC is a covered
clearing agency.
66 17 CFR 240.17Ad–22(e)(21).
E:\FR\FM\30AUN1.SGM
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Federal Register / Vol. 83, No. 169 / Thursday, August 30, 2018 / Notices
Therefore, the Commission finds that
the proposal is designed to be efficient
and effective in meeting the
requirements of Participants and
Pledgees, consistent with Rule 17Ad–
22(e)(21) under the Act.
III. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act, in particular the requirements of
Section 17A of the Act 67 and the rules
and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that
proposed rule change SR–DTC–2018–
006 be, and hereby is, approved.68
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18784 Filed 8–29–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83953; File No. SR–DTC–
2017–803]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
No Objection to an Advance Notice, as
Modified by Amendment No. 1, To
Adopt a Recovery & Wind-Down Plan
and Related Rules
August 27, 2018.
On December 18, 2017, The
Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–DTC–2017–803 pursuant to
Section 806(e)(1) of Title VIII of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the
Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Clearing
Supervision Act’’) 1 and Rule 19b–
4(n)(1)(i) under the Securities Exchange
Act of 1934 (‘‘Act’’) 2 to adopt a recovery
and wind-down plan (‘‘R&W Plan’’) and
related rules.3 The advance notice was
67 15
U.S.C. 78q–1.
approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
69 17 CFR 200.30–3(a)(12).
1 12 U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
3 On December 18, 2017, DTC filed the advance
notice as proposed rule change SR–DTC–2017–021
with the Commission pursuant to Section 19(b)(1)
of the Act and Rule 19b–4 thereunder (‘‘Proposed
Rule Change’’). 15 U.S.C. 78s(b)(1) and 17 CFR
240.19b–4, respectively. The Proposed Rule Change
was published in the Federal Register on January
amozie on DSK3GDR082PROD with NOTICES1
68 In
VerDate Sep<11>2014
17:25 Aug 29, 2018
Jkt 244001
published for comment in the Federal
Register on January 30, 2018.4 In that
publication, the Commission also
extended the review period of the
advance notice for an additional 60
days, pursuant to Section 806(e)(1)(H) of
the Clearing Supervision Act.5 On April
10, 2018, the Commission required
additional information from DTC
pursuant to Section 806(e)(1)(D) of the
Clearing Supervision Act,6 which tolled
the Commission’s period of review of
the advance notice until 60 days from
the date the information required by the
Commission was received by the
Commission.7 On June 28, 2018, DTC
filed Amendment No. 1 to the advance
notice to amend and replace in its
entirety the advance notice as originally
8, 2018. Securities Exchange Act Release No. 82432
(January 2, 2018), 83 FR 884 (January 8, 2018) (SR–
DTC–2017–021). On February 8, 2018, the
Commission designated a longer period within
which to approve, disapprove, or institute
proceedings to determine whether to approve or
disapprove the Proposed Rule Change. Securities
Exchange Act Release No. 82669 (February 8, 2018),
83 FR 6653 (February 14, 2018) (SR–DTC–2017–
021, SR–FICC–2017–021, SR–NSCC–2017–017). On
March 20, 2018, the Commission instituted
proceedings to determine whether to approve or
disapprove the Proposed Rule Change. Securities
Exchange Act Release No. 82912 (March 20, 2018),
83 FR 12999 (March 26, 2018) (SR–DTC–2017–021).
On June 25, 2018, the Commission designated a
longer period for Commission action on the
proceedings to determine whether to approve or
disapprove the Proposed Rule Change. Securities
Exchange Act Release No. 83509 (June 25, 2018), 83
FR 30785 (June 29, 2018) (SR–DTC–2017–021, SR–
FICC–2017–021, SR–NSCC–2017–017). On June 28,
2018, DTC filed Amendment No. 1 to the Proposed
Rule Change. Securities Exchange Act Release No.
83628 (July 13, 2018), 83 FR 34263 (July 19, 2018)
(SR–DTC–2017–021). DTC submitted a courtesy
copy of Amendment No. 1 to the Proposed Rule
Change through the Commission’s electronic public
comment letter mechanism. Accordingly,
Amendment No. 1 to the Proposed Rule Change has
been publicly available on the Commission’s
website at https://www.sec.gov/rules/sro/dtc.htm
since June 29, 2018. The Commission did not
receive any comments. The proposal, as set forth in
both the advance notice and the Proposed Rule
Change, each as modified by Amendments No. 1,
shall not take effect until all required regulatory
actions are completed.
4 Securities Exchange Act Release No. 82579
(January 24, 2018), 83 FR 4310 (January 30, 2018)
(SR–DTC–2017–803) (‘‘Notice’’).
5 Pursuant to Section 806(e)(1)(H) of the Clearing
Supervision Act, the Commission may extend the
review period of an advance notice for an
additional 60 days, if the changes proposed in the
advance notice raise novel or complex issues,
subject to the Commission providing the clearing
agency with prompt written notice of the extension.
12 U.S.C. 5465(e)(1)(H). The Commission found that
the advance notice raised novel and complex issues
and, accordingly, extended the review period of the
advance notice for an additional 60 days until April
17, 2018. See Notice, supra note 4.
6 12 U.S.C. 5465(e)(1)(D).
7 See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); see
Memorandum from the Office of Clearance and
Settlement Supervision, Division of Trading and
Markets, titled ‘‘Commission’s Request for
Additional Information,’’ available at https://
www.sec.gov/rules/sro/dtc-an.shtml.
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
44381
filed on December 18, 2017.8 On July 6,
2018, the Commission received a
response to its request for additional
information in consideration of the
advance notice, which, in turn, added a
further 60-days to the review period
pursuant to Section 806(e)(1)(E) and (G)
of the Clearing Supervision Act.9 The
Commission did not receive any
comments. This publication serves as
notice that the Commission does not
object to the proposed changes set forth
in the advance notice, as modified by
Amendment No. 1 (hereinafter,
‘‘Advance Notice’’).
I. Description of the Advance Notice
In the Advance Notice, DTC proposes
to (1) adopt an R&W Plan; and (2)
amend the Rules, By-Laws and
Organization Certificate of DTC
(‘‘Rules’’) 10 to adopt Rule 32(A) (Winddown of the Corporation) and Rule 38
(Market Disruption and Force Majeure)
(each proposed Rule 32(A) and
proposed Rule 38, a ‘‘Proposed Rule’’
and, collectively, the ‘‘Proposed
Rules’’).
DTC states that the R&W Plan would
be used by the Board of Directors of
DTC (‘‘Board’’) and DTC’s management
in the event DTC encounters scenarios
that could potentially prevent it from
being able to provide its critical services
as a going concern.
DTC states that the Proposed Rules
are designed to (1) facilitate the
implementation of the R&W Plan when
necessary and, in particular, allow DTC
to effectuate its strategy for winding
down and transferring its business; (2)
provide Participants with transparency
around critical provisions of the R&W
Plan that relate to their rights,
responsibilities and obligations; and (3)
provide DTC with the legal basis to
implement those provisions of the R&W
Plan when necessary.
A. DTC R&W Plan
The R&W Plan would be structured to
provide a roadmap, define the strategy,
and identify the tools available to DTC
to either (i) recover, in the event it
8 Securities Exchange Act Release No. 83743 (July
31, 2018), 83 FR 38344 (August 6, 2018) (SR–DTC–
2017–803). DTC submitted a courtesy copy of
Amendment No. 1 to the advance notice through
the Commission’s electronic public comment letter
mechanism. Accordingly, Amendment No. 1 to the
advance notice has been publicly available on the
Commission’s website at https://www.sec.gov/rules/
sro/dtc-an.shtml since June 29, 2018.
9 12 U.S.C. 5465(e)(1)(E) and (G); see
Memorandum from the Office of Clearance and
Settlement Supervision, Division of Trading and
Markets, titled ‘‘Response to the Commission’s
Request for Additional Information,’’ available at
https://www.sec.gov/rules/sro/dtc-an.shtml.
10 Capitalized terms used herein and not
otherwise defined herein are defined in the Rules.
E:\FR\FM\30AUN1.SGM
30AUN1
]]>Agencies
[Federal Register Volume 83, Number 169 (Thursday, August 30, 2018)]
[Notices]
[Pages 44377-44381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18784]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83940; File No. SR-DTC-2018-006]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Approval of Proposed Rule Change To Amend Rule 35 To
Provide for Designated Accounts for Use With Designated Collateral
Management Service Providers
August 24, 2018.
On July 9, 2018, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') proposed rule
change SR-DTC-2018-006 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The
proposed rule change was published for comment in the Federal Register
on July 24, 2018.\3\ The Commission did not receive any comment letters
on the proposed rule change. For the reasons discussed below, the
Commission approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No.83667 (July 18,
2018), 83 FR 35044 (July 24, 2018) (SR-DTC-2018-006) (``Notice'').
---------------------------------------------------------------------------
I. Description of the Proposed Rule Change
The proposed rule change would amend the Rules, By-Laws and
Organization Certificate of The Depository Trust Company (``DTC
Rules'') \4\ to revise DTC's current Rule 35--CMS Reporting (``Rule
35'').
---------------------------------------------------------------------------
\4\ Available at https://www.dtcc.com/legal/rules-and-procedures.aspx. Each capitalized term not otherwise defined herein
has its respective meaning as set forth in the DTC Rules.
---------------------------------------------------------------------------
A. Background
Currently, Rule 35 provides that a Participant of DTC
(``Participant'') may establish a collateral management service
(``CMS'') \5\ sub-account (``CMS Sub-Account''), which authorizes DTCC
Euroclear Global Collateral Ltd. (``DEGCL'') \6\ to receive from DTC
(i) a CMS report that provides information regarding securities
credited to the CMS Sub-Account of such Participant at the time of the
report (``CMS Report''), and (ii) CMS delivery information that
provides real-time information regarding any delivery or pledge from,
or delivery or release to, the CMS Sub-Account (``CMS Delivery
Information'').\7\
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\5\ 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).
\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''). See Securities
Exchange Act Release No. 80280 (March 20, 2017), 82 FR 15081 (March
24, 2017) (SR-DTC-2017-001) (``CMS Order'') (providing additional
information on DEGCL and DEGCL CMS). One option relates exclusively
to Securities held at DTC, and is dependent on Rule 35. Id.
\7\ CMS Order, 82 FR at 21838.
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B. The Proposed Rule Change
DTC proposes five changes to Rule 35: (1) Adding the term ``CMSP''
(i.e., a CMS provider) and its associated function; (2) adding the term
``CMSP Accounts'' and its associated function; (3) adding the term
``CMSP Reports'' and its associated function; (4) authorizing a CMSP to
submit CMSP instructions (``CMSP Instructions'') on behalf of a
Participant or a Pledgee of DTC (``Pledgee''); and (5) making
ministerial changes to conform with the proposed changes, as well as
making stylistic edits.\8\ Each of these proposed changes is described
below.
---------------------------------------------------------------------------
\8\ Notice, 83 FR at 35044-45.
---------------------------------------------------------------------------
1. CMSP
The proposal would add to Rule 35 the term and function of a CMSP,
which a Participant or Pledgee could then designate to act on its
behalf under the rule, pursuant to the proposed changes.\9\ The term
CMSP would replace the existing, singular designation of DEGCL to act
under Rule 35 as a collateral management provider.\10\ A partnership,
corporation, or other organization or entity could become a CMSP, under
the proposed changes to Rule 35, if it satisfies three proposed
criteria: (1) One or more Participants or Pledgees designate the entity
as a CMSP for purposes of Rule 35; (2) the entity (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 (3) the
entity 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 DTC Rules and Procedures.\13\
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\9\ Notice, 83 FR at 35045.
\10\ Id.
\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. See DTC Rules, Rule 3, Sections
1(a)-(h), supra note 4.
\12\ DTC states that in order to protect DTC, its Participants
and Pledgees, a CMSP that wishes to act under the proposed changes
to 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. Notice, 83 FR at 35045. 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 Rule 35, as modified by the proposed
changes. Id. While DTC reserves the right to request documentation
and/or information relating to a CMSP'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 CMSP that, at a minimum, satisfies the requirements.
Id. 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. Id.
\13\ Id.
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As proposed, 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.\14\ DTC states that some examples of
circumstances in which DTC might reject an applicant as a CMSP include
when DTC reasonably believes that acceptance of the applicant 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.\15\
---------------------------------------------------------------------------
\14\ Id.
\15\ Id.
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2. CMSP Account
The proposed rule change would add the term and function of a
``CMSP Account'' to Rule 35.\16\ Currently, Rule 35 requires a
Participant looking to utilize the services offered through Rule 35 to
designate an account for such
[[Page 44378]]
purposes (i.e., a CMS Sub-Account).\17\ A Pledgee, however, is not
permitted to designate a CMS Sub-Account under the existing Rule 35.
---------------------------------------------------------------------------
\16\ Id.
\17\ Id.
---------------------------------------------------------------------------
The proposed CMSP Account would replace the concept of the existing
CMS Sub-Account and would allow either a Participant or a Pledgee to
designate any account as a CMSP Account.\18\ Once established, a CMSP
Account would allow 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.\19\ As proposed, a Participant or Pledgee could
designate one or more CMSP Accounts and, concurrently, designate one or
more CMSPs with respect to each CMSP Account.\20\
---------------------------------------------------------------------------
\18\ Id.
\19\ Id. 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 DTC Rules and
Procedures. Id.
\20\ Id.
---------------------------------------------------------------------------
A Participant's or Pledgee's designation of a CMSP for a CMSP
Account would serve four functions: (1) The appointment of the CMSP to
act on its Participant's or Pledgee's behalf for the purposes of Rule
35; (2) the authorization of the CMSP to receive CMSP Reports and to
provide CMSP Instructions on behalf of its Participant or Pledgee; (3)
the authorization of DTC to act in accordance with any CMSP Instruction
of a Participant's or Pledgee's designated 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.\21\
---------------------------------------------------------------------------
\21\ Id.
---------------------------------------------------------------------------
The proposed rule change would not substantially alter the current
liability and indemnification provisions provided for in Rule 35.\22\
Specifically, the proposed rule change would provide that each
Participant and Pledgee that designates a CMSP 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.\23\
---------------------------------------------------------------------------
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
3. CMSP Reports
Rule 35 currently authorizes DEGCL, and only DEGCL, to receive
position and transaction information from DTC on behalf of a
Participant in the form of CMS Delivery Information and CMS
Reports.\24\ The proposed rule change would permit a Participant or
Pledgee to authorize a CMSP, which may or may not be DEGCL, to receive
CMSP Reports (with respect to CMSP Accounts for which the CMSP is
designated).\25\ The CMSP Information and CMSP Position Report are
analogous to the reports currently provided to DEGCL under Rule 35
(i.e., CMS Report and CMS Delivery Information, respectively).\26\
---------------------------------------------------------------------------
\24\ Id.
\25\ Id.
\26\ Id.
---------------------------------------------------------------------------
Currently, 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.''
\27\ DTC states that this definition was drafted to align with DEGCL
specifications.\28\
---------------------------------------------------------------------------
\27\ Notice, 83 FR at 35046.
\28\ Id.
---------------------------------------------------------------------------
Pursuant to the proposed rule change, the definition of ``CMSP
Information'' would be drafted in more general terms to provide
flexibility for the different collateral management service offerings
of CMSPs (in addition to DEGCL).\29\ 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.'' \30\ 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.\31\
---------------------------------------------------------------------------
\29\ Id.
\30\ Id.
\31\ Id.
---------------------------------------------------------------------------
Similarly, Rule 35 currently 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.''
\32\ DTC states that this definition was drafted to align with DEGCL
specifications.\33\ Pursuant to the proposed rule change, the specific
language ``(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 of ``CMSP Position Reports.'' \34\
---------------------------------------------------------------------------
\32\ Id.
\33\ Id.
\34\ Id.
---------------------------------------------------------------------------
Finally, similar to what is provided for in Rule 35 today, the
proposed changes 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.\35\
---------------------------------------------------------------------------
\35\ Id.
---------------------------------------------------------------------------
4. CMSP Instructions
The proposed rule change would provide that a CMSP would be
authorized to instruct DTC, on behalf of the Participant or Pledgee,
for the Delivery, Pledge, or Release of securities credited to such
Participant or Pledgee's CMSP Account, as applicable.\36\ CMSP
Instructions would be subject to the terms and conditions of the DTC
Rules and Procedures applicable to Deliveries, Pledges, and Releases of
securities generally, including risk management controls.\37\ DTC
states that 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.\38\
---------------------------------------------------------------------------
\36\ For a CMSP Account of a Participant, that would include
Delivery or Pledge. Id. For a CMSP Account of a Pledgee, that would
include Delivery or Release. Id.
\37\ DTC states that its 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. Id. 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. Id. Pursuant to these controls under
applicable DTC Rules and Procedures, DTC states that it 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.
Id. DTC states that Deliveries would be processed in the same order
and with the same priority as otherwise provided in the DTC Rules
and Procedures (i.e., such Deliveries and Pledges would not take
precedence over any other type of Delivery or Pledge in the DTC
system). Id.
\38\ Id.
---------------------------------------------------------------------------
The proposal would not preclude instructions by the Participant or
Pledgee itself, or CMSP Instructions by another CMSP, with respect to
the same
[[Page 44379]]
CMSP Account.\39\ Furthermore, the proposed changes to 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.\40\
---------------------------------------------------------------------------
\39\ Id.
\40\ Id.
---------------------------------------------------------------------------
5. Ministerial Changes
In connection with the foregoing, DTC proposes the following
ministerial changes to Rule 35 in order to conform the existing rule
text to the proposed changes, as well as to make stylistic edits: \41\
---------------------------------------------------------------------------
\41\ Id.
---------------------------------------------------------------------------
Title. DTC proposes to replace the current title ``CMS Reporting''
with ``CMSP Reports and Instructions,'' to reflect the amended
substance of the proposed rule.\42\
---------------------------------------------------------------------------
\42\ Id.
---------------------------------------------------------------------------
Section 1. For stylistic consistency, DTC proposes to insert the
title ``Certain Defined Terms'' for Section 1.\43\ DTC further proposes
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.'' \44\
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\43\ Id.
\44\ Id.
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Proposed Section 2 (New). DTC proposes to insert a new proposed
Section 2, titled ``Qualification as a CMSP.'' \45\ This section would
identify the aforementioned requirements that an entity must satisfy to
become a CMSP.\46\
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\45\ Id.
\46\ Id.
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Section 2 (Proposed Section 3). DTC proposes to renumber Section 2
to Section 3, and to change the title of proposed Section 3 to ``CMSP
Accounts.'' \47\ DTC also proposes 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) as noted above,
describe what the designation of a CMSP entails, with respect to a CMSP
Account by a Participant or Pledgee would constitute.\48\ DTC further
proposes 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.\49\ Additionally, DTC
proposes to remove subsection (c) as it would be no longer relevant
because it relates exclusively to DEGCL.\50\
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\47\ Id.
\48\ Notice, 83 FR at 35046-7.
\49\ Notice, 83 FR at 35047.
\50\ Id.
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Section 3 (Proposed Section 4). DTC proposes to renumber Section 3
as Section 4, and to change the title of the section to ``Instructions
on a CMSP Account.'' \51\ DTC further proposes 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.\52\ Further, DTC
proposes to insert the new 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 DTC Rules and Procedures
applicable to Deliveries, Pledges, and Releases of securities
generally.\53\
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\51\ Id.
\52\ Id.
\53\ Id.
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Section 4. DTC proposes to delete this section, as it relates to
DEGCL specifications for a CMS Report.\54\
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\54\ Id.
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Section 5. DTC proposes to replace the current title of ``CMS
Delivery Information'' with ``CMSP Reports.'' \55\ 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.\56\ DTC additionally
proposes to delete language relating to DEGCL-specific requirements
regarding ``CMS Delivery Information.'' \57\ Further, DTC proposes to
incorporate the remaining language of Section 5, modified to conform to
the defined terms of the proposed rule change, into proposed subsection
(b).\58\
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\55\ Id.
\56\ Id.
\57\ Id.
\58\ Id.
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Section 6. DTC proposes 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.\59\ DTC further proposes 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.\60\
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\59\ Id.
\60\ Id.
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For additional clarity, DTC also proposes to make ministerial
changes to (i) update articles, pronouns, and determiners, and (ii)
modify language for stylistic conformity within the proposed rule.\61\
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\61\ Id.
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II. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \62\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. The Commission believes the proposal is
consistent with the Act, specifically Section 17A(b)(3)(F) of the Act
and Rule 17Ad-22(e)(21) under the Act.\63\
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\62\ 15 U.S.C. 78s(b)(2)(C).
\63\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(20).
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[[Page 44380]]
A. Consistency With Section 17A
Section 17A(b)(3)(F) of the Act \64\ requires, inter alia, that the
rules of the clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions.
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\64\ 15 U.S.C. 78q-1(b)(3)(F).
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As described above, DTC proposes to make five core changes to Rule
35. First, DTC proposes to no longer reference DEGCL as the sole CMS
provider under Rule 35 but, instead, to reference the new term CMSP and
its associated functions. Specifically, the proposed change would allow
any otherwise eligible partnership, corporation, or other organization
or entity that meets the proposed criteria to offer collateral
management services through DTC for the purpose of Rule 35. The
Commission believes that by expanding Rule 35 to include a broader
concept of a CMSP, not just one specific CMSP (i.e., DEGCL), the
proposed change (i) opens up the opportunity for other collateral
management providers to compete in offering their services under Rule
35, and (ii) affords Participants and Pledgees the opportunity to
evaluate whether another entity could better meet its collateral
management requirements. By increasing the opportunity for competition
and selection, the proposed change should help collateral management
providers, Participants, and Pledgees be better positioned to more
efficiently effect the settlement of collateral transactions under Rule
35. Therefore, the change would help promote the prompt and accurate
clearance and settlement of securities transactions.
Second, as described above, DTC proposes to add to Rule 35 the term
CMSP Account and its associated functions. As proposed, a CMSP Account
would allow Pledgees, not just Participants, to use collateral
management service offerings of CMSPs for the purposes of Rule 35. By
establishing the ability for Pledgees to utilize collateral management
services under Rule 35, through the proposed CMSP Account, the proposal
affords Pledgees the same opportunities to manage such collateral
transactions through DTC as Participants. The Commission believes that
expanding Rule 35 to include Pledgees should help Pledgees more
efficiently effect the settlement of their collateral transactions at
DTC, thus helping to promote the prompt and accurate clearance and
settlement of such securities transactions.
Third, as described above, DTC proposes to add to Rule 35 the term
CMSP Reports and its associated functions; namely, the CMSP Position
Report and the CMSP Information. The CMSP Position Report would enable
the CMSP to know what securities are credited to a Participant or
Pledgee's CMSP Account each day, while the CMSP Information would allow
the CMSP to know the Participant's or the Pledgee's real-time
correspondence with DTC. These two reports are designed to furnish the
CMSP with information needed to calculate collateral requirements and
facilitate the transfer of collateral between counterparties. As such,
the Commission believes that the CMSP Position Report and CMSP
Information would assist CMSPs in providing collateral management
services, and thereby, promote the prompt and accurate clearance and
settlement of those securities transactions.
Fourth, as described above, the proposed rule change would allow a
CMSP to instruct DTC to Deliver, Pledge, or Release securities credited
to a CMSP Account, on behalf of a Participant or Pledgee. In doing so,
the proposed rule change should help reduce the number of actions that
a Participant or Pledgee that uses a CMSP would need to take in order
to effect the settlement of collateral transactions at DTC. The
Commission believes that the proposal would thereby help add efficiency
to the clearance and settlement process by providing straight-through
submission and processing of settlement instructions by a CMSP, without
further actions by the Participant or Pledgee. As such, the proposed
CMSP Instructions would help promote the prompt and accurate clearance
and settlement of securities transactions.
Fifth, as described above, the proposal would make ministerial
changes to Rule 35 to conform the existing language in Rule 35 to the
proposed changes. The proposal would also make various stylistic edits
to the rule text. These changes are designed to help ensure that the
final rule text is coherent and all cross-references within the rule
text are current. The Commission believes the ministerial and stylistic
changes thereby would help Participants and Pledgees to better
understand their rights and obligations with respect to the collateral
management services provide under Rule 35. Therefore, the changes would
help promote the prompt and accurate clearance and settlement of such
transactions.
As each of the aforementioned changes is designed to promote the
prompt and accurate clearance and settlement of securities
transactions, the Commission finds that the proposal is consistent with
the requirements Section 17A(b)(3)(F).
B. Consistency With Rule 17Ad-22(e)(21)
Rule 17Ad-22(e)(21) promulgated under the Act requires, inter alia,
a covered clearing agency \65\ to 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.\66\
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\65\ A ``covered clearing agency'' means, among other things, a
clearing agency registered with the Commission under Section 17A of
the Exchange Act (15 U.S.C. 78q-1 et seq.) that is designated
systemically important by the Financial Stability Oversight Counsel
(``FSOC'') pursuant to the Payment, Clearing, and Settlement
Supervision Act of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR
240.17Ad-22(a)(5)-(6). On July 18, 2012, FSOC designated DTC as
systemically important. U.S. Department of the Treasury, ``FSOC
Makes First Designations in Effort to Protect Against Future
Financial Crises,'' available at https://www.treasury.gov/press-center/press-releases/Pages/tg1645.asp. Therefore, DTC is a covered
clearing agency.
\66\ 17 CFR 240.17Ad-22(e)(21).
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As described above, the proposal would amend Rule 35 to, generally,
(i) broaden what entities may serve as a CMSP, (ii) allow Participants
and Pledgees to utilize the services offered by Rule 35, (iii) and
permit Participants and Pledgees to designate one or more CMSPs, with
respect to a CMSP Account, to provide CMSP Instructions, as well as
receive CMSP Information and CMSP Position Reports. With these proposed
changes, the Commission believes that the proposal would grant both
Participants and Pledgees the flexibility to establish and structure
their respective CMSP Accounts, including the eligible CMSP that would
service the accounts, in a manner that is most effective and efficient
for the collateral management needs of that Participant or Pledgee and
for the specifications of its designated CMSP(s).
The proposed rule change also would make ministerial revisions and
stylistic edits to Rule 35, as described above. These changes are
designed to help Participants and Pledgees better understand their
rights and obligations with respect to the services offered under Rule
35. By helping Participants and Pledgees better understand their rights
and obligations with respect to Rule 35, the Commission believes that
the proposed changes are designed to be efficient and effective in
meeting the requirements of Participants and Pledgees that take
advantage of DTC's collateral management services under Rule 35.
[[Page 44381]]
Therefore, the Commission finds that the proposal is designed to be
efficient and effective in meeting the requirements of Participants and
Pledgees, consistent with Rule 17Ad-22(e)(21) under the Act.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, in particular
the requirements of Section 17A of the Act \67\ and the rules and
regulations thereunder.
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\67\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule change SR-DTC-2018-006 be, and hereby is,
approved.\68\
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\68\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18784 Filed 8-29-18; 8:45 am]
BILLING CODE 8011-01-P
