Self-Regulatory Organizations; The Depository Trust Company; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the Settlement Guide Procedures To Provide Status Information for Institutional Transactions to a Matching Utility, 9565-9567 [2019-04809]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 51 (Friday, March 15, 2019)]
[Notices]
[Pages 9565-9567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04809]



[[Page 9565]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85288; File No. SR-DTC-2018-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Amend the Settlement Guide 
Procedures To Provide Status Information for Institutional Transactions 
to a Matching Utility

March 11, 2019.
    On November 29, 2018, The Depository Trust Company (``DTC''), filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change, to allow DTC to share status information with matching 
utilities (SR-DTC-2018-010), 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 December 12, 2018.\3\ As of March 11, 2019, the 
Commission has received one comment letter to the proposed rule 
change.\4\ On December 26, 2018, the Commission extended the time 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change, to March 12, 2019.\5\ 
This order institutes proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 84751 (December 7, 
2018), 83 FR 63948 (December 12, 2018) (SR-DTC-2018-010) 
(``Notice'').
    \4\ Letter from Mari-Anne Pisarri, Chief Financial Officer, 
Pickard Djinis and Pisarri LLP, dated January 2, 2019, to Eduardo A. 
Aleman, Assistant Secretary, Commission, available at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-4842066-77179.pdf 
(``SS&C Letter'').
    \5\ Securities Exchange Act Release No. 84954 (December 26, 
2018), 84 FR 873 (January 31, 2019) (SR-DTC-2018-010).
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

Background

    DTC proposed to amend the procedures, set forth in the DTC 
Settlement Service Guide (``Settlement Guide''),\7\ to allow DTC to 
provide status information (``Status Information'') for institutional 
transactions in eligible securities (``Institutional Transactions'') 
\8\ to an entity providing a matching service (``Matching 
Utility''),\9\ as described below.
---------------------------------------------------------------------------

    \7\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company 
(``Rules''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx and the Settlement Service Guide, available at 
https://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf.
    \8\ DTC defined in the Notice an Institutional Transaction as a 
securities transaction between a broker-dealer and its institutional 
customer (e.g., sell-side firms, buy-side institutions, and 
custodians).
    \9\ A ``matching service'' is defined in the Settlement Guide as 
an electronic service to match trade information, centrally, between 
a broker-dealer and its institutional customer.
---------------------------------------------------------------------------

    In accordance with the Settlement Guide, for a Matching Utility to 
establish and maintain a connection with DTC, the Matching Utility must 
be able to balance with DTC in an automated way \10\ and communicate 
transactions to and from DTC with information required though mandated 
fields in order to provide DTC with data necessary for it to be able to 
process a transaction.\11\
---------------------------------------------------------------------------

    \10\ For each Matching Utility interfacing with DTC, DTC 
requires the Matching Utility to deliver a daily message on each 
business day shortly after noon from the Matching Utility with their 
accepted item counts of institutional delivery and ID Net 
transaction totals for Settlement Date minus one transactions. DTC's 
system will compare the totals from the Matching Utility to its 
accepted item counts. If the totals match, an ``acknowledged 
balance'' balance file will be sent to the Matching Utility. If the 
totals do not match, DTC will respond with the list of Settlement 
Date minus one control numbers received from the Matching Utility, 
along with their respective transaction types for the originating 
Matching Utility to compare. Id.
    \11\ The mandated fields for this purpose are the transaction 
control number (``Control Number''), DTC receiver and deliverer 
account numbers, CUSIP, message type, share quantity, market type, 
buy-sell indicator, broker ID, ID agent internal account number, 
broker internal account number, agent bank ID, settlement amount, 
origination entity, recipient of message, institution, and 
settlement date. Id. Institutional Transactions that are not 
Affirmed Transactions, but which include a Control Number, may be 
submitted directly by Participants.
---------------------------------------------------------------------------

    The submission of an Affirmed Transaction by the Matching Utility 
to DTC, on behalf of a Participant, constitutes the duly authorized 
instruction of the Participant to DTC to process the Affirmed 
Transaction in accordance with the Rules and Procedures.\12\
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

    A transaction submitted to DTC for processing may be subject to a 
processing exception (``Exception''), causing it to pend in the DTC 
system or not be processed because the transaction does not satisfy 
certain requirements and/or controls set forth in the Rules and Service 
Guide. A Matching Utility that has submitted an Institutional 
Transaction to DTC, or is otherwise involved with the matching of a 
transaction, does not receive Status Information regarding the 
transaction and is therefore unable to provide services to facilitate 
resolution of processing Exceptions occurring at DTC. Therefore, in 
order to resolve an Exception, the Participants to an Institutional 
Transaction must (i) access Status Information directly through the DTC 
Settlement User Interface and (ii), as necessary, supply the 
information to their customers that are counterparties to the 
transaction on their books, in order to facilitate the coordination of 
the resolution of the Exception among the counterparties.

Proposed Rule Change

    DTC received a request from its Matching Utility affiliate, ITP 
Matching (US) LLC (``ITP''), to receive Status Information so that ITP 
may transmit the Status Information to counterparties in a centralized 
format. DTC believes that distribution of Status Information to 
relevant counterparties in a centralized format would facilitate 
Participants' ability to monitor Exceptions and coordinate with their 
institutional customers in order to resolve Exceptions.
    Pursuant to the proposed rule change, in order to facilitate more 
seamless transmission of the Status Information for (i) Affirmed 
Transactions and (ii) other Institutional Transactions that may have 
been confirmed at a Matching Utility and received a Control Number, and 
are submitted directly to DTC by a Participant in an instruction 
containing the Control Number, (collectively, ``Eligible 
Transactions'') to Participants and facilitate their ability to manage 
Exceptions, DTC proposes to amend the Settlement Guide to provide that 
DTC may provide Status Information on Eligible Transactions to the 
applicable Matching Utility that submitted the transaction to DTC, or 
with respect to which its Control Number is included in transaction 
details provided by a Participant,\13\ if so requested by the Matching 
Utility.
---------------------------------------------------------------------------

    \13\ DTC states that it is DTC's understanding that a 
transaction that has been confirmed within a Matching Utility's 
system, but has not been affirmed, may be assigned a Control Number 
by the Matching Utility. Any transaction not affirmed by a Matching 
Utility would not be submitted by it to DTC as an Affirmed 
Transaction. In that case, the Participant may submit the 
transaction directly through DTC as a Deliver Order, and include the 
applicable Control Number as assigned by the Matching Utility on its 
submission to DTC.
---------------------------------------------------------------------------

    In this regard, DTC would send to a Matching Utility Status 
Information for Eligible Transactions that DTC has received from the 
Matching Utility or have been entered by the Participant,

[[Page 9566]]

that have a Control Number associated with that Matching Utility. The 
Status Information provided to the Matching Utility would include the 
status of the transaction (e.g., the Delivery of Securities has been 
made within DTC, the transaction is pending Delivery within DTC, or the 
transaction was reclaimed (i.e., sent back to the Deliverer)) and a 
reason for any pending status (e.g., the Deliverer has insufficient 
inventory in the applicable Securities, the Deliverer has insufficient 
Collateral, the Receiver to the transaction has insufficient Net Debit 
Cap, etc.). The Status Information would also include information 
(``Identifying Information'') to facilitate the Matching Utility's 
ability to identify the applicable Eligible Transaction and reconcile 
the Status Information to the Eligible Transaction in its records. 
Identifying Information would include, but not be limited to, (i) the 
applicable Control Number (ii) identification numbers of the 
Participants to the transaction, (iii) quantity of Securities, (iv) 
dollar amount of the transaction, and (v) an indicator of whether the 
transaction was submitted to DTC by the Matching Utility or directly by 
a Participant.

Proposed Changes to the Settlement Guide

    Pursuant to the proposed rule change, DTC proposed to revise the 
Settlement Guide to allow DTC to provide Status Information of (i) 
Affirmed Transactions and (ii) other institutional transactions to a 
Matching Utility that requests such information, but only for those 
transactions that are associated with a Control Number relating to the 
Matching Utility. The proposed text to the Settlement Guide would also 
(x) describe the types of Status Information and related Identifying 
Information that would be shared with a Matching Utility in this 
regard, and (y) provide that DTC may charge a fee (``Status Information 
Fee'') to a Matching Utility that receives Status Information as set 
forth in the DTC Fee Guide.\14\ The proposed rule change would also add 
a defined term for ``Control Number'' to the Settlement Guide in 
existing text where the term is referred to but not defined.
---------------------------------------------------------------------------

    \14\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf. Any such fee would be the subject 
of a subsequent proposed rule change that DTC would file with the 
Commission.
---------------------------------------------------------------------------

    The proposed rule change would require that prior to providing 
Status Information to a Matching Utility, DTC would obtain the written 
agreement, in such form as determined by DTC from time to time 
(``Status Information Agreement''), from the Matching Utility that 
includes the following:
    (i) A request from the Matching Utility to receive Status 
Information from DTC;
    (ii) an agreement by the Matching Utility that the Matching Utility 
will not distribute Status Information to any third party other than 
(a) the Participants indicated on the Status Information and (b) the 
institutional customers that are counterparties to the transaction for 
which the Participants indicated on the Status Information are acting 
with respect to the transaction;
    (iii) the agreement of the Matching Utility that the Matching 
Utility will indemnify, hold harmless and agree, on demand, to 
reimburse DTC, its stockholders, officers, directors and employees from 
and against and for any and all claims, liabilities, obligations, 
damages, actions, penalties, losses, costs, expenses and disbursements, 
including, without limitation, attorneys' fees and disbursements 
(``Claims''), which they may sustain by reason of DTC's providing 
Status Information to the Matching Utility, except for any Claims which 
result from the gross negligence or willful misconduct of the person 
asserting a right to indemnification;
    (iv) the agreement of the Matching Utility to pay the Status 
Information Fee;
    (v) the agreement of the Matching Utility to notify DTC immediately 
if the Matching Utility becomes aware of Status Information provided to 
it by DTC being distributed to a third party other than as authorized 
pursuant to (ii) above; and
    (vi) the acknowledgement of the Matching Utility that DTC may 
terminate the Status Information Agreement in the event that (a) DTC 
becomes aware that the Matching Utility has used or distributed the 
Status Information in a manner that violates the terms of the Status 
Information Agreement, (b) the Matching Utility does not pay the Status 
Information Fee in accordance with the terms of the Fee Schedule, or 
(c) DTC submits a rule filing to the SEC, which is approved by the SEC 
or otherwise becomes effective pursuant to the Act to discontinue DTC's 
distribution of Status Information to Matching Utilities.

III. Summary of Comment Received

    The Commission received one comment letter in opposition to the 
proposal. The commenter notes, that in 2015, the Commission issued an 
order permitting the commenter to operate as a Matching Utility,\15\ 
and that in accordance with the Commission's order, the commenter and 
ITP have undertaken negotiations to facilitate the development of 
linkages and interfaces that would permit interoperability between the 
two Matching Utilities.\16\ Nevertheless, to date, the commenter and 
ITP have not achieved interoperability. The commenter opposes the 
proposal because the commenter believes that the proposal would (i) 
hinder the development of linked and coordinated facilities for 
clearance and settlement and (ii) impose an impermissible burden on 
competition.\17\
---------------------------------------------------------------------------

    \15\ Bloomberg STP LLP; SS&C Technologies, Inc.; Order of the 
Commission Approving Applications for an Exemption from Registration 
as a Clearing Agency, Exchange Act Release No. 76514 (November 24, 
2015), 80 FR 75388 (December 1, 2015).
    \16\ The Commission's order also permitted a second entity to 
act as a Matching Utility, but that entity did not submit a comment 
letter.
    \17\ See SS&C Letter at 4-5.
---------------------------------------------------------------------------

    According to the commenter, through the proposed rule change, ITP 
is ``asking DTC to charge it for Status Information, and to confirm 
that DTC will not send Status Information to a competing Matching 
Utility unless that competing Matching Utility has the sell side on its 
platform and submits the transaction for settlement.'' \18\ The 
commenter asserts that given the ``sealed ecosphere in which DTC 
operates,'' the proposal is a way for ITP to ``switch revenue from one 
DTC pocket to another, while giving ITP an excuse not to pass 
acknowledgement messages through its interface for free.'' \19\ The 
commenter also asserts that ``[i]t is impossible to tell from this 
filing if or how this Status Information differs from the pre-
settlement details that DTC already supplies ITP through Trade Suite.'' 
\20\
---------------------------------------------------------------------------

    \18\ See id.
    \19\ See id.
    \20\ See SS&C Letter at 2. According to the commenter, 
TradeSuite is an ITP services that automates post-trade messaging 
and settlement for domestic and cross-border trades of equity and 
fixed income securities, and that DTC's Inventory Management System 
supplies TradeSuite with updates regarding pre-settlement status of 
affirmed trades.
---------------------------------------------------------------------------

    The commenter believes that the proposal would impose a burden on 
competition because (i) it would be merely a paper transfer of revenue 
between DTC and ITP without any revenue or cost impact at the parent 
level and (ii) DTC is not similarly restricted from monetizing this 
information through the depository or ITP.\21\ In contrast, the 
commenter argues that the proposed fee would be a true cost for the 
commenter because the

[[Page 9567]]

commenter would be faced with a choice of absorbing the fee and raising 
its operating costs, or passing the fee through to its customers, 
forcing its prices to become less competitive.\22\
---------------------------------------------------------------------------

    \21\ See id. at 5.
    \22\ See id.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \23\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the proposed rule change, 
and provide the Commission with arguments to support the Commission's 
analysis as to whether to approve or disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from a commenter with respect to, the proposed 
rule change's consistency with Section 17A of the Act,\25\ and the 
rules thereunder, including the following provisions: (i) Section 
17A(b)(3)(F) of the Act,\26\ which requires, among other things, that 
the rules of a clearing agency must be designed to promote the prompt 
and accurate clearance and settlement of securities transactions; and 
(ii) Section 17A(b)(3)(I) of the Act,\27\ which requires that the rules 
of a clearing agency do not impose any burden on competition not 
necessary or appropriate in furtherance of the purpose of the Act.
---------------------------------------------------------------------------

    \24\ Id.
    \25\ 15 U.S.C. 78q-1.
    \26\ 15 U.S.C. 78q-1(b)(3)(F).
    \27\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

V. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposed 
rule change is consistent with Sections 17A(b)(3)(F) and (I) of the 
Act, cited above, or any other provision of the Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4(g) under the Act,\28\ any request for 
an opportunity to make an oral presentation.\29\
---------------------------------------------------------------------------

    \28\ 17 CFR 240.19b-4(g).
    \29\ Section 19(b)(2) of the Act grants to the Commission 
flexibility to determine what type of proceeding--either oral or 
notice and opportunity for written comments--is appropriate for 
consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by April 5, 2019. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
April 15, 2019. 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-2018-010 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2018-010. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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 such filings 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-2018-010 and should be submitted on 
or before April 5, 2019. Rebuttal comments should be submitted by April 
15, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04809 Filed 3-14-19; 8:45 am]
BILLING CODE 8011-01-P