Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing Amendment Nos. 1 and 2, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Amend the Settlement Guide Procedures To Provide Status Information for Institutional Transactions to a Matching Utility, 40107-40111 [2019-17232]
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Federal Register / Vol. 84, No. 156 / Tuesday, August 13, 2019 / Notices
identifies speakers, the subject on which
each participant will speak, and the
time allotted for each presentation.
A written summary of the hearing will
be compiled, and such summary will be
made available, upon written request to
OPIC’s Corporate Secretary, at the cost
of reproduction.
Written summaries of the projects to
be presented at the September 11, 2019,
Board meeting will be posted on OPIC’s
website.
CONTACT PERSON FOR MORE INFORMATION:
Information on the hearing may be
obtained from Catherine F. I. Andrade at
(202) 336–8768, via facsimile at (202)
408–0297, or via email at
Catherine.Andrade@opic.gov.
Dated: August 9, 2019.
Catherine F. I. Andrade,
OPIC Corporate Secretary.
[FR Doc. 2019–17449 Filed 8–9–19; 4:15 pm]
BILLING CODE 3210–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86589; File No. SR–DTC–
2018–010]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing Amendment Nos. 1 and 2, and
Order Granting Accelerated Approval
of a Proposed Rule Change, as
Modified by Amendment Nos. 1 and 2,
To Amend the Settlement Guide
Procedures To Provide Status
Information for Institutional
Transactions to a Matching Utility
August 7, 2019.
On November 29, 2018, The
Depository Trust Company (‘‘DTC’’),
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change, pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 to allow DTC to
share status information with matching
utilities (SR–DTC–2018–010).
The proposed rule change was
published for comment in the Federal
Register on December 12, 2018.3 In
response, the Commission received one
comment letter on the proposed rule
change.4 On December 26, 2018, the
1 15
U.S.C. 78s(b)(1).
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, Pickard Djinis
and Pisarri LLP, dated January 2, 2019, to Eduardo
A. Aleman, Assistant Secretary, Commission,
available at https://www.sec.gov/comments/sr-dtc2018-010/srdtc2018010-4842066-177179.pdf
(‘‘SS&C Letter I’’).
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2 17
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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 On March 11, 2019,
the Commission issued an order
instituting proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change (‘‘OIP’’).7 The
Commission received additional
comments on the proposal in response
to the OIP.8 On June 5, 2019, the
Commission designated a longer period
for Commission action on the
proceedings to determine whether to
approve or disapprove the proposed
rule change.9
On June 28, 2019, DTC filed
Amendment No. 1 to the proposed rule
change to provide status information to
a matching utility even if that matching
utility did not submit a transaction to
DTC.10 On August 5, 2019, DTC filed
Amendment No. 2 to the proposed rule
change to delay the implementation
timeframe of the proposal to until DTC
has submitted a subsequent fee filing.11
5 Securities Exchange Act Release No. 84954
(December 26, 2018), 84 FR 873 (January 31, 2019)
(SR–TC–2018–010).
6 15 U.S.C. 78s(b)(2)(B)(ii).
7 Securities Exchange Act Release No. 85288
(March 11, 2019), 84 FR 9565 (March 15, 2019) (SR–
DTC–2018–010).
8 Letter from John F. Abel, Executive Director,
Settlement and Asset Services, Depository Trust
and Clearing Corporation, dated July 1, 2019, to
Vanessa Countryman, Acting Secretary,
Commission, available at https://www.sec.gov/
comments/sr-dtc-2018-010/srdtc2018010-5749578186788.pdf (‘‘DTC Letter II’’); Letter from MariAnne Pisarri, Pickard Djinis and Pisarri LLP, dated
April 15, 2019, to Vanessa Countryman, Acting
Secretary, Commission, available at https://
www.sec.gov/comments/sr-dtc-2018-010/
srdtc2018010-5364127-184089.pdf (‘‘SS&C Letter
II’’); and Letter from Murray Pozmanter, Managing
Director, Head of Clearing Agency Services and
Global Operations, Depository Trust and Clearing
Corporation, dated March 26, 2019, to Brent J.
Fields, Secretary, Commission, available at https://
www.sec.gov/comments/sr-dtc-2018-010/
srdtc2018010-5224494-183708.pdf (‘‘DTC Letter I’’).
9 Securities Exchange Act Release No. 88037
(June 5, 2019), 84 FR 27172 (June 11, 2019) (SR–
DTC–2018–010).
10 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/comments/sr-dtc-2018-010/
srdtc2018010.htm since July 2, 2019.
11 DTC submitted a courtesy copy of Amendment
No. 2 to the proposed rule change through the
Commission’s electronic public comment letter
mechanism. Accordingly, Amendment No. 2 to the
proposed rule change has been publicly available
on the Commission’s website at https://
www.sec.gov/comments/sr-dtc-2018-010/
srdtc2018010-5914689-188969.pdf since August 6,
2019.
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40107
The Commission is publishing this
notice to solicit comment on
Amendment Nos. 1 and 2 from
interested persons and to approve the
proposed rule change, as modified by
Amendment Nos. 1 and 2 (hereinafter,
‘‘Proposed Rule Change’’), on an
accelerated basis.
I. Description of the Proposed Rule
Change
Background
DTC proposes to amend the
procedures, set forth in the DTC
Settlement Service Guide (‘‘Settlement
Guide’’),12 to allow DTC to provide
status information (‘‘Status
Information’’) for institutional
transactions in eligible securities
(‘‘Institutional Transactions’’) 13 to an
entity providing a matching service
(‘‘Matching Utility’’),14 as described
below.
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 15 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.16 The submission of an
12 Each capitalized term not otherwise defined
herein has its respective meaning as set forth in the
Rules, By-Laws and Organization Certificate of The
Depository Trust Company (‘‘Rules’’), available at
https://www.dtcc.com/legal/rules-andprocedures.aspx, and the Settlement Service Guide,
available at https://www.dtcc.com/∼/media/Files/
Downloads/legal/service-guides/Settlement.pdf
(‘‘Settlement Guide’’).
13 DTC defines an Institutional Transaction as a
securities transaction between a broker-dealer and
its institutional customer (e.g., sell-side firms, buyside institutions, and custodians). Notice, supra
note 3, 83 FR at 63948.
14 A ‘‘matching service’’ is defined in the
Settlement Guide as an electronic service to match
trade information, centrally, between a brokerdealer and its institutional customer.
15 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 transactions settling the
previous day. Settlement Guide, supra note 12 at
35. DTC’s system will compare the totals from the
Matching Utility to its accepted item counts. Id. If
the totals match, an ‘‘acknowledged balance’’
balance file will be sent to the Matching Utility. Id.
If the totals do not match, DTC will respond with
the list of control numbers received from the
Matching Utility for transactions that settled on the
previous day, along with their respective
transaction types for the originating Matching
Utility to compare. Id.
16 Settlement Guide, supra note 12 at 35. 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
E:\FR\FM\13AUN1.SGM
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Federal Register / Vol. 84, No. 156 / Tuesday, August 13, 2019 / Notices
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.17
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 Settlement 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 currently 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.
DTC states that currently, these
communications among the
counterparties to a transaction often
occur in a decentralized manner via
email, which is time consuming and
subject to error.18
Proposed Rule Change
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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
to Participants and facilitate their ability
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. Institutional Transactions that are not
Affirmed Transactions, but which include a Control
Number, may be submitted directly by Participants.
Id.
17 Settlement Guide, supra note 12 at 35.
18 Notice, supra note 3, 83 FR at 63950.
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to manage Exceptions 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’’), 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,19 if so
requested by the Matching Utility.
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
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 of
the transaction, (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.
19 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.
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Proposed Changes to the Settlement
Guide
Pursuant to the proposed rule change,
DTC proposes to revise the Settlement
Guide to allow DTC to provide Status
Information of Eligible 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 (i)
describe the types of Status Information
and related Identifying Information that
would be shared with a Matching Utility
in this regard, and (ii) 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.20 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.
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;
20 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.
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(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.
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Description of Amendment No. 1
In Amendment No. 1, DTC proposes
to provide status information to a
Matching Utility even if that Matching
Utility did not submit a transaction to
DTC.21 Specifically, DTC will develop
the mechanism necessary for DTC to
directly provide Status Information to a
Matching Utility for each transaction
submitted to DTC to which a customer
of the Matching Utility is a party to the
transaction and matched the transaction
via the Matching Utility, regardless of
whether or not that Matching Utility
submitted the transaction to DTC,
subject to (i) the agreement by the
Matching Utility to pay DTC for the
reasonable cost to cover for the
development of the mechanism by DTC
and (ii) the Matching Utility subscribing
to receive Status Information, as
described above. To the extent that the
transaction is an interoperable
transaction submitted to DTC by another
Matching Utility, then in order to
receive Status Information for the
interoperable transaction, the Matching
Utility would be required to submit an
indicator to DTC for the purpose of
notifying DTC that a customer of the
Matching Utility is a party to the
transaction.
Description of Amendment No. 2
In Amendment No. 2, DTC proposes
to delay the implementation timeframe
of the proposal to until DTC has
submitted a subsequent fee filing.22
Specifically, as filed, the proposed rule
change would be effective upon
approval by the Commission. Pursuant
to Amendment No. 2, the Proposed Rule
Change would not become effective
until DTC has submitted a subsequent
proposed rule change pursuant to Rule
19b–4 under the Act,23 and the
subsequent proposed rule change has
become effective. DTC states that
subsequent proposed rule change would
implement changes to the DTC Fee
Guide 24 that establish (i) the Status
Information Fee and (ii) a charge that
would cover the cost of DTC’s provision
of Status Information to a Matching
Utility for each transaction submitted to
DTC to which a customer of the
Matching Utility is a party to the
transaction and matched the transaction
via the Matching Utility, regardless of
whether or not that Matching Utility
submitted the transaction to DTC, as
described in Amendment No. 1.
II. Solicitation of Comments on
Amendment Nos. 1 and 2
Interested persons are invited to
submit written data, views and
arguments concerning whether
Amendment Nos. 1 and 2 are consistent
with the Act. Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
DTC–2018–010 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
23 17
21 Amendment
No. 1, supra note 10.
22 Amendment No. 2, supra note 11.
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17:51 Aug 12, 2019
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CFR 240.19b–4.
at https://www.dtcc.com/∼/media/
Files/Downloads/legal/fee-guides/dtcfeeguide.pdf.
24 Available
PO 00000
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40109
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of DTC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–DTC–
2018–010 and should be submitted on
or before August 28, 2019.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 25
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
the proposed rule change is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. After
carefully considering the Proposed Rule
Change, and all comments received, the
Commission finds that the Proposed
Rule Change is consistent with the Act
and the rules and regulations
thereunder applicable to DTC.26 In
particular, as discussed below, the
Commission finds that the Proposed
Rule Change, is consistent with Sections
17A(b)(3)(F) and (I) of the Act.27
A. Consistency With Section
17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of a
clearing agency be designed to, among
other things, promote the prompt and
accurate clearance and settlement of
securities transactions.28 For the reasons
set forth below, the Commission
believes that the changes described in
the Proposed Rule Change are designed
to promote the prompt and accurate
25 15
U.S.C. 78s(b)(2)(C).
approving this Proposed Rule Change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f). The Commission
addresses comments about economic effects of the
Proposed Rule Change, including competitive
effects, below.
27 15 U.S.C. 78q–1(b)(3)(F) and (I).
28 15 U.S.C. 78q–1(b)(3)(F).
26 In
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clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.29
As described above, DTC proposes to
share Status Information with Matching
Utilities. Matching Utilities already
electronically facilitate communication
among the parties to an Institutional
Transaction. Providing Status
Information to Matching Utilities would
leverage their existing communication
platform to eliminate the need for
Participants to access the Status
Information directly from DTC and then
communicate Exception information to
other parties in a decentralized way,
including by sending emails which are
less efficient and more error-prone. The
Commission believes that this approach
should increase efficiency in
communicating Status Information that
in turn could help facilitate enhanced
communication among the parties to an
Eligible Transaction to address an
Exception so that the Eligible
Transaction may meet DTC controls and
be processed for end-of-day settlement.
As such, the Commission believes that
the Proposed Rule Change is designed to
promote the prompt and accurate
clearance and settlement of securities
transactions and is consistent with
Section 17A(b)(3)(F) of the Act.30
B. Consistency With Section 17A(b)(3)(I)
of the Act
Section 17A(b)(3)(I) of the Act
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.31 DTC proposes to
share Status Information with Matching
Utilities so that Matching Utilities can
help facilitate the resolution of
Exceptions by using their central
platform. Currently the parties to
Institutional Transactions must
communicate in an inefficient, timeconsuming manner to resolve an
Exception. Because the increased
efficiency in communicating Status
Information could help facilitate
enhanced communication among the
parties to an Eligible Transaction and
address an Exception (i.e., so that the
Eligible Transaction may meet DTC
controls and be processed for end-of-day
settlement), the Commission believes
that the Proposed Rule Change could
benefit all of the parties to an Eligible
Transaction. As a result, the
Commission believes that the Proposed
Rule Change would not impose any
burden on competition regarding fees
not necessary or appropriate in
furtherance of the purposes of the Act.
As originally proposed, the Proposed
Rule Change would provide Status
Information to the 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.
Further, a Matching Utility would be
required to sign an agreement 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. One
commenter opposes the original
proposal limiting access to the Status
Information only to Matching Utilities
that either submitted the transaction to
DTC or whose Control Number is
included in the transaction detailed
provided to DTC by a Participant,
because this original proposal does not
provide for transmitting Status
Information to a linked Matching
Utility, over the interface or otherwise.32
The commenter states that by restricting
distribution of Status Information to the
Matching Utility that submits a
transaction to DTC or whose Control
Number is included in transaction
details provided by a Participant on
whose behalf it confirmed the trade, the
original proposal would impede the free
flow of information between Matching
Utilities, thereby further thwarting the
development of a competitive
interoperating environment for central
trade matching services.33
In response, DTC states that it does
not intend for the Proposed Rule Change
to preclude sharing of Status
Information among interoperating
Matching Utilities in a circumstance
where both Matching Utilities are acting
for a party to the transaction.34 To
address the commenter’s concern, DTC
amended the proposal to directly
provide Status Information to a
Matching Utility for each transaction
submitted to DTC to which a customer
of the Matching Utility is a party to the
transaction and matched the transaction
via the Matching Utility.35
The Commission believes that the
proposed rule change, as amended,
would not impose any burden on
competition on the future development
of an interoperability arrangement
32 SS&C
Letter II at 2–3.
Letter II at 2–3; SS&C Letter I at 4–5.
34 DTC Letter II at 4.
35 Id.
29 Id.
Fees Associated With the Provision of
Status Information
As discussed above, the Proposed
Rule Change would authorize DTC to
charge (i) a Status Information Fee to a
Matching Utility that receives Status
Information as set forth in the DTC Fee
Guide through a future proposed rule
change and (ii) the reasonable cost to
cover for the development of the
mechanism by DTC to provide Status
Information to a Matching Utility even
if that Matching Utility did not submit
a transaction to DTC.
One commenter opposes the proposal
to charge a fee for Status Information on
both procedural and substantive
grounds.36 As a procedural matter, the
commenter states that any fee for Status
Information should be considered by the
Commission in the Proposed Rule
Change. The commenter notes that once
DTC’s authority to impose a fee on a
Matching Utility for Status Information
is established, any subsequent filing to
implement that authority by setting the
amount of the fee will become effective
immediately upon filing with the
33 SS&C
30 Id.
31 15
among Matching Utilities not necessary
or appropriate in furtherance of the
purposes of the Act. The Proposed Rule
Change would allow any Matching
Utilities involved in a transaction to
access Status Information directly from
DTC, regardless of whether a Matching
Utility’s control number was submitted
with the transaction. The Commission
understands that under the Proposed
Rule Change, the method by which a
Matching Utility accesses Status
Information would differ based on
whether the Matching Utility’s control
number is associated with the
transaction (i.e., if a Matching Utility’s
control number is not included in the
transaction as submitted, the Matching
Utility would be required to submit an
indicator to DTC to notify DTC that a
customer of the Matching Utility is a
party to the transaction). The
Commission believes that providing
distinct methods for Matching Utilities
to access the same Status Information
directly from DTC should help ensure
that all interested Matching Utilities can
access such information regardless of
which Matching Utility submits the
transaction to DTC. Therefore, the
Commission believes that these different
methods of access would not impose
any burden on competition not
necessary or appropriate in furtherance
of the Act.
U.S.C. 78q–1(b)(3)(I).
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Commission.37 The commenter states
that ‘‘[t]he Commission’s authority to
temporarily suspend the fee, once
implemented, is no substitute for a
careful consideration at this juncture of
the important issues [it] has raised.’’ 38
Substantively, the commenter states any
fee charged to ITP would be merely a
paper transfer of revenue from one
corporate affiliate to another, while a fee
charged to the commenter, another
Matching Utility, would be a true cost
with real consequences.39
For the following reasons, the
Commission believes that the Proposed
Rule Change would not impose any
burden on competition regarding fees
that is not necessary or appropriate in
furtherance of the purposes of the Act.
As a procedural matter, not including
the fee for Status Information in the
Proposed Rule Change is consistent
with the Act. Sections 19(b)(3)(A) and
(C) of the Act 40 specifically provide for
the process to which the commenter
objects, i.e., a proposed rule change that
establishes a fee imposed by a selfregulatory organization on any person,
whether or not the person is a member
of the organization, shall take effect
upon filing with the Commission and be
subject to potential suspension if the
Commission determines that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of Section 19 of the Act.
Therefore, the Commission believes that
DTC choosing to include any associated
fee in a subsequent proposed rule
change is consistent with the Act.
Substantively, it is consistent with the
Act to charge fees to both affiliates and
third-party competitors of the affiliate.
The commenter argues that the mere
existence of a fee is problematic because
DTC would be charging that fee to its
affiliate which renders the fee a ‘‘paper
transfer’’ of revenue.41 However, the
Commission believes that, under the
Act, any fee charged by DTC for this
service should be equitably allocated
among potential users, including users
that are affiliates of DTC. 42 Therefore,
it would not be reasonable for DTC to
not charge a fee for this service solely
37 See SS&C Letter II at 3; see also 15 U.S.C.
§ 78s(b)(3).
38 See SS&C Letter II at 3–4.
39 See SS&C Letter II at 4.
40 15 U.S.C. § 78s(b)(3)(A) and (C).
41 See SS&C Letter I at 5; SS&C Letter II at 4.
42 Although Section 17A(b)(3)(D) applies to
clearing agency fees on participants, the
Commission believes that it is also instructive here
with respect to fees on users of a service provided
by a clearing agency. 15 U.S.C. 78q–1(b)(D).
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because its affiliate may be a user of the
service.
Finally, the Commission notes that
the Proposed Rule Change would also
provide that a Matching Utility agree to
pay DTC for the reasonable cost of
DTC’s development of the mechanism
necessary for DTC to directly provide
Status Information to a Matching Utility
for each transaction to which a customer
of the Matching Utility is a party and
matched via the Matching Utility. As
noted above, the Commission notes that
this approach, which applies to all
Matching Utilities, is consistent with
Section 17A(b)(3)(D),43 which requires
the equitable allocation of fees among a
clearing agency’s participants. The
Commission also notes that it would
review the future fee filing for
consistency with this provision and all
other relevant Exchange Act provisions,
as well as the standard set forth by DTC
in this filing.
Therefore, for all of the above reasons,
the Commission believes that the
Proposed Rule Change is consistent
with Section 17A(b)(3)(I) of the Act.44
IV. Accelerated Approval of
Amendment Nos. 1 and 2
As noted above, in Amendment No. 1,
as compared to the original proposal,
DTC proposes to provide status
information to a Matching Utility even
if that matching utility did not submit
a transaction to DTC.45 As noted above,
in Amendment No. 2, as compared to
the original proposal, DTC proposes to
delay the implementation timeframe of
the proposal to until DTC has submitted
a subsequent fee filing.46
As discussed above, the Commission
believes that the amendments do not
raise any regulatory issues and are
consistent with the Act because
Amendment No. 1 provides different
methods for Matching Utilities to access
Status Information directly from DTC to
help ensure that Matching Utilities can
access Status Information regardless of
which Matching Utility submits the
transaction to DTC. Likewise,
Amendment No. 2 would provide more
time before the proposal would go into
effect.
Therefore, the Commission finds that
Amendment Nos. 1 and 2 to the
proposal raise no novel regulatory
issues, that they are reasonably designed
to protect investors and the public
interest, and that they are consistent
with the requirements of the Act.
Accordingly, the Commission finds
U.S.C. 78q–1(b)(D).
U.S.C. 78q–1(b)(3)(I).
45 Amendment No. 1, supra note 10.
46 Amendment No. 1, supra note 11.
good cause, pursuant to Section 19(b)(2)
of the Act,47 to approve the proposed
rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
VI. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 1 and 2, is consistent with the
requirements of the Act, in particular,
with the requirements of Section 17A of
the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,48 that
proposed rule change SR–DTC–2018–
010, as modified by Amendment Nos. 1
and 2, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.49
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–17232 Filed 8–12–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 31a–2, SEC File No. 270–174, OMB
Control No. 3235–0179
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Section 31(a)(1) of the Investment
Company Act of 1940 (15 U.S.C. 80a–1
et seq.) (the ‘‘Act’’) requires registered
investment companies (‘‘funds’’) and
certain underwriters, broker-dealers,
investment advisers, and depositors to
maintain and preserve records as
prescribed by Commission rules. Rule
31a–1 (17 CFR 270.31a–1) under the Act
specifies the books and records that
43 15
44 15
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40111
47 15
U.S.C. 78s(b)(2).
48 Id.
49 17
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CFR 200.30–3(a)(12).
13AUN1
]]>Agencies
[Federal Register Volume 84, Number 156 (Tuesday, August 13, 2019)]
[Notices]
[Pages 40107-40111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17232]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86589; File No. SR-DTC-2018-010]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing Amendment Nos. 1 and 2, and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and
2, To Amend the Settlement Guide Procedures To Provide Status
Information for Institutional Transactions to a Matching Utility
August 7, 2019.
On November 29, 2018, The Depository Trust Company (``DTC''), filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change, pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ to allow DTC to
share status information with matching utilities (SR-DTC-2018-010).
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The proposed rule change was published for comment in the Federal
Register on December 12, 2018.\3\ In response, the Commission received
one comment letter on 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\ On March 11, 2019, the
Commission issued an order instituting proceedings under Section
19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change (``OIP'').\7\ The Commission
received additional comments on the proposal in response to the OIP.\8\
On June 5, 2019, the Commission designated a longer period for
Commission action on the proceedings to determine whether to approve or
disapprove the proposed rule change.\9\
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\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, 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/srdtc2018010-4842066-177179.pdf (``SS&C Letter I'').
\5\ Securities Exchange Act Release No. 84954 (December 26,
2018), 84 FR 873 (January 31, 2019) (SR-TC-2018-010).
\6\ 15 U.S.C. 78s(b)(2)(B)(ii).
\7\ Securities Exchange Act Release No. 85288 (March 11, 2019),
84 FR 9565 (March 15, 2019) (SR-DTC-2018-010).
\8\ Letter from John F. Abel, Executive Director, Settlement and
Asset Services, Depository Trust and Clearing Corporation, dated
July 1, 2019, to Vanessa Countryman, Acting Secretary, Commission,
available at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5749578-186788.pdf (``DTC Letter II''); Letter from
Mari-Anne Pisarri, Pickard Djinis and Pisarri LLP, dated April 15,
2019, to Vanessa Countryman, Acting Secretary, Commission, available
at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5364127-184089.pdf (``SS&C Letter II''); and Letter from Murray
Pozmanter, Managing Director, Head of Clearing Agency Services and
Global Operations, Depository Trust and Clearing Corporation, dated
March 26, 2019, to Brent J. Fields, Secretary, Commission, available
at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5224494-183708.pdf (``DTC Letter I'').
\9\ Securities Exchange Act Release No. 88037 (June 5, 2019), 84
FR 27172 (June 11, 2019) (SR-DTC-2018-010).
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On June 28, 2019, DTC filed Amendment No. 1 to the proposed rule
change to provide status information to a matching utility even if that
matching utility did not submit a transaction to DTC.\10\ On August 5,
2019, DTC filed Amendment No. 2 to the proposed rule change to delay
the implementation timeframe of the proposal to until DTC has submitted
a subsequent fee filing.\11\ The Commission is publishing this notice
to solicit comment on Amendment Nos. 1 and 2 from interested persons
and to approve the proposed rule change, as modified by Amendment Nos.
1 and 2 (hereinafter, ``Proposed Rule Change''), on an accelerated
basis.
---------------------------------------------------------------------------
\10\ 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/comments/sr-dtc-2018-010/srdtc2018010.htm since July 2, 2019.
\11\ DTC submitted a courtesy copy of Amendment No. 2 to the
proposed rule change through the Commission's electronic public
comment letter mechanism. Accordingly, Amendment No. 2 to the
proposed rule change has been publicly available on the Commission's
website at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5914689-188969.pdf since August 6, 2019.
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I. Description of the Proposed Rule Change
Background
DTC proposes to amend the procedures, set forth in the DTC
Settlement Service Guide (``Settlement Guide''),\12\ to allow DTC to
provide status information (``Status Information'') for institutional
transactions in eligible securities (``Institutional Transactions'')
\13\ to an entity providing a matching service (``Matching
Utility''),\14\ as described below.
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\12\ 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 (``Settlement Guide'').
\13\ DTC defines 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).
Notice, supra note 3, 83 FR at 63948.
\14\ 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 \15\ 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.\16\ The submission of an
[[Page 40108]]
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.\17\
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\15\ 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 transactions settling the previous day.
Settlement Guide, supra note 12 at 35. DTC's system will compare the
totals from the Matching Utility to its accepted item counts. Id. If
the totals match, an ``acknowledged balance'' balance file will be
sent to the Matching Utility. Id. If the totals do not match, DTC
will respond with the list of control numbers received from the
Matching Utility for transactions that settled on the previous day,
along with their respective transaction types for the originating
Matching Utility to compare. Id.
\16\ Settlement Guide, supra note 12 at 35. 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.
Institutional Transactions that are not Affirmed Transactions, but
which include a Control Number, may be submitted directly by
Participants. Id.
\17\ Settlement Guide, supra note 12 at 35.
---------------------------------------------------------------------------
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
Settlement 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 currently 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. DTC states that currently, these communications
among the counterparties to a transaction often occur in a
decentralized manner via email, which is time consuming and subject to
error.\18\
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\18\ Notice, supra note 3, 83 FR at 63950.
---------------------------------------------------------------------------
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 to Participants and
facilitate their ability to manage Exceptions 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''), 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,\19\ if so requested by the Matching
Utility.
---------------------------------------------------------------------------
\19\ 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 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 of the
transaction, (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 proposes to revise the
Settlement Guide to allow DTC to provide Status Information of Eligible
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 (i) describe the types of Status Information and
related Identifying Information that would be shared with a Matching
Utility in this regard, and (ii) 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.\20\ 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.
---------------------------------------------------------------------------
\20\ 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;
[[Page 40109]]
(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.
Description of Amendment No. 1
In Amendment No. 1, DTC proposes to provide status information to a
Matching Utility even if that Matching Utility did not submit a
transaction to DTC.\21\ Specifically, DTC will develop the mechanism
necessary for DTC to directly provide Status Information to a Matching
Utility for each transaction submitted to DTC to which a customer of
the Matching Utility is a party to the transaction and matched the
transaction via the Matching Utility, regardless of whether or not that
Matching Utility submitted the transaction to DTC, subject to (i) the
agreement by the Matching Utility to pay DTC for the reasonable cost to
cover for the development of the mechanism by DTC and (ii) the Matching
Utility subscribing to receive Status Information, as described above.
To the extent that the transaction is an interoperable transaction
submitted to DTC by another Matching Utility, then in order to receive
Status Information for the interoperable transaction, the Matching
Utility would be required to submit an indicator to DTC for the purpose
of notifying DTC that a customer of the Matching Utility is a party to
the transaction.
---------------------------------------------------------------------------
\21\ Amendment No. 1, supra note 10.
---------------------------------------------------------------------------
Description of Amendment No. 2
In Amendment No. 2, DTC proposes to delay the implementation
timeframe of the proposal to until DTC has submitted a subsequent fee
filing.\22\ Specifically, as filed, the proposed rule change would be
effective upon approval by the Commission. Pursuant to Amendment No. 2,
the Proposed Rule Change would not become effective until DTC has
submitted a subsequent proposed rule change pursuant to Rule 19b-4
under the Act,\23\ and the subsequent proposed rule change has become
effective. DTC states that subsequent proposed rule change would
implement changes to the DTC Fee Guide \24\ that establish (i) the
Status Information Fee and (ii) a charge that would cover the cost of
DTC's provision of Status Information to a Matching Utility for each
transaction submitted to DTC to which a customer of the Matching
Utility is a party to the transaction and matched the transaction via
the Matching Utility, regardless of whether or not that Matching
Utility submitted the transaction to DTC, as described in Amendment No.
1.
---------------------------------------------------------------------------
\22\ Amendment No. 2, supra note 11.
\23\ 17 CFR 240.19b-4.
\24\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf.
---------------------------------------------------------------------------
II. Solicitation of Comments on Amendment Nos. 1 and 2
Interested persons are invited to submit written data, views and
arguments concerning whether Amendment Nos. 1 and 2 are consistent with
the Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2018-010 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 the filing also will be available for inspection
and copying at the principal office of DTC and on DTCC's website
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-2018-010 and should be submitted on
or before August 28, 2019.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \25\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to such
organization. After carefully considering the Proposed Rule Change, and
all comments received, the Commission finds that the Proposed Rule
Change is consistent with the Act and the rules and regulations
thereunder applicable to DTC.\26\ In particular, as discussed below,
the Commission finds that the Proposed Rule Change, is consistent with
Sections 17A(b)(3)(F) and (I) of the Act.\27\
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\25\ 15 U.S.C. 78s(b)(2)(C).
\26\ In approving this Proposed Rule Change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f). The Commission
addresses comments about economic effects of the Proposed Rule
Change, including competitive effects, below.
\27\ 15 U.S.C. 78q-1(b)(3)(F) and (I).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to, among other things, promote the
prompt and accurate clearance and settlement of securities
transactions.\28\ For the reasons set forth below, the Commission
believes that the changes described in the Proposed Rule Change are
designed to promote the prompt and accurate
[[Page 40110]]
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\29\
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ Id.
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As described above, DTC proposes to share Status Information with
Matching Utilities. Matching Utilities already electronically
facilitate communication among the parties to an Institutional
Transaction. Providing Status Information to Matching Utilities would
leverage their existing communication platform to eliminate the need
for Participants to access the Status Information directly from DTC and
then communicate Exception information to other parties in a
decentralized way, including by sending emails which are less efficient
and more error-prone. The Commission believes that this approach should
increase efficiency in communicating Status Information that in turn
could help facilitate enhanced communication among the parties to an
Eligible Transaction to address an Exception so that the Eligible
Transaction may meet DTC controls and be processed for end-of-day
settlement. As such, the Commission believes that the Proposed Rule
Change is designed to promote the prompt and accurate clearance and
settlement of securities transactions and is consistent with Section
17A(b)(3)(F) of the Act.\30\
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\30\ Id.
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B. Consistency With Section 17A(b)(3)(I) of the Act
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\31\ DTC proposes
to share Status Information with Matching Utilities so that Matching
Utilities can help facilitate the resolution of Exceptions by using
their central platform. Currently the parties to Institutional
Transactions must communicate in an inefficient, time-consuming manner
to resolve an Exception. Because the increased efficiency in
communicating Status Information could help facilitate enhanced
communication among the parties to an Eligible Transaction and address
an Exception (i.e., so that the Eligible Transaction may meet DTC
controls and be processed for end-of-day settlement), the Commission
believes that the Proposed Rule Change could benefit all of the parties
to an Eligible Transaction. As a result, the Commission believes that
the Proposed Rule Change would not impose any burden on competition
regarding fees not necessary or appropriate in furtherance of the
purposes of the Act.
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\31\ 15 U.S.C. 78q-1(b)(3)(I).
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As originally proposed, the Proposed Rule Change would provide
Status Information to the 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. Further, a
Matching Utility would be required to sign an agreement 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. One commenter
opposes the original proposal limiting access to the Status Information
only to Matching Utilities that either submitted the transaction to DTC
or whose Control Number is included in the transaction detailed
provided to DTC by a Participant, because this original proposal does
not provide for transmitting Status Information to a linked Matching
Utility, over the interface or otherwise.\32\ The commenter states that
by restricting distribution of Status Information to the Matching
Utility that submits a transaction to DTC or whose Control Number is
included in transaction details provided by a Participant on whose
behalf it confirmed the trade, the original proposal would impede the
free flow of information between Matching Utilities, thereby further
thwarting the development of a competitive interoperating environment
for central trade matching services.\33\
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\32\ SS&C Letter II at 2-3.
\33\ SS&C Letter II at 2-3; SS&C Letter I at 4-5.
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In response, DTC states that it does not intend for the Proposed
Rule Change to preclude sharing of Status Information among
interoperating Matching Utilities in a circumstance where both Matching
Utilities are acting for a party to the transaction.\34\ To address the
commenter's concern, DTC amended the proposal to directly provide
Status Information to a Matching Utility for each transaction submitted
to DTC to which a customer of the Matching Utility is a party to the
transaction and matched the transaction via the Matching Utility.\35\
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\34\ DTC Letter II at 4.
\35\ Id.
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The Commission believes that the proposed rule change, as amended,
would not impose any burden on competition on the future development of
an interoperability arrangement among Matching Utilities not necessary
or appropriate in furtherance of the purposes of the Act. The Proposed
Rule Change would allow any Matching Utilities involved in a
transaction to access Status Information directly from DTC, regardless
of whether a Matching Utility's control number was submitted with the
transaction. The Commission understands that under the Proposed Rule
Change, the method by which a Matching Utility accesses Status
Information would differ based on whether the Matching Utility's
control number is associated with the transaction (i.e., if a Matching
Utility's control number is not included in the transaction as
submitted, the Matching Utility would be required to submit an
indicator to DTC to notify DTC that a customer of the Matching Utility
is a party to the transaction). The Commission believes that providing
distinct methods for Matching Utilities to access the same Status
Information directly from DTC should help ensure that all interested
Matching Utilities can access such information regardless of which
Matching Utility submits the transaction to DTC. Therefore, the
Commission believes that these different methods of access would not
impose any burden on competition not necessary or appropriate in
furtherance of the Act.
Fees Associated With the Provision of Status Information
As discussed above, the Proposed Rule Change would authorize DTC to
charge (i) a Status Information Fee to a Matching Utility that receives
Status Information as set forth in the DTC Fee Guide through a future
proposed rule change and (ii) the reasonable cost to cover for the
development of the mechanism by DTC to provide Status Information to a
Matching Utility even if that Matching Utility did not submit a
transaction to DTC.
One commenter opposes the proposal to charge a fee for Status
Information on both procedural and substantive grounds.\36\ As a
procedural matter, the commenter states that any fee for Status
Information should be considered by the Commission in the Proposed Rule
Change. The commenter notes that once DTC's authority to impose a fee
on a Matching Utility for Status Information is established, any
subsequent filing to implement that authority by setting the amount of
the fee will become effective immediately upon filing with the
[[Page 40111]]
Commission.\37\ The commenter states that ``[t]he Commission's
authority to temporarily suspend the fee, once implemented, is no
substitute for a careful consideration at this juncture of the
important issues [it] has raised.'' \38\ Substantively, the commenter
states any fee charged to ITP would be merely a paper transfer of
revenue from one corporate affiliate to another, while a fee charged to
the commenter, another Matching Utility, would be a true cost with real
consequences.\39\
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\36\ See SS&C Letter II at 3-4; SS&C Letter I at 4-5.
\37\ See SS&C Letter II at 3; see also 15 U.S.C. Sec.
78s(b)(3).
\38\ See SS&C Letter II at 3-4.
\39\ See SS&C Letter II at 4.
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For the following reasons, the Commission believes that the
Proposed Rule Change would not impose any burden on competition
regarding fees that is not necessary or appropriate in furtherance of
the purposes of the Act. As a procedural matter, not including the fee
for Status Information in the Proposed Rule Change is consistent with
the Act. Sections 19(b)(3)(A) and (C) of the Act \40\ specifically
provide for the process to which the commenter objects, i.e., a
proposed rule change that establishes a fee imposed by a self-
regulatory organization on any person, whether or not the person is a
member of the organization, shall take effect upon filing with the
Commission and be subject to potential suspension if the Commission
determines that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of Section 19 of the Act. Therefore, the Commission
believes that DTC choosing to include any associated fee in a
subsequent proposed rule change is consistent with the Act.
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\40\ 15 U.S.C. Sec. 78s(b)(3)(A) and (C).
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Substantively, it is consistent with the Act to charge fees to both
affiliates and third-party competitors of the affiliate. The commenter
argues that the mere existence of a fee is problematic because DTC
would be charging that fee to its affiliate which renders the fee a
``paper transfer'' of revenue.\41\ However, the Commission believes
that, under the Act, any fee charged by DTC for this service should be
equitably allocated among potential users, including users that are
affiliates of DTC. \42\ Therefore, it would not be reasonable for DTC
to not charge a fee for this service solely because its affiliate may
be a user of the service.
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\41\ See SS&C Letter I at 5; SS&C Letter II at 4.
\42\ Although Section 17A(b)(3)(D) applies to clearing agency
fees on participants, the Commission believes that it is also
instructive here with respect to fees on users of a service provided
by a clearing agency. 15 U.S.C. 78q-1(b)(D).
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Finally, the Commission notes that the Proposed Rule Change would
also provide that a Matching Utility agree to pay DTC for the
reasonable cost of DTC's development of the mechanism necessary for DTC
to directly provide Status Information to a Matching Utility for each
transaction to which a customer of the Matching Utility is a party and
matched via the Matching Utility. As noted above, the Commission notes
that this approach, which applies to all Matching Utilities, is
consistent with Section 17A(b)(3)(D),\43\ which requires the equitable
allocation of fees among a clearing agency's participants. The
Commission also notes that it would review the future fee filing for
consistency with this provision and all other relevant Exchange Act
provisions, as well as the standard set forth by DTC in this filing.
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\43\ 15 U.S.C. 78q-1(b)(D).
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Therefore, for all of the above reasons, the Commission believes
that the Proposed Rule Change is consistent with Section 17A(b)(3)(I)
of the Act.\44\
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\44\ 15 U.S.C. 78q-1(b)(3)(I).
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IV. Accelerated Approval of Amendment Nos. 1 and 2
As noted above, in Amendment No. 1, as compared to the original
proposal, DTC proposes to provide status information to a Matching
Utility even if that matching utility did not submit a transaction to
DTC.\45\ As noted above, in Amendment No. 2, as compared to the
original proposal, DTC proposes to delay the implementation timeframe
of the proposal to until DTC has submitted a subsequent fee filing.\46\
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\45\ Amendment No. 1, supra note 10.
\46\ Amendment No. 1, supra note 11.
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As discussed above, the Commission believes that the amendments do
not raise any regulatory issues and are consistent with the Act because
Amendment No. 1 provides different methods for Matching Utilities to
access Status Information directly from DTC to help ensure that
Matching Utilities can access Status Information regardless of which
Matching Utility submits the transaction to DTC. Likewise, Amendment
No. 2 would provide more time before the proposal would go into effect.
Therefore, the Commission finds that Amendment Nos. 1 and 2 to the
proposal raise no novel regulatory issues, that they are reasonably
designed to protect investors and the public interest, and that they
are consistent with the requirements of the Act. Accordingly, the
Commission finds good cause, pursuant to Section 19(b)(2) of the
Act,\47\ to approve the proposed rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
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\47\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Amendment Nos. 1 and 2, is
consistent with the requirements of the Act, in particular, with the
requirements of Section 17A of the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\48\ that proposed rule change SR-DTC-2018-010, as modified by
Amendment Nos. 1 and 2, be, and it hereby is, approved on an
accelerated basis.
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\48\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17232 Filed 8-12-19; 8:45 am]
BILLING CODE 8011-01-P
