Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the DTC Deposits Service Guide Relating to Procedures for the Deposit of Nontransferable Securities, 48187-48191 [2019-19704]
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Federal Register / Vol. 84, No. 177 / Thursday, September 12, 2019 / Notices
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Nasdaq proposes a change to Nasdaq
Rule 1000 Series.12
According to the Exchange, this
exemption is necessary and appropriate
because it will result in the Exchange’s
membership rules and processes being
consistent with the relevant crossreferenced Nasdaq membership rules
and processes at all times.13 The
Exchange states that harmonization of
the membership rules and processes
between the Exchange and Nasdaq will
ease compliance burdens for those
seeking membership on both exchanges
and increase internal efficiencies
associated with administering the
membership rules and processes of each
exchange.14
The Commission has issued
exemptions similar to the Exchange’s
request.15 In granting similar
exemptions, the Commission stated that
it would consider future exemption
requests, provided that:
• A self-regulatory organization
(‘‘SRO’’) wishing to incorporate rules of
another SRO by reference has submitted
a written request for an order exempting
it from the requirement in Section 19(b)
of the Exchange Act to file proposed
rule changes relating to the rules
incorporated by reference, has identified
the applicable originating SRO(s),
together with the rules it wants to
incorporate by reference, and otherwise
has complied with the procedural
requirements set forth in the
Commission’s release governing
procedures for requesting exemptive
12 The Exchange states that it will provide such
notice via a posting on the same website location
where the Exchange posts its own rule filings
pursuant to Rule 19b–4(l) within the timeframe
required by such Rule. In addition, the Exchange
states that the website posting will include a link
to the location on Nasdaq’s website where the
applicable proposed rule change is posted. Id. at 2–
3.
13 See Exemptive Request, supra note 3, at 2.
14 See id.
15 See, e.g., Securities Exchange Act Release Nos.
80338 (March 29, 2017), 82 FR 16464 (April 4,
2017) (order granting exemptive request from MIAX
PEARL, LLC relating to rules of Miami International
Securities Exchange, LLC incorporated by
reference); 72650 (July 22, 2014), 79 FR 44075 (July
29, 2014) (order granting exemptive requests from
NASDAQ OMX BX, Inc. and the NASDAQ Stock
Market LLC relating to rules of NASDAQ OMX
PHLX LLC incorporated by reference); 67256 (June
26, 2012), 77 FR 39277, 39286 (July 2, 2012) (order
approving SR–BX–2012–030 and granting
exemptive request relating to rules incorporated by
reference by the BX Options rules); 61534 (February
18, 2010), 75 FR 8760 (February 25, 2010) (order
granting BATS Exchange, Inc.’s exemptive request
relating to rules incorporated by reference by the
BATS Exchange Options Market rules) (‘‘BATS
Options Market Order’’); and 57478 (March 12,
2008), 73 FR 14521, 14539–40 (March 18, 2008)
(order approving SR–NASDAQ–2007–004 and SR–
NASDAQ–2007–080, and granting exemptive
request relating to rules incorporated by reference
by The NASDAQ Options Market).
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orders pursuant to Rule 0–12 under the
Exchange Act; 16
• The incorporating SRO has
requested incorporation of categories of
rules (rather than individual rules
within a category) that are not trading
rules (e.g., the SRO has requested
incorporation of rules such as margin,
suitability, or arbitration); and
• The incorporating SRO has
reasonable procedures in place to
provide written notice to its members
each time a change is proposed to the
incorporated rules of another SRO.17
The Commission believes that the
Exchange has satisfied each of these
conditions. Further, the Commission
also believes that granting the Exchange
an exemption from the rule filing
requirements under Section 19(b) of the
Exchange Act will promote efficient use
of the Commission’s and the Exchange’s
resources by avoiding duplicative rule
filings based on simultaneous changes
to identical rule text sought by more
than one SRO.18 The Commission
therefore finds it appropriate in the
public interest and consistent with the
protection of investors to exempt the
Exchange from the rule filing
requirements under Section 19(b) of the
Exchange Act with respect to the abovedescribed rules it incorporates by
reference. This exemption is
conditioned upon the Exchange
promptly providing written notice to its
applicants and members whenever
Nasdaq changes a rule that the Exchange
incorporates by reference.
Accordingly, it is ordered, pursuant to
Section 36 of the Exchange Act,19 that
the Exchange is exempt from the rule
filing requirements of Section 19(b) of
the Exchange Act solely with respect to
changes to the rules identified in the
Exemptive Request, provided that the
Exchange promptly provides written
notice to its applicants and members
whenever Nasdaq proposes to change a
rule that the Exchange has incorporated
by reference.
16 See 17 CFR 240.0–12 and Securities Exchange
Act Release No. 39624 (February 5, 1998), 63 FR
8101 (February 18, 1998) (‘‘Commission Procedures
for Filing Applications for Orders for Exemptive
Relief Pursuant to Section 36 of the Exchange Act;
Final Rule’’).
17 See BATS Options Market Order, supra note 15
(citing Securities Exchange Act Release No. 49260
(February 17, 2004), 69 FR 8500 (February 24, 2004)
(order granting exemptive request relating to rules
incorporated by reference by several SROs) (‘‘2004
Order’’)).
18 See BATS Options Market Order, supra note
15, 75 FR at 8761; see also 2004 Order, supra note
17, 69 FR at 8502.
19 15 U.S.C. 78mm.
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48187
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19716 Filed 9–11–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86897; File No. SR–DTC–
2019–007]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
the DTC Deposits Service Guide
Relating to Procedures for the Deposit
of Nontransferable Securities
September 6, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
30, 2019, The Depository Trust
Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. DTC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(1) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change 5 would
incorporate (a) DTC’s existing
Procedures 6 for the Deposit of
Nontransferable Securities 7 at DTC,
with certain technical and clarifying
updates, as described below, and (b) the
20 17
CFR 200.30–3(a)(76).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(1).
5 Capitalized terms not defined herein are defined
in the Rules, By-Laws and Organization Certificate
of DTC (‘‘Rules’’), available at https://
www.dtcc.com/∼/media/Files/Downloads/legal/
rules/dtc_rules.pdf.
6 Pursuant to the Rules, the term ‘‘Procedures’’
means the Procedures, service guides, and
regulations of DTC adopted pursuant to Rule 27, as
amended from time to time. See Rule 1, supra note
5.
7 In 1992, the Commission approved a DTC rule
filing (‘‘1992 Rule Filing’’) that established
Procedures for the Deposit of Nontransferable
Securities at DTC. See Securities Exchange Act
Release No. 31673 (December 30, 1992), 58 FR 3046
(January 7, 1993) (File No. SR–DTC–92–16).
1 15
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Federal Register / Vol. 84, No. 177 / Thursday, September 12, 2019 / Notices
DTC form of Blanket Indemnification for
Losses Related to Non-Transferable
Certificates Deposited with DTC
(‘‘Blanket Indemnification’’) into the
DTC Deposits Service Guide 8
(‘‘Deposits Guide’’), with certain
technical and clarifying updates, as
described below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The proposed rule change would
incorporate (a) DTC’s existing
Procedures for the Deposit of
Nontransferable Securities at DTC, with
certain technical and clarifying updates,
as described below, and (b) the text of
the existing DTC form of Blanket
Indemnification into the Deposits
Guide, with certain technical and
clarifying updates, as described below.
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Background
Eligibility and Deposit of Securities at
DTC
DTC plays a critical function in the
national clearance and settlement
system. It is the nation’s central
securities depository, registered as a
clearing agency under Section 17A of
the Act,9 and its deposit and book-entry
transfer services help facilitate the
operation of the nation’s securities
markets.10
DTC’s participants (‘‘Participants’’)
are primarily broker-dealers and banks.
Participants agree to be bound by the
Rules and Procedures. DTC performs
various services for Participants to
promote the prompt and accurate
clearance and settlement of Securities,
including maintaining Accounts that list
a Participant’s Securities holding at DTC
and allowing Participants to present
8 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/Deposits.pdf.
9 15 U.S.C. 78s(b)(1).
10 See Securities Exchange Act Release No. 20221
(September 23, 1983), 48 FR 45167 (October 3,
1983) (600–1).
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Securities to be made eligible for DTC’s
depository and book-entry services. If a
Security is accepted by DTC as meeting
DTC’s eligibility requirements for
services and is Deposited with DTC for
credit to the Securities Account of a
Participant, it becomes an ‘‘Eligible
Security.’’ 11 Other issues of Securities
may be added through corporate actions
with respect to Eligible Securities,
including events such as name changes,
mergers and spinoffs, that are reviewed
by DTC for continuing eligibility.12
Thereafter, Participants may Deposit
shares of that Eligible Security
(‘‘Deposited Securities’’) into their
respective DTC Accounts.13
To facilitate book-entry transfers and
other services that DTC provides for its
Participants, Deposited Securities are
generally registered on the books of the
respective issuer (typically, in a register
maintained by a transfer agent) in DTC’s
nominee name, Cede & Co. Certain
Securities for which transfer services for
a Security are not available
(‘‘Nontransferable Securities’’), as
described below, may also become
eligible for DTC services. DTC maintains
Deposited Securities that are eligible for
book-entry services in ‘‘fungible bulk,’’
meaning that each Participant whose
Securities of an issue have been credited
to its Securities Account has a pro rata
interest in DTC’s entire inventory of that
issue, but none of the securities on
Deposit are identifiable to or ‘‘owned’’
by any Participant.14
Security certificates are eligible for
Deposit at DTC when they are delivered
to DTC in accordance with the Rules
and Procedures and pursuant to Article
8 (‘‘Article 8’’) 15 of the NYUCC. Under
Article 8, a registered owner may
transfer a Securities certificate, and the
Securities the certificate represents, to a
‘‘purchaser’’ (in this case, DTC) by
means of indorsement and Delivery.16
DTC’s Rules and Procedures require that
the indorsement be made in favor of
11 See Rule 5, supra note 5; DTC Operational
Arrangements (Necessary for Securities to Become
and Remain Eligible for DTC Services)
(‘‘Operational Arrangements’’), Section 1, available
at https://www.dtcc.com/∼/media/Files/Downloads/
legal/issue-eligibility/eligibility/operationalarrangements.pdf.
12 See Operational Arrangements, Section 1,
supra note 11.
13 Rule 6, supra note 5.
14 See Securities Exchange Act Release No. 19678
(April 15, 1983), 48 FR 17603, 17605, n.5 (April 25,
1983) (describing fungible bulk); See also N.Y.
Uniform Commercial Code (‘‘NYUCC’’), 8–503, Off.
Cmt 1 (‘‘. . . all entitlement holders have a pro rata
interest in whatever positions in that financial asset
the [financial] intermediary holds’’).
15 NYUCC 8–101—8–602.
16 NYUCC 8–301, 8–304, 8–102 and Official
Comment 11 thereto.
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DTC’s nominee, Cede & Co.17 Having
thereby ‘‘acquired’’ the indorsed
Security certificate as the purchaser,
DTC comes into possession of the rights
that the registered owner of the Security
would have.18 Ordinarily, under the
DTC Rules and Procedures, the indorsed
certificate is presented to the issuer or
transfer agent for registration in the
name of Cede & Co., so that, in addition
to physical possession of the negotiable
certificate, Cede & Co. is reflected as the
registered holder on the books and
records of the issuer maintained by its
transfer agent.19
In the case of Nontransferable
Securities, the issuer of the Security
could not or would not cause reregistration of the Security certificate
because there is no transfer agent or for
other reasons. Circumstances that may
underlie this nontransferable status of a
Security certificate may include the
bankruptcy or insolvency of the issuer,
the failure of the issuer to pay fees to a
transfer agent, a final or complete
liquidation of the issuer, the filing of a
certificate of dissolution, the placement
of the issuer in receivership and the
revocation of the issuer’s charter. In
such cases, pursuant to the 1992 Rule
Filing, DTC, as the legal owner of the
Nontransferable Security (i) holds in
custody the certificate indorsed to Cede
& Co. (ii) adds the amount of the
Nontransferable Security represented by
the certificate to the inventory DTC
holds for that issue, and (iii) credits the
position to the Securities Account of the
Depositing Participant, as described
below.
1992 Rule Filing
Prior to the establishment of
Procedures implemented pursuant to
the 1992 Rule Filing (‘‘Nontransferable
Securities Procedures’’), the holding and
trading of Nontransferable Securities
presented issues for Participants that
would be addressed if the
Nontransferable Securities could be
Deposited at DTC and eligible for bookentry services. In this regard, failed
Deliveries in Nontransferable Securities
occurred regularly and remained
outstanding because of ongoing trading
activity in Nontransferable Securities
where the underlying Securities were
not on Deposit and available for
Delivery at DTC. Also, Participants
holding nontransferable certificates
outside of DTC were burdened with the
expense of safekeeping certificates.
The Nontransferable Securities
Procedures reduce the burdens
17 Rule
6, supra note 5.
8–302.
19 See Deposits Guide, supra note 8 at 13.
18 NYUCC
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Federal Register / Vol. 84, No. 177 / Thursday, September 12, 2019 / Notices
presented by nontransferable certificates
for Participants by facilitating the
Deposit of Nontransferable Securities at
DTC to make them available for bookentry Delivery, thus facilitating a
reduction of fails in ongoing trading
activity in Nontransferable Securities, as
described above, and by allowing the
Participants to no longer provide their
own custody services with respect to
certificates for DTC-eligible
Nontransferable Securities.
The 1992 Rule Filing also introduced
a loss sharing allocation method to be
used if a certificate that represents a
Nontransferable Security is Deposited at
DTC and later, most likely after the
reinstatement of transfer services and
presentation of the certificate for
transfer, is found to be stolen,
counterfeit, or otherwise defective.
The Nontransferable Securities
Procedures, as implemented pursuant to
the 1992 Rule Filing are as set forth
under the headings ‘‘Deposit
Procedures’’ and ‘‘Procedures for
Sharing Loss Related to Deposit of
Nontransferable Certificates,’’
immediately below:
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A. Deposit Procedures
‘‘When DTC announces to
Participants that an issue is
‘‘nontransferable,’’ DTC will change the
transfer agent number on DTC’s records,
which may be viewed by Participants
via DTC’s Participant Terminal System,
to reflect the fact that the issue is
nontransferable. Participants will be
permitted to deposit their DTC-eligible
nontransferable securities by adhering
to several procedures. Specifically,
Participants will be asked to:
1. Send to their Participant Services
representative a copy of the Blanket
Indemnification executed by an
authorized officer. Procedures set forth
in the Indemnification will, among
other things, require the Participant to
verify with the Securities Information
Center (‘‘SIC’’) that the certificate has
not been reported to SIC as lost, stolen,
missing, or counterfeit; 20
2. Use a Legal deposit ticket clearly
market ‘‘N/T.’’ No more than ten
certificates may be included in each
individual deposit. Participants will
also be asked not to commingle different
types of registrations on a single deposit
20 SIC operates the Lost & Stolen Securities
Program (‘‘LSSP’’) on behalf of the Commission.
Rule 17f–1 under the Act, governs LSSP operations.
See 17 CFR 240.17f–1. LSSP consists mainly of a
database of securities that have been reported lost,
stolen, missing, or counterfeit. Securities Exchange
Act Release No. 48931 (December 16, 2003), 68 FR
74390 (December 23, 2003) at 74393. This note is
provided for descriptive purposes only with respect
to this Item 1 and is not included in the Deposit
Procedures.
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17:27 Sep 11, 2019
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ticket (i.e., all nominee-name and streetname registrations will be deposited
under separate tickets); and
3. Check the certificates for
assignment to Cede & Co., New York
State tax waiver, endorsements, and
other requirements, and provide the
appropriate signature guarantees.’’
B. Procedures for Sharing of Loss
Related to Deposit of Nontransferable
Securities
‘‘DTC has developed a loss allocation
method in the event that a certificate the
represents a nontransferable security is
deposited at DTC and later, most likely
after the reinstatement of transfer
services and presentation of the
certificate for transfer, is found to be
stolen, counterfeit or otherwise
defective. If the depositing/
indemnifying participant is still in
business or if DTC is holding the
participant’s Participants Fund deposit
in an amount sufficient to cover the
loss, DTC will first seek to charge the
Participant or its deposit. In the event,
however, in which at the time that DTC
becomes aware of the loss: (1) The
depositing participant has transferred
the underlying securities by book-entry;
(2) the participant does not itself cover
the loss because it is not in business or
for some other reason; and (3) the
participant’s deposit to the Participants
Fund is insufficient to cover the loss,
then the loss will be allocated as
follows:
The loss will be shared pro rata
among all participants that have a
position in such issue on the date that
DTC determines that the certificate is
defective, excluding participants’
positions, however, to the extent that
positions existed on the day that DTC
first announced to participants that the
issue was ‘‘nontransferable.’’ For
example, if a participant already held a
position of 1,000 shares in an issue at
the time that the issue was identified by
DTC as being nontransferable and then
acquires 500 additional shares later, any
proportionate loss calculation would be
only against the additional 500 shares
and not against the 1,500 share total
position. DTC will first seek to charge
the participant’s Participants Fund
deposit in an amount sufficient to cover
the loss. If the deposit will not cover the
total amount of the loss, DTC will then
charge the participant directly for the
remaining amount. In the event,
however, that the loss allocation method
as described above does not cover the
total amount of the loss related to the
deposit of the nontransferable securities,
DTC will then charge the loss in
accordance with its current loss
allocation scheme.’’
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48189
The Blanket Indemnification, the form
that was filed as an exhibit to the 1992
Rule Filing states the following: 21
‘‘The undersigned (‘‘Participant’’), a
participant in The Depository Trust
Company (‘‘DTC’’), intends to deposit
with DTC from time to time certain
certificates (the ‘‘Certificates’’)
representing securities for which
transfer services are not available (the
‘‘Securities’’).
Participant wishes to deposit the
Securities with DTC and to receive
credit for the Securities in its DTC
Participant account. To induce DTC to
so credit the Securities and to make
DTC’s book-entry services available for
transactions in the Securities,
Participant represents, warrants, and
covenants to DTC as follows:
1. Other than the unavailability of
transfer services, Participant, after due
investigation, is not aware of any
impediments to transfer of the
Certificates.
2. It is understood that DTC cannot
provide its normal certificate
withdrawal services in the Securities,
including CODs and W/Ts. Participant
will comply fully with applicable
industry practice and rules respecting
the need for it to advise other
participants to which it makes bookentry deliveries of the Securities, if any,
of this limitation.
3. If Participant publishes or submits
for publication a quotation for the
Securities where the applicable
information requirements of Securities
Exchange Act Rule 15c2–11 22 are not
satisfied, Participant shall not use DTC’s
book-entry services to effect
contemporaneous deliveries in any such
Securities.
4. The indemnification set forth in
DTC Rule 2(k) 23 shall apply with
21 The footnotes shown below, with respect to the
Blanket Indemnification provisions, infra notes 22
and 23, are included for descriptive purposes only
and are not included in the form of Blanket
Indemnification.
22 See 17 CFR 240.15c2–11. Rule 15c2–11 under
the Act, governs the publication of quotations for
securities in a quotation medium other than a
national securities exchange. See Securities
Exchange Act Release No. 29094 (April 17, 1991),
56 FR 19148 (1991 Adopting Release); Securities
Exchange Act Release No. 27247 (September 14,
1989), 54 FR 39194 (September 25, 1989) (1989
Proposing Release).
23 This provision states: ‘‘Each Security delivered
for the Participant’s account to the Corporation for
Deposit with the Corporation may be transferred
into the name of any nominee designated by the
Corporation or by such Custodian as the
Corporation may select, if it is Delivered to such
Custodian, and retained by the Corporation or
Delivered to such Custodian as the Corporation may
select, and the Participant shall indemnify the
Corporation, and any nominee of the Corporation in
the name of which Securities credited to the
Participant’s Account are registered, against all loss,
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respect to the Securities
notwithstanding the absence of transfer
services for the Securities at the time
that they are first credited to
Participant’s DTC account.
5. Participant shall inquire with SIC,
and as of the date of deposit with DTC
the Certificates shall not have been
reported to SIC as lost, stolen, missing,
or counterfeit.
6. If DTC incurs any loss or liability
because any of the Certificates are
counterfeit, are reported stolen, or are or
become, for any reason, not in good
deliverable form, Participant agrees that
DTC may charge such loss or liability to
Participant.
7. Participant agrees that DTC may
charge any future distribution of rights,
including voting rights, or other
property (a ‘‘Distribution’’) involving
the Securities to Participant’s account if
DTC does not receive the Distribution
on the Distribution date.’’
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Proposed Rule Change
Pursuant to the proposed rule change,
DTC would incorporate the
Nontransferable Securities Procedures,
which contain two subsets of
Procedures, namely ‘‘Deposit
Procedures’’ and ‘‘Procedures for
Sharing of Loss Related to Deposit of
Nontransferable Securities,’’ as it was
set forth in the 1992 Rule Filing, with
certain technical and clarifying changes,
as follows:
1. The provision set forth in the first
sentence of A.1. above would be revised
to replace the words ‘‘Send to their
Participant Services representative’’
with the words ‘‘Provide DTC Account
Administration with’’. This change
would conform this text with DTC’s
general Participant account
documentation process through which
DTC’s Account Administration area
collects and maintains Participant
Account documentation. This provision
would also be revised to (i) add the full
name of the Blanket Indemnification, as
defined above, where it is referenced in
the first sentence and (ii) add ‘‘Blanket
Indemnification’’ as a defined term for
the Blanket Indemnification.
2. The provision set forth in A.2.
above would be revised to replace the
sentence that states ‘‘Use a Legal deposit
ticket clearly marked ‘‘N/T’’ with ‘‘Use
liability and expense which they may sustain,
without fault on the Corporation’s part, as a result
of Securities credited to the Participant’s Account
being registered in the name of any such nominee,
including (i) assessments, (ii) losses, liabilities and
expenses arising from claims of third parties and
from taxes and other governmental charges, and (iii)
related expenses with respect to any such
Securities.’’ See Rule 2, supra note 5. Pursuant to
Rule 1, the term ‘‘Corporation’’ means DTC. See
Rule 1, supra note 5.
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17:27 Sep 11, 2019
Jkt 247001
a DAM deposit ticket, whereby the
certificate details on the deposit ticket
match the corresponding certificates
(e.g., CUSIP, certificate #, certificate
denomination, total quantity).’’ The
Legal Deposits service is a function
within the Deposits Service and is not
descriptive of the method used to
generate a deposit ticket.24 A deposit
ticket is generated using DTC’s Deposit
Automation Management System
(DAM) 25 and DTC believes that using
the applicable system name would
clarify for Participants the method by
which the necessary deposit ticket is
generated. In addition, the requirement
to include the text ‘‘N/T’’ on a deposit
ticket was intended for the Participant
to indicate that a Security is
nontransferable. Pursuant to the
proposed rule change, the ‘‘N/T’’
designation would not be required to be
included on a deposit ticket because
DTC’s own records reflect whether a
given Security that is eligible for
Deposit is nontransferable.
3. The text of the Nontransferable
Securities Procedures would be revised
to conform to capitalization of the term
Participant as set forth in the Deposits
Guide.
In addition, DTC would incorporate
the text of the Blanket Indemnification
set forth above into the Deposits Guide.
The text of the Blanket Indemnification
would be added under a new heading
titled ‘‘Blanket Indemnification for
Losses Related to Non-Transferable
Certificates Deposited with DTC.’’
Directly under this heading, and just
prior to the text of the Blanket
Indemnification text set forth above, the
proposed rule change would include a
technical change to add the following
text: ‘‘Any application to become a
Participant shall include a blanket
indemnification for losses related to
non-transferable certificates deposited
with DTC in the form set forth below:’’
Effective Date
The proposed rule change would
become effective upon filing with the
Commission.
2. Statutory Basis
Section 17A(b)(3)(F) 26 of the Act,
requires that the rules of the clearing
agency be designed, inter alia, to
promote the prompt and accurate
clearance and settlement of securities
transactions. DTC believes that the
proposed rule change is consistent with
this provision of the Act for the reasons
described below. As described above,
24 See
Deposits Guide, supra note 8 at 16.
Deposits Guide, supra note 8.
26 15 U.S.C. 78q–1(b)(3)(F).
the proposed rule change would allow
Participants to more readily understand
their rights and obligations in
connection with the Deposit of
Nontransferable Securities by providing
enhanced transparency for Participants
by (i) adding the text of the Procedures
implemented pursuant to the 1992 Rule
Filing into the Deposits Service Guide,
which is publicly available on the DTCC
website, and (ii) updating the provisions
set forth in the Procedures to clearly
disclose to Participants the operation of
the applicable services. By improving
the Rules in these ways and allowing
Participants to more readily understand
their rights and obligations in
connection with the use of DTC’s
services relating to Nontransferable
Securities, DTC believes that the
proposed changes would facilitate
Participants use of these services,
including their ability to Deposit
Nontransferable Securities. The ability
to maintain Deposits in Nontransferable
Securities would facilitate Participants’
ability to Deliver Securities by bookentry at DTC for trading activity that
might otherwise result in a failure to
deliver due to the unavailability of
transfer services for the Security.
Therefore, by facilitating the ability of
Participants to manage and resolve
failures to deliver, DTC believes the
proposed rule change would promote
the prompt and accurate clearance and
settlement of securities transactions,
consistent with Section 17(A)(b)(3)(f) of
the Act.27
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule changes would have any
impact, or impose any burden, on
competition. The proposed rule changes
are designed to improve Participants’
understanding of their rights and
obligations with respect to the use of
DTC’s services relating to the Deposit of
Nontransferable Securities. These
proposed changes would be applicable
to all Participants and would not alter
Participants’ rights or obligations.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
Written comments relating to this
proposed rule change have not been
solicited or received. DTC will notify
the Commission of any written
comments received by DTC.
25 See
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
27 Id.
E:\FR\FM\12SEN1.SGM
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Federal Register / Vol. 84, No. 177 / Thursday, September 12, 2019 / Notices
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 28 and paragraph (f) of Rule
19b–4 thereunder.29 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
jbell on DSK3GLQ082PROD with NOTICES
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–2019–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–DTC–2019–007. 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
28 15
29 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
VerDate Sep<11>2014
17:27 Sep 11, 2019
Jkt 247001
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–
2019–007 and should be submitted on
or before October 3, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19704 Filed 9–11–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86891; File No. SR–ICEEU–
2019–012]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Partial Amendment No. 2 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Partial Amendment No. 1 and Partial
Amendment No. 2, To Revise the ICE
Clear Europe Treasury and Banking
Services Policy, Liquidity Management
Procedures, Investment Management
Procedures and Unsecured Credit
Limits Procedures
September 6, 2019.
I. Introduction
On July 5, 2019, ICE Clear Europe
Limited (‘‘ICE Clear Europe’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt a new Treasury and
Banking Services Policy, new Liquidity
Management Procedures, new
Investment Management Procedures,
and revised Unsecured Credit Limits
Procedures. The proposed rule change
was published for comment in the
Federal Register on July 25, 2019.3 On
July 30, 2019, ICE Clear Europe filed
Partial Amendment No. 1 to the
30 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 86413 (July
19, 2019), 84 FR 35892 (July 25, 2019) (SR–ICEEU–
2019–012) (‘‘Notice’’).
1 15
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
48191
proposed rule change.4 Notice of Partial
Amendment No. 1 was published in the
Federal Register on August 7, 2019.5
The Commission did not receive
comments on the proposed rule change,
as modified by Partial Amendment No.
1. On August 27, 2019, ICE Clear Europe
filed Partial Amendment No. 2 to the
proposed rule change.6 The Commission
is publishing this notice to solicit
comments on Partial Amendment No. 2
from interested persons and, for the
reasons discussed below, is approving
the proposed rule change, as modified
by Partial Amendment No. 1 and Partial
Amendment No. 2 on an accelerated
basis.
II. Description of the Proposed Rule
Change
ICE Clear Europe proposes to adopt
new Liquidity Management Procedures,
new Investment Management
Procedures, and revised Unsecured
Credit Limits Procedures (collectively,
the ‘‘Procedures Documents’’), as well
as a new Treasury and Banking Services
Policy (together with the Procedures
Documents, the ‘‘Treasury
Documents’’).7 The Treasury Documents
would replace the existing Liquidity
Risk Management Framework, Liquidity
Plan, Investment Management Policy
4 ICE Clear Europe filed Partial Amendment No.
1 to correct an error in the confidential Exhibit 5–
4. The original version of the confidential Exhibit
5–4 contained a defined term that did not have a
definition. ICE Clear Europe filed a new version of
the confidential Exhibit 5–4 to correct that issue
and define the term. Partial Amendment No. 1 did
not otherwise make any changes to the substance
of the filing or the text of the proposed rule change,
nor did it raise any novel regulatory issues.
5 Securities Exchange Act Release No. 86539
(August 1, 2019), 84 FR 38689 (August 7, 2019)
(SR–ICEEU–2019–012) (‘‘Partial Amendment No.
1’’).
6 ICE Clear Europe filed Partial Amendment No.
2 to provide additional details regarding the
governance of the approval and review of the
Treasury and Banking Services Policy, Liquidity
Management Procedures, Investment Management
Procedures, and Unsecured Credit Limits
Procedures and amend the governance sections of
each of those documents to be consistent with the
information provided to the Commission in
confidential exhibits. Moreover, Partial Amendment
No. 2 amends the Liquidity Management
Procedures to remove references to reverse repos,
which ICEEU no longer considers as liquid
resources, and to specify that ICE Clear Europe
personnel meet monthly to, among other things,
analyze and discuss the assumptions and
parameters of liquidity stress test scenarios. Finally,
Partial Amendment No. 2 provides, in a
confidential exhibit, ICE Clear Europe’s
Documentation Governance Schedule.
7 Capitalized terms used but not defined herein
have the meanings specified in the ICE Clear
Europe Clearing Rules (the ‘‘Rules’’) or the Treasury
Documents. The following description of the
proposed rule change is excerpted from the Notice,
84 FR 35892.
E:\FR\FM\12SEN1.SGM
12SEN1
]]>Agencies
[Federal Register Volume 84, Number 177 (Thursday, September 12, 2019)]
[Notices]
[Pages 48187-48191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19704]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86897; File No. SR-DTC-2019-007]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the DTC Deposits Service Guide Relating to Procedures for the
Deposit of Nontransferable Securities
September 6, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 30, 2019, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II and III below, which Items have
been prepared by the clearing agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(1) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ would incorporate (a) DTC's existing
Procedures \6\ for the Deposit of Nontransferable Securities \7\ at
DTC, with certain technical and clarifying updates, as described below,
and (b) the
[[Page 48188]]
DTC form of Blanket Indemnification for Losses Related to Non-
Transferable Certificates Deposited with DTC (``Blanket
Indemnification'') into the DTC Deposits Service Guide \8\ (``Deposits
Guide''), with certain technical and clarifying updates, as described
below.
---------------------------------------------------------------------------
\5\ Capitalized terms not defined herein are defined in the
Rules, By-Laws and Organization Certificate of DTC (``Rules''),
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf.
\6\ Pursuant to the Rules, the term ``Procedures'' means the
Procedures, service guides, and regulations of DTC adopted pursuant
to Rule 27, as amended from time to time. See Rule 1, supra note 5.
\7\ In 1992, the Commission approved a DTC rule filing (``1992
Rule Filing'') that established Procedures for the Deposit of
Nontransferable Securities at DTC. See Securities Exchange Act
Release No. 31673 (December 30, 1992), 58 FR 3046 (January 7, 1993)
(File No. SR-DTC-92-16).
\8\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Deposits.pdf.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The proposed rule change would incorporate (a) DTC's existing
Procedures for the Deposit of Nontransferable Securities at DTC, with
certain technical and clarifying updates, as described below, and (b)
the text of the existing DTC form of Blanket Indemnification into the
Deposits Guide, with certain technical and clarifying updates, as
described below.
Background
Eligibility and Deposit of Securities at DTC
DTC plays a critical function in the national clearance and
settlement system. It is the nation's central securities depository,
registered as a clearing agency under Section 17A of the Act,\9\ and
its deposit and book-entry transfer services help facilitate the
operation of the nation's securities markets.\10\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(1).
\10\ See Securities Exchange Act Release No. 20221 (September
23, 1983), 48 FR 45167 (October 3, 1983) (600-1).
---------------------------------------------------------------------------
DTC's participants (``Participants'') are primarily broker-dealers
and banks. Participants agree to be bound by the Rules and Procedures.
DTC performs various services for Participants to promote the prompt
and accurate clearance and settlement of Securities, including
maintaining Accounts that list a Participant's Securities holding at
DTC and allowing Participants to present Securities to be made eligible
for DTC's depository and book-entry services. If a Security is accepted
by DTC as meeting DTC's eligibility requirements for services and is
Deposited with DTC for credit to the Securities Account of a
Participant, it becomes an ``Eligible Security.'' \11\ Other issues of
Securities may be added through corporate actions with respect to
Eligible Securities, including events such as name changes, mergers and
spinoffs, that are reviewed by DTC for continuing eligibility.\12\
Thereafter, Participants may Deposit shares of that Eligible Security
(``Deposited Securities'') into their respective DTC Accounts.\13\
---------------------------------------------------------------------------
\11\ See Rule 5, supra note 5; DTC Operational Arrangements
(Necessary for Securities to Become and Remain Eligible for DTC
Services) (``Operational Arrangements''), Section 1, available at
https://www.dtcc.com/~/media/Files/Downloads/legal/issue-eligibility/
eligibility/operational-arrangements.pdf.
\12\ See Operational Arrangements, Section 1, supra note 11.
\13\ Rule 6, supra note 5.
---------------------------------------------------------------------------
To facilitate book-entry transfers and other services that DTC
provides for its Participants, Deposited Securities are generally
registered on the books of the respective issuer (typically, in a
register maintained by a transfer agent) in DTC's nominee name, Cede &
Co. Certain Securities for which transfer services for a Security are
not available (``Nontransferable Securities''), as described below, may
also become eligible for DTC services. DTC maintains Deposited
Securities that are eligible for book-entry services in ``fungible
bulk,'' meaning that each Participant whose Securities of an issue have
been credited to its Securities Account has a pro rata interest in
DTC's entire inventory of that issue, but none of the securities on
Deposit are identifiable to or ``owned'' by any Participant.\14\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 19678 (April 15,
1983), 48 FR 17603, 17605, n.5 (April 25, 1983) (describing fungible
bulk); See also N.Y. Uniform Commercial Code (``NYUCC''), 8-503,
Off. Cmt 1 (``. . . all entitlement holders have a pro rata interest
in whatever positions in that financial asset the [financial]
intermediary holds'').
---------------------------------------------------------------------------
Security certificates are eligible for Deposit at DTC when they are
delivered to DTC in accordance with the Rules and Procedures and
pursuant to Article 8 (``Article 8'') \15\ of the NYUCC. Under Article
8, a registered owner may transfer a Securities certificate, and the
Securities the certificate represents, to a ``purchaser'' (in this
case, DTC) by means of indorsement and Delivery.\16\ DTC's Rules and
Procedures require that the indorsement be made in favor of DTC's
nominee, Cede & Co.\17\ Having thereby ``acquired'' the indorsed
Security certificate as the purchaser, DTC comes into possession of the
rights that the registered owner of the Security would have.\18\
Ordinarily, under the DTC Rules and Procedures, the indorsed
certificate is presented to the issuer or transfer agent for
registration in the name of Cede & Co., so that, in addition to
physical possession of the negotiable certificate, Cede & Co. is
reflected as the registered holder on the books and records of the
issuer maintained by its transfer agent.\19\
---------------------------------------------------------------------------
\15\ NYUCC 8-101--8-602.
\16\ NYUCC 8-301, 8-304, 8-102 and Official Comment 11 thereto.
\17\ Rule 6, supra note 5.
\18\ NYUCC 8-302.
\19\ See Deposits Guide, supra note 8 at 13.
---------------------------------------------------------------------------
In the case of Nontransferable Securities, the issuer of the
Security could not or would not cause re-registration of the Security
certificate because there is no transfer agent or for other reasons.
Circumstances that may underlie this nontransferable status of a
Security certificate may include the bankruptcy or insolvency of the
issuer, the failure of the issuer to pay fees to a transfer agent, a
final or complete liquidation of the issuer, the filing of a
certificate of dissolution, the placement of the issuer in receivership
and the revocation of the issuer's charter. In such cases, pursuant to
the 1992 Rule Filing, DTC, as the legal owner of the Nontransferable
Security (i) holds in custody the certificate indorsed to Cede & Co.
(ii) adds the amount of the Nontransferable Security represented by the
certificate to the inventory DTC holds for that issue, and (iii)
credits the position to the Securities Account of the Depositing
Participant, as described below.
1992 Rule Filing
Prior to the establishment of Procedures implemented pursuant to
the 1992 Rule Filing (``Nontransferable Securities Procedures''), the
holding and trading of Nontransferable Securities presented issues for
Participants that would be addressed if the Nontransferable Securities
could be Deposited at DTC and eligible for book-entry services. In this
regard, failed Deliveries in Nontransferable Securities occurred
regularly and remained outstanding because of ongoing trading activity
in Nontransferable Securities where the underlying Securities were not
on Deposit and available for Delivery at DTC. Also, Participants
holding nontransferable certificates outside of DTC were burdened with
the expense of safekeeping certificates.
The Nontransferable Securities Procedures reduce the burdens
[[Page 48189]]
presented by nontransferable certificates for Participants by
facilitating the Deposit of Nontransferable Securities at DTC to make
them available for book-entry Delivery, thus facilitating a reduction
of fails in ongoing trading activity in Nontransferable Securities, as
described above, and by allowing the Participants to no longer provide
their own custody services with respect to certificates for DTC-
eligible Nontransferable Securities.
The 1992 Rule Filing also introduced a loss sharing allocation
method to be used if a certificate that represents a Nontransferable
Security is Deposited at DTC and later, most likely after the
reinstatement of transfer services and presentation of the certificate
for transfer, is found to be stolen, counterfeit, or otherwise
defective.
The Nontransferable Securities Procedures, as implemented pursuant
to the 1992 Rule Filing are as set forth under the headings ``Deposit
Procedures'' and ``Procedures for Sharing Loss Related to Deposit of
Nontransferable Certificates,'' immediately below:
A. Deposit Procedures
``When DTC announces to Participants that an issue is
``nontransferable,'' DTC will change the transfer agent number on DTC's
records, which may be viewed by Participants via DTC's Participant
Terminal System, to reflect the fact that the issue is nontransferable.
Participants will be permitted to deposit their DTC-eligible
nontransferable securities by adhering to several procedures.
Specifically, Participants will be asked to:
1. Send to their Participant Services representative a copy of the
Blanket Indemnification executed by an authorized officer. Procedures
set forth in the Indemnification will, among other things, require the
Participant to verify with the Securities Information Center (``SIC'')
that the certificate has not been reported to SIC as lost, stolen,
missing, or counterfeit; \20\
---------------------------------------------------------------------------
\20\ SIC operates the Lost & Stolen Securities Program
(``LSSP'') on behalf of the Commission. Rule 17f-1 under the Act,
governs LSSP operations. See 17 CFR 240.17f-1. LSSP consists mainly
of a database of securities that have been reported lost, stolen,
missing, or counterfeit. Securities Exchange Act Release No. 48931
(December 16, 2003), 68 FR 74390 (December 23, 2003) at 74393. This
note is provided for descriptive purposes only with respect to this
Item 1 and is not included in the Deposit Procedures.
---------------------------------------------------------------------------
2. Use a Legal deposit ticket clearly market ``N/T.'' No more than
ten certificates may be included in each individual deposit.
Participants will also be asked not to commingle different types of
registrations on a single deposit ticket (i.e., all nominee-name and
street-name registrations will be deposited under separate tickets);
and
3. Check the certificates for assignment to Cede & Co., New York
State tax waiver, endorsements, and other requirements, and provide the
appropriate signature guarantees.''
B. Procedures for Sharing of Loss Related to Deposit of Nontransferable
Securities
``DTC has developed a loss allocation method in the event that a
certificate the represents a nontransferable security is deposited at
DTC and later, most likely after the reinstatement of transfer services
and presentation of the certificate for transfer, is found to be
stolen, counterfeit or otherwise defective. If the depositing/
indemnifying participant is still in business or if DTC is holding the
participant's Participants Fund deposit in an amount sufficient to
cover the loss, DTC will first seek to charge the Participant or its
deposit. In the event, however, in which at the time that DTC becomes
aware of the loss: (1) The depositing participant has transferred the
underlying securities by book-entry; (2) the participant does not
itself cover the loss because it is not in business or for some other
reason; and (3) the participant's deposit to the Participants Fund is
insufficient to cover the loss, then the loss will be allocated as
follows:
The loss will be shared pro rata among all participants that have a
position in such issue on the date that DTC determines that the
certificate is defective, excluding participants' positions, however,
to the extent that positions existed on the day that DTC first
announced to participants that the issue was ``nontransferable.'' For
example, if a participant already held a position of 1,000 shares in an
issue at the time that the issue was identified by DTC as being
nontransferable and then acquires 500 additional shares later, any
proportionate loss calculation would be only against the additional 500
shares and not against the 1,500 share total position. DTC will first
seek to charge the participant's Participants Fund deposit in an amount
sufficient to cover the loss. If the deposit will not cover the total
amount of the loss, DTC will then charge the participant directly for
the remaining amount. In the event, however, that the loss allocation
method as described above does not cover the total amount of the loss
related to the deposit of the nontransferable securities, DTC will then
charge the loss in accordance with its current loss allocation
scheme.''
The Blanket Indemnification, the form that was filed as an exhibit
to the 1992 Rule Filing states the following: \21\
---------------------------------------------------------------------------
\21\ The footnotes shown below, with respect to the Blanket
Indemnification provisions, infra notes 22 and 23, are included for
descriptive purposes only and are not included in the form of
Blanket Indemnification.
---------------------------------------------------------------------------
``The undersigned (``Participant''), a participant in The
Depository Trust Company (``DTC''), intends to deposit with DTC from
time to time certain certificates (the ``Certificates'') representing
securities for which transfer services are not available (the
``Securities'').
Participant wishes to deposit the Securities with DTC and to
receive credit for the Securities in its DTC Participant account. To
induce DTC to so credit the Securities and to make DTC's book-entry
services available for transactions in the Securities, Participant
represents, warrants, and covenants to DTC as follows:
1. Other than the unavailability of transfer services, Participant,
after due investigation, is not aware of any impediments to transfer of
the Certificates.
2. It is understood that DTC cannot provide its normal certificate
withdrawal services in the Securities, including CODs and W/Ts.
Participant will comply fully with applicable industry practice and
rules respecting the need for it to advise other participants to which
it makes book-entry deliveries of the Securities, if any, of this
limitation.
3. If Participant publishes or submits for publication a quotation
for the Securities where the applicable information requirements of
Securities Exchange Act Rule 15c2-11 \22\ are not satisfied,
Participant shall not use DTC's book-entry services to effect
contemporaneous deliveries in any such Securities.
---------------------------------------------------------------------------
\22\ See 17 CFR 240.15c2-11. Rule 15c2-11 under the Act, governs
the publication of quotations for securities in a quotation medium
other than a national securities exchange. See Securities Exchange
Act Release No. 29094 (April 17, 1991), 56 FR 19148 (1991 Adopting
Release); Securities Exchange Act Release No. 27247 (September 14,
1989), 54 FR 39194 (September 25, 1989) (1989 Proposing Release).
---------------------------------------------------------------------------
4. The indemnification set forth in DTC Rule 2(k) \23\ shall apply
with
[[Page 48190]]
respect to the Securities notwithstanding the absence of transfer
services for the Securities at the time that they are first credited to
Participant's DTC account.
---------------------------------------------------------------------------
\23\ This provision states: ``Each Security delivered for the
Participant's account to the Corporation for Deposit with the
Corporation may be transferred into the name of any nominee
designated by the Corporation or by such Custodian as the
Corporation may select, if it is Delivered to such Custodian, and
retained by the Corporation or Delivered to such Custodian as the
Corporation may select, and the Participant shall indemnify the
Corporation, and any nominee of the Corporation in the name of which
Securities credited to the Participant's Account are registered,
against all loss, liability and expense which they may sustain,
without fault on the Corporation's part, as a result of Securities
credited to the Participant's Account being registered in the name
of any such nominee, including (i) assessments, (ii) losses,
liabilities and expenses arising from claims of third parties and
from taxes and other governmental charges, and (iii) related
expenses with respect to any such Securities.'' See Rule 2, supra
note 5. Pursuant to Rule 1, the term ``Corporation'' means DTC. See
Rule 1, supra note 5.
---------------------------------------------------------------------------
5. Participant shall inquire with SIC, and as of the date of
deposit with DTC the Certificates shall not have been reported to SIC
as lost, stolen, missing, or counterfeit.
6. If DTC incurs any loss or liability because any of the
Certificates are counterfeit, are reported stolen, or are or become,
for any reason, not in good deliverable form, Participant agrees that
DTC may charge such loss or liability to Participant.
7. Participant agrees that DTC may charge any future distribution
of rights, including voting rights, or other property (a
``Distribution'') involving the Securities to Participant's account if
DTC does not receive the Distribution on the Distribution date.''
Proposed Rule Change
Pursuant to the proposed rule change, DTC would incorporate the
Nontransferable Securities Procedures, which contain two subsets of
Procedures, namely ``Deposit Procedures'' and ``Procedures for Sharing
of Loss Related to Deposit of Nontransferable Securities,'' as it was
set forth in the 1992 Rule Filing, with certain technical and
clarifying changes, as follows:
1. The provision set forth in the first sentence of A.1. above
would be revised to replace the words ``Send to their Participant
Services representative'' with the words ``Provide DTC Account
Administration with''. This change would conform this text with DTC's
general Participant account documentation process through which DTC's
Account Administration area collects and maintains Participant Account
documentation. This provision would also be revised to (i) add the full
name of the Blanket Indemnification, as defined above, where it is
referenced in the first sentence and (ii) add ``Blanket
Indemnification'' as a defined term for the Blanket Indemnification.
2. The provision set forth in A.2. above would be revised to
replace the sentence that states ``Use a Legal deposit ticket clearly
marked ``N/T'' with ``Use a DAM deposit ticket, whereby the certificate
details on the deposit ticket match the corresponding certificates
(e.g., CUSIP, certificate #, certificate denomination, total
quantity).'' The Legal Deposits service is a function within the
Deposits Service and is not descriptive of the method used to generate
a deposit ticket.\24\ A deposit ticket is generated using DTC's Deposit
Automation Management System (DAM) \25\ and DTC believes that using the
applicable system name would clarify for Participants the method by
which the necessary deposit ticket is generated. In addition, the
requirement to include the text ``N/T'' on a deposit ticket was
intended for the Participant to indicate that a Security is
nontransferable. Pursuant to the proposed rule change, the ``N/T''
designation would not be required to be included on a deposit ticket
because DTC's own records reflect whether a given Security that is
eligible for Deposit is nontransferable.
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\24\ See Deposits Guide, supra note 8 at 16.
\25\ See Deposits Guide, supra note 8.
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3. The text of the Nontransferable Securities Procedures would be
revised to conform to capitalization of the term Participant as set
forth in the Deposits Guide.
In addition, DTC would incorporate the text of the Blanket
Indemnification set forth above into the Deposits Guide. The text of
the Blanket Indemnification would be added under a new heading titled
``Blanket Indemnification for Losses Related to Non-Transferable
Certificates Deposited with DTC.'' Directly under this heading, and
just prior to the text of the Blanket Indemnification text set forth
above, the proposed rule change would include a technical change to add
the following text: ``Any application to become a Participant shall
include a blanket indemnification for losses related to non-
transferable certificates deposited with DTC in the form set forth
below:''
Effective Date
The proposed rule change would become effective upon filing with
the Commission.
2. Statutory Basis
Section 17A(b)(3)(F) \26\ of the Act, requires that the rules of
the clearing agency be designed, inter alia, to promote the prompt and
accurate clearance and settlement of securities transactions. DTC
believes that the proposed rule change is consistent with this
provision of the Act for the reasons described below. As described
above, the proposed rule change would allow Participants to more
readily understand their rights and obligations in connection with the
Deposit of Nontransferable Securities by providing enhanced
transparency for Participants by (i) adding the text of the Procedures
implemented pursuant to the 1992 Rule Filing into the Deposits Service
Guide, which is publicly available on the DTCC website, and (ii)
updating the provisions set forth in the Procedures to clearly disclose
to Participants the operation of the applicable services. By improving
the Rules in these ways and allowing Participants to more readily
understand their rights and obligations in connection with the use of
DTC's services relating to Nontransferable Securities, DTC believes
that the proposed changes would facilitate Participants use of these
services, including their ability to Deposit Nontransferable
Securities. The ability to maintain Deposits in Nontransferable
Securities would facilitate Participants' ability to Deliver Securities
by book-entry at DTC for trading activity that might otherwise result
in a failure to deliver due to the unavailability of transfer services
for the Security. Therefore, by facilitating the ability of
Participants to manage and resolve failures to deliver, DTC believes
the proposed rule change would promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17(A)(b)(3)(f) of the Act.\27\
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\26\ 15 U.S.C. 78q-1(b)(3)(F).
\27\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
DTC does not believe that the proposed rule changes would have any
impact, or impose any burden, on competition. The proposed rule changes
are designed to improve Participants' understanding of their rights and
obligations with respect to the use of DTC's services relating to the
Deposit of Nontransferable Securities. These proposed changes would be
applicable to all Participants and would not alter Participants' rights
or obligations.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to this proposed rule change have not
been solicited or received. DTC will notify the Commission of any
written comments received by DTC.
[[Page 48191]]
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \28\ and paragraph (f) of Rule 19b-4
thereunder.\29\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-DTC-2019-007 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-DTC-2019-007. 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-2019-007 and should be submitted on
or before October 3, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19704 Filed 9-11-19; 8:45 am]
BILLING CODE 8011-01-P
