Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Clearing Agency Investment Policy, 19047-19050 [2020-06956]

Download as PDF Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–06955 Filed 4–2–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–88513; File No. SR–DTC– 2020–007] • 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– FICC–2020–003 on the subject line. Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Clearing Agency Investment Policy March 30, 2020. Paper Comments jbell on DSKJLSW7X2PROD with NOTICES 2020–003 and should be submitted on or before April 24, 2020. • 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–FICC–2020–003. 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 FICC 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–FICC– VerDate Sep<11>2014 17:45 Apr 02, 2020 Jkt 250001 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 March 26, 2020, 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)(6) 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 would revise the Clearing Agency Investment Policy (‘‘Investment Policy’’) of DTC and its affiliates, National Securities Clearing Corporation (‘‘NSCC’’) and Fixed Income Clearing Corporation (‘‘FICC,’’ and together with DTC and NSCC, the ‘‘Clearing Agencies’’) in order to (1) include the proceeds of the issuance of term debt by NSCC as part of the description of ‘‘Default Liquidity Funds’’ within the section for ‘‘Investable Funds’’; (2) clarify the allowable investments for DTC’s Participants Fund; 5 and (3) enhance the 21 17 CFR 200.30–3(a)(12). 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)(6). 5 The respective Clearing Funds of NSCC and FICC, and the DTC Participants Fund are described in the Rules & Procedures of NSCC (‘‘NSCC Rules’’), the DTC Rules, By-laws and Organization Certificate (‘‘DTC Rules’’), the Clearing Rules of the 1 15 PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 19047 description of collateral that may be posted in connection with investments in reverse repurchase agreements; as described in greater detail 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 Clearing Agencies are proposing to revise the Investment Policy, which was adopted for each clearing agency in December 2016 6 and is maintained in compliance with Rule 17Ad–22(e)(16) under the Act,7 in order to (1) include the proceeds of the issuance of term debt by NSCC as part of the description of ‘‘Default Liquidity Funds’’ within the section for ‘‘Investable Funds’’; (2) clarify the allowable investments for DTC’s Participants Fund; and (3) enhance the description of collateral that may be posted in connection with investments in reverse repurchase agreements; as described in greater detail below. Overview of the Investment Policy The Investment Policy governs the management, custody and investment of cash deposited to the respective NSCC and FICC Clearing Funds, and the DTC Participants Fund, the proprietary liquid net assets (cash and cash equivalents) of the Clearing Agencies, and other funds held by the Clearing Mortgage-Backed Securities Division of FICC (‘‘MBSD Rules’’) and the Rulebook of the Government Securities Division of FICC (‘‘GSD Rules’’), respectively, available at https://dtcc.com/ legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4 (Participants Fund and Participants Investment) of the DTC Rules, Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule 4 (Clearing Fund and Loss Allocation) of the MBSD Rules. 6 See Securities Exchange Act Release No. 79528 (December 12, 2016), 81 FR 91232 (December 16, 2016) (SR–DTC–2016–007, SR–FICC–2016–005, SR–NSCC–2016–003). 7 17 CFR 240.17Ad–22(e)(16). As discussed in this filing, the Investment Policy also addresses compliance with the requirements of Rule 17Ad– 22(e)(3). 17 CFR 240.17Ad–22(e)(3). E:\FR\FM\03APN1.SGM 03APN1 19048 Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices Agencies pursuant to their respective rules. The Investment Policy identifies the guiding principles for investments and defines the roles and responsibilities of DTCC staff in administering the Investment Policy pursuant to those principles. The Investment Policy is coowned by DTCC’s Treasury group (‘‘Treasury’’) 8 and the Counterparty Credit Risk team (‘‘CCR’’) within DTCC’s Group Chief Risk Office (‘‘GCRO’’).9 Treasury is responsible for identifying potential counterparties to investment transactions, establishing and managing investment relationships with approved investment counterparties, and making and monitoring all investment transactions with respect to the Clearing Agencies. CCR is responsible for conducting a credit review of any potential counterparty, updating those reviews on a quarterly basis, and establishing an investment limit for each counterparty. The Investment Policy also identifies sources of funds that may be invested, and the permitted investments of those funds, including the authority required to make such investments and the parameters of, and limitations on, each type of investment. Allowable investments include bank deposits, reverse repurchase agreements, direct obligations of the U.S. government, money market mutual funds, high-grade corporate debt, and hedge transactions. Finally, the Investment Policy defines the approval authority required to exceed established investment limits. Proposed Revisions to the Investment Policy jbell on DSKJLSW7X2PROD with NOTICES The Investment Policy is reviewed and approved by the Boards annually. In connection with the most recent annual review of the Investment Policy and in order to reflect recent changes to NSCC’s default liquidity funds, the Clearing Agencies have decided to propose certain revisions and updates. These proposed revisions, described in greater detail below, are designed to update the Investment Policy and help ensure that it reflects the Clearing Agencies’ practices related to investments of funds. 8 Treasury is a part of the DTCC Finance Department and is responsible for the safeguarding, investment and disbursement of funds on behalf of the Clearing Agencies and in accordance with the principles outlined in the Investment Policy. 9 Among other responsibilities, GCRO is generally responsible for the systems and processes designed to identify and manage credit, market and liquidity risks to the Clearing Agencies. VerDate Sep<11>2014 17:45 Apr 02, 2020 Jkt 250001 1. Include Additional NSCC Default Liquidity in Table of Investable Funds First, the Clearing Agencies are proposing to amend the table of investable funds in Section 5 of the Investment Policy to include proceeds from the issuance of term debt by NSCC in the description of NSCC’s default liquidity funds. This table identifies the sources of investable funds that are invested by the Clearing Agencies, and groups these sources of funds into separate categories. One of the categories of investable funds is the default liquidity funds of NSCC, which is currently described as including the proceeds from the issuance of commercial paper and extendible notes. NSCC recently proposed to raise additional prefunded default liquidity through the periodic issuance and private placement of term debt.10 The investment of these funds would be governed by the Investment Policy. The proposed change to the Investment Policy would include proceeds from the issuance of term debt in this category of ‘‘Investable Funds’’ to reflect the recent effectiveness of NSCC’s proposal.11 2. Clarify Allowable Investments for DTC’s Participants Fund Second, the Clearing Agencies are proposing to make two revisions to the Investment Policy to clarify how DTC’s Participants Fund may be invested. It has historically been DTC’s practice to invest its Participants Fund in cash deposit accounts only, so that the funds are available for same-day access and settlement. The Clearing Agencies are proposing to update the Investment Policy to more clearly reflect this practice. First, the Clearing Agencies are proposing to amend the table of allowable investments in Section 6.1 of the Investment Policy to include a separate column to identify the DTC Participants Fund, and show these funds as being available for investment only in bank deposits, including DTC’s cash deposit account at the Federal Reserve Bank of New York. Currently, the DTC Participants Fund is included in the same column as the NSCC and FICC Clearing Funds, which may also be invested in other investment types. Therefore, as currently written, this table indicates that DTC’s Participants Fund may also be invested in those other investment types. The proposed 10 See Securities Exchange Act Release No. 88146 (February 7, 2020), 85 FR 8046 (February 12, 2020) (SR–NSCC–2019–802). 11 Id. PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 change to create a separate column for DTC’s Participants Fund would more clearly identify the allowable investments of these funds. Also, the Clearing Agencies are proposing to amend Section 6.2.1 of the Investment Policy, which describes the limits on investments in bank deposits, to explicitly state that DTC’s Participants Fund may only be invested in demand deposit, savings or checking bank accounts that provide same day access to funds. This proposed change would clearly identify the limits on investments of DTC’s Participants Fund in certain types of bank deposits. The proposed changes would improve the Investment Policy by more clearly identifying DTC’s practice with respect to the investment of its Participants Fund deposits. 3. Enhance Description of Collateral Related to Reverse Repurchase Agreements Finally, the Clearing Agencies are proposing to amend Section 6.2.2 of the Investment Policy, which describes investment limits on investments in reverse repurchase agreements. The proposed changes would include additional detail to more clearly describe the collateral that may be posted by a counterparty in connection with these investments and to identify the required haircuts on such collateral. More specifically, in these arrangements, where the Clearing Agencies are the purchaser of securities, the counterparty to the transaction delivers to the custodian collateral (either securities or cash). Currently, the Investment Policy states that securities posted as collateral must have a market value equal to 102% or greater of the cash invested. The proposed changes to the Investment Policy would further state that U.S. Treasury securities, U.S. agency securities and agency mortgagebacked securities posted as collateral must have a two percent haircut; and cash posted as collateral shall have no haircut, because cash does not carry any associated market risk that could lead to a change in collateral value. The proposed changes would improve the Investment Policy by more clearly describing the limits applicable to these types of investments. 2. Statutory Basis The Clearing Agencies believe that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a registered clearing agency. In particular, the Clearing Agencies believe that the proposed modifications to the Investment Policy E:\FR\FM\03APN1.SGM 03APN1 jbell on DSKJLSW7X2PROD with NOTICES Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices are consistent with Section 17A(b)(3)(F) of the Act 12 and Rule 17Ad–22(e)(16) under the Act,13 for the reasons described below. Section 17A(b)(3)(F) of the Act requires, in part, that the rules of each of the Clearing Agencies be designed to assure the safeguarding of securities and funds which are in the custody or control of each of the Clearing Agencies or for which they are responsible.14 The investment guidelines and governance procedures set forth in the Investment Policy are designed to safeguard funds which are in the custody or control of the Clearing Agencies or for which they are responsible. Such protections include, for example, following a prudent and conservative investment philosophy that places the highest priority on maximizing liquidity and risk avoidance. The Clearing Agencies believe each of these proposed changes would help facilitate the effective execution of the Investment Policy pursuant to the guiding principles set forth therein. Therefore, the Clearing Agencies believe the proposed changes would allow the Clearing Agencies to continue to operate the Investment Policy pursuant to a prudent and conservative investment philosophy that assures the safeguarding of securities and funds which are in their custody and control, or for which they are responsible. First, the proposed change to include proceeds from NSCC’s issuance of term debt in the table of ‘‘Investable Funds’’ would make investments of these funds subject to the guidelines and restrictions set forth in the Investment Policy, and, therefore, would assure the safeguarding of these funds. Second, the proposed changes to clarify the allowable investments for DTC’s Participants Fund and enhance the description of restrictions applicable to investments in reverse repurchase agreements would improve the clarity and accuracy of the Investment Policy. By creating clearer descriptions, the Clearing Agencies believe these proposed changes would make the Investment Policy more effective in governing the management, custody, and investment of funds of and held by the Clearing Agencies. For the reasons described above, the Clearing Agencies believe the proposed changes would improve the effectiveness of the Investment Policy and allow the Investment Policy to continue to be administered in alignment with the investment 12 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(16). 14 15 U.S.C. 78q–1(b)(3)(F). 13 17 VerDate Sep<11>2014 17:45 Apr 02, 2020 Jkt 250001 guidelines and governance procedures set forth therein. Given that such guidelines and governance procedures are designed to safeguard funds which are in the custody or control of the Clearing Agencies or for which they are responsible, the Clearing Agencies believe the proposed changes are consistent with the requirements of Section 17A(b)(3)(F) of the Act.15 Rule 17Ad–22(e)(16) under the Act requires the Clearing Agencies to establish, implement, maintain and enforce written policies and procedures reasonably designed to safeguard the Clearing Agencies’ own and their participants’ assets, minimize the risk of loss and delay in access to these assets, and invest such assets in instruments with minimal credit, market, and liquidity risks.16 The Clearing Agencies believe that the Investment Policy follows a prudent and conservative investment philosophy, placing the highest priority on maximizing liquidity and avoiding risk of loss, by requiring the segregation of funds of each Clearing Agency and of types of funds of each Clearing Agency, using external credit ratings in the evaluation of counterparties, and establishing investment limits by counterparty as well as investment type. As originally implemented, the Investment Policy was designed to meet the requirements of Rule 17Ad– 22(e)(16) under the Act.17 For the reasons stated above, the Clearing Agencies believe that each of the proposed revisions would improve the clarity and comprehensiveness of the Investment Policy and, therefore, make the Investment Policy more effective in governing the management, custody, and investment of funds of and held by the Clearing Agencies. In this way, the proposed changes would better allow the Clearing Agencies to maintain this document in a way that is designed to meet the requirements of Rule 17Ad– 22(e)(16). Therefore, the Clearing Agencies believe the proposed revisions would be consistent with the requirements of Rule 17Ad–22(e)(16) under the Act.18 15 Id. 16 When the Investment Policy was implemented, the Clearing Agencies were subject to the requirements of subsection (d) of Rule 17Ad–22 under the Act, and the Investment Policy was designed to meet the requirements of Rule 17Ad– 22(d)(3). See supra note 6; 17 CFR 240.17Ad–22(d). The Commission subsequently adopted Rule 17Ad– 22(e) and amended Rule 17Ad–22(d) such that the Clearing Agencies became subject to the new requirements of Rule 17Ad–22(e) and are no longer subject to the requirements of Rule 17Ad–22(d). 17 CFR 240.17Ad–22(e). 17 Id. 18 17 CFR 240.17Ad–22(e)(16). PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 19049 (B) Clearing Agency’s Statement on Burden on Competition Each of the Clearing Agencies believes that none of the proposed revisions to the Investment Policy would have any impact, or impose any burden, on competition. The Investment Policy applies equally to allowable investments of FICC and NSCC Clearing Funds and DTC Participants Fund deposits, as applicable, of each member of the Clearing Agencies, and establishes a uniform policy at the Clearing Agencies. The proposed changes to the Investment Policy would not affect any changes on the fundamental purpose or operation of this document and, as such, would also not have any impact, or impose any burden, on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Clearing Agencies have not solicited or received any written comments relating to this proposal. The Clearing Agencies will notify the Commission of any written comments received by the Clearing Agencies. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and Rule 19b–4(f)(6) thereunder.20 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, 19 15 20 17 E:\FR\FM\03APN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 03APN1 19050 Federal Register / Vol. 85, No. 65 / Friday, April 3, 2020 / Notices including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments [FR Doc. 2020–06956 Filed 4–2–20; 8:45 am] • 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–2020–007 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. jbell on DSKJLSW7X2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. All submissions should refer to File Number SR–DTC–2020–007. 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-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– 2020–007 and should be submitted on or before April 24, 2020. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–196, OMB Control No. 3235–0202] 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 15c2–11 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information provided for in Rule 15c2–11, (17 CFR 240.15c2–11), under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (‘‘Exchange Act’’). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 15c2–11 under the Exchange Act regulates the initiation or resumption of quotations in a quotation medium by a broker-dealer for over-the-counter (‘‘OTC’’) securities. The Rule is intended to prevent broker-dealers from initiating or resuming quotations for OTC securities that may facilitate a fraudulent or manipulative scheme. Subject to certain exceptions, the Rule prohibits broker-dealers from publishing a quotation for a security, or submitting a quotation for publication, in a quotation medium unless they have reviewed specified information concerning the security and the issuer. With respect to the securities of certain private issuers, a broker-dealer must make such information reasonably available upon request to any person expressing an interest in a proposed transaction in the security with such broker or dealer. Based on information provided by the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), we understand that in the 2019 calendar year, approximately 34 broker-dealers 21 17 VerDate Sep<11>2014 17:45 Apr 02, 2020 Jkt 250001 PO 00000 CFR 200.30–3(a)(12). Frm 00138 Fmt 4703 Sfmt 4703 completed information reviews pursuant to the Rule for 384 securities— 87 concerning securities of reporting issuers, and 297 concerning securities of non-reporting issuers. The collection of information that is submitted to FINRA for review and approval is currently not available to the public from FINRA. We estimate that it will take a brokerdealer 4 hours to review, record and retain the information pertaining to a reporting issuer (approximately 3 hours relating to recordkeeping and one hour relating to third-party disclosure), and 8 hours to review, record and retain the information pertaining to a nonreporting issuer (approximately 7 hours relating to recordkeeping and one hour relating to third-party disclosure). We therefore estimate that the total time burden for recordkeeping associated with the information review requirement of the Rule will be 2,340 hours [for (87 reviews for reporting issuers × 3 hours) + (297 reviews for non-reporting issuers × 7 hours)]; and the total time burden for third-party disclosure associated with the information review requirement of the Rule will be 384 hours [for (87 reviews for reporting issuers × 1 hour) + (297 reviews for non-reporting issuers × 1 hour)]. Thus, we estimate the industrywide total annual burden hours associated with the information review requirement under the Rule to be 2,724 hours (2,340 hours for recordkeeping + 384 hours for third-party disclosure). The Commission believes that the internal compliance costs for these 2,724 hours would be borne by internal staff working at a rate of $62 per hour.1 Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. 1 The $62 per hour figure for a General Clerk is from SIFMA’s Office Salaries in the Securities Industry 2013, modified by Commission staff to account for an 1800-hourwork-year and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead. E:\FR\FM\03APN1.SGM 03APN1

Agencies

[Federal Register Volume 85, Number 65 (Friday, April 3, 2020)]
[Notices]
[Pages 19047-19050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06956]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88513; File No. SR-DTC-2020-007]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Revise the Clearing Agency Investment Policy

March 30, 2020.
    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 March 26, 2020, 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)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \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)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would revise the Clearing Agency 
Investment Policy (``Investment Policy'') of DTC and its affiliates, 
National Securities Clearing Corporation (``NSCC'') and Fixed Income 
Clearing Corporation (``FICC,'' and together with DTC and NSCC, the 
``Clearing Agencies'') in order to (1) include the proceeds of the 
issuance of term debt by NSCC as part of the description of ``Default 
Liquidity Funds'' within the section for ``Investable Funds''; (2) 
clarify the allowable investments for DTC's Participants Fund; \5\ and 
(3) enhance the description of collateral that may be posted in 
connection with investments in reverse repurchase agreements; as 
described in greater detail below.
---------------------------------------------------------------------------

    \5\ The respective Clearing Funds of NSCC and FICC, and the DTC 
Participants Fund are described in the Rules & Procedures of NSCC 
(``NSCC Rules''), the DTC Rules, By-laws and Organization 
Certificate (``DTC Rules''), the Clearing Rules of the Mortgage-
Backed Securities Division of FICC (``MBSD Rules'') and the Rulebook 
of the Government Securities Division of FICC (``GSD Rules''), 
respectively, available at https://dtcc.com/legal/rules-and-procedures. See Rule 4 (Clearing Fund) of the NSCC Rules, Rule 4 
(Participants Fund and Participants Investment) of the DTC Rules, 
Rule 4 (Clearing Fund and Loss Allocation) of the GSD Rules and Rule 
4 (Clearing Fund and Loss Allocation) of the MBSD Rules.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The Clearing Agencies are proposing to revise the Investment 
Policy, which was adopted for each clearing agency in December 2016 \6\ 
and is maintained in compliance with Rule 17Ad-22(e)(16) under the 
Act,\7\ in order to (1) include the proceeds of the issuance of term 
debt by NSCC as part of the description of ``Default Liquidity Funds'' 
within the section for ``Investable Funds''; (2) clarify the allowable 
investments for DTC's Participants Fund; and (3) enhance the 
description of collateral that may be posted in connection with 
investments in reverse repurchase agreements; as described in greater 
detail below.
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    \6\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007, SR-FICC-
2016-005, SR-NSCC-2016-003).
    \7\ 17 CFR 240.17Ad-22(e)(16). As discussed in this filing, the 
Investment Policy also addresses compliance with the requirements of 
Rule 17Ad-22(e)(3). 17 CFR 240.17Ad-22(e)(3).
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Overview of the Investment Policy
    The Investment Policy governs the management, custody and 
investment of cash deposited to the respective NSCC and FICC Clearing 
Funds, and the DTC Participants Fund, the proprietary liquid net assets 
(cash and cash equivalents) of the Clearing Agencies, and other funds 
held by the Clearing

[[Page 19048]]

Agencies pursuant to their respective rules.
    The Investment Policy identifies the guiding principles for 
investments and defines the roles and responsibilities of DTCC staff in 
administering the Investment Policy pursuant to those principles. The 
Investment Policy is co-owned by DTCC's Treasury group (``Treasury'') 
\8\ and the Counterparty Credit Risk team (``CCR'') within DTCC's Group 
Chief Risk Office (``GCRO'').\9\ Treasury is responsible for 
identifying potential counterparties to investment transactions, 
establishing and managing investment relationships with approved 
investment counterparties, and making and monitoring all investment 
transactions with respect to the Clearing Agencies. CCR is responsible 
for conducting a credit review of any potential counterparty, updating 
those reviews on a quarterly basis, and establishing an investment 
limit for each counterparty.
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    \8\ Treasury is a part of the DTCC Finance Department and is 
responsible for the safeguarding, investment and disbursement of 
funds on behalf of the Clearing Agencies and in accordance with the 
principles outlined in the Investment Policy.
    \9\ Among other responsibilities, GCRO is generally responsible 
for the systems and processes designed to identify and manage 
credit, market and liquidity risks to the Clearing Agencies.
---------------------------------------------------------------------------

    The Investment Policy also identifies sources of funds that may be 
invested, and the permitted investments of those funds, including the 
authority required to make such investments and the parameters of, and 
limitations on, each type of investment. Allowable investments include 
bank deposits, reverse repurchase agreements, direct obligations of the 
U.S. government, money market mutual funds, high-grade corporate debt, 
and hedge transactions. Finally, the Investment Policy defines the 
approval authority required to exceed established investment limits.
Proposed Revisions to the Investment Policy
    The Investment Policy is reviewed and approved by the Boards 
annually. In connection with the most recent annual review of the 
Investment Policy and in order to reflect recent changes to NSCC's 
default liquidity funds, the Clearing Agencies have decided to propose 
certain revisions and updates. These proposed revisions, described in 
greater detail below, are designed to update the Investment Policy and 
help ensure that it reflects the Clearing Agencies' practices related 
to investments of funds.
1. Include Additional NSCC Default Liquidity in Table of Investable 
Funds
    First, the Clearing Agencies are proposing to amend the table of 
investable funds in Section 5 of the Investment Policy to include 
proceeds from the issuance of term debt by NSCC in the description of 
NSCC's default liquidity funds.
    This table identifies the sources of investable funds that are 
invested by the Clearing Agencies, and groups these sources of funds 
into separate categories. One of the categories of investable funds is 
the default liquidity funds of NSCC, which is currently described as 
including the proceeds from the issuance of commercial paper and 
extendible notes. NSCC recently proposed to raise additional prefunded 
default liquidity through the periodic issuance and private placement 
of term debt.\10\ The investment of these funds would be governed by 
the Investment Policy.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 88146 (February 7, 
2020), 85 FR 8046 (February 12, 2020) (SR-NSCC-2019-802).
---------------------------------------------------------------------------

    The proposed change to the Investment Policy would include proceeds 
from the issuance of term debt in this category of ``Investable Funds'' 
to reflect the recent effectiveness of NSCC's proposal.\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

2. Clarify Allowable Investments for DTC's Participants Fund
    Second, the Clearing Agencies are proposing to make two revisions 
to the Investment Policy to clarify how DTC's Participants Fund may be 
invested. It has historically been DTC's practice to invest its 
Participants Fund in cash deposit accounts only, so that the funds are 
available for same-day access and settlement.
    The Clearing Agencies are proposing to update the Investment Policy 
to more clearly reflect this practice. First, the Clearing Agencies are 
proposing to amend the table of allowable investments in Section 6.1 of 
the Investment Policy to include a separate column to identify the DTC 
Participants Fund, and show these funds as being available for 
investment only in bank deposits, including DTC's cash deposit account 
at the Federal Reserve Bank of New York. Currently, the DTC 
Participants Fund is included in the same column as the NSCC and FICC 
Clearing Funds, which may also be invested in other investment types. 
Therefore, as currently written, this table indicates that DTC's 
Participants Fund may also be invested in those other investment types. 
The proposed change to create a separate column for DTC's Participants 
Fund would more clearly identify the allowable investments of these 
funds.
    Also, the Clearing Agencies are proposing to amend Section 6.2.1 of 
the Investment Policy, which describes the limits on investments in 
bank deposits, to explicitly state that DTC's Participants Fund may 
only be invested in demand deposit, savings or checking bank accounts 
that provide same day access to funds. This proposed change would 
clearly identify the limits on investments of DTC's Participants Fund 
in certain types of bank deposits.
    The proposed changes would improve the Investment Policy by more 
clearly identifying DTC's practice with respect to the investment of 
its Participants Fund deposits.
3. Enhance Description of Collateral Related to Reverse Repurchase 
Agreements
    Finally, the Clearing Agencies are proposing to amend Section 6.2.2 
of the Investment Policy, which describes investment limits on 
investments in reverse repurchase agreements. The proposed changes 
would include additional detail to more clearly describe the collateral 
that may be posted by a counterparty in connection with these 
investments and to identify the required haircuts on such collateral.
    More specifically, in these arrangements, where the Clearing 
Agencies are the purchaser of securities, the counterparty to the 
transaction delivers to the custodian collateral (either securities or 
cash). Currently, the Investment Policy states that securities posted 
as collateral must have a market value equal to 102% or greater of the 
cash invested. The proposed changes to the Investment Policy would 
further state that U.S. Treasury securities, U.S. agency securities and 
agency mortgage-backed securities posted as collateral must have a two 
percent haircut; and cash posted as collateral shall have no haircut, 
because cash does not carry any associated market risk that could lead 
to a change in collateral value.
    The proposed changes would improve the Investment Policy by more 
clearly describing the limits applicable to these types of investments.
2. Statutory Basis
    The Clearing Agencies believe that the proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency. In 
particular, the Clearing Agencies believe that the proposed 
modifications to the Investment Policy

[[Page 19049]]

are consistent with Section 17A(b)(3)(F) of the Act \12\ and Rule 17Ad-
22(e)(16) under the Act,\13\ for the reasons described below.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(16).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of each of the Clearing Agencies be designed to assure the safeguarding 
of securities and funds which are in the custody or control of each of 
the Clearing Agencies or for which they are responsible.\14\ The 
investment guidelines and governance procedures set forth in the 
Investment Policy are designed to safeguard funds which are in the 
custody or control of the Clearing Agencies or for which they are 
responsible. Such protections include, for example, following a prudent 
and conservative investment philosophy that places the highest priority 
on maximizing liquidity and risk avoidance. The Clearing Agencies 
believe each of these proposed changes would help facilitate the 
effective execution of the Investment Policy pursuant to the guiding 
principles set forth therein. Therefore, the Clearing Agencies believe 
the proposed changes would allow the Clearing Agencies to continue to 
operate the Investment Policy pursuant to a prudent and conservative 
investment philosophy that assures the safeguarding of securities and 
funds which are in their custody and control, or for which they are 
responsible.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    First, the proposed change to include proceeds from NSCC's issuance 
of term debt in the table of ``Investable Funds'' would make 
investments of these funds subject to the guidelines and restrictions 
set forth in the Investment Policy, and, therefore, would assure the 
safeguarding of these funds.
    Second, the proposed changes to clarify the allowable investments 
for DTC's Participants Fund and enhance the description of restrictions 
applicable to investments in reverse repurchase agreements would 
improve the clarity and accuracy of the Investment Policy. By creating 
clearer descriptions, the Clearing Agencies believe these proposed 
changes would make the Investment Policy more effective in governing 
the management, custody, and investment of funds of and held by the 
Clearing Agencies.
    For the reasons described above, the Clearing Agencies believe the 
proposed changes would improve the effectiveness of the Investment 
Policy and allow the Investment Policy to continue to be administered 
in alignment with the investment guidelines and governance procedures 
set forth therein. Given that such guidelines and governance procedures 
are designed to safeguard funds which are in the custody or control of 
the Clearing Agencies or for which they are responsible, the Clearing 
Agencies believe the proposed changes are consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\15\
---------------------------------------------------------------------------

    \15\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(16) under the Act requires the Clearing Agencies to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to safeguard the Clearing Agencies' own 
and their participants' assets, minimize the risk of loss and delay in 
access to these assets, and invest such assets in instruments with 
minimal credit, market, and liquidity risks.\16\
---------------------------------------------------------------------------

    \16\ When the Investment Policy was implemented, the Clearing 
Agencies were subject to the requirements of subsection (d) of Rule 
17Ad-22 under the Act, and the Investment Policy was designed to 
meet the requirements of Rule 17Ad-22(d)(3). See supra note 6; 17 
CFR 240.17Ad-22(d). The Commission subsequently adopted Rule 17Ad-
22(e) and amended Rule 17Ad-22(d) such that the Clearing Agencies 
became subject to the new requirements of Rule 17Ad-22(e) and are no 
longer subject to the requirements of Rule 17Ad-22(d). 17 CFR 
240.17Ad-22(e).
---------------------------------------------------------------------------

    The Clearing Agencies believe that the Investment Policy follows a 
prudent and conservative investment philosophy, placing the highest 
priority on maximizing liquidity and avoiding risk of loss, by 
requiring the segregation of funds of each Clearing Agency and of types 
of funds of each Clearing Agency, using external credit ratings in the 
evaluation of counterparties, and establishing investment limits by 
counterparty as well as investment type. As originally implemented, the 
Investment Policy was designed to meet the requirements of Rule 17Ad-
22(e)(16) under the Act.\17\
---------------------------------------------------------------------------

    \17\ Id.
---------------------------------------------------------------------------

    For the reasons stated above, the Clearing Agencies believe that 
each of the proposed revisions would improve the clarity and 
comprehensiveness of the Investment Policy and, therefore, make the 
Investment Policy more effective in governing the management, custody, 
and investment of funds of and held by the Clearing Agencies. In this 
way, the proposed changes would better allow the Clearing Agencies to 
maintain this document in a way that is designed to meet the 
requirements of Rule 17Ad-22(e)(16). Therefore, the Clearing Agencies 
believe the proposed revisions would be consistent with the 
requirements of Rule 17Ad-22(e)(16) under the Act.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17Ad-22(e)(16).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    Each of the Clearing Agencies believes that none of the proposed 
revisions to the Investment Policy would have any impact, or impose any 
burden, on competition. The Investment Policy applies equally to 
allowable investments of FICC and NSCC Clearing Funds and DTC 
Participants Fund deposits, as applicable, of each member of the 
Clearing Agencies, and establishes a uniform policy at the Clearing 
Agencies. The proposed changes to the Investment Policy would not 
affect any changes on the fundamental purpose or operation of this 
document and, as such, would also not have any impact, or impose any 
burden, on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    The Clearing Agencies have not solicited or received any written 
comments relating to this proposal. The Clearing Agencies will notify 
the Commission of any written comments received by the Clearing 
Agencies.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and 
Rule 19b-4(f)(6) thereunder.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 19050]]

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-2020-007 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-2020-007. 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-2020-007 and should be submitted on 
or before April 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06956 Filed 4-2-20; 8:45 am]
BILLING CODE 8011-01-P
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