Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Rule 4, 60847-60854 [2020-21290]
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Federal Register / Vol. 85, No. 188 / Monday, September 28, 2020 / Notices
documentation, which will also
enhance ICC’s ability to manage risk.
The Commission believes that such
enhancements to ICC’s ability to manage
default risk combined with more up to
date documentation will consequently
enhance its financial position by
facilitating the collection of margin
more precisely tailored to the risks of
the relevant products and, therefore,
promote its ability to manage the
applicable credit exposures, thereby
helping to ensure ICC’s continued
operations in the event of a default and
to promote the prompt and accurate
clearance and settlement of transactions.
Similarly, the Commission believes that
the more precisely tailored margin
could, in turn, help reduce the amount
of credit losses that would potentially
be charged to non-defaulting members
in the event of a default, thereby helping
to ensure that ICC is able to safeguard
securities and funds in its custody and
control. Therefore, the Commission
believes that the proposed rule change
is consistent with Section 17A(b)(3)(F)
of the Act.12
B. Consistency With Rule 17Ad–
22(e)(4)(ii)
Rule 17Ad–22(e)(4)(ii) requires each
covered clearing agency to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to effectively
identify, measure, monitor, and manage
its credit exposures to participants and
those arising from its payment, clearing,
and settlement processes, including by
maintaining additional financial
resources at the minimum to enable it
to cover a wide range of foreseeable
stress scenarios that include, but are not
limited to, the default of the two
participant families that would
potentially cause the largest aggregate
credit exposure for the covered clearing
agency in extreme but plausible market
conditions.13
As noted above, the proposed rule
change would modify the Risk
Management Model Description to add
a subsection on stochastic implied MAD
modeling in which the risk
methodology for clearing Index
Swaptions would consider the risk
arising from the joint fluctuations of the
underlying index levels and the options
implied MAD scales. The Commission
believes that by incorporating these
changes, ICC will be in a better position
to anticipate risks in these products
under more dynamic and volatile
market conditions for the underlying
indexes, thereby enhancing its ability to
12 15
13 17
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(4)(ii).
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collect the appropriate margin and
consequently cover a wide range of
foreseeable stress scenarios that include,
but are not limited to, the default of the
two participant families that would
potentially cause the largest aggregate
credit exposure for the covered clearing
agency in extreme but plausible market
conditions. For these reasons, the
Commission believes that the proposed
rule change is consistent with Rule
17Ad–22(e)(4)(ii).14
C. Consistency With Rule 17Ad–
22(e)(6)(i)
Rule 17Ad–22(e)(6)(i) requires each
covered clearing agency to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to cover its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market. As noted above, the proposed
rule change considers the relationship
between the underlying index levels
and the implied MAD scales and
presents a more advanced risk modeling
technique for option instruments in
rapidly changing market conditions and
high-volatility market environments.
The Commission believes that by taking
into account the market dynamics of the
underlying index levels, the proposed
change will enable ICC to produces
margin levels commensurate with the
risks and attributes of Index Swaptions.
The Commission believes that the
proposed rule change is therefore
consistent with Rule 17Ad–22(e)(6)(i).15
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) of the Act 16 and
Rules 17Ad–22(e)(4)(ii) and 17Ad–
22(e)(6)(i) thereunder.17
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 18 that the
proposed rule change (SR–ICC–2020–
010) be, and hereby is, approved.19
14 Id.
15 17
CFR 240.17Ad–22(e)(6)(i).
U.S.C. 78q–1(b)(3)(F).
17 17 CFR 240.17Ad–22(e)(4)(ii) and 17 CFR
240.17Ad–22(e)(6)(i).
18 15 U.S.C. 78s(b)(2).
19 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
16 15
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60847
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21269 Filed 9–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89952; File No. SR–DTC–
2020–011]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of Proposed Rule Change To
Amend Rule 4
September 22, 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
September 9, 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.3 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
amend Rule 4 4 to provide expressly that
the Participants Fund continues to be a
liquidity resource that may be used by
DTC to fund a settlement funding gap to
complete settlement on a Business Day,
whether the funding gap is the result of
a Participant Default or otherwise. In
addition, the proposed rule change
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 On September 9, 2020, DTC filed this proposed
rule change as an advance notice (SR–DTC–2020–
801) with the Commission pursuant to Section
806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the
Payment, Clearing, and Settlement Supervision Act
of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b–
4(n)(1)(i) under the Act, 17 CFR 240.19b–4(n)(1)(i).
A copy of the advance notice is available at https://
www.dtcc.com/legal/sec-rule-filings.aspx.
4 Each capitalized term not otherwise defined
herein has its respective meaning as set forth in
DTC’s rules, including, but not limited to, the
Rules, By-Laws and Organization Certificate of DTC
(the ‘‘Rules’’) and the DTC Settlement Service
Guide (the ‘‘Settlement Guide’’), available at https://
www.dtcc.com/legal/rules-and-procedures.aspx.
The Settlement Guide is a Procedure of DTC filed
with the Commission that, among other things,
operationalizes and supplements the DTC Rules
that relate to settlement, including, but not limited
to, Rule 4 (Participants Fund and Participants
Investment).
1 15
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would make other technical and
clarifying amendments to Rule 4 to
provide enhanced transparency with
respect to use of the Participants Fund
and other resources to complete
settlement on a Business Day, as
discussed 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
amend Rule 4 to provide expressly that
the Participants Fund continues to be a
liquidity resource that may be used by
DTC to fund a settlement funding gap to
complete settlement on a Business Day,
whether the funding gap is the result of
a Participant Default or otherwise. In
addition, the proposed rule change
would make other technical and
clarifying amendments to Rule 4 to
provide enhanced transparency with
respect to use of the Participants Fund
and other resources to complete
settlement on a Business Day, as
discussed below.
(i) Background
A. DTC Settlement on a Business Day
DTC is the central securities
depository (‘‘CSD’’) for substantially all
corporate and municipal debt and
equity securities available for trading in
the United States. DTC plays a critical
role in the national financial
infrastructure.5 As a CSD, DTC provides
a central location in which securities
may be immobilized, and interests in
those securities are reflected in accounts
maintained for its Participants, which
are financial institutions such as brokers
or banks.6 As a CSD, DTC is structured
5 See Financial Stability Oversight Council
(‘‘FSOC’’) 2012 Annual Report, Appendix A at 166,
available at https://www.treasury.gov/initiatives/
fsoc/Documents/2012%20Appendix%20A
%20Designation%20of%20Systemically
%20Important%20Market%20Utilities.pdf.
6 See, e.g., Securities Exchange Act Release No.
20221 (September 23, 1983), 48 FR 45167, 45168
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to provide for the settlement of bookentry transfers and pledges of interests
in securities between Participants, and
for end-of-day net funds settlement on
each Business Day.7
The DTC settlement system records
money debits and credits to Participant
settlement accounts throughout a
Business Day. Credits to a Participant
settlement account arise from deliveries
versus payment, receipt of payment
orders, principal and interest
distributions in respect of securities
held, intraday settlement progress
payments and any other items or
transactions that give rise to a credit.
Debits to a Participant settlement
account are primarily due to receives
versus payment, as well as other types
of charges to the account permitted
under the Rules. As these debits and
credits to a Participant’s settlement
account are recorded intraday, the
Participant’s settlement account will be
in a net debit balance or net credit
balance from time to time and, finally,
at the end of a Business Day, a net debit,
net credit or zero balance is determined.
This final net debit or net credit balance
determines whether the Participant has
an obligation to pay or to be paid in the
process of DTC completing settlement
on that Business Day. A Participant with
an end-of-day net debit balance has an
obligation to pay DTC that amount; a
Participant with an end-of-day net
credit balance is entitled to receive a
payment from DTC. When a Participant
has an end-of-day zero net balance or an
end-of-day net credit balance, it is
deemed to have satisfied its settlement
(October 3, 1983) (File No. 600–1) (‘‘A securities
depository is a ‘‘custodial’’ clearing agency that
operates a centralized system for the handling of
securities certificates. Depositories accept deposits
of securities from broker-dealers, banks, and other
financial institutions; credit those securities to the
depositing participants accounts; and, pursuant to
participant’s instructions, effect book-entry
movements of securities. The physical securities
deposited with a depository are held in a fungible
bulk; each participant or pledgee having an interest
in securities of a given issue credited to its account
has a pro rata interest in the physical securities of
the issue held in custody by the securities
depository in its nominee name. Depositories
collect and pay dividends and interest to
participants for securities held on deposit.
Depositories also provide facilities for payment by
participants to other participants in connection
with book-entry deliveries of securities. . . .’’).
7 See, e.g., Rule 9(A) (Transactions in Securities
and Money Payments), Rule 9(B) (Transactions in
Eligible Securities), Rule 9(C) (Transactions in MMI
Securities), Rule 9(D) (Settling Banks), and Rule
9(E) (Clearing Agency Agreements), supra note 4,
which provide the mechanism to achieve a ‘‘DVP
Model 2 Deferred Net Settlement System’’ (as
defined in Annex D of the Principles for Financial
Market Infrastructures issued by the Committee on
Payment and Settlement Systems and the Technical
Committee of the International Organization of
Securities Commissions (April 2012), available at
https://www.bis.org/cpmi/publ/d101a.pdf).
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obligations for that Business Day, and
securities processed for delivery versus
payment for delivery to the Participant
will be credited to its account. When a
Participant with a net debit balance
pays its settlement obligation, and DTC
completes system-wide settlement, all
securities processed for delivery versus
payment to that Participant on that
Business Day will be credited to its
account and it will have paid for those
deliveries. As to payments due to the
Participant for its deliveries on that
Business Day, the Participant will have
been paid as well, because credits for
those deliveries intraday have offset and
reduced its other debit obligations, even
though, on balance, it finished the
Business Day with a settlement
obligation. A Participant that defaults
on its settlement obligations on a
Business Day will not have paid for the
securities processed for delivery versus
payment, and the securities will not be
credited to its account.
B. Settlement Gap on a Business Day
There may be circumstances in which
the amount of settlement payments
received or available to DTC on a
Business Day is not sufficient to pay all
Participants with an end-of-day net
credit balance on that Business Day (a
‘‘settlement gap’’). A settlement gap
could occur on a Business Day as a
result of, principally, a Participant
Default, where a Participant fails to pay
its settlement obligation (a ‘‘default
gap’’). A settlement gap could also occur
on a Business Day as a result of causes
other than a Participant Default (a ‘‘nondefault gap’’). For example, a nondefault gap could occur if the funds
required to complete settlement are not
available to DTC, in whole or in part,
due to an operational or data issue
arising at DTC, a Participant or Settling
Bank, or due to a cyber incident, or
other technological business disruption.
The Rules and Procedures of DTC
specify the extent of the obligation of
DTC to achieve settlement on each
Business Day, and, as DTC is not a
central counterparty (‘‘CCP’’), do not
guarantee settlement.8 However, as a
critical part of the national financial
infrastructure, if DTC does not complete
settlement on a given Business Day,
there could be significant market-wide
8 See, e.g., Rule 9(B), supra note 4 (‘‘Each
Participant and the Corporation shall settle the
balance of the Settlement Account of the Participant
on a daily basis in accordance with these Rules and
the Procedures. Except as provided in the
Procedures, the Corporation shall not be obligated
to make any settlement payments to any
Participants until the Corporation has received all
of the settlement payments that Settling Banks and
Participants are required to make to the
Corporation.’’).
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effects.9 The Rules and Procedures of
DTC are structured so that if there is a
settlement gap on a Business Day, DTC
has liquidity resources to mitigate the
risks relating to a disruption to
obligations settling at DTC on that
Business Day. If there is any problem
with the receipt or disbursement of
funds for settlement, the issue would
need to be addressed quickly. Access to
liquidity resources needs to be
optimized during the tight timeframe in
which settlement must be completed on
a Business Day, in order for DTC to
quickly and effectively respond to and
resolve any settlement gap, whether a
default gap or non-default gap.
C. Participants Fund as a Liquidity
Resource To Complete Settlement on a
Business Day
The Participants Fund is designed to
be one of the foundational liquidity
resources available to DTC to fund a
settlement gap to complete settlement
on a Business Day. Rule 4 contains the
key provisions of the Rules and
Procedures specifying the rights, duties
and obligations of Participants and DTC
with respect to the Participants Fund.
Every Participant is required to make at
least a minimum deposit to the
Participants Fund, and Participants with
higher levels of activity that impose
greater liquidity risk to the DTC
settlement system have proportionally
larger required deposits. The principal
purpose of the Participants Fund is, and
historically has been, to provide a
mutualized liquidity resource to satisfy
DTC losses and liabilities attributable to
its business conducted for the benefit of
its Participants.10 Key among these is
9 Supra
note 5.
Settlement Guide at 48, supra note 4 (‘‘The
Participants Fund . . . provided in DTC Rule 4
create[s] liquidity and collateral resources to
support the business of DTC and to cover losses and
liabilities incident to that business.’’). The term
‘‘business’’ with respect to DTC means ‘‘the doing
of all things in connection with or relating to the
Corporation’s performance of the services specified
in the first and second paragraphs of Rule 6 or the
cessation of such services.’’ Rule 4, Section 1(f),
supra note 4. The first two paragraphs of Rule 6
describe services provided by DTC, including
settlement. Rule 6, supra note 4. DTC notes that, as
early as 1975, the Rules provided that ‘‘[t]he
Participants Fund may be used by the Corporation
for the purposes of its business . . . .’’ See DTC
CA–1 Application for Permanent Registration as a
Clearing Agency, dated December 15, 1980 (File
600–1) at page 588. In addition, the range of
permissible uses of a clearing or participants fund
as covering ‘‘all losses and liabilities incident to
clearance and settlement activities’’ of the clearing
agency was specifically noted in the 1983 order of
the Commission granting DTC full registration as a
clearing agency. Securities Exchange Act Release
No. 20221 (September 23, 1983), 48 FR 45167
(October 3, 1983) (File No. 600–1). The concept was
also in Rule 4 of Central Certificate Service, Inc., the
predecessor of DTC, filed with the Commission in
1972. Securities Exchange Act Release No. 9849
10 See
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daily settlement on each Business Day,
but also, historically, the Participants
Fund was a resource to cover losses and
other liabilities as well.11 Prior to
August 28, 2018, Rule 4 (‘‘Previous Rule
4’’), in particular Section 4 of Previous
Rule 4, provided a unified set of
provisions that addressed this
application of the Participants Fund ‘‘in
satisfaction of losses and liabilities of
the Corporation incident to the business
of DTC.’’
On August 28, 2018, the Commission
approved a rule change filed by DTC
with respect to Rule 4 (‘‘Loss Allocation
Rule Change’’).12 A primary purpose of
the Loss Allocation Rule Change was to
harmonize the loss allocation provisions
of the Rules of DTC with similar
provisions of the rules of its two
affiliated CCPs, National Securities
Clearing Corporation (‘‘NSCC’’) and
Fixed Income Clearing Corporation
(‘‘FICC’’) (collectively, the ‘‘CCPs’’).
As part of the Loss Allocation Rule
Change, Previous Rule 4 was
restructured to provide separate and
distinct provisions for (i) in Section 4 of
Rule 4, the application of liquidity
resources, including, but not limited to,
the pro rata application of the
Participants Fund, in order to complete
settlement on a given Business Day
when there is a settlement gap, and (ii)
in Section 5 of Rule 4, the allocation of
losses and liabilities of DTC arising out
of Default Loss Events or Declared NonDefault Loss Events.13 Revised Section 4
(November 8, 1972), 37 FR 24795 (November 21,
1972) (As described by the Commission: ‘‘Rule 4.
A participant’s fund will require deposits by
participants upon the basis of a formula established
by CCS, Inc., based upon usage. The minimum
contribution is $10,000. The fund is available for
the uses specified in the rules including for the
purposes of its business.’’).
11 See id.
12 See Securities Exchange Act Release No. 83969
(August 28, 2018), 83 FR 44955 (September 4, 2018)
(SR–DTC–2017–022).
13 As a result, the main sections of Rule 4 relating
to the Participants Fund are: Section 1, which
focuses on Required Participants Fund Deposits and
Actual Participants Fund Deposits, and briefly
addresses the maintenance, permitted use and
investment of the Participants Fund; Section 3,
which provides for the application of a defaulting
Participant’s own Actual Participants Fund Deposit
to its unpaid settlement obligations; and Section 4,
which provides for, in relevant part, the pro rata
application of the Actual Participants Fund
Deposits of all Participants (except a defaulting
Participant) to fund a settlement gap on a Business
Day. DTC notes that Section 5 of Rule 4 does not
provide for the direct application of the Participants
Fund as part of the Loss Allocation Waterfall. The
reference in Section 1(f) of Rule 4 to the use of the
Actual Participants Fund Deposits ‘‘to satisfy losses
and liabilities of the Corporation incident to the
business of the Corporation, as provided in Section
5 of this Rule’’ refers to the application of the
Actual Participants Fund Deposit of a Participant
that fails to timely make its loss allocation payment
under the Loss Allocation Waterfall, as provided for
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60849
of Rule 4 was meant to retain the core
principle of Previous Rule 4 for the
application of the Participants Fund as
a liquidity resource to complete
settlement.14 A new Section 5,
consisting of loss allocation provisions
that were revised for substantial
conformity with revisions for the CCPs,
was inserted into Rule 4 to provide a
discrete loss allocation waterfall (‘‘Loss
Allocation Waterfall’’) more comparable
to NSCC and FICC.
Nevertheless, as explained in more
detail below, DTC now recognizes that
certain of the provisions of amended
Section 4 of Rule 4 might be read in a
manner that conflicts with the stated,
and historical, purpose of the
Participants Fund.15 Specifically,
certain provisions might be construed to
narrow the scope of use of the
Participants Fund for settlement to a
default gap only.16 Therefore, because
settlement is a critical service of DTC,
and the Participants Fund is a critical
liquidity resource to fund any
settlement gap, DTC is proposing to
amend certain provisions of Section 4 of
Rule 4 to reflect expressly that the
Participants Fund continues to be a
liquidity resource that may be used by
DTC to fund a settlement gap to
complete settlement on a Business Day,
whether the settlement gap is the result
of a Participant Default, or otherwise.
(ii) Overview of Proposed Rule Change
A. Sections 3 and 4 of Rule 4
Currently, Sections 3 and 4 are the
primary sections of Rule 4 that are
relevant to the application of the
Participants Fund to fund a settlement
gap.
Section 3 of Rule 4 provides, in
relevant part, that ‘‘[i]f a Participant is
a Participant that is a Defaulting
Participant pursuant to Rule 9(B) or is
otherwise obligated to the Corporation
pursuant to these Rules and the
Procedures and fails to satisfy any such
obligation (a ‘‘Participant Default’’) . . .
the Corporation shall, to the extent
in Section 3 of Rule 4. Accordingly, this proposed
rule change has no relationship to or effect on the
Loss Allocation Waterfall. Nor do the proposed
drafting changes to Section 4 of Rule 4 affect, in any
degree, the likelihood of the occurrence of a Default
Loss Event or Declared Non-Default Loss Event
subject to Section 5.
14 See infra note 16.
15 See supra note 10.
16 The rule filing for the Loss Allocation Rule
Change did not mention any intention to narrow the
scope of the permitted use of the Participants Fund
under Rule 4. See Securities Exchange Act Release
No. 83629 (July 13, 2018), 83 FR 34246, 34248 (July
19, 2018) (SR–DTC–2017–022) (‘‘The proposed rule
change would retain the core principles of
[Previous] Rule 4 for both application of the
Participants Fund as a liquidity resource to
complete settlement and for loss allocation.’’).
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necessary to eliminate such obligation,
apply some or all of the Actual
Participants Fund Deposit of such
Participant to such obligation to satisfy
the Participant Default.’’ 17
Section 3 of Rule 4 is the basic
provision of remedies if a Participant
fails to satisfy an obligation to DTC.18 In
that case, DTC may apply the Actual
Participants Fund Deposit of the
responsible Participant to the extent
necessary to satisfy its Participant
Default. A Participant Default includes
a situation where a Participant fails to
pay its net debit balance at the end of
a Business Day. If the amount of the
Actual Participants Fund Deposit of the
responsible Participant is insufficient to
satisfy its net debit balance, DTC has
recourse to the Actual Participants Fund
Deposits of the other Participants, to be
charged pro rata in accordance with
Section 4 of Rule 4.
Section 4 of Rule 4 currently provides:
The Participants Fund shall constitute a
liquidity resource which may be applied by
the Corporation in such amounts as the
Corporation shall determine, in its sole
discretion, to fund settlement if there is a
Defaulting Participant and the amount
charged to the Actual Participants Fund
Deposit of the Defaulting Participant
pursuant to Section 3 of this Rule is not
sufficient to complete settlement. In that
case, the Corporation may apply the Actual
Participants Fund Deposits of Participants
other than the Defaulting Participant (each, a
‘‘non-defaulting Participant’’) as provided in
this Section and/or apply such other
liquidity resources as may be available to the
Corporation from time to time, including the
End-of-Day Credit Facility.
If the Participants Fund is applied to
complete settlement, the Corporation shall
promptly after the event notify each
Participant and the SEC of the amount
applied and the reasons therefor (‘‘Settlement
Charge Notice’’). Each non-defaulting
Participant’s pro rata share of such
application of the Participants Fund (each, a
‘‘pro rata settlement charge’’) shall be equal
to (i) its Required Participants Fund Deposit,
as such Required Participants Fund Deposit
was fixed on the Business Day of such
application less its Additional Participants
Fund Deposit, if any, on that day, divided by
(ii) the sum of the Required Participants
Fund Deposits of all non-defaulting
Participants, as such Required Participants
Fund Deposits were fixed on that day, less
the sum of the Additional Participants Fund
Deposits, if any, of such non-defaulting
Participants on that day.19
17 Supra
note 4.
Section 3 of Rule 4 does not apply
to a situation where there is no Participant Default.
19 Supra note 4. The proposed rule change would
not affect the balance of Section 4 of Rule 4. Section
4 of Rule 4 also provides, in part, that a Participant
shall have a period of five Business Days following
issuance of a Settlement Charge Notice to notify
DTC of its election to terminate its business with
DTC and thereby cap its maximum obligation with
18 Therefore,
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The above provisions of Section 4 of
Rule 4 were drafted as part of the
restructuring and revision of Rule 4 in
connection to the Loss Allocation Rule
Change. The intention was that these
new provisions would track the
historical principle of Section 4 of
Previous Rule 4 that the Participants
Fund may be applied to a loss or
liability, including a settlement gap, that
could not be satisfied by charging the
Actual Participants Fund Deposit of a
Participant pursuant to Section 3 of
Rule 4. Nevertheless, because Section 4
of Rule 4 is now silent as to the use of
the Participants Fund to complete
settlement when there is a non-default
gap, it could be construed as limiting
the pro rata application of the
Participants Fund to fund a settlement
gap to default scenarios.
On each Business Day, settlement
occurs during a tight timeframe, in
conjunction with the Federal Reserve’s
National Settlement Service (NSS) and
Fedwire.20 If there is any problem with
the receipt or disbursement of funds for
settlement, it would need to be
addressed quickly. The Participants
Fund is designed as ready ‘‘cash on
hand’’ for settlement and is, typically,
the most available liquidity resource for
settlement. If the scope of the permitted
use of the Participants Fund to fund a
settlement gap on a Business Day is not
expressly stated in Rule 4, there is a
possibility that DTC’s ability on a
Business Day to quickly and effectively
respond to and resolve any settlement
gap could be adversely affected. Use of
the Participants Fund needs to be
optimized during the tight timeframe
because extensive settlement delays
might cause significant market
disruptive effects. The proposed rule
change is designed to confirm,
expressly, ready access to the
Participants Fund for settlement
purposes, whatever the settlement gap
scenario.
In light of the foregoing, in order to
facilitate timely action by DTC in
respect to other pro rata settlement charges
(‘‘Settlement Charge Cap’’). If the Participant gives
such notice, Section 4 of Rule 4 provides that DTC
may still retain the entire amount of the Actual
Participants Fund Deposit of a Participant subject
to a pro rata settlement charge, up to the amount
of the Participant’s Settlement Charge Cap. Section
4 of Rule 4 also provides that if the Actual
Participants Fund Deposit of a Participant is
applied pursuant to Section 4 of Rule 4, and, as a
result, the Actual Participants Fund Deposit of such
Participant is less than its Required Participants
Fund Deposit, the Participant must, upon the
demand of DTC and within such time as DTC may
require, deposit to the Participants Fund the
amount in cash needed to eliminate any resulting
deficiency in its Required Participants Fund
Deposit.
20 See Settlement Guide at 19–20, supra note 4.
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connection with any settlement gap,
DTC is proposing to amend Section 4 of
Rule 4 to provide expressly for the use
of the Participants Fund to fund
settlement irrespective of whether the
settlement gap is a default gap or a nondefault gap.
B. Technical and Clarifying Changes
DTC believes that certain other
amendments that were made pursuant
to the Loss Allocation Rule Change may
have impacted the transparency of
Section 4 of Rule 4 with respect to use
of the Participants Fund and other
resources for settlement. Therefore, as
described below, DTC is proposing to (i)
clarify that a Participant’s pro rata share
of an application of the Participants
Fund would be the same whether there
is a default gap or a non-default gap, (ii)
restore the express provision for the
optional use of a discretionary amount
of existing retained earnings of DTC to
fund settlement, (iii) specifically state
that DTC may apply its available
resources to fund settlement, in such
order and in such amounts as it
determines, in its sole discretion, and
(iv) make ministerial changes for
conformity and readability.
(iii) Proposed Rule Change
A. Section 4 of Rule 4
Section 4 of Rule 4, Heading:
In order to reflect that Section 4 of
Rule 4 would address the liquidity
resources to fund settlement, including
the application of the Participants Fund
to fund settlement when there is a
default gap or a non-default gap, DTC is
proposing to replace the current heading
of Section 4 of Rule 4 ‘‘Application of
Participants Fund Deposits of NonDefaulting Participants’’ with ‘‘Liquidity
Resources to Fund Settlement;
Application of Participants Fund.’’
Section 4 of Rule 4 (Proposed New
First Paragraph):
DTC is proposing to add a new
opening paragraph to Section 4 of Rule
4 that would reflect and summarize the
purpose of the proposed Section 4 of
Rule 4. Specifically, DTC is proposing to
add the following paragraph: ‘‘This
Section sets forth liquidity resources
available to the Corporation to fund
settlement on a Business Day, in the
event of a Participant Default or
otherwise.’’
Section 4 of Rule 4, First Paragraph
(Proposed Second Paragraph):
DTC is proposing to:
1. Streamline the language referring to
a settlement gap resulting from an
unsatisfied Participant Default 21 by
21 The current default gap language is ‘‘if there is
a Defaulting Participant and the amount charged to
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revising the text to state that, ‘‘If, on a
Business Day, there is a Participant
Default which is not satisfied pursuant
to Section 3 of this Rule by the
application of the Actual Participants
Fund Deposit of a Participant, . . . ’’;
2. Expressly address a non-default gap
by adding the phrase ‘‘ . . . or if Section
3 is not applicable, . . . ’’ into the
description of the circumstances in
which DTC may apply the Participants
Fund to fund settlement; 22
3. Revise the language that refers to
DTC’s sole discretion to apply its
liquidity resources, including
Participants Fund, to fund settlement,23
to state, ‘‘ . . . in such order and in such
amounts as the Corporation shall
determine, in its sole discretion, to the
extent necessary to fund settlement on
the Business Day:’’; and
4. Enhance the transparency of
Section 4 of Rule 4 with respect to
liquidity resources that may be available
to DTC to fund settlement by amending
Section 4 of Rule 4 to provide DTC may
apply:
(a) the Actual Participants Fund
Deposits of all Participants (other than
a Participant whose Actual Participants
Fund Deposit is exhausted pursuant to
Section 3);
(b) the existing retained earnings or
undivided profits of DTC; or
(c) any other liquidity resources as
may be available to DTC from time to
time, including, but not limited to, the
End-of-Day Credit Facility.
Specifically, with respect to (a), DTC
is proposing to replace the reference in
the first paragraph of Section 4 of Rule
4 to ‘‘non-defaulting Participants’’ with
‘‘all Participants (other than a
Participant whose Actual Participants
Fund Deposit is exhausted pursuant to
Section 3).’’ The purpose of this change
is to provide expressly that (i) in the
case of a non-default gap, all
Participants would be charged a pro rata
share of the application of the
Participants Fund, and (ii) a Participant
that cured its Participant Default
pursuant to Section 3 by the application
of some, but not all, of its Actual
the Actual Participants Fund Deposit of the
Defaulting Participant pursuant to Section 3 of this
Rule is not sufficient to complete settlement.’’
22 Section 3 of Rule 4 applies when there is a
Participant Default. If there is no Participant
Default, Section 3 of Rule 4 does not apply.
Therefore, if there is a settlement gap where Section
3 of Rule 4 is inapplicable, such settlement gap
could be considered a non-default gap.
23 Rule 4 currently states: ‘‘The Participants Fund
shall constitute a liquidity resource which may be
applied by the Corporation in such amounts as the
Corporation shall determine, in its sole discretion,
to fund settlement . . . and/or apply such other
liquidity resources as may be available to the
Corporation from time to time, including the Endof-Day Credit Facility.’’
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Participants Fund Deposit on that
Business Day, would still be subject to
a pro rata share of the application of the
Participants Fund to fund settlement, up
to the remaining balance of its Actual
Participants Fund Deposit, if there is (x)
a default gap (due to the default of
another Participant) or (y) a non-default
gap.
With respect to (b), in order to
enhance the transparency of available
resources to fund settlement, DTC is
proposing to restore the express
provision for the optional use of a
discretionary amount of existing
retained earnings of DTC 24 that had
appeared in previous versions of Rule 4,
including Section 4 of Previous Rule
4.25 With respect to (c), DTC is
proposing to insert the phrase ‘‘but not
limited to,’’ after ‘‘including,’’ in order
to make clear that DTC may have other
liquidity resources available in addition
to the End-of-Day Credit Facility.
In sum, pursuant to the above
proposed changes, the revised
paragraph would state:
If, on a Business Day, there is a Participant
Default which is not satisfied pursuant to
Section 3 of this Rule by the application of
the Actual Participants Fund Deposit of a
Participant, or if Section 3 is not applicable,
then the Corporation shall apply, in such
order and in such amounts as the
Corporation shall determine, in its sole
discretion, to the extent necessary to fund
settlement on the Business Day:
(a) The Actual Participants Fund Deposits
of all Participants (other than a Participant
whose Actual Participants Fund Deposit is
exhausted pursuant to Section 3);
(b) the existing retained earnings or
undivided profits of the Corporation; or
(c) any other liquidity resources as may be
available to the Corporation from time to
time, including, but not limited to, the Endof-Day Credit Facility.
Section 4 of Rule 4, Second Paragraph
(Proposed Fifth Paragraph):
For conformity, DTC is proposing to
modify this paragraph to conform with
the proposed changes to the third
paragraph. Specifically, pursuant to the
proposed rule change, this paragraph
would state: ‘‘If the Participants Fund is
applied pursuant to paragraph (a) of this
Section, the Corporation shall promptly
after the event notify each Participant
24 The
retained earnings of DTC are reflected in
its quarterly condensed consolidated financial
statements and annual financial statements,
available at https://www.dtcc.com/legal/financialstatements.
25 As noted above, the loss allocation provisions
of Rule 4 are not relevant to the application of
liquidity resources to a settlement gap on a given
Business Day. As such, the optional use of the
existing retained earnings of DTC to fund settlement
is separate and distinct from calculation of, or
application of, the Corporate Contribution required
in Section 5 of Rule 4.
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60851
and the SEC of the amount of the
Participants Fund applied and the
reasons therefor (‘‘Settlement Charge
Notice’’).’’
In addition, to further streamline
Section 4 of Rule 4, DTC is proposing
to move the proposed amended
paragraph to follow the proposed fourth
paragraph.
Section 4 of Rule 4, Proposed Third
Paragraph:
For enhanced transparency with
respect to the governance relating to a
pro rata application of the Participants
Fund, DTC is proposing to add the
following paragraph:
A determination to apply the
Participants Fund pursuant to this
Section shall be made by either the
Chief Executive Officer, Chief Risk
Officer, Chief Financial Officer, a
member of any management committee,
Treasurer or any Managing Director as
may be designated by the Chief Risk
Officer from time to time. The Board of
Directors (or an authorized Committee
thereof) shall be promptly informed of
the determination.
Section 4 of Rule 4, Third Paragraph
(Proposed Fourth Paragraph):
Pursuant to the proposed rule change,
DTC would revise this paragraph 26 to
make clarifying changes that reflect that
a Participant’s pro rata share of an
application of the Participants Fund
would be the same whether there is a
default gap or a non-default gap.
Specifically, DTC is proposing to (i)
remove the references to ‘‘nondefaulting Participants,’’ (ii) streamline
the language by representing the
calculation of a pro rata share as a ratio,
instead of a division calculation, (iii)
make conforming changes with the
foregoing, and (iv) for consistency and
clarity, make ministerial word changes
and replace references to ‘‘day’’ with the
defined term ‘‘Business Day.’’
In sum, DTC is proposing that this
paragraph be revised to state: ‘‘The pro
rata share of the Actual Participants
Fund Deposit of any Participant applied
pursuant to paragraph (a) shall be equal
to the ratio of (i) the Required
Participants Fund Deposit of the
Participant, as fixed on the Business
26 Currently, the paragraph states: ‘‘Each nondefaulting Participant’s pro rata share of such
application of the Participants Fund (each, a ‘‘pro
rata settlement charge’’) shall be equal to (i) its
Required Participants Fund Deposit, as such
Required Participants Fund Deposit was fixed on
the Business Day of such application less its
Additional Participants Fund Deposit, if any, on
that day, divided by (ii) the sum of the Required
Participants Fund Deposits of all non-defaulting
Participants, as such Required Participants Fund
Deposits were fixed on that day, less the sum of the
Additional Participants Fund Deposits, if any, of
such non-defaulting Participants on that day.’’
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Day on which such charge is made less
its Additional Participants Fund
Deposit, if any, on that Business Day, to
(ii) the sum of the Required Participants
Fund Deposits, as fixed on the Business
Day on which such charge is made, of
all Participants so charged on that
Business Day, less the sum of the
Additional Participants Fund Deposits,
if any, of those Participants on that
Business Day. The amount so charged to
the Actual Participants Fund Deposit of
a Participant shall constitute a ‘‘pro rata
settlement charge’’ with respect to that
Participant.’’
Section 4 of Rule 4, Fifth, Sixth,
Seventh and Eighth Paragraphs
(Proposed Paragraphs Six, Seven, Eight
and Nine):
There would be no changes to these
paragraphs. The proposed rule change
would not affect the Settlement Charge
Termination Notification Period, the
Settlement Charge Cap, nor the right of
DTC to retain the entire amount of the
Actual Participants Fund Deposit of a
Participant subject to a pro rata
settlement charge, up to the amount of
the Participant’s Settlement Charge Cap.
The proposed rule change would not
affect the requirement that if the Actual
Participants Fund Deposit of a
Participant is applied pursuant to
Section 4 of Rule 4, and, as a result, the
Actual Participants Fund Deposit of
such Participant is less than its
Required Participants Fund Deposit, the
Participant must, upon the demand of
DTC and within such time as DTC
would require, deposit to the
Participants Fund the amount in cash
needed to eliminate any resulting
deficiency in its Required Participants
Fund Deposit.
B. Section 1(f) of Rule 4
Section 1(f) of Rule 4 currently states,
in relevant part: ‘‘The Actual
Participants Fund Deposits of
Participants to the Participants Fund
shall be held by the Corporation and
may be used or invested as provided in
these Rules and as specified in the
Procedures. The Actual Participants
Fund Deposits of Participants may be
used (i) to satisfy the obligations of
Participants to the Corporation, as
provided in Section 3 of this Rule, (ii)
to fund settlement among nondefaulting Participants, as provided in
Section 4 of this Rule and (iii) to satisfy
losses and liabilities of the Corporation
incident to the business of the
Corporation, as provided in Section 5 of
this Rule.’’
In conformity with the proposed
changes to Section 4 of Rule 4, DTC is
proposing a ministerial change of
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removing the word ‘‘non-defaulting’’
from Section 1(f) of Rule 4.
2. Statutory Basis
DTC believes that the proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a registered clearing agency.
Specifically, DTC believes that the
proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act 27 and
Rule 17Ad–22(e)(1) promulgated under
the Act,28 for the reasons described
below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the Rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions.29 The proposed
rule changes to (i) amend Rule 4 to
provide expressly that the Participants
Fund may be used by DTC to fund a
settlement gap, whether it is a default
gap or a non-default gap, and (ii) make
other technical changes to provide
enhanced transparency with respect to
use of the Participants Fund and other
resources for settlement, are intended to
enhance the overall efficiency and
effectiveness of end-of-day settlement in
circumstances where there is a
settlement gap.
The proposed rule change would
amend Section 4 of Rule 4 to provide
expressly for the pro rata application of
the Participants Fund to any settlement
gap, including a non-default gap. As
noted above, if there were a question as
to DTC’s right to apply the Participants
Fund to a non-default gap, DTC’s ability
on a Business Day to quickly and
effectively respond to and resolve any
such settlement gap and complete
settlement might be adversely affected,
which could interfere with the prompt
and accurate clearance and settlement of
securities transactions.
The proposed rule change would also
make other technical and clarifying
amendments in order to provide
enhanced transparency with respect to
use of the Participants Fund and other
resources for settlement. The proposed
amendments would (i) clarify that a
Participant’s pro rata share of an
application of the Participants Fund
would be the same whether there is a
default gap or a non-default gap, (ii)
restore the express provision for the
optional use of a discretionary amount
of existing retained earnings of DTC to
fund settlement, (iii) specifically state
that DTC may apply its available
resources to fund settlement, in such
27 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(1).
29 15 U.S.C. 78q–1(b)(3)(F).
order and in such amounts as it
determines, in its sole discretion, and
(iv) make ministerial changes for
conformity and readability. Without the
foregoing changes, DTC’s rights with
respect to the manner and use of its
liquidity resources to fund settlement
might not be promptly ascertainable,
particularly in a time of stress.
Therefore, the proposed rule change is
designed to enhance the overall
efficiency and effectiveness of
settlement on a Business Day in
circumstances where there is a
settlement gap by facilitating timely
action by DTC to complete settlement
on a Business Day when there is a
settlement gap, including, but not
limited to, in situations where Section
3 of Rule 4 is not applicable. The ability
of DTC to take timely action to fund a
settlement gap, including, but not
limited to, the pro rata application of
the Participants Fund, would allow DTC
to continue to support end-of-day net
funds settlement in connection with
book-entry transfers of securities on
each Business Day, thereby promoting
the prompt and accurate clearance and
settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of
the Act, cited above.
Rule 17Ad–22(e)(1) under the Act
requires that DTC establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
provide for a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.30 As discussed
above, changes to Section 4 of Previous
Rule 4 might be construed as narrowing
the scope of use of the Participants
Fund for settlement to a default gap,
even though the Participants Fund is a
liquidity resource that is available to
fund any settlement gap. By amending
Rule 4 to provide expressly that the
Participants Fund continues to be a
liquidity resource that may be used by
DTC to fund a settlement gap to
complete settlement on a Business Day,
whether the settlement gap is the result
of a Participant Default or otherwise, the
proposed rule change is designed to
provide an expressly clear, transparent
and enforceable legal basis for the
application of the Participants Fund to
a settlement gap, whether or not caused
by a Participant Default, consistent with
Rule 17Ad–22(e)(1) under the Act, cited
above.
(B) Clearing Agency’s Statement on
Burden on Competition
DTC believes that the proposed rule
change to amend certain provisions of
28 17
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Rule 4 to reflect expressly that the
Participants Fund continues to be a
liquidity resource to fund a settlement
gap on a Business Day, whether there is
a default gap or a non-default gap, could
impose a burden on competition.31
As noted above, the Participants Fund
is designed to be one of the foundational
liquidity resources available to DTC to
fund a settlement gap to complete
settlement on a Business Day. The
proposed rule change would enhance
DTC’s ability to quickly and effectively
use the pro rata application of the
Participants Fund to respond to a nondefault gap on a Business Day. DTC
recognizes, however, that a pro rata
application of the Participants Fund to
fund a settlement gap, including a nondefault gap, could potentially result in
a deficiency in the Required
Participants Fund Deposit of one or
more Participants, which could
potentially impose a burden on
competition. Under Rule 4, in the event
of a deficiency in the Required
Participants Fund Deposit of a
Participant after a pro rata application of
the Participants Fund to a settlement
gap, the Participant, upon the demand
of DTC and within such time as DTC
may require, would be required to
deposit into the Participants Fund the
amount of cash needed to eliminate the
deficiency.32 While the proposed rule
change does not change or affect this
long-standing replenishment
obligation,33 DTC acknowledges that
such demand for additional capital on a
Participant could be a competitive
burden for the Participant.
DTC does not believe that any burden
imposed by the proposed rule change
would be significant. First, if DTC were
to use a pro rata application of the
Participants Fund to fund a non-default
gap, it would not necessarily result in a
deficiency to the Required Participants
Fund Deposit of any Participant.
Whether there would be any
deficiencies would depend on the facts
and circumstances on that Business
Day, including, but not limited to, the
amount of funds a Participant has on
deposit in the Participants Fund that is
in excess of its Required Participants
Fund Deposit, as well as the aggregate
31 15
U.S.C. 78q–1(b)(3)(I).
supra note 19.
33 See DTC CA–1 Application for Permanent
Registration as a Clearing Agency, dated December
15, 1980 (File 600–1) at page 589 (‘‘Rule 4 . . .
Section 5. If a pro rata charge is made against a
Participant’s contribution to the Participants Fund
pursuant to Section 4 of this Rule, such Participant
shall immediately upon demand, which shall be
made by the Corporation as soon as practicable after
such charge, make good the deficiency in the
amount of its contribution resulting from such pro
rata charge. . . .’’).
32 See
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amount of the pro rata application of the
Participants Fund to fund the settlement
gap. Second, the Required Participants
Fund Deposit of a Participant is itself
based on the amount of activity of the
Participant, and therefore any burden on
a Participant from the requirement to
replenish its Required Participants Fund
Deposit would be proportional to the
volume of its business activity at DTC.
Regardless of whether the potential
burden on competition is significant,
DTC believes that any burden on
competition that may be created by the
proposed rule change would be
necessary and appropriate in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.34
DTC believes that any burden on
competition created by the proposed
rule change would be necessary to
promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.35 As noted
above, if the scope of the permitted use
of the Participants Fund to fund a
settlement gap on a Business Day could
be construed as limited to a default
settlement gap, DTC’s ability on a
Business Day to quickly and effectively
respond to and resolve any settlement
gap could be adversely affected by the
perceived limitation on use of the
Participants Fund. This, in turn, could
cause settlement delays that might
interfere with the prompt and accurate
clearance and settlement of securities
transactions. Therefore, DTC believes
any burden that may be created by the
proposed rule change would be
necessary in furtherance of the purposes
of the Act, as permitted by Section
17A(b)(3)(I) of the Act.36
Furthermore, DTC believes that any
burden on competition resulting from
the proposed rule change would be
appropriate in furtherance of the
purposes of the Act, as permitted by
Section 17A(b)(3)(I) of the Act.37 First,
The Participants Fund is designed as
ready ‘‘cash on hand’’ for settlement and
is, typically, the most available liquidity
resource for settlement. The proposed
rule change is designed to enhance
DTC’s ability to use this readily
available resource to fund a non-default
gap and to continue to support end-ofday net funds settlement. Second, as
noted above, any competitive burden
imposed on Participants would be
proportional to their activity at DTC.
Therefore, DTC believes any burden that
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78q–1(b)(3)(F).
36 15 U.S.C. 78q–1(b)(3)(I).
37 Id.
may be created by the proposed rule
change would be appropriate in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.38
DTC does not believe that the
proposed rule change to make technical
and clarifying amendments to provide
enhanced transparency with respect to
use of the Participants Fund and other
resources for settlement would have an
impact on competition.39 The proposed
rule change would (i) clarify that a
Participant’s pro rata share of an
application of the Participants Fund
would be the same whether there is a
default gap or a non-default gap, (ii)
restore the express provision for the
optional use of a discretionary amount
of existing retained earnings of DTC to
fund settlement, (iii) specifically state
that DTC may apply its available
resources to fund settlement, in such
order and in such amounts as it
determines, in its sole discretion, and
(iv) make ministerial changes for
conformity and readability. Taken
together, these proposed rule changes
would provide a more transparent
framework for the use of DTC’s available
liquidity resources to fund a settlement
gap, as determined by DTC in its sole
discretion, and would not change the
rights or obligations of Participants in
connection thereto. Therefore, DTC
believes that the proposed rule change
to make technical and clarifying
changes to provide enhanced
transparency with respect to use of the
Participants Fund and other resources
for settlement would not have an impact
on competition.40
(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.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
34 15
35 15
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38 Id.
39 Id.
40 Id.
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(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
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 rule-comments@
sec.gov. Please include File Number SR–
DTC–2020–011 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–2020–011. 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
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information that you wish to make
available publicly. All submissions
should refer to File Number SR–DTC–
2020–011 and should be submitted on
or before October 19, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21290 Filed 9–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89962; File No. SR–NYSE–
2020–66]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of Longer Period for
Commission Action on Proposed Rule
Change To Amend NYSE Rule 122
September 22, 2020.
On August 3, 2020, New York Stock
Exchange LLC (‘‘Exchange’’) 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 amend to NYSE Rule 122
(Orders with More than One Broker).
The proposed rule change was
published for comment in the Federal
Register on August 12, 2020.3 The
Commission has received no comments
on the proposal.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day for this filing
is September 25, 2020.
The Commission is extending the 45day period for Commission action on
the proposed rule change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the proposed
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89500
(August 6, 2020), 85 FR 48738 (Aug. 12, 2020).
4 15 U.S.C. 78s(b)(2).
1 15
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, pursuant to Section
19(b)(2) of the Act,5 the Commission
designates November 10, 2020, as the
date by which the Commission shall
either approve or disapprove, or
institute proceedings to determine
whether to approve or disapprove, the
proposed rule change (File No. SR–
NYSE–2020–66).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21271 Filed 9–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89949; File No. SR–NSCC–
2020–003]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Designation of
Longer Period for Commission Action
on Proceedings To Determine Whether
To Approve or Disapprove a Proposed
Rule Change To Enhance National
Securities Clearing Corporation’s
Haircut-Based Volatility Charge
Applicable to Illiquid Securities and
UITs and Make Certain Other Changes
to Procedure XV
September 22, 2020.
On March 16, 2020, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule change SR–NSCC–2020–
003 (‘‘Proposed Rule Change’’) pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The Proposed Rule
Change was published for comment in
the Federal Register on March 31,
2020.3 The Commission received
5 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 88474
(March 25, 2020), 85 FR 17910 (March 31, 2020)
(SR–NSCC–2020–003) (‘‘Notice’’). NSCC also filed
the proposal contained in the Proposed Rule
Change as advance notice SR–FICC–2020–802
(‘‘Advance Notice’’) with the Commission pursuant
to Section 806(e)(1) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act entitled the
Payment, Clearing, and Settlement Supervision Act
of 2010 (‘‘Clearing Supervision Act’’). 12 U.S.C.
5465(e)(1); 17 CFR 240.19b–4(n)(1)(i). Notice of
filing of the Advance Notice was published for
comment in the Federal Register on April 15, 2020.
Securities Exchange Act Release No. 88615 (April
9, 2020), 85 FR 21037 (April 15, 2020) (SR–NSCC–
2020–802). The proposal contained in the Proposed
6 17
E:\FR\FM\28SEN1.SGM
28SEN1
]]>Agencies
[Federal Register Volume 85, Number 188 (Monday, September 28, 2020)]
[Notices]
[Pages 60847-60854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21290]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89952; File No. SR-DTC-2020-011]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change To Amend Rule 4
September 22, 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 September 9, 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.\3\ 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\ On September 9, 2020, DTC filed this proposed rule change as
an advance notice (SR-DTC-2020-801) with the Commission pursuant to
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act entitled the Payment, Clearing, and
Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and Rule
19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). A copy of
the advance notice is available at https://www.dtcc.com/legal/sec-rule-filings.aspx.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change would amend Rule 4 \4\ to provide
expressly that the Participants Fund continues to be a liquidity
resource that may be used by DTC to fund a settlement funding gap to
complete settlement on a Business Day, whether the funding gap is the
result of a Participant Default or otherwise. In addition, the proposed
rule change
[[Page 60848]]
would make other technical and clarifying amendments to Rule 4 to
provide enhanced transparency with respect to use of the Participants
Fund and other resources to complete settlement on a Business Day, as
discussed below.
---------------------------------------------------------------------------
\4\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth in DTC's rules, including, but not
limited to, the Rules, By-Laws and Organization Certificate of DTC
(the ``Rules'') and the DTC Settlement Service Guide (the
``Settlement Guide''), available at https://www.dtcc.com/legal/rules-and-procedures.aspx. The Settlement Guide is a Procedure of DTC
filed with the Commission that, among other things, operationalizes
and supplements the DTC Rules that relate to settlement, including,
but not limited to, Rule 4 (Participants Fund and Participants
Investment).
---------------------------------------------------------------------------
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 amend Rule 4 to provide expressly
that the Participants Fund continues to be a liquidity resource that
may be used by DTC to fund a settlement funding gap to complete
settlement on a Business Day, whether the funding gap is the result of
a Participant Default or otherwise. In addition, the proposed rule
change would make other technical and clarifying amendments to Rule 4
to provide enhanced transparency with respect to use of the
Participants Fund and other resources to complete settlement on a
Business Day, as discussed below.
(i) Background
A. DTC Settlement on a Business Day
DTC is the central securities depository (``CSD'') for
substantially all corporate and municipal debt and equity securities
available for trading in the United States. DTC plays a critical role
in the national financial infrastructure.\5\ As a CSD, DTC provides a
central location in which securities may be immobilized, and interests
in those securities are reflected in accounts maintained for its
Participants, which are financial institutions such as brokers or
banks.\6\ As a CSD, DTC is structured to provide for the settlement of
book-entry transfers and pledges of interests in securities between
Participants, and for end-of-day net funds settlement on each Business
Day.\7\
---------------------------------------------------------------------------
\5\ See Financial Stability Oversight Council (``FSOC'') 2012
Annual Report, Appendix A at 166, available at https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Appendix%20A%20Designation%20of%20Systemically%20Important%20Market%20Utilities.pdf.
\6\ See, e.g., Securities Exchange Act Release No. 20221
(September 23, 1983), 48 FR 45167, 45168 (October 3, 1983) (File No.
600-1) (``A securities depository is a ``custodial'' clearing agency
that operates a centralized system for the handling of securities
certificates. Depositories accept deposits of securities from
broker-dealers, banks, and other financial institutions; credit
those securities to the depositing participants accounts; and,
pursuant to participant's instructions, effect book-entry movements
of securities. The physical securities deposited with a depository
are held in a fungible bulk; each participant or pledgee having an
interest in securities of a given issue credited to its account has
a pro rata interest in the physical securities of the issue held in
custody by the securities depository in its nominee name.
Depositories collect and pay dividends and interest to participants
for securities held on deposit. Depositories also provide facilities
for payment by participants to other participants in connection with
book-entry deliveries of securities. . . .'').
\7\ See, e.g., Rule 9(A) (Transactions in Securities and Money
Payments), Rule 9(B) (Transactions in Eligible Securities), Rule
9(C) (Transactions in MMI Securities), Rule 9(D) (Settling Banks),
and Rule 9(E) (Clearing Agency Agreements), supra note 4, which
provide the mechanism to achieve a ``DVP Model 2 Deferred Net
Settlement System'' (as defined in Annex D of the Principles for
Financial Market Infrastructures issued by the Committee on Payment
and Settlement Systems and the Technical Committee of the
International Organization of Securities Commissions (April 2012),
available at https://www.bis.org/cpmi/publ/d101a.pdf).
---------------------------------------------------------------------------
The DTC settlement system records money debits and credits to
Participant settlement accounts throughout a Business Day. Credits to a
Participant settlement account arise from deliveries versus payment,
receipt of payment orders, principal and interest distributions in
respect of securities held, intraday settlement progress payments and
any other items or transactions that give rise to a credit. Debits to a
Participant settlement account are primarily due to receives versus
payment, as well as other types of charges to the account permitted
under the Rules. As these debits and credits to a Participant's
settlement account are recorded intraday, the Participant's settlement
account will be in a net debit balance or net credit balance from time
to time and, finally, at the end of a Business Day, a net debit, net
credit or zero balance is determined. This final net debit or net
credit balance determines whether the Participant has an obligation to
pay or to be paid in the process of DTC completing settlement on that
Business Day. A Participant with an end-of-day net debit balance has an
obligation to pay DTC that amount; a Participant with an end-of-day net
credit balance is entitled to receive a payment from DTC. When a
Participant has an end-of-day zero net balance or an end-of-day net
credit balance, it is deemed to have satisfied its settlement
obligations for that Business Day, and securities processed for
delivery versus payment for delivery to the Participant will be
credited to its account. When a Participant with a net debit balance
pays its settlement obligation, and DTC completes system-wide
settlement, all securities processed for delivery versus payment to
that Participant on that Business Day will be credited to its account
and it will have paid for those deliveries. As to payments due to the
Participant for its deliveries on that Business Day, the Participant
will have been paid as well, because credits for those deliveries
intraday have offset and reduced its other debit obligations, even
though, on balance, it finished the Business Day with a settlement
obligation. A Participant that defaults on its settlement obligations
on a Business Day will not have paid for the securities processed for
delivery versus payment, and the securities will not be credited to its
account.
B. Settlement Gap on a Business Day
There may be circumstances in which the amount of settlement
payments received or available to DTC on a Business Day is not
sufficient to pay all Participants with an end-of-day net credit
balance on that Business Day (a ``settlement gap''). A settlement gap
could occur on a Business Day as a result of, principally, a
Participant Default, where a Participant fails to pay its settlement
obligation (a ``default gap''). A settlement gap could also occur on a
Business Day as a result of causes other than a Participant Default (a
``non-default gap''). For example, a non-default gap could occur if the
funds required to complete settlement are not available to DTC, in
whole or in part, due to an operational or data issue arising at DTC, a
Participant or Settling Bank, or due to a cyber incident, or other
technological business disruption.
The Rules and Procedures of DTC specify the extent of the
obligation of DTC to achieve settlement on each Business Day, and, as
DTC is not a central counterparty (``CCP''), do not guarantee
settlement.\8\ However, as a critical part of the national financial
infrastructure, if DTC does not complete settlement on a given Business
Day, there could be significant market-wide
[[Page 60849]]
effects.\9\ The Rules and Procedures of DTC are structured so that if
there is a settlement gap on a Business Day, DTC has liquidity
resources to mitigate the risks relating to a disruption to obligations
settling at DTC on that Business Day. If there is any problem with the
receipt or disbursement of funds for settlement, the issue would need
to be addressed quickly. Access to liquidity resources needs to be
optimized during the tight timeframe in which settlement must be
completed on a Business Day, in order for DTC to quickly and
effectively respond to and resolve any settlement gap, whether a
default gap or non-default gap.
---------------------------------------------------------------------------
\8\ See, e.g., Rule 9(B), supra note 4 (``Each Participant and
the Corporation shall settle the balance of the Settlement Account
of the Participant on a daily basis in accordance with these Rules
and the Procedures. Except as provided in the Procedures, the
Corporation shall not be obligated to make any settlement payments
to any Participants until the Corporation has received all of the
settlement payments that Settling Banks and Participants are
required to make to the Corporation.'').
\9\ Supra note 5.
---------------------------------------------------------------------------
C. Participants Fund as a Liquidity Resource To Complete Settlement on
a Business Day
The Participants Fund is designed to be one of the foundational
liquidity resources available to DTC to fund a settlement gap to
complete settlement on a Business Day. Rule 4 contains the key
provisions of the Rules and Procedures specifying the rights, duties
and obligations of Participants and DTC with respect to the
Participants Fund. Every Participant is required to make at least a
minimum deposit to the Participants Fund, and Participants with higher
levels of activity that impose greater liquidity risk to the DTC
settlement system have proportionally larger required deposits. The
principal purpose of the Participants Fund is, and historically has
been, to provide a mutualized liquidity resource to satisfy DTC losses
and liabilities attributable to its business conducted for the benefit
of its Participants.\10\ Key among these is daily settlement on each
Business Day, but also, historically, the Participants Fund was a
resource to cover losses and other liabilities as well.\11\ Prior to
August 28, 2018, Rule 4 (``Previous Rule 4''), in particular Section 4
of Previous Rule 4, provided a unified set of provisions that addressed
this application of the Participants Fund ``in satisfaction of losses
and liabilities of the Corporation incident to the business of DTC.''
---------------------------------------------------------------------------
\10\ See Settlement Guide at 48, supra note 4 (``The
Participants Fund . . . provided in DTC Rule 4 create[s] liquidity
and collateral resources to support the business of DTC and to cover
losses and liabilities incident to that business.''). The term
``business'' with respect to DTC means ``the doing of all things in
connection with or relating to the Corporation's performance of the
services specified in the first and second paragraphs of Rule 6 or
the cessation of such services.'' Rule 4, Section 1(f), supra note
4. The first two paragraphs of Rule 6 describe services provided by
DTC, including settlement. Rule 6, supra note 4. DTC notes that, as
early as 1975, the Rules provided that ``[t]he Participants Fund may
be used by the Corporation for the purposes of its business . . .
.'' See DTC CA-1 Application for Permanent Registration as a
Clearing Agency, dated December 15, 1980 (File 600-1) at page 588.
In addition, the range of permissible uses of a clearing or
participants fund as covering ``all losses and liabilities incident
to clearance and settlement activities'' of the clearing agency was
specifically noted in the 1983 order of the Commission granting DTC
full registration as a clearing agency. Securities Exchange Act
Release No. 20221 (September 23, 1983), 48 FR 45167 (October 3,
1983) (File No. 600-1). The concept was also in Rule 4 of Central
Certificate Service, Inc., the predecessor of DTC, filed with the
Commission in 1972. Securities Exchange Act Release No. 9849
(November 8, 1972), 37 FR 24795 (November 21, 1972) (As described by
the Commission: ``Rule 4. A participant's fund will require deposits
by participants upon the basis of a formula established by CCS,
Inc., based upon usage. The minimum contribution is $10,000. The
fund is available for the uses specified in the rules including for
the purposes of its business.'').
\11\ See id.
---------------------------------------------------------------------------
On August 28, 2018, the Commission approved a rule change filed by
DTC with respect to Rule 4 (``Loss Allocation Rule Change'').\12\ A
primary purpose of the Loss Allocation Rule Change was to harmonize the
loss allocation provisions of the Rules of DTC with similar provisions
of the rules of its two affiliated CCPs, National Securities Clearing
Corporation (``NSCC'') and Fixed Income Clearing Corporation (``FICC'')
(collectively, the ``CCPs'').
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 83969 (August 28,
2018), 83 FR 44955 (September 4, 2018) (SR-DTC-2017-022).
---------------------------------------------------------------------------
As part of the Loss Allocation Rule Change, Previous Rule 4 was
restructured to provide separate and distinct provisions for (i) in
Section 4 of Rule 4, the application of liquidity resources, including,
but not limited to, the pro rata application of the Participants Fund,
in order to complete settlement on a given Business Day when there is a
settlement gap, and (ii) in Section 5 of Rule 4, the allocation of
losses and liabilities of DTC arising out of Default Loss Events or
Declared Non-Default Loss Events.\13\ Revised Section 4 of Rule 4 was
meant to retain the core principle of Previous Rule 4 for the
application of the Participants Fund as a liquidity resource to
complete settlement.\14\ A new Section 5, consisting of loss allocation
provisions that were revised for substantial conformity with revisions
for the CCPs, was inserted into Rule 4 to provide a discrete loss
allocation waterfall (``Loss Allocation Waterfall'') more comparable to
NSCC and FICC.
---------------------------------------------------------------------------
\13\ As a result, the main sections of Rule 4 relating to the
Participants Fund are: Section 1, which focuses on Required
Participants Fund Deposits and Actual Participants Fund Deposits,
and briefly addresses the maintenance, permitted use and investment
of the Participants Fund; Section 3, which provides for the
application of a defaulting Participant's own Actual Participants
Fund Deposit to its unpaid settlement obligations; and Section 4,
which provides for, in relevant part, the pro rata application of
the Actual Participants Fund Deposits of all Participants (except a
defaulting Participant) to fund a settlement gap on a Business Day.
DTC notes that Section 5 of Rule 4 does not provide for the direct
application of the Participants Fund as part of the Loss Allocation
Waterfall. The reference in Section 1(f) of Rule 4 to the use of the
Actual Participants Fund Deposits ``to satisfy losses and
liabilities of the Corporation incident to the business of the
Corporation, as provided in Section 5 of this Rule'' refers to the
application of the Actual Participants Fund Deposit of a Participant
that fails to timely make its loss allocation payment under the Loss
Allocation Waterfall, as provided for in Section 3 of Rule 4.
Accordingly, this proposed rule change has no relationship to or
effect on the Loss Allocation Waterfall. Nor do the proposed
drafting changes to Section 4 of Rule 4 affect, in any degree, the
likelihood of the occurrence of a Default Loss Event or Declared
Non-Default Loss Event subject to Section 5.
\14\ See infra note 16.
---------------------------------------------------------------------------
Nevertheless, as explained in more detail below, DTC now recognizes
that certain of the provisions of amended Section 4 of Rule 4 might be
read in a manner that conflicts with the stated, and historical,
purpose of the Participants Fund.\15\ Specifically, certain provisions
might be construed to narrow the scope of use of the Participants Fund
for settlement to a default gap only.\16\ Therefore, because settlement
is a critical service of DTC, and the Participants Fund is a critical
liquidity resource to fund any settlement gap, DTC is proposing to
amend certain provisions of Section 4 of Rule 4 to reflect expressly
that the Participants Fund continues to be a liquidity resource that
may be used by DTC to fund a settlement gap to complete settlement on a
Business Day, whether the settlement gap is the result of a Participant
Default, or otherwise.
---------------------------------------------------------------------------
\15\ See supra note 10.
\16\ The rule filing for the Loss Allocation Rule Change did not
mention any intention to narrow the scope of the permitted use of
the Participants Fund under Rule 4. See Securities Exchange Act
Release No. 83629 (July 13, 2018), 83 FR 34246, 34248 (July 19,
2018) (SR-DTC-2017-022) (``The proposed rule change would retain the
core principles of [Previous] Rule 4 for both application of the
Participants Fund as a liquidity resource to complete settlement and
for loss allocation.'').
---------------------------------------------------------------------------
(ii) Overview of Proposed Rule Change
A. Sections 3 and 4 of Rule 4
Currently, Sections 3 and 4 are the primary sections of Rule 4 that
are relevant to the application of the Participants Fund to fund a
settlement gap.
Section 3 of Rule 4 provides, in relevant part, that ``[i]f a
Participant is a Participant that is a Defaulting Participant pursuant
to Rule 9(B) or is otherwise obligated to the Corporation pursuant to
these Rules and the Procedures and fails to satisfy any such obligation
(a ``Participant Default'') . . . the Corporation shall, to the extent
[[Page 60850]]
necessary to eliminate such obligation, apply some or all of the Actual
Participants Fund Deposit of such Participant to such obligation to
satisfy the Participant Default.'' \17\
---------------------------------------------------------------------------
\17\ Supra note 4.
---------------------------------------------------------------------------
Section 3 of Rule 4 is the basic provision of remedies if a
Participant fails to satisfy an obligation to DTC.\18\ In that case,
DTC may apply the Actual Participants Fund Deposit of the responsible
Participant to the extent necessary to satisfy its Participant Default.
A Participant Default includes a situation where a Participant fails to
pay its net debit balance at the end of a Business Day. If the amount
of the Actual Participants Fund Deposit of the responsible Participant
is insufficient to satisfy its net debit balance, DTC has recourse to
the Actual Participants Fund Deposits of the other Participants, to be
charged pro rata in accordance with Section 4 of Rule 4.
---------------------------------------------------------------------------
\18\ Therefore, Section 3 of Rule 4 does not apply to a
situation where there is no Participant Default.
Section 4 of Rule 4 currently provides:
The Participants Fund shall constitute a liquidity resource
which may be applied by the Corporation in such amounts as the
Corporation shall determine, in its sole discretion, to fund
settlement if there is a Defaulting Participant and the amount
charged to the Actual Participants Fund Deposit of the Defaulting
Participant pursuant to Section 3 of this Rule is not sufficient to
complete settlement. In that case, the Corporation may apply the
Actual Participants Fund Deposits of Participants other than the
Defaulting Participant (each, a ``non-defaulting Participant'') as
provided in this Section and/or apply such other liquidity resources
as may be available to the Corporation from time to time, including
the End-of-Day Credit Facility.
If the Participants Fund is applied to complete settlement, the
Corporation shall promptly after the event notify each Participant
and the SEC of the amount applied and the reasons therefor
(``Settlement Charge Notice''). Each non-defaulting Participant's
pro rata share of such application of the Participants Fund (each, a
``pro rata settlement charge'') shall be equal to (i) its Required
Participants Fund Deposit, as such Required Participants Fund
Deposit was fixed on the Business Day of such application less its
Additional Participants Fund Deposit, if any, on that day, divided
by (ii) the sum of the Required Participants Fund Deposits of all
non-defaulting Participants, as such Required Participants Fund
Deposits were fixed on that day, less the sum of the Additional
Participants Fund Deposits, if any, of such non-defaulting
Participants on that day.\19\
---------------------------------------------------------------------------
\19\ Supra note 4. The proposed rule change would not affect the
balance of Section 4 of Rule 4. Section 4 of Rule 4 also provides,
in part, that a Participant shall have a period of five Business
Days following issuance of a Settlement Charge Notice to notify DTC
of its election to terminate its business with DTC and thereby cap
its maximum obligation with respect to other pro rata settlement
charges (``Settlement Charge Cap''). If the Participant gives such
notice, Section 4 of Rule 4 provides that DTC may still retain the
entire amount of the Actual Participants Fund Deposit of a
Participant subject to a pro rata settlement charge, up to the
amount of the Participant's Settlement Charge Cap. Section 4 of Rule
4 also provides that if the Actual Participants Fund Deposit of a
Participant is applied pursuant to Section 4 of Rule 4, and, as a
result, the Actual Participants Fund Deposit of such Participant is
less than its Required Participants Fund Deposit, the Participant
must, upon the demand of DTC and within such time as DTC may
require, deposit to the Participants Fund the amount in cash needed
to eliminate any resulting deficiency in its Required Participants
Fund Deposit.
The above provisions of Section 4 of Rule 4 were drafted as part of
the restructuring and revision of Rule 4 in connection to the Loss
Allocation Rule Change. The intention was that these new provisions
would track the historical principle of Section 4 of Previous Rule 4
that the Participants Fund may be applied to a loss or liability,
including a settlement gap, that could not be satisfied by charging the
Actual Participants Fund Deposit of a Participant pursuant to Section 3
of Rule 4. Nevertheless, because Section 4 of Rule 4 is now silent as
to the use of the Participants Fund to complete settlement when there
is a non-default gap, it could be construed as limiting the pro rata
application of the Participants Fund to fund a settlement gap to
default scenarios.
On each Business Day, settlement occurs during a tight timeframe,
in conjunction with the Federal Reserve's National Settlement Service
(NSS) and Fedwire.\20\ If there is any problem with the receipt or
disbursement of funds for settlement, it would need to be addressed
quickly. The Participants Fund is designed as ready ``cash on hand''
for settlement and is, typically, the most available liquidity resource
for settlement. If the scope of the permitted use of the Participants
Fund to fund a settlement gap on a Business Day is not expressly stated
in Rule 4, there is a possibility that DTC's ability on a Business Day
to quickly and effectively respond to and resolve any settlement gap
could be adversely affected. Use of the Participants Fund needs to be
optimized during the tight timeframe because extensive settlement
delays might cause significant market disruptive effects. The proposed
rule change is designed to confirm, expressly, ready access to the
Participants Fund for settlement purposes, whatever the settlement gap
scenario.
---------------------------------------------------------------------------
\20\ See Settlement Guide at 19-20, supra note 4.
---------------------------------------------------------------------------
In light of the foregoing, in order to facilitate timely action by
DTC in connection with any settlement gap, DTC is proposing to amend
Section 4 of Rule 4 to provide expressly for the use of the
Participants Fund to fund settlement irrespective of whether the
settlement gap is a default gap or a non-default gap.
B. Technical and Clarifying Changes
DTC believes that certain other amendments that were made pursuant
to the Loss Allocation Rule Change may have impacted the transparency
of Section 4 of Rule 4 with respect to use of the Participants Fund and
other resources for settlement. Therefore, as described below, DTC is
proposing to (i) clarify that a Participant's pro rata share of an
application of the Participants Fund would be the same whether there is
a default gap or a non-default gap, (ii) restore the express provision
for the optional use of a discretionary amount of existing retained
earnings of DTC to fund settlement, (iii) specifically state that DTC
may apply its available resources to fund settlement, in such order and
in such amounts as it determines, in its sole discretion, and (iv) make
ministerial changes for conformity and readability.
(iii) Proposed Rule Change
A. Section 4 of Rule 4
Section 4 of Rule 4, Heading:
In order to reflect that Section 4 of Rule 4 would address the
liquidity resources to fund settlement, including the application of
the Participants Fund to fund settlement when there is a default gap or
a non-default gap, DTC is proposing to replace the current heading of
Section 4 of Rule 4 ``Application of Participants Fund Deposits of Non-
Defaulting Participants'' with ``Liquidity Resources to Fund
Settlement; Application of Participants Fund.''
Section 4 of Rule 4 (Proposed New First Paragraph):
DTC is proposing to add a new opening paragraph to Section 4 of
Rule 4 that would reflect and summarize the purpose of the proposed
Section 4 of Rule 4. Specifically, DTC is proposing to add the
following paragraph: ``This Section sets forth liquidity resources
available to the Corporation to fund settlement on a Business Day, in
the event of a Participant Default or otherwise.''
Section 4 of Rule 4, First Paragraph (Proposed Second Paragraph):
DTC is proposing to:
1. Streamline the language referring to a settlement gap resulting
from an unsatisfied Participant Default \21\ by
[[Page 60851]]
revising the text to state that, ``If, on a Business Day, there is a
Participant Default which is not satisfied pursuant to Section 3 of
this Rule by the application of the Actual Participants Fund Deposit of
a Participant, . . . '';
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\21\ The current default gap language is ``if there is a
Defaulting Participant and the amount charged to the Actual
Participants Fund Deposit of the Defaulting Participant pursuant to
Section 3 of this Rule is not sufficient to complete settlement.''
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2. Expressly address a non-default gap by adding the phrase `` . .
. or if Section 3 is not applicable, . . . '' into the description of
the circumstances in which DTC may apply the Participants Fund to fund
settlement; \22\
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\22\ Section 3 of Rule 4 applies when there is a Participant
Default. If there is no Participant Default, Section 3 of Rule 4
does not apply. Therefore, if there is a settlement gap where
Section 3 of Rule 4 is inapplicable, such settlement gap could be
considered a non-default gap.
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3. Revise the language that refers to DTC's sole discretion to
apply its liquidity resources, including Participants Fund, to fund
settlement,\23\ to state, `` . . . in such order and in such amounts as
the Corporation shall determine, in its sole discretion, to the extent
necessary to fund settlement on the Business Day:''; and
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\23\ Rule 4 currently states: ``The Participants Fund shall
constitute a liquidity resource which may be applied by the
Corporation in such amounts as the Corporation shall determine, in
its sole discretion, to fund settlement . . . and/or apply such
other liquidity resources as may be available to the Corporation
from time to time, including the End-of-Day Credit Facility.''
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4. Enhance the transparency of Section 4 of Rule 4 with respect to
liquidity resources that may be available to DTC to fund settlement by
amending Section 4 of Rule 4 to provide DTC may apply:
(a) the Actual Participants Fund Deposits of all Participants
(other than a Participant whose Actual Participants Fund Deposit is
exhausted pursuant to Section 3);
(b) the existing retained earnings or undivided profits of DTC; or
(c) any other liquidity resources as may be available to DTC from
time to time, including, but not limited to, the End-of-Day Credit
Facility.
Specifically, with respect to (a), DTC is proposing to replace the
reference in the first paragraph of Section 4 of Rule 4 to ``non-
defaulting Participants'' with ``all Participants (other than a
Participant whose Actual Participants Fund Deposit is exhausted
pursuant to Section 3).'' The purpose of this change is to provide
expressly that (i) in the case of a non-default gap, all Participants
would be charged a pro rata share of the application of the
Participants Fund, and (ii) a Participant that cured its Participant
Default pursuant to Section 3 by the application of some, but not all,
of its Actual Participants Fund Deposit on that Business Day, would
still be subject to a pro rata share of the application of the
Participants Fund to fund settlement, up to the remaining balance of
its Actual Participants Fund Deposit, if there is (x) a default gap
(due to the default of another Participant) or (y) a non-default gap.
With respect to (b), in order to enhance the transparency of
available resources to fund settlement, DTC is proposing to restore the
express provision for the optional use of a discretionary amount of
existing retained earnings of DTC \24\ that had appeared in previous
versions of Rule 4, including Section 4 of Previous Rule 4.\25\ With
respect to (c), DTC is proposing to insert the phrase ``but not limited
to,'' after ``including,'' in order to make clear that DTC may have
other liquidity resources available in addition to the End-of-Day
Credit Facility.
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\24\ The retained earnings of DTC are reflected in its quarterly
condensed consolidated financial statements and annual financial
statements, available at https://www.dtcc.com/legal/financial-statements.
\25\ As noted above, the loss allocation provisions of Rule 4
are not relevant to the application of liquidity resources to a
settlement gap on a given Business Day. As such, the optional use of
the existing retained earnings of DTC to fund settlement is separate
and distinct from calculation of, or application of, the Corporate
Contribution required in Section 5 of Rule 4.
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In sum, pursuant to the above proposed changes, the revised
paragraph would state:
If, on a Business Day, there is a Participant Default which is
not satisfied pursuant to Section 3 of this Rule by the application
of the Actual Participants Fund Deposit of a Participant, or if
Section 3 is not applicable, then the Corporation shall apply, in
such order and in such amounts as the Corporation shall determine,
in its sole discretion, to the extent necessary to fund settlement
on the Business Day:
(a) The Actual Participants Fund Deposits of all Participants
(other than a Participant whose Actual Participants Fund Deposit is
exhausted pursuant to Section 3);
(b) the existing retained earnings or undivided profits of the
Corporation; or
(c) any other liquidity resources as may be available to the
Corporation from time to time, including, but not limited to, the
End-of-Day Credit Facility.
Section 4 of Rule 4, Second Paragraph (Proposed Fifth Paragraph):
For conformity, DTC is proposing to modify this paragraph to
conform with the proposed changes to the third paragraph. Specifically,
pursuant to the proposed rule change, this paragraph would state: ``If
the Participants Fund is applied pursuant to paragraph (a) of this
Section, the Corporation shall promptly after the event notify each
Participant and the SEC of the amount of the Participants Fund applied
and the reasons therefor (``Settlement Charge Notice'').''
In addition, to further streamline Section 4 of Rule 4, DTC is
proposing to move the proposed amended paragraph to follow the proposed
fourth paragraph.
Section 4 of Rule 4, Proposed Third Paragraph:
For enhanced transparency with respect to the governance relating
to a pro rata application of the Participants Fund, DTC is proposing to
add the following paragraph:
A determination to apply the Participants Fund pursuant to this
Section shall be made by either the Chief Executive Officer, Chief Risk
Officer, Chief Financial Officer, a member of any management committee,
Treasurer or any Managing Director as may be designated by the Chief
Risk Officer from time to time. The Board of Directors (or an
authorized Committee thereof) shall be promptly informed of the
determination.
Section 4 of Rule 4, Third Paragraph (Proposed Fourth Paragraph):
Pursuant to the proposed rule change, DTC would revise this
paragraph \26\ to make clarifying changes that reflect that a
Participant's pro rata share of an application of the Participants Fund
would be the same whether there is a default gap or a non-default gap.
Specifically, DTC is proposing to (i) remove the references to ``non-
defaulting Participants,'' (ii) streamline the language by representing
the calculation of a pro rata share as a ratio, instead of a division
calculation, (iii) make conforming changes with the foregoing, and (iv)
for consistency and clarity, make ministerial word changes and replace
references to ``day'' with the defined term ``Business Day.''
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\26\ Currently, the paragraph states: ``Each non-defaulting
Participant's pro rata share of such application of the Participants
Fund (each, a ``pro rata settlement charge'') shall be equal to (i)
its Required Participants Fund Deposit, as such Required
Participants Fund Deposit was fixed on the Business Day of such
application less its Additional Participants Fund Deposit, if any,
on that day, divided by (ii) the sum of the Required Participants
Fund Deposits of all non-defaulting Participants, as such Required
Participants Fund Deposits were fixed on that day, less the sum of
the Additional Participants Fund Deposits, if any, of such non-
defaulting Participants on that day.''
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In sum, DTC is proposing that this paragraph be revised to state:
``The pro rata share of the Actual Participants Fund Deposit of any
Participant applied pursuant to paragraph (a) shall be equal to the
ratio of (i) the Required Participants Fund Deposit of the Participant,
as fixed on the Business
[[Page 60852]]
Day on which such charge is made less its Additional Participants Fund
Deposit, if any, on that Business Day, to (ii) the sum of the Required
Participants Fund Deposits, as fixed on the Business Day on which such
charge is made, of all Participants so charged on that Business Day,
less the sum of the Additional Participants Fund Deposits, if any, of
those Participants on that Business Day. The amount so charged to the
Actual Participants Fund Deposit of a Participant shall constitute a
``pro rata settlement charge'' with respect to that Participant.''
Section 4 of Rule 4, Fifth, Sixth, Seventh and Eighth Paragraphs
(Proposed Paragraphs Six, Seven, Eight and Nine):
There would be no changes to these paragraphs. The proposed rule
change would not affect the Settlement Charge Termination Notification
Period, the Settlement Charge Cap, nor the right of DTC to retain the
entire amount of the Actual Participants Fund Deposit of a Participant
subject to a pro rata settlement charge, up to the amount of the
Participant's Settlement Charge Cap. The proposed rule change would not
affect the requirement that if the Actual Participants Fund Deposit of
a Participant is applied pursuant to Section 4 of Rule 4, and, as a
result, the Actual Participants Fund Deposit of such Participant is
less than its Required Participants Fund Deposit, the Participant must,
upon the demand of DTC and within such time as DTC would require,
deposit to the Participants Fund the amount in cash needed to eliminate
any resulting deficiency in its Required Participants Fund Deposit.
B. Section 1(f) of Rule 4
Section 1(f) of Rule 4 currently states, in relevant part: ``The
Actual Participants Fund Deposits of Participants to the Participants
Fund shall be held by the Corporation and may be used or invested as
provided in these Rules and as specified in the Procedures. The Actual
Participants Fund Deposits of Participants may be used (i) to satisfy
the obligations of Participants to the Corporation, as provided in
Section 3 of this Rule, (ii) to fund settlement among non-defaulting
Participants, as provided in Section 4 of this Rule and (iii) to
satisfy losses and liabilities of the Corporation incident to the
business of the Corporation, as provided in Section 5 of this Rule.''
In conformity with the proposed changes to Section 4 of Rule 4, DTC
is proposing a ministerial change of removing the word ``non-
defaulting'' from Section 1(f) of Rule 4.
2. Statutory Basis
DTC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, DTC believes
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act \27\ and Rule 17Ad-22(e)(1) promulgated under the Act,\28\
for the reasons described below.
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\27\ 15 U.S.C. 78q-1(b)(3)(F).
\28\ 17 CFR 240.17Ad-22(e)(1).
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Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\29\ The proposed rule changes to (i) amend
Rule 4 to provide expressly that the Participants Fund may be used by
DTC to fund a settlement gap, whether it is a default gap or a non-
default gap, and (ii) make other technical changes to provide enhanced
transparency with respect to use of the Participants Fund and other
resources for settlement, are intended to enhance the overall
efficiency and effectiveness of end-of-day settlement in circumstances
where there is a settlement gap.
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\29\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed rule change would amend Section 4 of Rule 4 to provide
expressly for the pro rata application of the Participants Fund to any
settlement gap, including a non-default gap. As noted above, if there
were a question as to DTC's right to apply the Participants Fund to a
non-default gap, DTC's ability on a Business Day to quickly and
effectively respond to and resolve any such settlement gap and complete
settlement might be adversely affected, which could interfere with the
prompt and accurate clearance and settlement of securities
transactions.
The proposed rule change would also make other technical and
clarifying amendments in order to provide enhanced transparency with
respect to use of the Participants Fund and other resources for
settlement. The proposed amendments would (i) clarify that a
Participant's pro rata share of an application of the Participants Fund
would be the same whether there is a default gap or a non-default gap,
(ii) restore the express provision for the optional use of a
discretionary amount of existing retained earnings of DTC to fund
settlement, (iii) specifically state that DTC may apply its available
resources to fund settlement, in such order and in such amounts as it
determines, in its sole discretion, and (iv) make ministerial changes
for conformity and readability. Without the foregoing changes, DTC's
rights with respect to the manner and use of its liquidity resources to
fund settlement might not be promptly ascertainable, particularly in a
time of stress.
Therefore, the proposed rule change is designed to enhance the
overall efficiency and effectiveness of settlement on a Business Day in
circumstances where there is a settlement gap by facilitating timely
action by DTC to complete settlement on a Business Day when there is a
settlement gap, including, but not limited to, in situations where
Section 3 of Rule 4 is not applicable. The ability of DTC to take
timely action to fund a settlement gap, including, but not limited to,
the pro rata application of the Participants Fund, would allow DTC to
continue to support end-of-day net funds settlement in connection with
book-entry transfers of securities on each Business Day, thereby
promoting the prompt and accurate clearance and settlement of
securities transactions, consistent with Section 17A(b)(3)(F) of the
Act, cited above.
Rule 17Ad-22(e)(1) under the Act requires that DTC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for a well-founded, clear, transparent,
and enforceable legal basis for each aspect of its activities in all
relevant jurisdictions.\30\ As discussed above, changes to Section 4 of
Previous Rule 4 might be construed as narrowing the scope of use of the
Participants Fund for settlement to a default gap, even though the
Participants Fund is a liquidity resource that is available to fund any
settlement gap. By amending Rule 4 to provide expressly that the
Participants Fund continues to be a liquidity resource that may be used
by DTC to fund a settlement gap to complete settlement on a Business
Day, whether the settlement gap is the result of a Participant Default
or otherwise, the proposed rule change is designed to provide an
expressly clear, transparent and enforceable legal basis for the
application of the Participants Fund to a settlement gap, whether or
not caused by a Participant Default, consistent with Rule 17Ad-22(e)(1)
under the Act, cited above.
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\30\ 17 CFR 240.17Ad-22(e)(1).
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change to amend certain
provisions of
[[Page 60853]]
Rule 4 to reflect expressly that the Participants Fund continues to be
a liquidity resource to fund a settlement gap on a Business Day,
whether there is a default gap or a non-default gap, could impose a
burden on competition.\31\
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\31\ 15 U.S.C. 78q-1(b)(3)(I).
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As noted above, the Participants Fund is designed to be one of the
foundational liquidity resources available to DTC to fund a settlement
gap to complete settlement on a Business Day. The proposed rule change
would enhance DTC's ability to quickly and effectively use the pro rata
application of the Participants Fund to respond to a non-default gap on
a Business Day. DTC recognizes, however, that a pro rata application of
the Participants Fund to fund a settlement gap, including a non-default
gap, could potentially result in a deficiency in the Required
Participants Fund Deposit of one or more Participants, which could
potentially impose a burden on competition. Under Rule 4, in the event
of a deficiency in the Required Participants Fund Deposit of a
Participant after a pro rata application of the Participants Fund to a
settlement gap, the Participant, upon the demand of DTC and within such
time as DTC may require, would be required to deposit into the
Participants Fund the amount of cash needed to eliminate the
deficiency.\32\ While the proposed rule change does not change or
affect this long-standing replenishment obligation,\33\ DTC
acknowledges that such demand for additional capital on a Participant
could be a competitive burden for the Participant.
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\32\ See supra note 19.
\33\ See DTC CA-1 Application for Permanent Registration as a
Clearing Agency, dated December 15, 1980 (File 600-1) at page 589
(``Rule 4 . . . Section 5. If a pro rata charge is made against a
Participant's contribution to the Participants Fund pursuant to
Section 4 of this Rule, such Participant shall immediately upon
demand, which shall be made by the Corporation as soon as
practicable after such charge, make good the deficiency in the
amount of its contribution resulting from such pro rata charge. . .
.'').
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DTC does not believe that any burden imposed by the proposed rule
change would be significant. First, if DTC were to use a pro rata
application of the Participants Fund to fund a non-default gap, it
would not necessarily result in a deficiency to the Required
Participants Fund Deposit of any Participant. Whether there would be
any deficiencies would depend on the facts and circumstances on that
Business Day, including, but not limited to, the amount of funds a
Participant has on deposit in the Participants Fund that is in excess
of its Required Participants Fund Deposit, as well as the aggregate
amount of the pro rata application of the Participants Fund to fund the
settlement gap. Second, the Required Participants Fund Deposit of a
Participant is itself based on the amount of activity of the
Participant, and therefore any burden on a Participant from the
requirement to replenish its Required Participants Fund Deposit would
be proportional to the volume of its business activity at DTC.
Regardless of whether the potential burden on competition is
significant, DTC believes that any burden on competition that may be
created by the proposed rule change would be necessary and appropriate
in furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\34\
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\34\ 15 U.S.C. 78q-1(b)(3)(I).
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DTC believes that any burden on competition created by the proposed
rule change would be necessary to promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\35\ As noted above, if the scope of
the permitted use of the Participants Fund to fund a settlement gap on
a Business Day could be construed as limited to a default settlement
gap, DTC's ability on a Business Day to quickly and effectively respond
to and resolve any settlement gap could be adversely affected by the
perceived limitation on use of the Participants Fund. This, in turn,
could cause settlement delays that might interfere with the prompt and
accurate clearance and settlement of securities transactions.
Therefore, DTC believes any burden that may be created by the proposed
rule change would be necessary in furtherance of the purposes of the
Act, as permitted by Section 17A(b)(3)(I) of the Act.\36\
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\35\ 15 U.S.C. 78q-1(b)(3)(F).
\36\ 15 U.S.C. 78q-1(b)(3)(I).
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Furthermore, DTC believes that any burden on competition resulting
from the proposed rule change would be appropriate in furtherance of
the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the
Act.\37\ First, The Participants Fund is designed as ready ``cash on
hand'' for settlement and is, typically, the most available liquidity
resource for settlement. The proposed rule change is designed to
enhance DTC's ability to use this readily available resource to fund a
non-default gap and to continue to support end-of-day net funds
settlement. Second, as noted above, any competitive burden imposed on
Participants would be proportional to their activity at DTC. Therefore,
DTC believes any burden that may be created by the proposed rule change
would be appropriate in furtherance of the purposes of the Act, as
permitted by Section 17A(b)(3)(I) of the Act.\38\
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\37\ Id.
\38\ Id.
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DTC does not believe that the proposed rule change to make
technical and clarifying amendments to provide enhanced transparency
with respect to use of the Participants Fund and other resources for
settlement would have an impact on competition.\39\ The proposed rule
change would (i) clarify that a Participant's pro rata share of an
application of the Participants Fund would be the same whether there is
a default gap or a non-default gap, (ii) restore the express provision
for the optional use of a discretionary amount of existing retained
earnings of DTC to fund settlement, (iii) specifically state that DTC
may apply its available resources to fund settlement, in such order and
in such amounts as it determines, in its sole discretion, and (iv) make
ministerial changes for conformity and readability. Taken together,
these proposed rule changes would provide a more transparent framework
for the use of DTC's available liquidity resources to fund a settlement
gap, as determined by DTC in its sole discretion, and would not change
the rights or obligations of Participants in connection thereto.
Therefore, DTC believes that the proposed rule change to make technical
and clarifying changes to provide enhanced transparency with respect to
use of the Participants Fund and other resources for settlement would
not have an impact on competition.\40\
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\39\ Id.
\40\ Id.
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(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.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
[[Page 60854]]
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.
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-2020-011 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-2020-011. 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-2020-011 and should be submitted on
or before October 19, 2020.
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\41\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21290 Filed 9-25-20; 8:45 am]
BILLING CODE 8011-01-P
