Self-Regulatory Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change To Establish the ClaimConnectTM, 76640-76642 [2020-26282]
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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Notices
context of comparable EMIR
requirements.54
As discussed in Part II.C.2, LCH SA
petitioned the SEC to request
exemptions under the Exchange Act
from the application of Rule 17a–22 and
Rules 17Ad–22(c)(2) and (c)(2)(iii), and
the SEC approved this request based on
factors similar to those discussed
above.55 The SEC has also provided
exemptions to LCH SA with respect to
application of Section 19(b) of the
Exchange Act and Rule 19b–4
thereunder,56 and to LCH SA and ICEEU
with respect to the application of
Sections 5 and 6 of the Exchange Act.57
IV. Conclusion
The SEC has structured its regulatory
framework for clearing agencies that are
EU CCPs to achieve an appropriate
balance between (i) applying the levels
of oversight and supervision for clearing
agencies that ensure consistency with
the Exchange Act and, at the same time,
(ii) avoiding the application of certain
SEC requirements that are unnecessary,
duplicative, or inconsistent relative to
EMIR requirements that have already
been applied to the EU CCP in the EU.
Accordingly, this policy statement and
guidance is designed to provide
transparency into the SEC’s processes
and to describe the processes available
to EU CCPs that seek to register as
clearing agencies or request exemptions
from certain SEC requirements. This
policy statement and guidance also
highlight efficient ways that EU CCPs
can comply with SEC rules and describe
how an EU CCP can facilitate the
efficient preparation of its application
and the SEC’s review of such
application, potentially resulting in
shorter application preparation and
review periods. It also identifies the
factors that the SEC will consider with
respect to future requests for
exemptions, as applicable to a particular
request. The SEC looks forward to
continuing its dialogue with the EC
regarding its consideration of whether to
find the SEC’s regulatory framework for
CCPs equivalent to EMIR.
TKELLEY on DSKBCP9HB2PROD with NOTICES
[FR Doc. 2020–26285 Filed 11–27–20; 8:45 am]
BILLING CODE 8011–01–P
54 See id. (discussing as a relevant factor the
particular system of supervision and oversight in a
non-U.S. jurisdiction for purposes of evaluating any
non-U.S. framework).
55 See supra note 40 and accompanying text.
56 See supra note 41 and accompanying text.
57 See supra note 42 and accompanying text.
20:03 Nov 27, 2020
[Release No. 34–90481; File No. SR–DTC–
2020–012]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Approving a Proposed Rule Change To
Establish the ClaimConnectTM Service
and Update the Settlement Service
Guide
November 23, 2020.
I. Introduction
On October 8, 2020, The Depository
Trust Company (‘‘DTC’’) 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 proposed rule change SR–
DTC–2020–012. The proposed rule
change was published for comment in
the Federal Register on October 21,
2020.3 The Commission did not receive
any comment letters on the proposed
rule change. For the reasons discussed
below, the Commission is approving the
proposed rule change.
II. Description of the Proposed Rule
Change
The proposed rule change 4 will (i)
adopt a new DTC service guide to
establish the ClaimConnect service at
DTC (‘‘ClaimConnect Service Guide’’),
and (ii) update the existing DTC
Settlement Service Guide 5 (‘‘Settlement
Guide’’) to (A) make conforming
changes to the Settlement Guide to
reflect the ClaimConnect service, and
(B) update certain address and contact
information in the Copyright section of
the Settlement Guide.
A. Background
DTC is the central securities
depository (‘‘CSD’’) for substantially all
corporate and municipal debt and
equity securities available for trading in
the United States. As a covered clearing
agency that provides CSD services,6
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 90203
(October 15, 2020), 85 FR 67018 (October 21, 2020)
(SR–DTC–2020–012) (‘‘Notice’’).
4 Capitalized terms not defined herein are defined
in the Rules, By-Laws and Organization Certificate
of DTC (‘‘Rules’’) available at https://www.dtcc.com/
∼/media/Files/Downloads/legal/rules/dtc_rules.pdf,
or in the hereby proposed ClaimConnect Service
Guide, included as Exhibit 5 to this proposed rule
change filing.
5 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/
Settlement.pdf.
6 A covered clearing agency is defined as a
registered clearing agency that provides the services
of a central counterparty (‘‘CCP’’) or CSD. See 17
2 17
By the Commission.
Dated: November 23, 2020.
Vanessa A. Countryman,
Secretary.
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COMMISSION
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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.
DTC’s CSD services include cash
claims or cash claim transactions, which
are cash entitlements (i.e., a request for
cash) from one Participant to another
Participant. Currently, cash claims arise
as a result of trading exceptions from a
Corporate Action event,7 where a cash
entitlement needs to be delivered from
one holder to another. Today, such
claims are settled away from DTC,
except for some stock loan and
repurchase (‘‘repo’’) substitution
payments, which can be settled via
DTC’s Adjustment Payment Orders
(‘‘APOs’’). DTC stated that it developed
the ClaimConnect service so
Participants can settle cash claims in
one centralized location, using the DTC
system.8
B. Proposed ClaimConnect Service
The proposed ClaimConnect service
will be an optional service available to
all DTC Participants.9 The service will
enable DTC Participants to bilaterally
match and settle cash claim transactions
at DTC.10
ClaimConnect will be a validation and
matching engine that continually
CFR 240.17Ad–22(a)(5). CSD services means
services of a clearing agency that is a securities
depository as described in Section 3(a)(23)(A) of the
Exchange Act. See 17 CFR 240.17Ad-22(a)(3).
Specifically, the definition of a clearing agency
includes, in part, ‘‘any person, such as a securities
depository that (i) acts as a custodian of securities
in connection with a system for the central
handling of securities whereby all securities of a
particular class or series of any issuer deposited
within the system are treated as fungible and may
be transferred, loaned, or pledged by bookkeeping
entry without physical delivery of securities
certificates, or (ii) otherwise permits or facilitates
the settlement of securities transactions or the
hypothecation or lending of securities without
physical delivery of securities certificates.’’ 15
U.S.C. 78c(a)(23)(A).
7 Trading exceptions include, but are not limited
to, trades outside of the markets’ agreed upon
settlement cycle, lack of due bill fail tracking, stock
loan or repo transaction discrepancy, or tax treaty
differences. See Notice, supra note 3, 85 FR at
67019.
8 See Notice, supra note 3, 85 FR at 67019. Based
on discussions with its Participants, DTC estimates
that ClaimConnect may process approximately
212,000 claims its first year, increasing to
approximately 425,000 claims by its fifth year. See
id.
9 DTC stated that a fee associated with
Participants’ use of the ClaimConnect service will
be the subject of a separate, subsequent rule filing
with the Commission. See Notice, supra note 3, 85
FR at 67019.
10 To join ClaimConnect, a Participant needs to
request to be a ‘‘Claim Participant,’’ and DTC will
then indicate that the Participant is now a member
of the service (i.e., a User). See Notice, supra note
3, 85 FR at 67019.
E:\FR\FM\30NON1.SGM
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TKELLEY on DSKBCP9HB2PROD with NOTICES
Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Notices
monitors claims throughout their
lifecycle in order to settle and close
claims through DTC’s settlement
process. This continuous processing
will allow for both the manual matching
of claims (i.e., Affirmation) by
ClaimConnect users (‘‘Users’’) and the
systematic matching of two like claims
by ClaimConnect based on the
alignment of certain data elements (i.e.,
Auto-matching).
ClaimConnect will offer various claim
processing functions, including end-ofday settlement of cash claims through
systematic Securities Payment Orders
(‘‘SPOs’’) generated and submitted by
ClaimConnect at set times intraday
(‘‘settlement time’’) on a settlement date.
If overpaid or underpaid a cash
entitlement due to a trading exception,
a User will be able to create a claim
against a claim counterparty through
ClaimConnect. To create a claim, the
ClaimConnect system will require the
inclusion of certain data elements,
while other data elements will be
optional.11
Validation, the process of confirming
claim data elements, will happen in two
ways, as described below: (i) When a
claim is Affirmed, as described below,
or (ii) when ClaimConnect Automatches two claims. Users can also
modify or Cancel claims. However, not
all data elements can be modified after
submission.
First, if a counterparty receives a
claim and agrees with its details (i.e.,
the data elements), then the
counterparty could Affirm the claim.
Affirming a claim will be a confirmation
of the claim’s data elements and would
move the claim into a Matched state.
Affirmation will usually occur only
when one side of a claim is submitted
because it affords the counterparty
enough time to Affirm the claim. Once
Affirmed, the claim will be settled on
the date the parties agree to. Second, if
both parties to a claim submit their
respective sides to the claim (i.e., a debit
claim and a credit claim), the two sides
of the claim are Auto-matched.
The SPO will credit the payee
Participant and debit the payor
Participant the claim amount and will
then be incorporated into DTC’s end-ofday settlement process. ClaimConnect
SPOs will be subject to DTC’s Risk
Controls (i.e., Collateral Monitor and
Net Debit Cap) and will ‘‘recycle’’ (i.e.,
pend) if the SPO cannot satisfy those
controls.
11 Once
submitted, claims can exist in several
different ‘‘states’’ depending upon the actions taken
by the parties to the claim. The applicable rules will
describe the different states that a claim could take.
See Notice, supra note 3, 85 FR at 67019.
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To assist Users with the management
of their claims, ClaimConnect will offer
an Approval feature. The Approval
feature will require certain actions on a
claim to be approved by a separate User
employee, if the claim amount meets or
exceeds a predetermined dollar
threshold set by the User, before that
action can be completed. This feature is
designed to enable Users to better
monitor and manage certain cash debits
that are leaving their account to satisfy
claims. Users can activate the Approval
feature by updating their ClaimConnect
client profile. When doing so, the User
must then set the dollar threshold that
will trigger the Approval process.
C. Updates to the DTC Settlement Guide
DTC has an existing DTC Settlement
Guide, which describes its existing
services related to settlement. DTC will
update the existing Settlement Guide to
(A) make conforming changes to the
Settlement Guide to reflect the
establishment of the ClaimConnect
service (specifically, to clarify that the
RAD process would not apply to cash
claims as they would go through
ClaimConnect), and (B) update certain
address and contact information in the
Copyright section of the Settlement
Guide.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 12
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and
rules and regulations thereunder
applicable to such organization. After
carefully considering the proposed rule
change, the Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to DTC. In particular, the
Commission finds that the proposed
rule change is consistent with Section
17A(b)(3)(F) of the Act,13 for the reasons
described below.
A. Consistency With Section
17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of a
clearing agency, such as DTC, be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions, and foster
cooperation and coordination with
persons engaged in the clearance and
12 15
13 15
PO 00000
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
Frm 00128
Fmt 4703
Sfmt 4703
76641
settlement of securities transactions.14
The Commission believes that the
Proposed Rule Change is consistent
with Section 17A(b)(3)(F) of the Act.15
First, DTC proposes to introduce a
new ClaimConnect service. As noted
above, the ClaimConnect service will be
an optional service, and DTC stated that
it developed the service based on
discussions with Participants.
ClaimConnect would enable
Participants to bilaterally match and
settle cash claim transactions at DTC.
While settlement of cash claims occurs
today, it does so away from DTC, in a
dispersed fashion. ClaimConnect would
establish a centralized and coordinated
location for Participants to settle such
claims. By offering a centralized and
coordinated location for Participants to
settle cash claims, with various
functionality available, the Commission
believes that the ClaimConnect service
is designed to foster cooperation and
coordination with persons engaged in
the clearance and settlement of
securities transactions.
Second, DTC will update the existing
Settlement Guide to (A) make
conforming changes to the Settlement
Guide to reflect the ClaimConnect
service, and (B) update certain address
and contact information in the
Copyright section of the Settlement
Guide. By making conforming changes
and updating the Settlement Guide with
more current information about where
Participants and others may direct
inquiries about the DTC service guides,
the Settlement Guide will provide the
most up-to-date information and should
help Participants to submit questions or
comments about the service guides.
Accordingly, the Commission believes
that the updates to the Settlement Guide
are designed to promote the prompt and
accurate clearance and settlement of
securities transactions.
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 of the Act 16 and the rules
and regulations promulgated
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 17 that
proposed rule change SR–DTC–2020–
012, be, and hereby is, approved.18
14 Id.
15 Id.
16 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
18 In approving the proposed rule change, the
Commission considered the proposals’ impact on
17 15
Continued
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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–26282 Filed 11–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90482; File No. SR–CBOE–
2020–110]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change Amending Rule
5.52(d) in Connection With a MarketMaker’s Electronic Volume Transacted
on the Exchange
November 23, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
13, 2020, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
TKELLEY on DSKBCP9HB2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 5.52(d) in connection with a
Market-Maker’s electronic volume
transacted on the Exchange. The text of
the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
19 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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20:03 Nov 27, 2020
Jkt 253001
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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 5.52(d) in connection with a
Market-Maker’s electronic volume
transacted on the Exchange. Current
Rule 5.52(d)(1) provides that if a
Market-Maker never trades more than
20% of the Market-Maker’s contract
volume electronically in an appointed
class during any calendar quarter, a
Market-Maker will not be obligated to
quote electronically in any designated
percentage of series within that class
pursuant to subparagraph (d)(2) (which
governs the continuous electronic
quoting requirements for Market-Makers
in their appointed classes). That is, once
a Market-Maker surpasses the 20%
electronic volume threshold in an
appointed class, the Market-Maker is
required to provide continuous
electronic quotes in that appointed
classes going forward. Neither Rule
5.52(d)(1) nor (d)(2) permit a MarketMaker to reduce its electronic volume
after surpassing the 20% threshold in
order to reset the electronic volume
trigger or otherwise undo the resulting
obligation to stream electronic quotes
once the 20% threshold is triggered in
an appointed class.
Market-Makers accustomed to
executing volume on the trading floor
have sophisticated and complicated risk
modeling associated with their floor
trading activity, including quoting,
monitoring, and responding to the
trading crowd. However, the Exchange
understands that while such MarketMakers do have separate systems or
third-party platforms for quoting,
monitoring and responding to electronic
markets, because these Market-Makers
are almost exclusively floor-based, their
technology or other platforms enabling
them to quote electronically do not
achieve the level of sophistication or
complexity as the systems used by
Market-Makers accustomed to quoting
electronically. Indeed, to satisfy the
continuous electronic quoting
requirements, a Market-Maker must
provide continuous bids and offers for
90% of the time the Market-Maker is
required to provide electronic quotes in
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
an appointed option class on a given
trading day and must provide
continuous quotes in 60% of the series
of the Market-Maker’s appointed
classes. The Exchange determines
compliance by a Market-Maker with this
quoting obligation on a monthly basis.
In addition to this, a Market-Makers
must, among other things, compete with
other Market-Makers in its appointed
classes, update quotations in response
to changed market conditions in its
appointed classes, maintain active
markets in its appointed classes, and,
overall, engage in a course of dealings
reasonably calculated to contribute to
the maintenance of a fair and orderly
market. Market-Makers that are
predominantly floor-based generally do
not have the technology or electronic
trading sophistication to fully satisfy the
continuous electronic quoting
obligations, as well as other heightened
standards required of a Market-Maker in
its appointed classes electronically,
once the 20% electronic volume
threshold is triggered.
The Exchange has observed that in the
past year, particularly given the
significant increase in market volatility
and unpredictability of market
conditions in the months leading up to
and during the COVID–19 pandemic,3
Market-Makers that almost exclusively
execute their volume in open outcry and
had not prior triggered an electronic
quoting obligation pursuant to Rule
5.52(d)(2), incidentally breached the
20% electronic volume threshold in
certain appointed classes during a single
quarter and were thereby obliged to
provide continuous electronic quotes in
those classes going forward. As stated
above, once a Market-Maker surpasses
the electronic volume threshold in an
appointed class, and the electronic
quoting obligation is triggered, Rules
5.52(d)(1) and (d)(2) do not permit a
Market-Maker to reset the trigger — a
Market-Maker is required to stream
electronic quotes in that appointed class
beginning the next calendar quarter and
from there on out. As such, once the
3 The Exchange notes that after volatility and
unusual market conditions beginning at the end of
2019 and continuously increasing through 2020 as
a result of the impact of COVID19 and related
factors, some market participants may have
experienced significant trading losses, resulting in
their limiting their trading behavior and risk
exposure. The Exchange understands that firms, not
otherwise highly active in the electronic markets,
may have executed electronically in order to close
positions, reduce exposure, and otherwise mitigate
losses and reduce risk in light of market conditions
experienced at various points throughout the year.
These firms may have also reduced open outcry
activity as part of the same risk-reducing strategy,
resulting in a coincidental change in the mix of
electronic versus open outcry volume for such
generally floor-based Market-Makers.
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]]>Agencies
[Federal Register Volume 85, Number 230 (Monday, November 30, 2020)]
[Notices]
[Pages 76640-76642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26282]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90481; File No. SR-DTC-2020-012]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving a Proposed Rule Change To Establish the ClaimConnectTM
Service and Update the Settlement Service Guide
November 23, 2020.
I. Introduction
On October 8, 2020, The Depository Trust Company (``DTC'') 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\ proposed rule change SR-DTC-2020-012.
The proposed rule change was published for comment in the Federal
Register on October 21, 2020.\3\ The Commission did not receive any
comment letters on the proposed rule change. For the reasons discussed
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 90203 (October 15,
2020), 85 FR 67018 (October 21, 2020) (SR-DTC-2020-012)
(``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The proposed rule change \4\ will (i) adopt a new DTC service guide
to establish the ClaimConnect service at DTC (``ClaimConnect Service
Guide''), and (ii) update the existing DTC Settlement Service Guide \5\
(``Settlement Guide'') to (A) make conforming changes to the Settlement
Guide to reflect the ClaimConnect service, and (B) update certain
address and contact information in the Copyright section of the
Settlement Guide.
---------------------------------------------------------------------------
\4\ Capitalized terms not defined herein are defined in the
Rules, By-Laws and Organization Certificate of DTC (``Rules'')
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf, or in the hereby proposed ClaimConnect Service
Guide, included as Exhibit 5 to this proposed rule change filing.
\5\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Settlement.pdf.
---------------------------------------------------------------------------
A. Background
DTC is the central securities depository (``CSD'') for
substantially all corporate and municipal debt and equity securities
available for trading in the United States. As a covered clearing
agency that provides CSD services,\6\ 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\ A covered clearing agency is defined as a registered
clearing agency that provides the services of a central counterparty
(``CCP'') or CSD. See 17 CFR 240.17Ad-22(a)(5). CSD services means
services of a clearing agency that is a securities depository as
described in Section 3(a)(23)(A) of the Exchange Act. See 17 CFR
240.17Ad-22(a)(3). Specifically, the definition of a clearing agency
includes, in part, ``any person, such as a securities depository
that (i) acts as a custodian of securities in connection with a
system for the central handling of securities whereby all securities
of a particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred, loaned, or
pledged by bookkeeping entry without physical delivery of securities
certificates, or (ii) otherwise permits or facilitates the
settlement of securities transactions or the hypothecation or
lending of securities without physical delivery of securities
certificates.'' 15 U.S.C. 78c(a)(23)(A).
---------------------------------------------------------------------------
DTC's CSD services include cash claims or cash claim transactions,
which are cash entitlements (i.e., a request for cash) from one
Participant to another Participant. Currently, cash claims arise as a
result of trading exceptions from a Corporate Action event,\7\ where a
cash entitlement needs to be delivered from one holder to another.
Today, such claims are settled away from DTC, except for some stock
loan and repurchase (``repo'') substitution payments, which can be
settled via DTC's Adjustment Payment Orders (``APOs''). DTC stated that
it developed the ClaimConnect service so Participants can settle cash
claims in one centralized location, using the DTC system.\8\
---------------------------------------------------------------------------
\7\ Trading exceptions include, but are not limited to, trades
outside of the markets' agreed upon settlement cycle, lack of due
bill fail tracking, stock loan or repo transaction discrepancy, or
tax treaty differences. See Notice, supra note 3, 85 FR at 67019.
\8\ See Notice, supra note 3, 85 FR at 67019. Based on
discussions with its Participants, DTC estimates that ClaimConnect
may process approximately 212,000 claims its first year, increasing
to approximately 425,000 claims by its fifth year. See id.
---------------------------------------------------------------------------
B. Proposed ClaimConnect Service
The proposed ClaimConnect service will be an optional service
available to all DTC Participants.\9\ The service will enable DTC
Participants to bilaterally match and settle cash claim transactions at
DTC.\10\
---------------------------------------------------------------------------
\9\ DTC stated that a fee associated with Participants' use of
the ClaimConnect service will be the subject of a separate,
subsequent rule filing with the Commission. See Notice, supra note
3, 85 FR at 67019.
\10\ To join ClaimConnect, a Participant needs to request to be
a ``Claim Participant,'' and DTC will then indicate that the
Participant is now a member of the service (i.e., a User). See
Notice, supra note 3, 85 FR at 67019.
---------------------------------------------------------------------------
ClaimConnect will be a validation and matching engine that
continually
[[Page 76641]]
monitors claims throughout their lifecycle in order to settle and close
claims through DTC's settlement process. This continuous processing
will allow for both the manual matching of claims (i.e., Affirmation)
by ClaimConnect users (``Users'') and the systematic matching of two
like claims by ClaimConnect based on the alignment of certain data
elements (i.e., Auto-matching).
ClaimConnect will offer various claim processing functions,
including end-of-day settlement of cash claims through systematic
Securities Payment Orders (``SPOs'') generated and submitted by
ClaimConnect at set times intraday (``settlement time'') on a
settlement date. If overpaid or underpaid a cash entitlement due to a
trading exception, a User will be able to create a claim against a
claim counterparty through ClaimConnect. To create a claim, the
ClaimConnect system will require the inclusion of certain data
elements, while other data elements will be optional.\11\
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\11\ Once submitted, claims can exist in several different
``states'' depending upon the actions taken by the parties to the
claim. The applicable rules will describe the different states that
a claim could take. See Notice, supra note 3, 85 FR at 67019.
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Validation, the process of confirming claim data elements, will
happen in two ways, as described below: (i) When a claim is Affirmed,
as described below, or (ii) when ClaimConnect Auto-matches two claims.
Users can also modify or Cancel claims. However, not all data elements
can be modified after submission.
First, if a counterparty receives a claim and agrees with its
details (i.e., the data elements), then the counterparty could Affirm
the claim. Affirming a claim will be a confirmation of the claim's data
elements and would move the claim into a Matched state. Affirmation
will usually occur only when one side of a claim is submitted because
it affords the counterparty enough time to Affirm the claim. Once
Affirmed, the claim will be settled on the date the parties agree to.
Second, if both parties to a claim submit their respective sides to the
claim (i.e., a debit claim and a credit claim), the two sides of the
claim are Auto-matched.
The SPO will credit the payee Participant and debit the payor
Participant the claim amount and will then be incorporated into DTC's
end-of-day settlement process. ClaimConnect SPOs will be subject to
DTC's Risk Controls (i.e., Collateral Monitor and Net Debit Cap) and
will ``recycle'' (i.e., pend) if the SPO cannot satisfy those controls.
To assist Users with the management of their claims, ClaimConnect
will offer an Approval feature. The Approval feature will require
certain actions on a claim to be approved by a separate User employee,
if the claim amount meets or exceeds a predetermined dollar threshold
set by the User, before that action can be completed. This feature is
designed to enable Users to better monitor and manage certain cash
debits that are leaving their account to satisfy claims. Users can
activate the Approval feature by updating their ClaimConnect client
profile. When doing so, the User must then set the dollar threshold
that will trigger the Approval process.
C. Updates to the DTC Settlement Guide
DTC has an existing DTC Settlement Guide, which describes its
existing services related to settlement. DTC will update the existing
Settlement Guide to (A) make conforming changes to the Settlement Guide
to reflect the establishment of the ClaimConnect service (specifically,
to clarify that the RAD process would not apply to cash claims as they
would go through ClaimConnect), and (B) update certain address and
contact information in the Copyright section of the Settlement Guide.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act \12\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the proposed rule
change, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to DTC. In particular, the Commission
finds that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act,\13\ for the reasons described below.
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\12\ 15 U.S.C. 78s(b)(2)(C).
\13\ 15 U.S.C. 78q-1(b)(3)(F).
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A. Consistency With Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency, such as DTC, be designed to promote the prompt
and accurate clearance and settlement of securities transactions, and
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions.\14\ The Commission
believes that the Proposed Rule Change is consistent with Section
17A(b)(3)(F) of the Act.\15\
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\14\ Id.
\15\ Id.
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First, DTC proposes to introduce a new ClaimConnect service. As
noted above, the ClaimConnect service will be an optional service, and
DTC stated that it developed the service based on discussions with
Participants. ClaimConnect would enable Participants to bilaterally
match and settle cash claim transactions at DTC. While settlement of
cash claims occurs today, it does so away from DTC, in a dispersed
fashion. ClaimConnect would establish a centralized and coordinated
location for Participants to settle such claims. By offering a
centralized and coordinated location for Participants to settle cash
claims, with various functionality available, the Commission believes
that the ClaimConnect service is designed to foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions.
Second, DTC will update the existing Settlement Guide to (A) make
conforming changes to the Settlement Guide to reflect the ClaimConnect
service, and (B) update certain address and contact information in the
Copyright section of the Settlement Guide. By making conforming changes
and updating the Settlement Guide with more current information about
where Participants and others may direct inquiries about the DTC
service guides, the Settlement Guide will provide the most up-to-date
information and should help Participants to submit questions or
comments about the service guides. Accordingly, the Commission believes
that the updates to the Settlement Guide are designed to promote the
prompt and accurate clearance and settlement of securities
transactions.
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 of the Act
\16\ and the rules and regulations promulgated thereunder.
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\16\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\17\ that proposed rule change SR-DTC-2020-012, be, and hereby is,
approved.\18\
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\17\ 15 U.S.C. 78s(b)(2).
\18\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
[[Page 76642]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26282 Filed 11-27-20; 8:45 am]
BILLING CODE 8011-01-P
