Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Recovery & Wind-Down Plan, 17421-17428 [2021-06777]
Download as PDF
<![CDATA[
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
II. Docketed Proceeding(s)
1. Docket No(s).: MC2021–79 and
CP2021–82; Filing Title: USPS Request
to Add First-Class Package Service
Contract 115 to Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
March 29, 2021; Filing Authority: 39
U.S.C. 3642, 39 CFR 3040.130 through
3040.135, and 39 CFR 3035.105; Public
Representative: Maya Moore; Comments
Due: April 6, 2021.
This Notice will be published in the
Federal Register.
Jennie L. Jbara,
Alternate Certifying Officer.
[FR Doc. 2021–06820 Filed 4–1–21; 8:45 am]
BILLING CODE 7710–FW–P
remove provisions covering certain
‘‘business-as-usual’’ actions, and (iv)
make certain technical corrections, as
described in greater detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91429; File No. SR–DTC–
2021–004]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
the Recovery & Wind-Down Plan
March 29, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 23,
2021, The Depository Trust Company
(‘‘DTC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the clearing
agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(4)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change 5 consists of
amendments to the R&W Plan to (i)
reflect business and product
developments, (ii) make certain changes
to improve the clarity of the Plan, (iii)
Background
The R&W Plan was adopted in August
2018 6 and is maintained by DTC for
compliance with Rule 17Ad–22(e)(3)(ii)
under the Act.7 The R&W Plan sets forth
the plan to be used by the Board and
DTC management in the event DTC
encounters scenarios that could
potentially prevent it from being able to
provide its critical services as a going
concern. The R&W Plan is structured as
a roadmap that defines the strategy and
identifies the tools available to DTC to
either (i) recover, in the event it
experiences losses that exceed its
prefunded resources (such strategies
and tools referred to herein as the
‘‘Recovery Plan’’) or (ii) wind-down its
business in a manner designed to permit
the continuation of DTC’s critical
services in the event that such recovery
efforts are not successful (such strategies
and tools referred to herein as the
‘‘Wind-down Plan’’). The recovery tools
1 15
jbell on DSKJLSW7X2PROD with NOTICES
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
5 Capitalized terms not defined herein are defined
in the Rules, By-Laws and Organization Certificate
of DTC (the ‘‘Rules’’), available at https://
www.dtcc.com/-/media/Files/Downloads/legal/
rules/dtc_rules.pdf, or in the Recovery & Winddown Plan of DTC (the ‘‘R&W Plan’’ or ‘‘Plan’’).
1. Purpose
The proposed rule change would
amend the R&W Plan to (i) reflect
business and product developments, (ii)
make certain changes to improve the
clarity of the Plan, (iii) remove
provisions covering certain ‘‘businessas-usual’’ actions, and (iv) make certain
technical corrections. Each of the
proposed revisions is further described
below.
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
6 See Securities Exchange Act Release Nos. 83972
(August 28, 2018), 83 FR 44964 (September 4, 2018)
(SR–DTC–2017–021); and 83953 (August 27, 2018),
83 FR 44381 (August 30, 2018) (SR–DTC–2017–
803).
7 17 CFR 240.17Ad–22(e)(3)(ii). DTC is a ‘‘covered
clearing agency’’ as defined in Rule 17Ad-22(a)(5)
under the Act and must comply with paragraph (e)
of Rule 17Ad–22.
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
17421
available to DTC are intended to address
the risks of (a) uncovered losses or
liquidity shortfalls resulting from the
default of one or more of its
Participants, and (b) losses arising from
non-default events, such as damage to
DTC’s physical assets, a cyber-attack, or
custody and investment losses, and the
strategy for implementation of such
tools. The R&W Plan also describes the
strategy and framework for the orderly
wind-down of DTC and the transfer of
its business in the event the
implementation of the available
recovery tools does not successfully
return DTC to financial viability.
The R&W Plan is managed and
developed by DTC’s parent company,
the Depository Trust & Clearing
Corporation (‘‘DTCC’’),8 and is managed
by the Office of Recovery & Resolution
Planning (referred to in the Plan as the
‘‘R&R Team’’) on behalf of DTC, with
review and oversight by the DTCC
Management Committee and the Board.
Proposed Amendments to the R&W Plan
The Board, or such committees as
may be delegated authority by the Board
from time to time pursuant to its
charter, is required to review and
approve the R&W Plan biennially.9 In
connection with the first biennial
review of the Plan, DTC is proposing the
revisions described in greater detail
below. The proposed rule change is
designed to update and enhance the
clarity of the Plan to ensure it is current
in the event it is ever necessary to be
implemented. None of the proposed
changes modify DTC’s general
objectives and approach with respect to
its recovery and wind-down strategy as
set forth under the current Plan.
A. Proposed Changes To Reflect
Business or Product Developments
1. Updates to DTCC Business Profile,
Intercompany Arrangements, FMI Links
and Governance
DTC is proposing the following
changes to the DTCC Business Profile,
Intercompany Arrangements, FMI Links
and Governance sections of the Plan
based upon business updates that have
occurred since the time the Plan was
adopted.
8 DTCC operates on a shared service model with
respect to DTC and its other affiliated clearing
agencies, National Securities Clearing Corporation
(‘‘NSCC{ XE ‘‘NSCC’’ }’’) and Fixed Income
Clearing Corporation (‘‘FICC’’). Most corporate
functions are established and managed on an
enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that
provides relevant services to DTC, NSCC{ XE
‘‘NSCC’’ } and FICC (collectively, the ‘‘Clearing
Agencies’’).
9 Supra note 6.
E:\FR\FM\02APN1.SGM
02APN1
17422
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
Section 2.1 (DTCC Business Profile) of
the Plan describes that DTCC is a userowned and user-governed holding
company for a group of direct and
indirect subsidiaries and joint ventures.
This section includes a brief summary
of each of the three subsidiaries (DTC,
FICC and NSCC) that have been
designated as systemically important
financial market utilities (‘‘SIFMUs’’) by
the Financial Stability Oversight
Council. The proposed rule change
would revise the introductory paragraph
of this section to remove reference to
joint ventures because DTCC currently
has no joint ventures.
Section 2.4 (Intercompany
Arrangements) of the Plan currently
describes how corporate support
services are provided to DTC from
DTCC, and to DTCC’s other subsidiaries,
through intercompany agreements
under a shared services model. DTC is
proposing to update Table 2–A (SIFMU
Legal Entity Structure and
Intercompany Agreements), which
delineates DTC’s affiliates, to reflect the
name change of Omgeo Pte Ltd by
removing ‘‘Omgeo Pte Ltd’’ and
replacing it with the new name of this
entity, ‘‘DTCC Singapore Pte. Ltd.’’ A
related footnote would also be added to
make clear that the services provided by
DTCC Singapore Pte. Ltd. are performed
through its branch office in Manila,
DTCC Manila. Additionally, this section
includes a separate table, Table 2–B,
that lists each of the DTCC facilities
utilized by the Clearing Agencies and
indicates whether the facility is owned
or leased by DTCC. DTC proposes to
update this table to add Boston,
Massachusetts as an additional location
of a DTCC facility and to indicate that
this facility is leased by DTCC.
Currently, Section 2.5 (FMI Links) of
the Plan describes some, but not all, of
the key financial market infrastructures
(‘‘FMIs’’), both domestic and foreign,
that DTC has identified as critical
‘‘links.’’ 10 In order to better align with
the structure of DTCC’s inventory of
links maintained by DTCC’s Systemic
Risk Office (‘‘SRO’’), which includes all
of DTC’s link relationships, the
proposed rule change would delete the
current FMI Links section of the R&W
Plan and replace it with a revised
version of Section 2.5 that would
10 As defined in Rule 17Ad–22(a)(8) under the
Act, a link ‘‘means, for purposes of paragraph
(e)(20) of [Rule 17Ad–22], a set of contractual and
operational arrangements between two or more
clearing agencies, financial market utilities, or
trading markets that connect them directly or
indirectly for the purposes of participating in
settlement, cross margining, expanding their
services to additional instruments or participants,
or for any other purposes material to their
business.’’ 17 CFR 240.17Ad–22(a)(8).
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
include an overview of DTC’s link
arrangements, a related footnote to the
definition of a ‘‘link’’ under Rule 17Ad–
22(a)(8) under the Act, and a table
(Table 2–C: Links) listing all of DTC’s
FMI link arrangements. The table would
list the link, the link category (i.e.,
whether the link is an ‘‘inbound’’ or
‘‘outbound’’ link, a central counterparty,
or matching utility), and a brief
description. The proposed rule change
would also add a table (Table 2–D:
Schedule A Relationships) that would
identify certain critical external service
providers that, as determined by DTC’s
management, do not meet the specified
criteria of ‘‘link’’ but nevertheless are
subject to the same review process as is
conducted for links, referred to within
DTC as ‘‘Schedule A Relationships,’’
and a related footnote. This change
would align with the structure of SRO’s
inventory of Schedule A Relationships.
Section 4.3 (Recovery and Winddown Program Governance) of the Plan
currently contains a paragraph that
identifies DTCC’s ‘‘R&R Steering Group’’
as the internal group responsible for
ensuring that each of the Clearing
Agencies observes recovery planning
requirements, and that recovery
planning is integrated into the Clearing
Agencies’ overall governance processes
including the preparation, review, and
filing of the Clearing Agencies’ R&W
Plans. Pursuant to the proposed rule
change, DTC would revise Section 4.3 to
reflect an internal organizational name
change. The proposal would change the
name of the R&R Steering Group to the
‘‘Recovery and Wind-down Planning
Council’’ to reflect its role as an
advisory body.11 This name change
would not change the composition, role
or responsibilities of this internal group,
which includes selected members of
DTCC’s Management Committee and
members of DTCC’s financial and
operational risk management, product
management, legal, and treasury/finance
teams that are responsible for providing
strategic guidance and direction for the
recovery and wind-down program 12
and the Plan. Additionally, for purposes
of clarification, the proposal would add
11 In accordance with DTCC’s Policy on
Governance of Internal Committees and Councils, a
‘‘council’’ is defined as an advisory body that has
no decision-making authority. A council may be
formed by any committee or a Managing Director.
Councils will share information, discuss topics, and
make recommendations to its initiating committee
or Managing Director. Councils report up to their
initiating committee or Managing Director.
12 In 2013, DTCC launched its Recovery &
Resolution Planning Program for DTC, NSCC, and
FICC as part of its continued commitment to
enhancing risk management. The Office of Recovery
& Resolution Planning was established to manage
the program and the development of the recovery
and wind-down plans for the Clearing Agencies.
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
the words ‘‘, where necessary,’’ to refer
to when the council would engage with
internal working groups.
2. Recovery Tool Characteristics, Legal
Basis
Section 7.2 (Effectiveness) of the Plan
describes DTC’s legal basis for executing
the ‘‘recovery tools’’ 13 that are outlined
in the Recovery Plan. The recovery tools
are intended to provide DTC with a
comprehensive set of options to address
its material risks and support the
resiliency of its critical services under a
range of stress scenarios. Many of the
recovery tools are provided for in the
Rules. Other recovery tools have legal
basis in contractual arrangements to
which DTC is a party.
Within this section there is currently
a paragraph, under the subheading titled
‘‘Basis,’’ that includes a description of
what a non-U.S. applicant (a ‘‘foreign
applicant’’) for DTC membership is
required to submit as part of the
membership application process. The
proposed rule change would revise the
description of the application process
for foreign applicants due to changes to
this process that were approved by the
Commission pursuant to a previous
proposed rule change.14 Specifically,
the proposed rule change would provide
that DTC requires foreign applicants to
pay DTC a fee, as specified in the Rules,
relating to DTC obtaining an opinion of
foreign counsel satisfactory to DTC.
B. Proposal To Make Certain
Clarifications to the R&W Plan
1. Critical Services and Indicative NonCritical Services
Section 3 (Critical Services) of the
Plan defines the criteria for classifying
certain of DTC’s services as ‘‘critical,’’ 15
13 In addition to existing business-as-usual tools,
the R&W Plan describes DTC’s other principal
recovery tools, which include, for example, (i)
identifying, monitoring and managing general
business risk and holding sufficient liquid net
assets funded by equity to cover potential general
business losses pursuant to the Clearing Agency
Policy on Capital Requirements (the ‘‘Capital
Policy’’), (ii) maintaining the Clearing Agency
Capital Replenishment Plan (the ‘‘Capital Plan’’) as
a viable plan for the replenishment of capital
should DTC’s equity fall close to or below the
amount being held pursuant to the Capital Policy,
and (iii) the process for the allocation of losses
among Participants as provided in Rule 4.
14 Securities Exchange Act Release No. 83544
(June 28, 2018), 83 FR 31223 (July 3, 2018) (SR–
DTC–2018–002). Prior to that rule change, as
reflected in the current Plan, DTC required foreign
applicants to submit an acceptable opinion of
relevant foreign counsel.
15 Under the current Plan, the criteria that is used
to identify a DTC service or function as critical
includes consideration as to whether (1) there is a
lack of alternative providers or products; (2) failure
of the service could impact DTC’s ability to perform
its book-entry and settlement services; (3) failure of
the service could impact DTC’s ability to perform
E:\FR\FM\02APN1.SGM
02APN1
jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
and identifies such critical services and
the rationale for their classification. The
identification of DTC’s critical services
is important for evaluating how the
recovery tools and the wind-down
strategy would facilitate and provide for
the continuation of DTC’s critical
services to the markets it serves. This
section also includes a list of indicative
non-critical services.
As more fully described below, the
proposed rule change would clarify the
description of some of the critical
services and indicative non-critical
services, and revise one of the
classification criteria. While these
changes do not change the classification
of the relevant service (as being either
‘‘critical’’ or ‘‘indicative non-critical’’),
nor impact the existing classification of
other services, DTC believes these
revisions would enhance the clarity of
the descriptions of them.
First, in the table listing the criteria
for determining what constitutes a
critical service, pursuant to the
proposed rule change, DTC would
delete ‘‘Criteria Determinant #2,’’ and
replace it with a description that DTC
believes more fully captures what DTC’s
book-entry delivery and settlement
services are, and the impact on
transaction processing if these services
were not available. Specifically, the
language proposed to be deleted
provides that, ‘‘Failure/Disruption of
Book-Entry Delivery and Settlement
Services (Impact on Transaction Costs):
DTC’s settlement of equity and debt
security transactions in the U.S. does
not have alternative providers or
products.’’ The proposed rule change
would replace the existing language
with, ‘‘Failure/Disruption of Book-Entry
Delivery and Settlement Services
(Impact on Transaction Processing):
DTC maintains the books and records of
ownership for equity and debt securities
held and serviced by the depository.
Failure of this service would result in
clients’ inability to settle transactions
through book-entry movement of
securities held at DTC.’’
Second, in Table 3–B (DTC Critical
Services), the description of critical
service #19, (Cash and Stock
Distributions) states that ‘‘As the owner
of the securities, DTC has an obligation
to its Participants to distribute
principal, interest, dividend payments
and other distributions received for
those securities. No alternative provider
is available.’’ The proposed rule change
would revise the first sentence of this
its payment system functions; and (4) the service is
interconnected with other participants and
processes within the U.S. financial system (for
example, with other FMIs, settlement banks, brokerdealers, and exchanges).
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
description to add the phrase ‘‘on the
issuer’s books and records’’ after the
words ‘‘As owner of the securities.’’
DTC believes this change to the
description, which currently does not
include a reference to the fact that
DTC’s obligations with respect to
distribution of ‘‘Cash and Stock
Distributions’’ arise from its ownership
of securities on the books and records of
the issuer, is necessary to make clear
that DTC is not the beneficial owner of
the securities.
Third, in Table 3–C (Indicative NonCritical DTC Services), the proposed
rule change would amend the
description of the last indicative noncritical service listed, ‘‘Foreign Tax
Relief Service,’’ to add language to the
beginning of the first sentence to clarify
that this service, which works to reduce
taxes withheld on non-U.S. company
securities to a more favorable rate, is
associated with the critical services
(described in Table 3–B) of ‘‘Cash and
Stock Distributions’’ and ‘‘Mandatory
and Voluntary Corporate Actions.’’
2. Participant Default Losses Through
the Crisis Continuum
Section 5 (Participant Default Losses
through the Crisis Continuum) of the
Plan is comprised of multiple
subsections that identify the risk
management surveillance, tools, and
governance that DTC may employ across
an increasing stress environment,
referred to as the ‘‘Crisis Continuum.’’ 16
This section currently identifies, among
other things, the tools that can be
employed by DTC to mitigate losses,
and mitigate or minimize liquidity
needs, as the market environment
becomes increasingly stressed. As more
fully described below, the proposed rule
change would clarify certain language.
Currently, Section 5.1 (Introduction)
identifies the financial resources
available to DTC, pursuant to the Rules,
to address losses arising out of the
default of a DTC Participant. One
paragraph contains a statement that
such losses would be satisfied first by
applying a Corporate Contribution and
then, if necessary, by allocating
remaining losses to non-defaulting
Participants, in accordance with Rule
4.17 The proposed rule change would
16 As set forth in the Recovery Plan, the phases
of the ‘‘Crisis Continuum’’ include (1) a stable
market phase, (2) a stressed market phase, (3) a
phase commencing with DTC’s decision to cease to
act for a Participant or Affiliated Family of
Participants (The Plan refers to an ‘‘Affiliated
Family’’ of Participants as a number of affiliated
entities that are all Participants of DTC), and (4) a
recovery phase.
17 Rule 4 defines the amount DTC would
contribute to address a loss resulting from either a
Participant default or a non-default event as the
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
17423
add a sentence to the end of this
paragraph that would provide that, in
addition to the tools described in Rule
4 (which are to be applied when, and in
the order, specified in that Rule), DTC
may, in extreme circumstances, borrow
net credits from Participants secured by
collateral of the defaulting Participant.18
DTC believes this additional language is
necessary to more clearly set forth the
full range of actions and tools DTC may
employ in response to such conditions.
Section 5.2.4 (Recovery Corridor and
Recovery Phase) outlines the early
warning indicators to be used by DTC to
evaluate its options and potentially
prepare to enter the ‘‘Recovery Phase,’’
which phase refers to the actions to be
taken by DTC to restore its financial
resources and avoid a wind-down of its
business. Included in this section are
descriptions of potential stress events
that could lead to recovery, and several
early warning indicators and metrics
that DTC has established to evaluate its
options and potentially prepare to enter
the Recovery Phase. These indicators,
which are referred to in the Recovery
Plan as recovery corridor indicators
(‘‘Corridor Indicators’’),19 are calibrated
against DTC’s financial resources and
are designed to give DTC the ability to
replenish financial resources, typically
through business as usual (‘‘BAU’’) tools
applied prior to entering the Recovery
Phase.
Section 5.2.4 also includes language
that requires DTC management to
review the Corridor Indicators and the
related metrics at least annually and
modify these metrics as necessary in
‘‘Corporate Contribution.’’ This amount is 50
percent of the ‘‘General Business Risk Capital
Requirement,’’ which is calculated pursuant to the
Capital Policy and is an amount sufficient to cover
potential general business losses so that DTC can
continue operations and services as a going concern
if those losses materialize, in compliance with Rule
17Ad–22(e)(15) under the Act. See 17 CFR
240.17Ad–22(e)(15).
18 As noted in a footnote to Table 5–C of the Plan,
each of these tools may be used in accordance with
their respective terms and conditions, whether or
not DTC has reached the Recovery Phase, in order
to complete settlement.
19 The majority of the Corridor Indicators, as
identified in the Recovery Plan, relate directly to
conditions that may require DTC to adjust its
strategy for hedging and liquidating collateral
securities, and any such changes would include an
assessment of the status of the Corridor Indicators.
Corridor Indicators include, for example, the
effectiveness and speed of DTC’s efforts to liquidate
Collateral securities, and an impediment to the
availability of DTC’s resources to repay any
borrowings due to any Participant Default. For each
Corridor Indicator, the Recovery Plan identifies (1)
measures of the indicator, (2) evaluations of the
status of the indicator, (3) metrics for determining
the status of the deterioration or improvement of
the indicator, and (4) ‘‘Corridor Actions,’’ which are
steps that may be taken to improve the status of the
indicator, as well as management escalations
required to authorize those steps.
E:\FR\FM\02APN1.SGM
02APN1
jbell on DSKJLSW7X2PROD with NOTICES
17424
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
light of observations from simulation of
Participant defaults and other analyses.
In order to more closely align with the
biennial cycle of DTCC’s multi-member
closeout simulation exercise, the
proposed rule change would shift the
timing of management’s review of the
Corridor Indicators and related metrics
from annually to biennially. DTC
believes this change is necessary for
consistency with the cycle of the multimember closeout simulation in which
the Corridor Indicators and metrics are
assessed as part of the simulation
exercise.
Also, there is a paragraph in Section
5.2.4 and an associated table (Table 5–
B: Loss Waterfall Tools) that delineates
the liquidity resources that DTC may
draw upon following a Participant
Default and subsequent cease to act. The
table has four columns (‘‘Order,’’
‘‘Tool,’’ ‘‘Relevant Rules/Documents,’’
and ‘‘Responsible Body/Personnel’’) and
is organized by the order in which the
liquidity resources are to be applied by
DTC. Currently, the text of this
paragraph describes that DTC may draw
upon the Participants Fund Deposit and
other collateral of the Participant for
which it has ceased to act as provided
under the Rules, including resources
available under clearing agency cross
guaranty agreements, and apply such
resources to satisfy any losses that may
result from the closeout. In order to be
consistent with the title of Table 5–B,
the proposed rule change would add a
heading at the beginning this paragraph
to be titled, ‘‘Loss Waterfall Tools.’’
Similarly, consistent with the
descriptions and order of the tools listed
in Table 5–B, the proposed rule change
would remove the words ‘‘can only be
used’’ and shift the phrase ‘‘would be
applied in the order listed’’ in the text
of the sentence directly above Table 5–
B. Accordingly, under the proposed rule
change, this sentence would read,
‘‘These tools would be applied in the
order listed in accordance with the
provisions of Rule 4.’’ 20
Within Table 5–B, Corporate
Contribution is the first entry under the
column labeled ‘‘Tool.’’ Currently, the
narrative for this entry includes a
description of Corporate Contribution
and delineates that in the event of a
cease to act, before applying the
Participants Fund deposits of all other
Participants to cover any resulting loss,
DTC will apply the Corporate
Contribution.21 The proposed rule
change would revise the current text of
the definition of Corporate Contribution
in order to more closely align with how
20 Rule
4, supra note 5.
note 17.
22 Rule
21 Supra
VerDate Sep<11>2014
23:04 Apr 01, 2021
this term is defined under Rule 4.22
Specifically, pursuant to the proposed
rule change, the definition of Corporate
Contribution would be revised to state,
‘‘The Corporate Contribution is an
amount that is equal to 50% of the
amount calculated by DTC in respect of
its General Business Risk Capital
Requirement, for losses that occur over
any rolling 12 month period.’’ Similarly,
the sentence directly above the
definition of Corporate Contribution
would be revised to remove the words
‘‘applying the Participants Fund
deposits of all other Participants,’’ and
replace them with ‘‘charging
Participants on a pro rata basis (other
than the Defaulting Participant).’’
Additionally, with respect to the
second entry in Table 5–B, ‘‘Loss
Allocation,’’ the descriptive text in the
‘‘Responsible Body/Personnel’’ column
would be revised to more closely align
with the same language contained in
Rule 4. The revised text would state,
‘‘The Rules provide for loss allocation of
any remaining loss following the
Corporate Contribution (plus any
additional amounts that the Board may
determine to apply). Participants will be
obligated to fund loss allocations on the
second business day after the
Corporation issues any such notice.’’
Section 5.3 (Liquidity Shortfalls)
identifies tools that may be used to
address foreseeable shortfalls of DTC’s
liquidity resources following a
Participant Default. As described in
DTC’s previous proposed rule change
adopting the Plan,23 the goal in
managing DTC’s liquidity resources is to
maximize resource availability in an
evolving stress situation, to maintain
flexibility in the order and use of
sources of liquidity, and to repay any
third-party lenders in a timely manner.
The proposed rule change would revise
the text described below to better clarify
and enhance the description of the
DTC’s liquidity considerations and the
use of its liquidity tools.
First, the current text of this section
provides that, as elaborated in the Plan,
there is interaction between market and
liquidity actions on DTC’s overall risk
exposures. In particular, the third and
fourth sentences state, ‘‘A longer
liquidation horizon could lengthen the
period that [DTC’s] liquidity resources
are deployed and could increase the
strain on the liquidity resources. On the
other hand, managing the closeout
process with an eye toward minimizing
market disruption may reduce resulting
losses.’’ In order to more specifically
reflect the type of risks to DTC posed in
4, supra note 5.
note 6.
23 Supra
Jkt 253001
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
these circumstances, the proposed rule
change would amend this statement to
add the words ‘‘market risk’’ before
‘‘losses.’’
Second, Table 5–C currently lists (i)
the liquidity tools intended to address
foreseeable liquidity shortfalls that
would not be covered by DTC’s existing
liquid resources, (ii) the relevant rules/
documents associated with the
applicable tool, and (iii) the process and
relevant governance required to employ
the tool. There is introductory language
directly above Table 5–C that states,
‘‘The following tools are intended to
address foreseeable liquidity shortfalls
that would not be covered by DTC’s
existing liquid resources and how its
existing qualifying liquid resources may
be replenished (ordered by ease and
speed to market).’’ For purposes of
additional clarity, the proposal would
add the following parenthetical, ‘‘(for
example, due to non-performance of
committed lenders),’’ after the words
‘‘DTC’s existing liquid resources,’’ and
to the existing parenthetical would add
the word ‘‘again’’ before ‘‘ordered by
ease and speed to market.’’
3. Non-Default Losses
Section 6 (Non-Default Losses) of the
Plan outlines how DTC would address
losses that result other than from a
Participant Default. This section
provides a roadmap to other documents
that describe these events in greater
detail and outlines DTC’s approach to
monitoring losses that could result from
a non-default event. This section also
includes a description of Rule 38
(Market Disruption and Force Majeure),
referred to in the Plan as the ‘‘Force
Majeure Rule,’’ 24 which pertains to how
DTC addresses extraordinary events that
occur outside the control of DTC and its
Participants. As more fully described
below, the proposed rule change would
clarify certain language.
Section 6.4 (Resources to Cover NonDefault Losses) provides that DTC
maintains two categories of financial
resources to cover losses and expenses
arising from non-default risks or events:
(i) Liquid Net Assets Funded by Equity
(‘‘LNA’’), including, pursuant to Rule 4,
the required Corporate Contribution,25
and (ii) loss-allocation charges to
24 Id.
25 See Securities Exchange Act Release Nos.
84426 (October 15, 2018), 83 FR 53138 (October 19,
2018) (SR–DTC–2018–008); and 89361 (July 21,
2020), 85 FR 45263 (July 27, 2020) (SR–DTC–2020–
010) (filings amending the Capital Policy and
Capital Plan). The initial Capital Policy and Capital
Plan were approved by the Commission in 2017—
see Securities Exchange Act Release No. 81105 (July
7, 2017), 82 FR 32399 (July 13, 2017) (SR–DTC–
2017–003, SR–NSCC–2017–004, SR–FICC–2017–
007).
E:\FR\FM\02APN1.SGM
02APN1
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
Participants in accordance with the
provisions of Rule 4.26 Following an
overview of the four buckets of LNA,
which can be applied towards nondefault losses,27 there is a paragraph
under the heading, ‘‘Loss Allocation to
Participants, backed by the Participants
Fund,’’ that provides that non-default
losses could be allocated among
Participants as provided in Rule 4.
There is sentence that describes the
timeframe in which such losses charged
to Participants are required to be paid.
Currently, this sentence states that
losses are to be paid by Participants
‘‘within 2 business days of the date of
receipt of a notice of a loss allocation
charge. . . .’’ However, this is not the
same language used to describe this
timing in Rule 4. In order to be
consistent with the language
formulation set out in Rule 4, the
proposed rule change would revise this
sentence to state, ‘‘Losses charged to
Participants are required to be paid by
Participants on the second business day
after the Corporation issues any such
notice of a loss allocation charge and
may be charged to the Participant’s
Settlement Account when due.’’ 28 The
following sentence would remain as it is
under the current Plan: ‘‘If not timely
paid by any Participant, the Corporation
may apply the Participants Fund
deposit of that Participant to satisfy its
loss allocation obligation.’’
Section 6.6 (Market Disruption and
Force Majeure Rule) describes the Force
Majeure Rule. The Force Majeure Rule
was adopted at the same time as the
Plan 29 and provides an additional
resiliency tool designed to mitigate the
risks caused by market disruption
events and thereby minimize the risk of
financial loss that may result from such
events. The proposed rule change would
remove the following phrase after the
reference to the Force Majeure Rule in
the first paragraph of this section, ‘‘,
adopted in conjunction with this Plan,’’
because it is not necessary as both the
Plan and the Force Majeure Rule are no
longer newly adopted. In addition, to
remain consistent with the usage of
‘‘Force Majeure’’ and ‘‘Market
Disruption Event’’ throughout this
section, DTC would conform all
26 Rule
4, supra note 5.
set forth in the Plan, DTC maintains the
following four buckets of LNA, which can be
applied towards a non-default loss: (i) General
Business Risk Capital as determined in the Capital
Policy, supra note 25, (ii) the Corporate
Contribution, (iii) a ‘‘Buffer,’’ as described in the
Capital Policy, and (iv) excess LNA, which refers
to any available LNA held at DTC above the
required amounts for General Business Risk Capital,
the Corporate Contribution, and Buffer.
28 Rule 4, supra note 5.
29 Supra note 6.
jbell on DSKJLSW7X2PROD with NOTICES
27 As
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
references to the defined terms ‘‘Force
Majeure’’ and ‘‘Market Disruption
Event’’ so that they appear as
capitalized terms.
The proposed rule change would also
make revisions to the second paragraph
of Section 6.6. First, for purposes of
clarity and readability, the following
text would be removed from the
beginning of the second sentence: ‘‘Most
FMIs have rules designed to deal with
force majeure or market disruption
events, and.’’ Second, the reference to
‘‘Superstorm Sandy’’ would be removed
from the last sentence of this paragraph
along with the related footnote that
references Superstorm Sandy as an
example of circumstances in which DTC
needed to fashion a work-around
necessitated by a force majeure event.
DTC believes inclusion of references to
Superstorm Sandy are outdated and no
longer necessary to be included in the
Plan.
C. Remove Provisions Covering Certain
‘‘Business-as-Usual’’ Actions
Section 8.6 (Actions and Preparation)
of the Plan sets forth the legal
framework and strategy for the orderly
wind-down of DTC if the use of the
recovery tools described in the Recovery
Plan do not successfully return DTC to
financial viability. This section includes
an overview of the actions and
preparations to be taken by DTC and
DTCC in connection with executing the
wind-down portions of the Plan. Section
8.6.1 (Business-as-Usual Actions)
describes those actions DTC or DTCC
may take to prepare for wind-down in
the period before DTC experiences
financial distress.
Under the current plan, the Businessas-Usual Actions are (i) educating the
Board to keep them informed of the Plan
and the actions the Board would need
to take to implement it, (ii) engaging in
discussions with key linked FMIs as to
the key elements of DTC’s wind-down
strategy and the expected actions of the
respective link parties should a winddown be implemented, (iii) developing
and maintaining an index of internal
data that includes the critical, ancillary,
and non-critical services that DTC
provides to its membership, the support
DTC receives from DTCC and from its
other affiliates, key third-party vendors,
key personnel, DTC assets and
liabilities, and agreements and
arrangements DTC has with liquidity
providers and with other FMIs, (iv)
developing administrative wind-down
guidance that identifies key Board and
management actions that would be
taken during the Recovery Phase and
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
17425
‘‘Runway Period’’ 30 prior to DTC’s
failure, and in connection with its
Chapter 11 proceedings, and (v)
preparing constituent documents for the
Failover Entity 31 and evaluating
capitalization options.
Pursuant to the proposed rule change,
DTC would remove the Business-asUsual Actions section (currently Section
8.6.1) in its entirety because each of the
actions outlined have either been
completed or would be addressed in
DTC’s internal procedures going
forward. This includes certain
documents necessary to effect the winddown aspects of the Plan that were in
the process of being finalized when the
Plan was adopted and have since been
completed. Since adoption of the Plan,32
DTC has completed all necessary
internal documentation, including
DTCC’s internal wind-down guidance,
the constituent documentation for the
Failover Entity, and the evaluation of
DTC’s capitalization options. Further,
the other actions included in this
section (e.g., maintaining an index of
non-critical services, educating the
Board on the Plans) would be
addressed, going forward, in DTCC’s
Recovery & Resolution Planning
Procedures maintained by the R&R
Team.33 As a result of this proposed
change, current Section 8.6.2 (Recovery
and Runway Period Actions) would be
renumbered as Section 8.6.1. Also,
consistent with the proposed removal of
Business-as-Usual Actions that have
been completed, the proposed rule
change would remove from the first
sentence of proposed Section 8.6.1
(current Section 8.6.2) the words
‘‘Among other things, the guidance
would provide’’ and replace them with
‘‘The DTCC Clearing Agency Wind30 The Wind-down Plan identifies the time period
leading up to a decision to wind-down DTC as the
‘‘Runway Period.’’
31 As set forth in Section 8.4.1 (General Objectives
and Approach) of the Plan, in the event that no
viable or preferable third-party transferee timely
commits to acquire the business and services of
DTC, the transfer will be effectuated to a failover
entity created for that purpose (referred to as the
‘‘Failover Entity’’), that would be owned by a trust
held, to the extent of the value of the Failover Entity
attributed to DTC’s transferred business and
services, for the benefit of DTC’s bankruptcy estate.
32 Supra note 6.
33 The R&R Team is responsible for maintaining
the DTCC ‘‘Office of Recovery & Resolution
Planning Procedures’’ document. The purpose of
these procedures is to communicate roles and
responsibilities, and procedures for the
documentation of the R&W Plans covering each of
the Clearing Agencies, in compliance with
applicable rules and regulations. These procedures
also describe the biennial closeout simulation
exercise whereby the Plans for each clearing agency
are tested through the simulation of a multi-member
default.
E:\FR\FM\02APN1.SGM
02APN1
17426
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
down Guidance developed in
connection with this Plan provides.’’
D. Technical Revisions
The proposal would also make several
technical changes and corrections to the
Plan. DTC believes that these proposed
changes would not substantively alter
the meaning of the applicable sections
and would improve the overall
readability and clarity of the Plan.
Specifically, DTC is proposing to make
the following changes and corrections:
1. In Section 1.3 (Summary), in the
list of topics covered under the Plan, in
the seventh bullet point, add ‘‘Recovery
Corridor and’’ prior to the words
‘‘Recovery Phase’’ to correctly state the
full name of this section of the Plan.
2. In Section 1.4 (Conventions), in the
third paragraph, delete the words
‘‘conjunction with’’ and replace them
with ‘‘support of,’’ and delete the words
‘‘also adopted’’ and replace them with
‘‘maintains.’’ Accordingly, under the
proposed rule change, this paragraph
would state, ‘‘In support of this Plan,
DTC maintains (a) a Market Disruption
and Force Majeure Rule (the ‘‘Force
Majeure Rule{ XE ‘‘Force Majeure
Rule’’ }’’) and (b) a Wind-down of the
Corporation Rule (the ‘‘Wind-down
Rule{ XE Wind-down Rule’’ }’’), each as
described herein.’’
3. In Section 2.1 (DTCC Business
Profile), under the heading ‘‘DTCC
SIFMU Subsidiaries’’:
• In the description of DTC’s
affiliated clearing agency, NSCC{ XE
‘‘NSCC’’}, add ‘‘, netting,’’ after the
word ‘‘clearing’’; and after the words
‘‘exchange-traded,’’ delete ‘‘fund
(‘‘ETF’’)’’ and replace it with ‘‘products
(‘‘ETPs’’).’’
• In the description of DTC’s other
affiliated clearing agency, FICC { XE
‘‘FICC’’}, with respect to the
Government Securities Division
(‘‘GSD’’), add the word ‘‘netting,’’ after
‘‘clearing.’’
• In the description of the MortgageBacked Securities Division (‘‘MBSD{ XE
‘‘MBSD’’ }’’) of FICC, delete the
modifier ‘‘To-Be-Announced’’ before the
phrase ‘‘pass-through mortgage-backed
securities issued by Ginnie Mae,
Freddie Mac and Fannie Mae.’’
• In the sentence that describes
FICC’s publication of the GCF Repo®
Index, add the parenthetical ‘‘(‘‘GCF
Repos®{ XE ‘‘GCF Repos®’’ }’’)’’after the
words ‘‘general collateral finance
repurchase transactions.’’
4. In Section 3.2 (Criteria Used to
Determine Criticality), in the second
sentence that currently states, ‘‘Each
service was assessed for criticality to
determine the potential systemic impact
from a service disruption,’’ add the
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
word ‘‘resulting’’ after the word
‘‘impact.’’
5. In Section 3.3 (DTC Critical
Services List), make the following
changes to Table 3–B (DTC Critical
Services): (a) In the column titled
‘‘Business Unit Activity,’’ in the entry
for ‘‘8. European Pre-Issuance
Messaging,’’ remove the word
‘‘European’’ because this service is not
specific to European issues, and (b) in
the column titled ‘‘Description,’’ in the
narrative for ‘‘20. Mandatory and
Voluntary Corporate Actions,’’ remove
the capitalization of the words ‘‘Dutch
Auctions.’’
6. In Section 4.1 (DTCC and SIFMU
Governance Structure), in the third
paragraph, which lists each of the Board
committees, delete ‘‘Board’’ before the
words ‘‘Risk Committee.’’ Additionally,
in the footnote in this section that
provides the citation of a previous
proposed rule change covering the
Clearing Agency Risk Management
Framework, add a reference to DTC’s
amended filing published July 9, 2020.
7. In Section 4.2 (Recovery
Governance), in order to clarify the
types of loss scenarios referred to, at the
beginning of the third sentence, after the
phrase ‘‘As described throughout
Section 5 (Participant Default Losses
through the Crisis Continuum),
indicators and measures have been
defined for,’’ add the modifier ‘‘credit/
market and liquidity’’ before ‘‘loss
scenarios throughout the Crisis
Continuum (as hereinafter defined).’’
8. In Section 5.1 (Introduction), in the
fourth paragraph, capitalize the word
‘‘board.’’ Additionally, in the footnote
included in this section that provides
the citation to a previous proposed rule
change covering the Clearing Agency
Liquidity Risk Management Framework,
add a reference to DTC’s amended filing
published December 11, 2020.
9. In Section 5.2.3 (Participant Default
Phase), in the last sentence, for the
reference to ‘‘Net Credit Reductions’’
and the related footnote, remove the
capitalization of the words ‘‘Credit
Reductions.’’
10. In Section 5.3 (Liquidity
Shortfalls):
• In Table 5–C, which lists the tools
that can be used to address liquidity
shortfalls, in the entry for ‘‘Credit
Facility,’’ in the column titled ‘‘Relevant
Rules/Documents,’’ (i) delete
‘‘Currently, Section 2.03A(h) of the
Credit Facility,’’ because reference to a
specific section of the credit facility
documentation is not necessary, and (ii)
for purposes of clarification and
readability, revise the text of the
description to state, ‘‘The terms of the
Credit Facility provide that any such
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
voluntary loans would be secured on a
pari passu basis with committed loans
under the facility. This should provide
comfort to such voluntary lenders that
make voluntary loans in stress market
conditions.’’
• In the penultimate paragraph and in
Table 5–C (in the entry for ‘‘Net Credit
Reductions,’’ in the column titled
‘‘Process and relevant governance’’),
remove the capitalization from the
words ‘‘Net Credit Reductions’’ for
purposes of consistency when these
words are used throughout the Plan.
11. In Section 5.4 (Scenarios Not on
Crisis Continuum), capitalize the word
‘‘Phase’’ after the words ‘‘Stress
Market.’’
12. In Section 6.3 (Risk Mitigation), in
the footnote that includes the citation to
a previous proposed rule change
covering the Clearing Agency
Operational Risk Management
Framework, add a reference to DTC’s
amended filing published December 16,
2020.
13. In Section 6.4 (Resources to Cover
Non-Default Losses), in the footnote that
includes the citation to a previous
proposed rule change covering the
Capital Policy and Capital Plan, add a
reference to DTC’s amended filings
published July 27, 2020 with respect to
the Capital Policy, and October 19, 2018
with respect to the Capital Plan.
14. In Section 6.6 (Market Disruption
and Force Majeure Rule):
• In the second bullet point of the
third paragraph, remove the quotation
marks from the words ‘‘Market
Disruption Event’’ and delete the
parenthetical ‘‘(as defined in the Force
Majeure Rule)’’ because Market
Disruption Event was defined earlier in
this section.
• In the second sentence of the fourth
paragraph, for purposes of reflecting
present tense, delete the word ‘‘would’’
before the word ‘‘operate,’’ and pluralize
‘‘operate.’’
• In the first sentence of the second
paragraph:
Æ For purposes of reflecting present
tense and to improve readability, (a)
remove the word ‘‘currently’’ prior to
‘‘the Force Majeure Rule’’ and (b)
remove the words ‘‘is designed to
clarify,’’ and replace them with
‘‘clarifies,’’ and
Æ in order to correct a typographical
error, insert the word ‘‘and’’ in between
‘‘its Participants’’ and ‘‘to mitigate.’’
15. In Section 7.1
(Comprehensiveness), for purposes of
correcting a typographical error, remove
the capitalization of the words ‘‘Critical
Services.’’
16. In Section 7.2 (Effectiveness),
under the heading ‘‘Reliability,’’ for the
E:\FR\FM\02APN1.SGM
02APN1
jbell on DSKJLSW7X2PROD with NOTICES
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
purpose of correcting typographical
errors, (a) move the second footnote,
currently at the end of the last sentence,
to the end of the last sentence of the
introductory paragraph of Section 7.2
and (b) in the text of the other footnote
that currently reads, ‘‘See, for example,
DTCC Whitepaper, CCP Resiliency and
Resources, pg. 2, section 2 (June 2015),’’
remove ‘‘, section 2.’’
17. In Section 8.2.1 (Potential
Scenarios), in the second sentence of the
fifth paragraph, replace ‘‘enhancements
to the loss allocation process are’’ with
‘‘the loss allocation process is.’’
Accordingly, under the proposed rule
change this sentence would state, ‘‘As
noted above, the loss allocation process
is designed so that the Participants
Fund can be applied to losses arising
from multiple Participant failures that
occur during an ‘‘Event Period’’, and
there can be successive rounds of loss
allocations to address losses arising
with respect to a given Event Period.’’
18. In Section 8.4.1 (General
Objectives and Approach), in the second
paragraph, delete the words ‘‘have been
amended to’’ after the words ‘‘the
Rules’’ in order to more clearly reflect
the fact that the Wind-down of the
Corporation Rule 34 was adopted.
19. In Section 8.4.2 (Critical Services
and FMI Link Arrangements), for
purposes of addressing a typographical
error, in the first sentence, after the
words ‘‘other information,’’ remove the
word ‘‘and.’’
20. In Section 8.4.4 (Rules Adopted in
Connection with the Wind-down Plan),
under the heading ‘‘Certain Ex Ante
Matters,’’ in the first sentence add an
‘‘a’’ before the second use of the word
‘‘Transferee.’’
21. In Section 8.4.6 (Key
Dependencies and Requirements for
Effectiveness), in the last paragraph
under the heading, ‘‘Regulatory
approvals,’’ revise the word ‘‘see’’ to
‘‘seek,’’ to address a typographical error.
22. In proposed Section 8.6.1
(currently Section 8.6.2) (Recovery and
Runway Period Actions), capitalize the
word ‘‘chapter’’ in two places where
‘‘chapter 11’’ is not capitalized.
23. In Section 8.7 (Costs and Time to
Effectuate Plan), (a) in the second
sentence of the fifth paragraph, delete
the word ‘‘of’’ between the words
‘‘detailed’’ and ‘‘analysis,’’ and (b) at the
end of the last sentence of this section,
delete the phrase ‘‘, as provided in the
Capital Requirements Policy.’’ As a
result, under the proposed rule change,
this sentence would state, ‘‘The
estimated wind-down costs amount will
be reviewed and approved by the Board
annually.’’
24. In Appendix 1 (Defined Terms),
add each of the new defined terms
based on the addition of such terms to
the Plan, and delete the defined terms
that were removed based on the deletion
of these terms from the Plan.
2. Statutory Basis
DTC believes that the proposal is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a registered
clearing agency. In particular, DTC
believes that the amendments to the
R&W Plan are consistent with Section
17A(b)(3)(F) of the Act 35 and Rule
17Ad–22(e)(3)(ii) under the Act,36 for
the reasons described below.
Section 17A(b)(3)(F) of the Act
requires, in part, that the rules of DTC
be designed to promote the prompt and
accurate clearance and settlement of
securities transactions.37 The Recovery
Plan serves to promote the prompt and
accurate clearance and settlement of
securities transactions by providing
DTC with a roadmap for the actions it
may employ to mitigate losses, and
monitor and, as needed, stabilize DTC’s
financial condition, which would allow
it to continue its critical clearance and
settlement services in stress situations.
The Recovery Plan is designed to
identify the actions and tools that DTC
may use to address and minimize losses
to both DTC and its Participants, and
provide DTC management and the
Board with guidance in this regard by
identifying the indicators and
governance around the use and
application of such tools to enable them
to address stress situations in a manner
most appropriate for the circumstances.
Further, the Wind-down Plan
establishes a framework for the transfer
and orderly wind-down of DTC’s
business and is designed to facilitate the
continuity of DTC’s critical services. It
establishes clear mechanisms for the
transfer of DTC’s critical services and
membership as well as clear provisions
for the transfer of the securities
inventory DTC holds in fungible bulk
for Participants. By doing so, the Winddown Plan enables Participants and
Pledgees to maintain access to DTC’s
services in the event DTC defaults or the
Wind-down Plan is triggered by the
Board.
As described above, the proposed rule
change would update the R&W Plan to
(i) reflect business and product
developments, (ii) make certain
35 15
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(3)(ii).
37 15 U.S.C. 78q–1(b)(3)(F).
clarifications, (iii) remove provisions
covering certain ‘‘business-as-usual’’
actions, and (iv) make certain technical
corrections. By helping to ensure that
the R&W Plan reflects current business
and product developments, and
providing additional clarity regarding
the framework for the transfer and
orderly wind-down of DTC’s business,
DTC believes that the proposed rule
change would help it continue to
maintain the Plan in a manner that
supports the continuity of DTC’s critical
services and enables its Participants and
Pledgees to maintain access to DTC’s
services through the transfer of its
membership in the event DTC defaults
or the Wind-down Plan is ever triggered
by the Board. Further, by facilitating the
continuity of its critical clearance and
settlement services, DTC believes the
Plan and the proposed rule change
would continue to promote the prompt
and accurate clearance and settlement of
securities transactions. Therefore, DTC
believes the proposed amendments to
the R&W Plan are consistent with the
requirements of Section 17A(b)(3)(F) of
the Act.
Rule 17Ad–22(e)(3)(ii) under the Act
requires DTC to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
maintain a sound risk management
framework for comprehensively
managing legal, credit, liquidity,
operational, general business,
investment, custody, and other risks
that arise in or are borne by the covered
clearing agency, which includes plans
for the recovery and orderly wind-down
of the covered clearing agency
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.38 The R&W
Plan is designed to comply with Rule
17Ad–22(e)(3)(ii) and is consistent with
the Act because it provides plans for the
recovery and orderly wind-down of DTC
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.
Specifically, the Recovery Plan
defines the risk management activities,
stress conditions and indicators, and
tools that DTC may use to address stress
scenarios that could eventually prevent
it from being able to provide its critical
services as a going concern. Through the
framework of the Crisis Continuum, the
Recovery Plan addresses measures that
DTC may take to address risks of credit
losses and liquidity shortfalls, and other
losses that could arise from a Participant
default. The Recovery Plan also
addresses the management of general
business risks and other non-default
36 17
34 Supra
note 6.
VerDate Sep<11>2014
23:04 Apr 01, 2021
Jkt 253001
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
17427
38 17
E:\FR\FM\02APN1.SGM
CFR 240.17Ad–22(e)(3)(ii).
02APN1
17428
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
risks that could lead to losses. The
Wind-down Plan would be triggered by
a determination by the Board that
recovery efforts have not been, or are
unlikely to be, successful in returning
DTC to viability as a going concern.
Once triggered, the Wind-down Plan
sets forth clear mechanisms for the
transfer of DTC’s membership and
business, and is designed to facilitate
continued access to DTC’s critical
services and to minimize market impact
of the transfer. By establishing the
framework and strategy for the
execution of the transfer and winddown of DTC in order to facilitate
continuous access to its critical services,
the Wind-down Plan establishes a plan
for the orderly wind-down of DTC.
As described above, the proposed rule
change would update the R&W Plan to
(i) reflect business and product
developments, (ii) make certain
clarifications, (iii) remove provisions
covering certain ‘‘business-as-usual’’
actions, and (iv) make certain technical
corrections. By ensuring that material
provisions of the Plan are current, clear,
and technically correct, DTC believes
that the proposed amendments are
designed to support the maintenance of
the Plan for the recovery and orderly
wind-down of the covered clearing
agency necessitated by credit losses,
liquidity shortfalls, losses from general
business risk, or any other losses, and,
as such, meets the requirements of Rule
17Ad–22(e)(3)(ii) under the Act.39
Therefore, the proposed changes would
help DTC to maintain the Plan in a way
that continues to be consistent with the
requirements of Rule 17Ad–22(e)(3)(ii).
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
impact, or impose any burden, on
competition. DTC does not anticipate
that the proposal would affect its dayto-day operations under normal
circumstances, or in the management of
a typical Participant default scenario or
non-default event. The R&W Plan was
developed and documented in order to
satisfy applicable regulatory
requirements, as discussed above. The
proposal is intended to enhance and
update the Plan to ensure it is clear and
remains current in the event it is ever
necessary to be implemented. The
proposed revisions would not effect any
changes to the overall structure or
operation of the Plan or DTC’s recovery
and wind-down strategy as set forth
under the current Plan. As such, DTC
believes the proposal would not have
any impact, or impose any burden, on
competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
DTC has not received or solicited any
written comments relating to this
proposal. 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
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 40 of the Act and paragraph
(f) 41 of Rule 19b–4 thereunder. At any
time within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2021–004 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–2021–004. 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
VerDate Sep<11>2014
Jkt 253001
[FR Doc. 2021–06777 Filed 4–1–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91431; File No. SR–CBOE–
2021–018]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.34
Relating to Its Fat Finger Check in
Connection With Multi-Class Spread
Orders
March 29, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 17,
2021, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C 78s(b)(3)(A).
41 17 CFR 240.19b–4(f).
23:04 Apr 01, 2021
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
42 17
40 15
39 Id.
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of DTC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–DTC–
2021–004 and should be submitted on
or before April 23, 2021.
PO 00000
Frm 00080
Fmt 4703
1 15
Sfmt 4703
E:\FR\FM\02APN1.SGM
02APN1
]]>Agencies
[Federal Register Volume 86, Number 62 (Friday, April 2, 2021)]
[Notices]
[Pages 17421-17428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06777]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91429; File No. SR-DTC-2021-004]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Recovery & Wind-Down Plan
March 29, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 23, 2021, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II and III below, which Items have
been prepared by the clearing agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ consists of amendments to the R&W Plan
to (i) reflect business and product developments, (ii) make certain
changes to improve the clarity of the Plan, (iii) remove provisions
covering certain ``business-as-usual'' actions, and (iv) make certain
technical corrections, as described in greater detail below.
---------------------------------------------------------------------------
\5\ Capitalized terms not defined herein are defined in the
Rules, By-Laws and Organization Certificate of DTC (the ``Rules''),
available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/dtc_rules.pdf, or in the Recovery & Wind-down Plan of DTC (the
``R&W Plan'' or ``Plan'').
---------------------------------------------------------------------------
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 the R&W Plan to (i) reflect
business and product developments, (ii) make certain changes to improve
the clarity of the Plan, (iii) remove provisions covering certain
``business-as-usual'' actions, and (iv) make certain technical
corrections. Each of the proposed revisions is further described below.
Background
The R&W Plan was adopted in August 2018 \6\ and is maintained by
DTC for compliance with Rule 17Ad-22(e)(3)(ii) under the Act.\7\ The
R&W Plan sets forth the plan to be used by the Board and DTC management
in the event DTC encounters scenarios that could potentially prevent it
from being able to provide its critical services as a going concern.
The R&W Plan is structured as a roadmap that defines the strategy and
identifies the tools available to DTC to either (i) recover, in the
event it experiences losses that exceed its prefunded resources (such
strategies and tools referred to herein as the ``Recovery Plan'') or
(ii) wind-down its business in a manner designed to permit the
continuation of DTC's critical services in the event that such recovery
efforts are not successful (such strategies and tools referred to
herein as the ``Wind-down Plan''). The recovery tools available to DTC
are intended to address the risks of (a) uncovered losses or liquidity
shortfalls resulting from the default of one or more of its
Participants, and (b) losses arising from non-default events, such as
damage to DTC's physical assets, a cyber-attack, or custody and
investment losses, and the strategy for implementation of such tools.
The R&W Plan also describes the strategy and framework for the orderly
wind-down of DTC and the transfer of its business in the event the
implementation of the available recovery tools does not successfully
return DTC to financial viability.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 83972 (August 28,
2018), 83 FR 44964 (September 4, 2018) (SR-DTC-2017-021); and 83953
(August 27, 2018), 83 FR 44381 (August 30, 2018) (SR-DTC-2017-803).
\7\ 17 CFR 240.17Ad-22(e)(3)(ii). DTC is a ``covered clearing
agency'' as defined in Rule 17Ad-22(a)(5) under the Act and must
comply with paragraph (e) of Rule 17Ad-22.
---------------------------------------------------------------------------
The R&W Plan is managed and developed by DTC's parent company, the
Depository Trust & Clearing Corporation (``DTCC''),\8\ and is managed
by the Office of Recovery & Resolution Planning (referred to in the
Plan as the ``R&R Team'') on behalf of DTC, with review and oversight
by the DTCC Management Committee and the Board.
---------------------------------------------------------------------------
\8\ DTCC operates on a shared service model with respect to DTC
and its other affiliated clearing agencies, National Securities
Clearing Corporation (``NSCC{ XE ``NSCC'' {time} '') and Fixed
Income Clearing Corporation (``FICC''). Most corporate functions are
established and managed on an enterprise-wide basis pursuant to
intercompany agreements under which it is generally DTCC that
provides relevant services to DTC, NSCC{ XE ``NSCC'' {time} and
FICC (collectively, the ``Clearing Agencies'').
---------------------------------------------------------------------------
Proposed Amendments to the R&W Plan
The Board, or such committees as may be delegated authority by the
Board from time to time pursuant to its charter, is required to review
and approve the R&W Plan biennially.\9\ In connection with the first
biennial review of the Plan, DTC is proposing the revisions described
in greater detail below. The proposed rule change is designed to update
and enhance the clarity of the Plan to ensure it is current in the
event it is ever necessary to be implemented. None of the proposed
changes modify DTC's general objectives and approach with respect to
its recovery and wind-down strategy as set forth under the current
Plan.
---------------------------------------------------------------------------
\9\ Supra note 6.
---------------------------------------------------------------------------
A. Proposed Changes To Reflect Business or Product Developments
1. Updates to DTCC Business Profile, Intercompany Arrangements, FMI
Links and Governance
DTC is proposing the following changes to the DTCC Business
Profile, Intercompany Arrangements, FMI Links and Governance sections
of the Plan based upon business updates that have occurred since the
time the Plan was adopted.
[[Page 17422]]
Section 2.1 (DTCC Business Profile) of the Plan describes that DTCC
is a user-owned and user-governed holding company for a group of direct
and indirect subsidiaries and joint ventures. This section includes a
brief summary of each of the three subsidiaries (DTC, FICC and NSCC)
that have been designated as systemically important financial market
utilities (``SIFMUs'') by the Financial Stability Oversight Council.
The proposed rule change would revise the introductory paragraph of
this section to remove reference to joint ventures because DTCC
currently has no joint ventures.
Section 2.4 (Intercompany Arrangements) of the Plan currently
describes how corporate support services are provided to DTC from DTCC,
and to DTCC's other subsidiaries, through intercompany agreements under
a shared services model. DTC is proposing to update Table 2-A (SIFMU
Legal Entity Structure and Intercompany Agreements), which delineates
DTC's affiliates, to reflect the name change of Omgeo Pte Ltd by
removing ``Omgeo Pte Ltd'' and replacing it with the new name of this
entity, ``DTCC Singapore Pte. Ltd.'' A related footnote would also be
added to make clear that the services provided by DTCC Singapore Pte.
Ltd. are performed through its branch office in Manila, DTCC Manila.
Additionally, this section includes a separate table, Table 2-B, that
lists each of the DTCC facilities utilized by the Clearing Agencies and
indicates whether the facility is owned or leased by DTCC. DTC proposes
to update this table to add Boston, Massachusetts as an additional
location of a DTCC facility and to indicate that this facility is
leased by DTCC.
Currently, Section 2.5 (FMI Links) of the Plan describes some, but
not all, of the key financial market infrastructures (``FMIs''), both
domestic and foreign, that DTC has identified as critical ``links.''
\10\ In order to better align with the structure of DTCC's inventory of
links maintained by DTCC's Systemic Risk Office (``SRO''), which
includes all of DTC's link relationships, the proposed rule change
would delete the current FMI Links section of the R&W Plan and replace
it with a revised version of Section 2.5 that would include an overview
of DTC's link arrangements, a related footnote to the definition of a
``link'' under Rule 17Ad-22(a)(8) under the Act, and a table (Table 2-
C: Links) listing all of DTC's FMI link arrangements. The table would
list the link, the link category (i.e., whether the link is an
``inbound'' or ``outbound'' link, a central counterparty, or matching
utility), and a brief description. The proposed rule change would also
add a table (Table 2-D: Schedule A Relationships) that would identify
certain critical external service providers that, as determined by
DTC's management, do not meet the specified criteria of ``link'' but
nevertheless are subject to the same review process as is conducted for
links, referred to within DTC as ``Schedule A Relationships,'' and a
related footnote. This change would align with the structure of SRO's
inventory of Schedule A Relationships.
---------------------------------------------------------------------------
\10\ As defined in Rule 17Ad-22(a)(8) under the Act, a link
``means, for purposes of paragraph (e)(20) of [Rule 17Ad-22], a set
of contractual and operational arrangements between two or more
clearing agencies, financial market utilities, or trading markets
that connect them directly or indirectly for the purposes of
participating in settlement, cross margining, expanding their
services to additional instruments or participants, or for any other
purposes material to their business.'' 17 CFR 240.17Ad-22(a)(8).
---------------------------------------------------------------------------
Section 4.3 (Recovery and Wind-down Program Governance) of the Plan
currently contains a paragraph that identifies DTCC's ``R&R Steering
Group'' as the internal group responsible for ensuring that each of the
Clearing Agencies observes recovery planning requirements, and that
recovery planning is integrated into the Clearing Agencies' overall
governance processes including the preparation, review, and filing of
the Clearing Agencies' R&W Plans. Pursuant to the proposed rule change,
DTC would revise Section 4.3 to reflect an internal organizational name
change. The proposal would change the name of the R&R Steering Group to
the ``Recovery and Wind-down Planning Council'' to reflect its role as
an advisory body.\11\ This name change would not change the
composition, role or responsibilities of this internal group, which
includes selected members of DTCC's Management Committee and members of
DTCC's financial and operational risk management, product management,
legal, and treasury/finance teams that are responsible for providing
strategic guidance and direction for the recovery and wind-down program
\12\ and the Plan. Additionally, for purposes of clarification, the
proposal would add the words ``, where necessary,'' to refer to when
the council would engage with internal working groups.
---------------------------------------------------------------------------
\11\ In accordance with DTCC's Policy on Governance of Internal
Committees and Councils, a ``council'' is defined as an advisory
body that has no decision-making authority. A council may be formed
by any committee or a Managing Director. Councils will share
information, discuss topics, and make recommendations to its
initiating committee or Managing Director. Councils report up to
their initiating committee or Managing Director.
\12\ In 2013, DTCC launched its Recovery & Resolution Planning
Program for DTC, NSCC, and FICC as part of its continued commitment
to enhancing risk management. The Office of Recovery & Resolution
Planning was established to manage the program and the development
of the recovery and wind-down plans for the Clearing Agencies.
---------------------------------------------------------------------------
2. Recovery Tool Characteristics, Legal Basis
Section 7.2 (Effectiveness) of the Plan describes DTC's legal basis
for executing the ``recovery tools'' \13\ that are outlined in the
Recovery Plan. The recovery tools are intended to provide DTC with a
comprehensive set of options to address its material risks and support
the resiliency of its critical services under a range of stress
scenarios. Many of the recovery tools are provided for in the Rules.
Other recovery tools have legal basis in contractual arrangements to
which DTC is a party.
---------------------------------------------------------------------------
\13\ In addition to existing business-as-usual tools, the R&W
Plan describes DTC's other principal recovery tools, which include,
for example, (i) identifying, monitoring and managing general
business risk and holding sufficient liquid net assets funded by
equity to cover potential general business losses pursuant to the
Clearing Agency Policy on Capital Requirements (the ``Capital
Policy''), (ii) maintaining the Clearing Agency Capital
Replenishment Plan (the ``Capital Plan'') as a viable plan for the
replenishment of capital should DTC's equity fall close to or below
the amount being held pursuant to the Capital Policy, and (iii) the
process for the allocation of losses among Participants as provided
in Rule 4.
---------------------------------------------------------------------------
Within this section there is currently a paragraph, under the
subheading titled ``Basis,'' that includes a description of what a non-
U.S. applicant (a ``foreign applicant'') for DTC membership is required
to submit as part of the membership application process. The proposed
rule change would revise the description of the application process for
foreign applicants due to changes to this process that were approved by
the Commission pursuant to a previous proposed rule change.\14\
Specifically, the proposed rule change would provide that DTC requires
foreign applicants to pay DTC a fee, as specified in the Rules,
relating to DTC obtaining an opinion of foreign counsel satisfactory to
DTC.
---------------------------------------------------------------------------
\14\ Securities Exchange Act Release No. 83544 (June 28, 2018),
83 FR 31223 (July 3, 2018) (SR-DTC-2018-002). Prior to that rule
change, as reflected in the current Plan, DTC required foreign
applicants to submit an acceptable opinion of relevant foreign
counsel.
---------------------------------------------------------------------------
B. Proposal To Make Certain Clarifications to the R&W Plan
1. Critical Services and Indicative Non-Critical Services
Section 3 (Critical Services) of the Plan defines the criteria for
classifying certain of DTC's services as ``critical,'' \15\
[[Page 17423]]
and identifies such critical services and the rationale for their
classification. The identification of DTC's critical services is
important for evaluating how the recovery tools and the wind-down
strategy would facilitate and provide for the continuation of DTC's
critical services to the markets it serves. This section also includes
a list of indicative non-critical services.
---------------------------------------------------------------------------
\15\ Under the current Plan, the criteria that is used to
identify a DTC service or function as critical includes
consideration as to whether (1) there is a lack of alternative
providers or products; (2) failure of the service could impact DTC's
ability to perform its book-entry and settlement services; (3)
failure of the service could impact DTC's ability to perform its
payment system functions; and (4) the service is interconnected with
other participants and processes within the U.S. financial system
(for example, with other FMIs, settlement banks, broker-dealers, and
exchanges).
---------------------------------------------------------------------------
As more fully described below, the proposed rule change would
clarify the description of some of the critical services and indicative
non-critical services, and revise one of the classification criteria.
While these changes do not change the classification of the relevant
service (as being either ``critical'' or ``indicative non-critical''),
nor impact the existing classification of other services, DTC believes
these revisions would enhance the clarity of the descriptions of them.
First, in the table listing the criteria for determining what
constitutes a critical service, pursuant to the proposed rule change,
DTC would delete ``Criteria Determinant #2,'' and replace it with a
description that DTC believes more fully captures what DTC's book-entry
delivery and settlement services are, and the impact on transaction
processing if these services were not available. Specifically, the
language proposed to be deleted provides that, ``Failure/Disruption of
Book-Entry Delivery and Settlement Services (Impact on Transaction
Costs): DTC's settlement of equity and debt security transactions in
the U.S. does not have alternative providers or products.'' The
proposed rule change would replace the existing language with,
``Failure/Disruption of Book-Entry Delivery and Settlement Services
(Impact on Transaction Processing): DTC maintains the books and records
of ownership for equity and debt securities held and serviced by the
depository. Failure of this service would result in clients' inability
to settle transactions through book-entry movement of securities held
at DTC.''
Second, in Table 3-B (DTC Critical Services), the description of
critical service #19, (Cash and Stock Distributions) states that ``As
the owner of the securities, DTC has an obligation to its Participants
to distribute principal, interest, dividend payments and other
distributions received for those securities. No alternative provider is
available.'' The proposed rule change would revise the first sentence
of this description to add the phrase ``on the issuer's books and
records'' after the words ``As owner of the securities.'' DTC believes
this change to the description, which currently does not include a
reference to the fact that DTC's obligations with respect to
distribution of ``Cash and Stock Distributions'' arise from its
ownership of securities on the books and records of the issuer, is
necessary to make clear that DTC is not the beneficial owner of the
securities.
Third, in Table 3-C (Indicative Non-Critical DTC Services), the
proposed rule change would amend the description of the last indicative
non-critical service listed, ``Foreign Tax Relief Service,'' to add
language to the beginning of the first sentence to clarify that this
service, which works to reduce taxes withheld on non-U.S. company
securities to a more favorable rate, is associated with the critical
services (described in Table 3-B) of ``Cash and Stock Distributions''
and ``Mandatory and Voluntary Corporate Actions.''
2. Participant Default Losses Through the Crisis Continuum
Section 5 (Participant Default Losses through the Crisis Continuum)
of the Plan is comprised of multiple subsections that identify the risk
management surveillance, tools, and governance that DTC may employ
across an increasing stress environment, referred to as the ``Crisis
Continuum.'' \16\ This section currently identifies, among other
things, the tools that can be employed by DTC to mitigate losses, and
mitigate or minimize liquidity needs, as the market environment becomes
increasingly stressed. As more fully described below, the proposed rule
change would clarify certain language.
---------------------------------------------------------------------------
\16\ As set forth in the Recovery Plan, the phases of the
``Crisis Continuum'' include (1) a stable market phase, (2) a
stressed market phase, (3) a phase commencing with DTC's decision to
cease to act for a Participant or Affiliated Family of Participants
(The Plan refers to an ``Affiliated Family'' of Participants as a
number of affiliated entities that are all Participants of DTC), and
(4) a recovery phase.
---------------------------------------------------------------------------
Currently, Section 5.1 (Introduction) identifies the financial
resources available to DTC, pursuant to the Rules, to address losses
arising out of the default of a DTC Participant. One paragraph contains
a statement that such losses would be satisfied first by applying a
Corporate Contribution and then, if necessary, by allocating remaining
losses to non-defaulting Participants, in accordance with Rule 4.\17\
The proposed rule change would add a sentence to the end of this
paragraph that would provide that, in addition to the tools described
in Rule 4 (which are to be applied when, and in the order, specified in
that Rule), DTC may, in extreme circumstances, borrow net credits from
Participants secured by collateral of the defaulting Participant.\18\
DTC believes this additional language is necessary to more clearly set
forth the full range of actions and tools DTC may employ in response to
such conditions.
---------------------------------------------------------------------------
\17\ Rule 4 defines the amount DTC would contribute to address a
loss resulting from either a Participant default or a non-default
event as the ``Corporate Contribution.'' This amount is 50 percent
of the ``General Business Risk Capital Requirement,'' which is
calculated pursuant to the Capital Policy and is an amount
sufficient to cover potential general business losses so that DTC
can continue operations and services as a going concern if those
losses materialize, in compliance with Rule 17Ad-22(e)(15) under the
Act. See 17 CFR 240.17Ad-22(e)(15).
\18\ As noted in a footnote to Table 5-C of the Plan, each of
these tools may be used in accordance with their respective terms
and conditions, whether or not DTC has reached the Recovery Phase,
in order to complete settlement.
---------------------------------------------------------------------------
Section 5.2.4 (Recovery Corridor and Recovery Phase) outlines the
early warning indicators to be used by DTC to evaluate its options and
potentially prepare to enter the ``Recovery Phase,'' which phase refers
to the actions to be taken by DTC to restore its financial resources
and avoid a wind-down of its business. Included in this section are
descriptions of potential stress events that could lead to recovery,
and several early warning indicators and metrics that DTC has
established to evaluate its options and potentially prepare to enter
the Recovery Phase. These indicators, which are referred to in the
Recovery Plan as recovery corridor indicators (``Corridor
Indicators''),\19\ are calibrated against DTC's financial resources and
are designed to give DTC the ability to replenish financial resources,
typically through business as usual (``BAU'') tools applied prior to
entering the Recovery Phase.
---------------------------------------------------------------------------
\19\ The majority of the Corridor Indicators, as identified in
the Recovery Plan, relate directly to conditions that may require
DTC to adjust its strategy for hedging and liquidating collateral
securities, and any such changes would include an assessment of the
status of the Corridor Indicators. Corridor Indicators include, for
example, the effectiveness and speed of DTC's efforts to liquidate
Collateral securities, and an impediment to the availability of
DTC's resources to repay any borrowings due to any Participant
Default. For each Corridor Indicator, the Recovery Plan identifies
(1) measures of the indicator, (2) evaluations of the status of the
indicator, (3) metrics for determining the status of the
deterioration or improvement of the indicator, and (4) ``Corridor
Actions,'' which are steps that may be taken to improve the status
of the indicator, as well as management escalations required to
authorize those steps.
---------------------------------------------------------------------------
Section 5.2.4 also includes language that requires DTC management
to review the Corridor Indicators and the related metrics at least
annually and modify these metrics as necessary in
[[Page 17424]]
light of observations from simulation of Participant defaults and other
analyses. In order to more closely align with the biennial cycle of
DTCC's multi-member closeout simulation exercise, the proposed rule
change would shift the timing of management's review of the Corridor
Indicators and related metrics from annually to biennially. DTC
believes this change is necessary for consistency with the cycle of the
multi-member closeout simulation in which the Corridor Indicators and
metrics are assessed as part of the simulation exercise.
Also, there is a paragraph in Section 5.2.4 and an associated table
(Table 5-B: Loss Waterfall Tools) that delineates the liquidity
resources that DTC may draw upon following a Participant Default and
subsequent cease to act. The table has four columns (``Order,''
``Tool,'' ``Relevant Rules/Documents,'' and ``Responsible Body/
Personnel'') and is organized by the order in which the liquidity
resources are to be applied by DTC. Currently, the text of this
paragraph describes that DTC may draw upon the Participants Fund
Deposit and other collateral of the Participant for which it has ceased
to act as provided under the Rules, including resources available under
clearing agency cross guaranty agreements, and apply such resources to
satisfy any losses that may result from the closeout. In order to be
consistent with the title of Table 5-B, the proposed rule change would
add a heading at the beginning this paragraph to be titled, ``Loss
Waterfall Tools.'' Similarly, consistent with the descriptions and
order of the tools listed in Table 5-B, the proposed rule change would
remove the words ``can only be used'' and shift the phrase ``would be
applied in the order listed'' in the text of the sentence directly
above Table 5-B. Accordingly, under the proposed rule change, this
sentence would read, ``These tools would be applied in the order listed
in accordance with the provisions of Rule 4.'' \20\
---------------------------------------------------------------------------
\20\ Rule 4, supra note 5.
---------------------------------------------------------------------------
Within Table 5-B, Corporate Contribution is the first entry under
the column labeled ``Tool.'' Currently, the narrative for this entry
includes a description of Corporate Contribution and delineates that in
the event of a cease to act, before applying the Participants Fund
deposits of all other Participants to cover any resulting loss, DTC
will apply the Corporate Contribution.\21\ The proposed rule change
would revise the current text of the definition of Corporate
Contribution in order to more closely align with how this term is
defined under Rule 4.\22\ Specifically, pursuant to the proposed rule
change, the definition of Corporate Contribution would be revised to
state, ``The Corporate Contribution is an amount that is equal to 50%
of the amount calculated by DTC in respect of its General Business Risk
Capital Requirement, for losses that occur over any rolling 12 month
period.'' Similarly, the sentence directly above the definition of
Corporate Contribution would be revised to remove the words ``applying
the Participants Fund deposits of all other Participants,'' and replace
them with ``charging Participants on a pro rata basis (other than the
Defaulting Participant).''
---------------------------------------------------------------------------
\21\ Supra note 17.
\22\ Rule 4, supra note 5.
---------------------------------------------------------------------------
Additionally, with respect to the second entry in Table 5-B, ``Loss
Allocation,'' the descriptive text in the ``Responsible Body/
Personnel'' column would be revised to more closely align with the same
language contained in Rule 4. The revised text would state, ``The Rules
provide for loss allocation of any remaining loss following the
Corporate Contribution (plus any additional amounts that the Board may
determine to apply). Participants will be obligated to fund loss
allocations on the second business day after the Corporation issues any
such notice.''
Section 5.3 (Liquidity Shortfalls) identifies tools that may be
used to address foreseeable shortfalls of DTC's liquidity resources
following a Participant Default. As described in DTC's previous
proposed rule change adopting the Plan,\23\ the goal in managing DTC's
liquidity resources is to maximize resource availability in an evolving
stress situation, to maintain flexibility in the order and use of
sources of liquidity, and to repay any third-party lenders in a timely
manner. The proposed rule change would revise the text described below
to better clarify and enhance the description of the DTC's liquidity
considerations and the use of its liquidity tools.
---------------------------------------------------------------------------
\23\ Supra note 6.
---------------------------------------------------------------------------
First, the current text of this section provides that, as
elaborated in the Plan, there is interaction between market and
liquidity actions on DTC's overall risk exposures. In particular, the
third and fourth sentences state, ``A longer liquidation horizon could
lengthen the period that [DTC's] liquidity resources are deployed and
could increase the strain on the liquidity resources. On the other
hand, managing the closeout process with an eye toward minimizing
market disruption may reduce resulting losses.'' In order to more
specifically reflect the type of risks to DTC posed in these
circumstances, the proposed rule change would amend this statement to
add the words ``market risk'' before ``losses.''
Second, Table 5-C currently lists (i) the liquidity tools intended
to address foreseeable liquidity shortfalls that would not be covered
by DTC's existing liquid resources, (ii) the relevant rules/documents
associated with the applicable tool, and (iii) the process and relevant
governance required to employ the tool. There is introductory language
directly above Table 5-C that states, ``The following tools are
intended to address foreseeable liquidity shortfalls that would not be
covered by DTC's existing liquid resources and how its existing
qualifying liquid resources may be replenished (ordered by ease and
speed to market).'' For purposes of additional clarity, the proposal
would add the following parenthetical, ``(for example, due to non-
performance of committed lenders),'' after the words ``DTC's existing
liquid resources,'' and to the existing parenthetical would add the
word ``again'' before ``ordered by ease and speed to market.''
3. Non-Default Losses
Section 6 (Non-Default Losses) of the Plan outlines how DTC would
address losses that result other than from a Participant Default. This
section provides a roadmap to other documents that describe these
events in greater detail and outlines DTC's approach to monitoring
losses that could result from a non-default event. This section also
includes a description of Rule 38 (Market Disruption and Force
Majeure), referred to in the Plan as the ``Force Majeure Rule,'' \24\
which pertains to how DTC addresses extraordinary events that occur
outside the control of DTC and its Participants. As more fully
described below, the proposed rule change would clarify certain
language.
---------------------------------------------------------------------------
\24\ Id.
---------------------------------------------------------------------------
Section 6.4 (Resources to Cover Non-Default Losses) provides that
DTC maintains two categories of financial resources to cover losses and
expenses arising from non-default risks or events: (i) Liquid Net
Assets Funded by Equity (``LNA''), including, pursuant to Rule 4, the
required Corporate Contribution,\25\ and (ii) loss-allocation charges
to
[[Page 17425]]
Participants in accordance with the provisions of Rule 4.\26\ Following
an overview of the four buckets of LNA, which can be applied towards
non-default losses,\27\ there is a paragraph under the heading, ``Loss
Allocation to Participants, backed by the Participants Fund,'' that
provides that non-default losses could be allocated among Participants
as provided in Rule 4. There is sentence that describes the timeframe
in which such losses charged to Participants are required to be paid.
Currently, this sentence states that losses are to be paid by
Participants ``within 2 business days of the date of receipt of a
notice of a loss allocation charge. . . .'' However, this is not the
same language used to describe this timing in Rule 4. In order to be
consistent with the language formulation set out in Rule 4, the
proposed rule change would revise this sentence to state, ``Losses
charged to Participants are required to be paid by Participants on the
second business day after the Corporation issues any such notice of a
loss allocation charge and may be charged to the Participant's
Settlement Account when due.'' \28\ The following sentence would remain
as it is under the current Plan: ``If not timely paid by any
Participant, the Corporation may apply the Participants Fund deposit of
that Participant to satisfy its loss allocation obligation.''
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release Nos. 84426 (October 15,
2018), 83 FR 53138 (October 19, 2018) (SR-DTC-2018-008); and 89361
(July 21, 2020), 85 FR 45263 (July 27, 2020) (SR-DTC-2020-010)
(filings amending the Capital Policy and Capital Plan). The initial
Capital Policy and Capital Plan were approved by the Commission in
2017--see Securities Exchange Act Release No. 81105 (July 7, 2017),
82 FR 32399 (July 13, 2017) (SR-DTC-2017-003, SR-NSCC-2017-004, SR-
FICC-2017-007).
\26\ Rule 4, supra note 5.
\27\ As set forth in the Plan, DTC maintains the following four
buckets of LNA, which can be applied towards a non-default loss: (i)
General Business Risk Capital as determined in the Capital Policy,
supra note 25, (ii) the Corporate Contribution, (iii) a ``Buffer,''
as described in the Capital Policy, and (iv) excess LNA, which
refers to any available LNA held at DTC above the required amounts
for General Business Risk Capital, the Corporate Contribution, and
Buffer.
\28\ Rule 4, supra note 5.
---------------------------------------------------------------------------
Section 6.6 (Market Disruption and Force Majeure Rule) describes
the Force Majeure Rule. The Force Majeure Rule was adopted at the same
time as the Plan \29\ and provides an additional resiliency tool
designed to mitigate the risks caused by market disruption events and
thereby minimize the risk of financial loss that may result from such
events. The proposed rule change would remove the following phrase
after the reference to the Force Majeure Rule in the first paragraph of
this section, ``, adopted in conjunction with this Plan,'' because it
is not necessary as both the Plan and the Force Majeure Rule are no
longer newly adopted. In addition, to remain consistent with the usage
of ``Force Majeure'' and ``Market Disruption Event'' throughout this
section, DTC would conform all references to the defined terms ``Force
Majeure'' and ``Market Disruption Event'' so that they appear as
capitalized terms.
---------------------------------------------------------------------------
\29\ Supra note 6.
---------------------------------------------------------------------------
The proposed rule change would also make revisions to the second
paragraph of Section 6.6. First, for purposes of clarity and
readability, the following text would be removed from the beginning of
the second sentence: ``Most FMIs have rules designed to deal with force
majeure or market disruption events, and.'' Second, the reference to
``Superstorm Sandy'' would be removed from the last sentence of this
paragraph along with the related footnote that references Superstorm
Sandy as an example of circumstances in which DTC needed to fashion a
work-around necessitated by a force majeure event. DTC believes
inclusion of references to Superstorm Sandy are outdated and no longer
necessary to be included in the Plan.
C. Remove Provisions Covering Certain ``Business-as-Usual'' Actions
Section 8.6 (Actions and Preparation) of the Plan sets forth the
legal framework and strategy for the orderly wind-down of DTC if the
use of the recovery tools described in the Recovery Plan do not
successfully return DTC to financial viability. This section includes
an overview of the actions and preparations to be taken by DTC and DTCC
in connection with executing the wind-down portions of the Plan.
Section 8.6.1 (Business-as-Usual Actions) describes those actions DTC
or DTCC may take to prepare for wind-down in the period before DTC
experiences financial distress.
Under the current plan, the Business-as-Usual Actions are (i)
educating the Board to keep them informed of the Plan and the actions
the Board would need to take to implement it, (ii) engaging in
discussions with key linked FMIs as to the key elements of DTC's wind-
down strategy and the expected actions of the respective link parties
should a wind-down be implemented, (iii) developing and maintaining an
index of internal data that includes the critical, ancillary, and non-
critical services that DTC provides to its membership, the support DTC
receives from DTCC and from its other affiliates, key third-party
vendors, key personnel, DTC assets and liabilities, and agreements and
arrangements DTC has with liquidity providers and with other FMIs, (iv)
developing administrative wind-down guidance that identifies key Board
and management actions that would be taken during the Recovery Phase
and ``Runway Period'' \30\ prior to DTC's failure, and in connection
with its Chapter 11 proceedings, and (v) preparing constituent
documents for the Failover Entity \31\ and evaluating capitalization
options.
---------------------------------------------------------------------------
\30\ The Wind-down Plan identifies the time period leading up to
a decision to wind-down DTC as the ``Runway Period.''
\31\ As set forth in Section 8.4.1 (General Objectives and
Approach) of the Plan, in the event that no viable or preferable
third-party transferee timely commits to acquire the business and
services of DTC, the transfer will be effectuated to a failover
entity created for that purpose (referred to as the ``Failover
Entity''), that would be owned by a trust held, to the extent of the
value of the Failover Entity attributed to DTC's transferred
business and services, for the benefit of DTC's bankruptcy estate.
---------------------------------------------------------------------------
Pursuant to the proposed rule change, DTC would remove the
Business-as-Usual Actions section (currently Section 8.6.1) in its
entirety because each of the actions outlined have either been
completed or would be addressed in DTC's internal procedures going
forward. This includes certain documents necessary to effect the wind-
down aspects of the Plan that were in the process of being finalized
when the Plan was adopted and have since been completed. Since adoption
of the Plan,\32\ DTC has completed all necessary internal
documentation, including DTCC's internal wind-down guidance, the
constituent documentation for the Failover Entity, and the evaluation
of DTC's capitalization options. Further, the other actions included in
this section (e.g., maintaining an index of non-critical services,
educating the Board on the Plans) would be addressed, going forward, in
DTCC's Recovery & Resolution Planning Procedures maintained by the R&R
Team.\33\ As a result of this proposed change, current Section 8.6.2
(Recovery and Runway Period Actions) would be renumbered as Section
8.6.1. Also, consistent with the proposed removal of Business-as-Usual
Actions that have been completed, the proposed rule change would remove
from the first sentence of proposed Section 8.6.1 (current Section
8.6.2) the words ``Among other things, the guidance would provide'' and
replace them with ``The DTCC Clearing Agency Wind-
[[Page 17426]]
down Guidance developed in connection with this Plan provides.''
---------------------------------------------------------------------------
\32\ Supra note 6.
\33\ The R&R Team is responsible for maintaining the DTCC
``Office of Recovery & Resolution Planning Procedures'' document.
The purpose of these procedures is to communicate roles and
responsibilities, and procedures for the documentation of the R&W
Plans covering each of the Clearing Agencies, in compliance with
applicable rules and regulations. These procedures also describe the
biennial closeout simulation exercise whereby the Plans for each
clearing agency are tested through the simulation of a multi-member
default.
---------------------------------------------------------------------------
D. Technical Revisions
The proposal would also make several technical changes and
corrections to the Plan. DTC believes that these proposed changes would
not substantively alter the meaning of the applicable sections and
would improve the overall readability and clarity of the Plan.
Specifically, DTC is proposing to make the following changes and
corrections:
1. In Section 1.3 (Summary), in the list of topics covered under
the Plan, in the seventh bullet point, add ``Recovery Corridor and''
prior to the words ``Recovery Phase'' to correctly state the full name
of this section of the Plan.
2. In Section 1.4 (Conventions), in the third paragraph, delete the
words ``conjunction with'' and replace them with ``support of,'' and
delete the words ``also adopted'' and replace them with ``maintains.''
Accordingly, under the proposed rule change, this paragraph would
state, ``In support of this Plan, DTC maintains (a) a Market Disruption
and Force Majeure Rule (the ``Force Majeure Rule{ XE ``Force Majeure
Rule'' {time} '') and (b) a Wind-down of the Corporation Rule (the
``Wind-down Rule{ XE Wind-down Rule'' {time} ''), each as described
herein.''
3. In Section 2.1 (DTCC Business Profile), under the heading ``DTCC
SIFMU Subsidiaries'':
In the description of DTC's affiliated clearing agency,
NSCC{ XE ``NSCC''{time} , add ``, netting,'' after the word
``clearing''; and after the words ``exchange-traded,'' delete ``fund
(``ETF'')'' and replace it with ``products (``ETPs'').''
In the description of DTC's other affiliated clearing
agency, FICC { XE ``FICC''{time} , with respect to the Government
Securities Division (``GSD''), add the word ``netting,'' after
``clearing.''
In the description of the Mortgage-Backed Securities
Division (``MBSD{ XE ``MBSD'' {time} '') of FICC, delete the modifier
``To-Be-Announced'' before the phrase ``pass-through mortgage-backed
securities issued by Ginnie Mae, Freddie Mac and Fannie Mae.''
In the sentence that describes FICC's publication of the
GCF Repo[supreg] Index, add the parenthetical ``(``GCF Repos[supreg]{
XE ``GCF Repos[supreg]'' {time} '')''after the words ``general
collateral finance repurchase transactions.''
4. In Section 3.2 (Criteria Used to Determine Criticality), in the
second sentence that currently states, ``Each service was assessed for
criticality to determine the potential systemic impact from a service
disruption,'' add the word ``resulting'' after the word ``impact.''
5. In Section 3.3 (DTC Critical Services List), make the following
changes to Table 3-B (DTC Critical Services): (a) In the column titled
``Business Unit Activity,'' in the entry for ``8. European Pre-Issuance
Messaging,'' remove the word ``European'' because this service is not
specific to European issues, and (b) in the column titled
``Description,'' in the narrative for ``20. Mandatory and Voluntary
Corporate Actions,'' remove the capitalization of the words ``Dutch
Auctions.''
6. In Section 4.1 (DTCC and SIFMU Governance Structure), in the
third paragraph, which lists each of the Board committees, delete
``Board'' before the words ``Risk Committee.'' Additionally, in the
footnote in this section that provides the citation of a previous
proposed rule change covering the Clearing Agency Risk Management
Framework, add a reference to DTC's amended filing published July 9,
2020.
7. In Section 4.2 (Recovery Governance), in order to clarify the
types of loss scenarios referred to, at the beginning of the third
sentence, after the phrase ``As described throughout Section 5
(Participant Default Losses through the Crisis Continuum), indicators
and measures have been defined for,'' add the modifier ``credit/market
and liquidity'' before ``loss scenarios throughout the Crisis Continuum
(as hereinafter defined).''
8. In Section 5.1 (Introduction), in the fourth paragraph,
capitalize the word ``board.'' Additionally, in the footnote included
in this section that provides the citation to a previous proposed rule
change covering the Clearing Agency Liquidity Risk Management
Framework, add a reference to DTC's amended filing published December
11, 2020.
9. In Section 5.2.3 (Participant Default Phase), in the last
sentence, for the reference to ``Net Credit Reductions'' and the
related footnote, remove the capitalization of the words ``Credit
Reductions.''
10. In Section 5.3 (Liquidity Shortfalls):
In Table 5-C, which lists the tools that can be used to
address liquidity shortfalls, in the entry for ``Credit Facility,'' in
the column titled ``Relevant Rules/Documents,'' (i) delete ``Currently,
Section 2.03A(h) of the Credit Facility,'' because reference to a
specific section of the credit facility documentation is not necessary,
and (ii) for purposes of clarification and readability, revise the text
of the description to state, ``The terms of the Credit Facility provide
that any such voluntary loans would be secured on a pari passu basis
with committed loans under the facility. This should provide comfort to
such voluntary lenders that make voluntary loans in stress market
conditions.''
In the penultimate paragraph and in Table 5-C (in the
entry for ``Net Credit Reductions,'' in the column titled ``Process and
relevant governance''), remove the capitalization from the words ``Net
Credit Reductions'' for purposes of consistency when these words are
used throughout the Plan.
11. In Section 5.4 (Scenarios Not on Crisis Continuum), capitalize
the word ``Phase'' after the words ``Stress Market.''
12. In Section 6.3 (Risk Mitigation), in the footnote that includes
the citation to a previous proposed rule change covering the Clearing
Agency Operational Risk Management Framework, add a reference to DTC's
amended filing published December 16, 2020.
13. In Section 6.4 (Resources to Cover Non-Default Losses), in the
footnote that includes the citation to a previous proposed rule change
covering the Capital Policy and Capital Plan, add a reference to DTC's
amended filings published July 27, 2020 with respect to the Capital
Policy, and October 19, 2018 with respect to the Capital Plan.
14. In Section 6.6 (Market Disruption and Force Majeure Rule):
In the second bullet point of the third paragraph, remove
the quotation marks from the words ``Market Disruption Event'' and
delete the parenthetical ``(as defined in the Force Majeure Rule)''
because Market Disruption Event was defined earlier in this section.
In the second sentence of the fourth paragraph, for
purposes of reflecting present tense, delete the word ``would'' before
the word ``operate,'' and pluralize ``operate.''
In the first sentence of the second paragraph:
[cir] For purposes of reflecting present tense and to improve
readability, (a) remove the word ``currently'' prior to ``the Force
Majeure Rule'' and (b) remove the words ``is designed to clarify,'' and
replace them with ``clarifies,'' and
[cir] in order to correct a typographical error, insert the word
``and'' in between ``its Participants'' and ``to mitigate.''
15. In Section 7.1 (Comprehensiveness), for purposes of correcting
a typographical error, remove the capitalization of the words
``Critical Services.''
16. In Section 7.2 (Effectiveness), under the heading
``Reliability,'' for the
[[Page 17427]]
purpose of correcting typographical errors, (a) move the second
footnote, currently at the end of the last sentence, to the end of the
last sentence of the introductory paragraph of Section 7.2 and (b) in
the text of the other footnote that currently reads, ``See, for
example, DTCC Whitepaper, CCP Resiliency and Resources, pg. 2, section
2 (June 2015),'' remove ``, section 2.''
17. In Section 8.2.1 (Potential Scenarios), in the second sentence
of the fifth paragraph, replace ``enhancements to the loss allocation
process are'' with ``the loss allocation process is.'' Accordingly,
under the proposed rule change this sentence would state, ``As noted
above, the loss allocation process is designed so that the Participants
Fund can be applied to losses arising from multiple Participant
failures that occur during an ``Event Period'', and there can be
successive rounds of loss allocations to address losses arising with
respect to a given Event Period.''
18. In Section 8.4.1 (General Objectives and Approach), in the
second paragraph, delete the words ``have been amended to'' after the
words ``the Rules'' in order to more clearly reflect the fact that the
Wind-down of the Corporation Rule \34\ was adopted.
---------------------------------------------------------------------------
\34\ Supra note 6.
---------------------------------------------------------------------------
19. In Section 8.4.2 (Critical Services and FMI Link Arrangements),
for purposes of addressing a typographical error, in the first
sentence, after the words ``other information,'' remove the word
``and.''
20. In Section 8.4.4 (Rules Adopted in Connection with the Wind-
down Plan), under the heading ``Certain Ex Ante Matters,'' in the first
sentence add an ``a'' before the second use of the word ``Transferee.''
21. In Section 8.4.6 (Key Dependencies and Requirements for
Effectiveness), in the last paragraph under the heading, ``Regulatory
approvals,'' revise the word ``see'' to ``seek,'' to address a
typographical error.
22. In proposed Section 8.6.1 (currently Section 8.6.2) (Recovery
and Runway Period Actions), capitalize the word ``chapter'' in two
places where ``chapter 11'' is not capitalized.
23. In Section 8.7 (Costs and Time to Effectuate Plan), (a) in the
second sentence of the fifth paragraph, delete the word ``of'' between
the words ``detailed'' and ``analysis,'' and (b) at the end of the last
sentence of this section, delete the phrase ``, as provided in the
Capital Requirements Policy.'' As a result, under the proposed rule
change, this sentence would state, ``The estimated wind-down costs
amount will be reviewed and approved by the Board annually.''
24. In Appendix 1 (Defined Terms), add each of the new defined
terms based on the addition of such terms to the Plan, and delete the
defined terms that were removed based on the deletion of these terms
from the Plan.
2. Statutory Basis
DTC believes that the proposal is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
registered clearing agency. In particular, DTC believes that the
amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of
the Act \35\ and Rule 17Ad-22(e)(3)(ii) under the Act,\36\ for the
reasons described below.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78q-1(b)(3)(F).
\36\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of DTC be designed to promote the prompt and accurate clearance and
settlement of securities transactions.\37\ The Recovery Plan serves to
promote the prompt and accurate clearance and settlement of securities
transactions by providing DTC with a roadmap for the actions it may
employ to mitigate losses, and monitor and, as needed, stabilize DTC's
financial condition, which would allow it to continue its critical
clearance and settlement services in stress situations. The Recovery
Plan is designed to identify the actions and tools that DTC may use to
address and minimize losses to both DTC and its Participants, and
provide DTC management and the Board with guidance in this regard by
identifying the indicators and governance around the use and
application of such tools to enable them to address stress situations
in a manner most appropriate for the circumstances. Further, the Wind-
down Plan establishes a framework for the transfer and orderly wind-
down of DTC's business and is designed to facilitate the continuity of
DTC's critical services. It establishes clear mechanisms for the
transfer of DTC's critical services and membership as well as clear
provisions for the transfer of the securities inventory DTC holds in
fungible bulk for Participants. By doing so, the Wind-down Plan enables
Participants and Pledgees to maintain access to DTC's services in the
event DTC defaults or the Wind-down Plan is triggered by the Board.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
As described above, the proposed rule change would update the R&W
Plan to (i) reflect business and product developments, (ii) make
certain clarifications, (iii) remove provisions covering certain
``business-as-usual'' actions, and (iv) make certain technical
corrections. By helping to ensure that the R&W Plan reflects current
business and product developments, and providing additional clarity
regarding the framework for the transfer and orderly wind-down of DTC's
business, DTC believes that the proposed rule change would help it
continue to maintain the Plan in a manner that supports the continuity
of DTC's critical services and enables its Participants and Pledgees to
maintain access to DTC's services through the transfer of its
membership in the event DTC defaults or the Wind-down Plan is ever
triggered by the Board. Further, by facilitating the continuity of its
critical clearance and settlement services, DTC believes the Plan and
the proposed rule change would continue to promote the prompt and
accurate clearance and settlement of securities transactions.
Therefore, DTC believes the proposed amendments to the R&W Plan are
consistent with the requirements of Section 17A(b)(3)(F) of the Act.
Rule 17Ad-22(e)(3)(ii) under the Act requires DTC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by the covered clearing agency, which includes plans for the
recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\38\ The R&W Plan is
designed to comply with Rule 17Ad-22(e)(3)(ii) and is consistent with
the Act because it provides plans for the recovery and orderly wind-
down of DTC necessitated by credit losses, liquidity shortfalls, losses
from general business risk, or any other losses.
---------------------------------------------------------------------------
\38\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------
Specifically, the Recovery Plan defines the risk management
activities, stress conditions and indicators, and tools that DTC may
use to address stress scenarios that could eventually prevent it from
being able to provide its critical services as a going concern. Through
the framework of the Crisis Continuum, the Recovery Plan addresses
measures that DTC may take to address risks of credit losses and
liquidity shortfalls, and other losses that could arise from a
Participant default. The Recovery Plan also addresses the management of
general business risks and other non-default
[[Page 17428]]
risks that could lead to losses. The Wind-down Plan would be triggered
by a determination by the Board that recovery efforts have not been, or
are unlikely to be, successful in returning DTC to viability as a going
concern. Once triggered, the Wind-down Plan sets forth clear mechanisms
for the transfer of DTC's membership and business, and is designed to
facilitate continued access to DTC's critical services and to minimize
market impact of the transfer. By establishing the framework and
strategy for the execution of the transfer and wind-down of DTC in
order to facilitate continuous access to its critical services, the
Wind-down Plan establishes a plan for the orderly wind-down of DTC.
As described above, the proposed rule change would update the R&W
Plan to (i) reflect business and product developments, (ii) make
certain clarifications, (iii) remove provisions covering certain
``business-as-usual'' actions, and (iv) make certain technical
corrections. By ensuring that material provisions of the Plan are
current, clear, and technically correct, DTC believes that the proposed
amendments are designed to support the maintenance of the Plan for the
recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses, and, as such, meets the
requirements of Rule 17Ad-22(e)(3)(ii) under the Act.\39\ Therefore,
the proposed changes would help DTC to maintain the Plan in a way that
continues to be consistent with the requirements of Rule 17Ad-
22(e)(3)(ii).
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
(B) Clearing Agency's Statement on Burden on Competition
DTC does not believe that the proposed rule change would have any
impact, or impose any burden, on competition. DTC does not anticipate
that the proposal would affect its day-to-day operations under normal
circumstances, or in the management of a typical Participant default
scenario or non-default event. The R&W Plan was developed and
documented in order to satisfy applicable regulatory requirements, as
discussed above. The proposal is intended to enhance and update the
Plan to ensure it is clear and remains current in the event it is ever
necessary to be implemented. The proposed revisions would not effect
any changes to the overall structure or operation of the Plan or DTC's
recovery and wind-down strategy as set forth under the current Plan. As
such, DTC believes the proposal would not have any impact, or impose
any burden, on competition.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
DTC has not received or solicited any written comments relating to
this proposal. 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \40\ of the Act and paragraph (f) \41\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\40\ 15 U.S.C 78s(b)(3)(A).
\41\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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-2021-004 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-2021-004. 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-2021-004 and should be submitted on
or before April 23, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
---------------------------------------------------------------------------
\42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06777 Filed 4-1-21; 8:45 am]
BILLING CODE 8011-01-P
