Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Relating to Confidential Information, Market Disruption Events, and Other Changes, 36833-36839 [2021-14797]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36833-36839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14797]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92342; File No. SR-DTC-2021-011]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to Confidential 
Information, Market Disruption Events, and Other Changes

July 7, 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 June 25, 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. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of modifications to DTC's Rules, 
Bylaws and Organization Certificate (the ``Rules'') \3\ to (i) revise 
certain provisions in the Rules relating to the confidentiality of 
information furnished by Participants \4\ to DTC, (ii) require that 
each Participant maintain confidential information furnished by DTC or 
its affiliates in confidence, and restrict use and disclosure of such 
information, (iii) add certain officers who are allowed to determine 
that there is a Market Disruption Event pursuant to Rule 38 and (iv) 
add a new Rule 38(A) to address situations in which it is necessary to 
disconnect a Participant, or third party service provider, or service 
bureau due to an imminent threat of harm to DTC, Participants and/or 
other market participants. Each of the proposed changes is described in 
greater detail below.
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    \3\ Capitalized terms not defined herein are defined in the 
Rules, available at https://www.dtcc.com/legal/rules-and-procedures.
    \4\ As provided in the Rules, the term ``Participant'' includes 
the term ``Limited Participant'' unless (i) the context otherwise 
requires or (ii) the Procedures otherwise provide. Section 1 of Rule 
2, id.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

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

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

1. Purpose
    The proposed rule change consists of modifications to (i) revise 
certain provisions in the Rules relating to the confidentiality of 
information furnished by Participants to DTC, (ii) require that each 
Participant maintain confidential information furnished by DTC or its 
affiliates in confidence and restrict use and disclosure of such 
information, (iii) add certain officers who are allowed to determine 
that there is a Market Disruption Event pursuant to Rule 38 and (iv) 
add a new Rule 38(A) to address situations in which it is necessary to 
disconnect a Participant, or third party service provider, or service 
bureau due to an imminent threat of harm to DTC, Participants and/or 
other market participants. Each of the proposed changes is described in 
greater detail below.
(i) DTC Confidentiality Requirements
    Section 1 of Rule 2 \5\ contains provisions relating to 
confidentiality of information furnished by Participants to DTC 
(collectively, the ``DTC Confidentiality Requirements''). Each of the 
DTC Confidentiality Requirements provides that the rights of DTC to 
inspect books and records, or to be furnished with information, is 
subject to any applicable laws or rules, or regulations of regulatory 
bodies having jurisdiction over the Participant, that relate to 
confidentiality of records. DTC is proposing to update the DTC 
Confidentiality Requirements because such provisions (i) may result in 
unequal treatment of Participants due to differing laws or regulations 
of regulatory bodies, (ii) may result in a potential conflict of laws 
where rules or regulations governing a regulatory body of a Participant 
differ from the laws applicable to DTC, or a Participant has multiple 
regulatory bodies whose rules conflict, (iii) are burdensome as they 
require DTC to track the rules and regulations of each regulatory body 
of its Participants to determine what applicable laws or rules or 
regulations of regulatory bodies that relate to confidentiality of 
records affect its rights to receive information and (iv) are 
unnecessary as DTC has sufficient protections in place relating to 
protection and confidentiality of Participant data.
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    \5\ Rule 2 relates to initial and ongoing requirements to become 
and continue to be a Participant and/or Pledgee, including 
information that DTC may require applicants or Participants to 
provide to DTC. Id.
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    The regulatory bodies that have jurisdiction over Participants 
differ by Participant depending on certain criteria of each 
Participant, including the type of entity of the Participant, where the 
Participant was organized, the types of businesses in which the 
Participant engages and where the Participant is doing business. In 
addition, many Participants are regulated by more than one regulatory 
body. As a result, a requirement to maintain confidentiality standards 
for information provided by a Participant or the right to receive 
information based on the regulatory body or bodies that regulate such 
Participant result in varying standards of confidentiality for 
Participants that are regulated by different regulatory bodies. Such 
varying standards may result in unequal treatment of Participants due 
to differing laws or regulations of the regulatory body or bodies 
governing such Participants. In addition, such varying standards may 
result in a potential conflict of laws where rules or regulations 
governing a regulatory body of a Participant differ from the laws 
applicable to DTC or an entity that has multiple regulatory bodies 
whose rules conflict.
    DTC believes that it is unnecessarily burdensome to determine the 
rules and regulations of each of the regulatory bodies that regulate 
its Participants.

[[Page 36834]]

Such regulatory bodies include numerous U.S. federal and state 
regulators as well as foreign national, state and local regulators. DTC 
proposes revising the language in the DTC Confidentiality Requirements 
to maintain one confidentiality standard for all Participants rather 
than maintaining potentially different confidentiality standards for 
Participants based on the various, unrelated regulatory bodies 
regulating such Participants. DTC is proposing to replace the existing 
language in the DTC Confidentiality Requirements with language that 
would provide that DTC will hold non-public information furnished 
pursuant to those Rules in confidence as may be required under the law 
or the rules and regulations applicable to DTC that relate to the 
confidentiality of records. Such laws, rules and regulations would 
include national, state and foreign laws governing confidentiality of 
data that are applicable to DTC in connection with its collection and 
disclosure of data.
    DTC believes that the rules and regulations applicable to DTC 
governing the use and disclosure of confidential information provide 
standards that are representative of those of the various regulatory 
bodies governing its Participants. As a result, DTC does not believe 
that the proposed rule change relating to the DTC Confidentiality 
Requirements would result in any change to DTC's practices relating to 
data protection and confidentiality of information provided by 
Participants.
(ii) Participant Confidentiality Requirements
    Historically, DTC has generally not provided, nor been requested to 
provide, information that contains confidential or proprietary 
information of DTC or its affiliates to its Participants except for 
information necessary for Participants and their service providers and 
service bureaus to connect to DTC and to participate in the services 
that DTC offers to its Participants. While certain information is 
protected by intellectual property rights of DTC and its affiliates 
under applicable intellectual property laws, such as copyright laws and 
trademark laws, the Rules do not include any express obligations for 
Participants to protect confidential information received by them from 
DTC or its affiliates.
    In connection with the development of cyber and information 
security programs pursuant to applicable regulatory requirements by 
Participants, DTC and its parent company, The Depository Trust & 
Clearing Corporation (``DTCC''), have received an increasing number of 
requests from Participants for confidential and proprietary information 
of DTC and DTCC.\6\ This includes, for example, information regarding 
DTCC's network operations and data security practices, legal 
settlements, and other information. Additionally, in the event there is 
a cyber incident relating to a Participant, DTC or DTCC may be 
requested to disclose confidential information regarding its cyber 
threat indicators, sources of cyber threat information, or other 
information and actions taken related to a cyber event.
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    \6\ DTCC provides a set of core business processes for DTC and 
DTCC's other subsidiaries, including the technology systems and 
networks that provide connectivity between DTC and its participants 
and that provide the ability of DTC to provide the services as 
required under its Rules. 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 and DTCC's other subsidiaries.
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    In order to provide for contractual protections for such 
confidential information of DTCC, DTC and DTCC's other subsidiaries, 
DTC is proposing to add provisions to the Rules that would require 
Participants to maintain confidential information of DTC and its 
affiliates that DTC provides to such Participants in confidence and not 
to disclose such confidential information except as necessary to 
perform such Participant's obligations under DTC's Rules or as 
otherwise required by applicable law (``Participant Confidentiality 
Requirements''). The Participant Confidentiality Requirements would 
provide that in the event of a breach of the Participant 
Confidentiality Requirements, DTC or DTCC would be entitled to seek any 
temporary or permanent injunctive or other equitable relief in addition 
to any monetary damages under the Rules. In addition, as with any 
failure to comply with its Rules, DTC would have the ability to impose 
other disciplinary proceedings or restrictions on access to services as 
provided in the Rules for failure to comply with the Participant 
Confidentiality Requirements.
(iii) Market Disruption Events
    Rule 38 (Market Disruption and Force Majeure) \7\ (the ``Force 
Majeure Rule'') contains provisions that identify the events or 
circumstances that would be considered a Market Disruption Event, 
including, for example, events that lead to the suspension or 
limitation of trading or banking in the markets in which DTC operates, 
or the unavailability or failure of any material payment, bank 
transfer, wire or securities settlement systems.\8\ Under the Force 
Majeure Rule, during the pendency of a Market Disruption Event, DTC 
would be entitled to (i) suspend the provision of any or all services 
and (ii) take, or refrain from taking, or require Members to take, or 
refrain from taking, any actions DTC considers appropriate to address, 
alleviate, or mitigate the event and facilitate the continuation of 
DTC's services as may be practicable.\9\
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    \7\ Rule 38, supra note 3.
    \8\ Id.
    \9\ Id.
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    Section 2 of the Force Majeure Rule provides that the Board of 
Directors may determine the existence of a Market Disruption Event and 
the actions to be taken in response thereto.\10\ However, if the Board 
of Directors is unable to convene, the Force Majeure Rule provides that 
certain officers may make such determination, on an interim basis, 
which determination is then ratified, modified or rescinded as soon as 
practicable by the Board of Directors. The officers that may make such 
determination are all senior executive officers of DTC: Chief Executive 
Officer, Chief Financial Officer, Group Chief Risk Officer and General 
Counsel.
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    \10\ Section 2 of Rule 38, id.
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    The proposed rule change would add two senior executive officers of 
DTC, the Chief Information Officer and the Head of Clearing Agency 
Services, to the list of officers that could make such determination if 
the Board of Directors is unable to convene. These two officers, like 
the other senior executive officers currently listed in the Rules, 
maintain senior executive level positions at DTC, oversee divisions of 
DTC, and hold positions at DTC that would provide them a necessary 
global view into DTC's operations and systems to enable them to 
determine the existence of a Market Disruption Event in the event that 
the Board of Directors in unable to convene. Adding these two 
additional officers would facilitate DTC's ability to implement its 
emergency procedures in the event of a Market Disruption Event.
(iv) Systems Disconnect: Threat of Significant Impact to DTC's Systems
    The proposed rule change would add a new Rule 38(A) (Systems 
Disconnect: Threat of Significant Impact to the Corporation's Systems) 
(``Systems Disconnect Rule'') that would address situations in which 
DTC determines it is necessary for DTC to disconnect a single or 
limited number of Participants, or third party service providers, or 
service bureaus used by Participants to connect

[[Page 36835]]

to DTC \11\ (collectively, ``DTCC Systems Participants'') from DTC's 
systems or network due to an imminent threat of harm to DTC's or DTCC's 
systems. The imminent threat could be the result of a system disruption 
or cyber incident applicable to the DTCC Systems Participants. This 
would allow DTCC to work with the affected Participants while 
protecting DTC, its systems and its other Participants.
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    \11\ Some Participants use third parties to connect to DTC's 
systems and/or to send data to DTC and receive data from DTC on the 
Participant's behalf. Such third parties are referred to as 
``service providers'' or ``service bureaus'' herein.
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    The proposed Systems Disconnect Rule would be structured similarly 
to the Force Majeure Rule. The Systems Disconnect Rule would address 
DTC's authority to take certain actions upon the occurrence, and during 
the pendency, of a Major Event. A ``Major Event'' would be defined as 
the happening of one or more Systems Disruption(s) (as defined below) 
that is reasonably likely to have a significant impact on DTC's 
operations, including the DTCC Systems (as defined below), that affect 
the business, operations, safeguarding of securities or funds, or 
physical functions of DTC, Participants and/or other market 
participants. ``Systems Disruption'' would be defined as the 
unavailability, failure, malfunction, overload, or restriction (whether 
partial or total) of a DTCC Systems Participant's systems that disrupts 
or degrades the normal operation of such DTCC Systems Participant's 
systems; or anything that impacts or alters the normal communication, 
or the files that are received, or information transmitted, to or from 
the DTCC Systems. ``DTCC Systems'' would be defined as the systems, 
equipment and technology networks of DTCC, DTC and/or their 
Affiliates,\12\ whether owned, leased, or licensed, software, devices, 
IP addresses or other addresses or accounts used in connection with 
providing the services set forth in the Rules, or used to transact 
business or to manage the connection with DTC.
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    \12\ ``Affiliate'' would be defined as a Person that controls or 
is controlled by or is under common control with another Person. 
Control of a Person means the direct or indirect ownership, or power 
to vote more than 50% of any class of the voting securities or other 
voting interests of such Person.
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    The proposed Systems Disconnect Rule would allow DTC to mitigate 
the effect of such events by facilitating the continuity of services 
(or, if deemed necessary, the temporary suspension of services). To 
that end, under the proposed Systems Disconnect Rule, DTC would be 
entitled, during the pendency of a Major Event, to (1) disconnect a 
DTCC Systems Participant's systems from the DTCC Systems, (2) suspend 
the receipt and/or transmission of files or communications to or from 
the DTCC Systems Participant to the DTCC Systems and/or (3) take, or 
refrain from taking, or require a DTCC Systems Participant to take or 
refrain from taking, any actions that DTC considers appropriate to 
prevent, address, correct, mitigate or alleviate the Major Event and 
facilitate the continuation of services as may be practicable and, in 
that context, issue instructions to the DTCC Systems Participant.
    The proposed Systems Disconnect Rule would define the governance 
procedures for how DTC would determine whether, and how, to implement 
the provisions of the rule. A determination that a Major Event has 
occurred could be made by the same officers with delegated authority 
under the Force Majeure Rule as discussed above (an ``Officer Major 
Event Action''). Following this determination, any management committee 
on which all of the foregoing officers serve would convene, and DTC 
would convene a Board of Directors meeting as soon as practicable 
thereafter, and in any event within five Business Days following such 
determination, in each case, to ratify, modify, or rescind the Officer 
Major Event Action. The proposed Systems Disconnect Rule would require 
Participants to notify DTC immediately upon becoming aware of a Major 
Event, and, likewise, would require DTC to promptly notify the DTCC 
Systems Participant(s) of any action DTC takes or intends to take with 
respect to such DTCC Systems Participant(s) pursuant to the proposed 
rule.
    Finally, the Systems Disconnect Rule would address certain 
miscellaneous matters including: (i) A limitation of liability for any 
failure or delay in performance, in whole or in part of DTC's 
obligations under the Rules, arising out of or related to a Major 
Event, (ii) a statement that the power of DTC to take any action 
pursuant to the Systems Disconnect Rule also includes the power to 
repeal, rescind, revoke, amend or vary such action, (iii) a statement 
that the powers of DTC pursuant to the Systems Disconnect Rule shall be 
in addition to, and not in derogation of, authority granted elsewhere 
in the Rules to take action as specified therein, (iv) a requirement 
that Participants shall keep any DTCC Confidential Information (as 
defined below) provided to them by DTC and/or in connection with a 
Major Event confidential and (v) a statement that in the event of any 
conflict between the provisions of the Systems Disconnect Rule and any 
other Rules or Procedures, the provisions of the Systems Disconnect 
Rule would prevail.
(v) Proposed Rule Changes
    The proposed rule change would amend the Rules to make the 
following changes to implement the changes discussed above:
DTC Confidentiality Requirements Changes
    The proposed rule change would amend the DTC Confidentiality 
Requirements in two paragraphs in Section 1 of Rule 2,\13\ to state as 
follows:
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    \13\ Section 1 of Rule 2, supra note 3.

. . . any non-public information furnished to the Corporation pursuant 
to this Rule shall be held in confidence as may be required under the 
laws, rules and regulations applicable to the Corporation that relate 
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to the confidentiality of records.

    As discussed above, the proposed language is intended to provide 
one standard that DTC would apply uniformly to all Participants, which 
assures Participants that such information would be held in confidence 
with appropriate controls. DTC would add ``non-public'' when describing 
the information that is subject to the DTC Confidentiality Requirements 
to make it clear that such requirements would only apply to information 
that is not public.
    Certain Rules relating to DTC Confidentiality Requirements would 
also include language relating to Participant Confidentiality 
Requirements as described below.
Participant Confidentiality Requirements
    In order to provide for Participant Confidentiality Requirements, 
DTC would add a provision at the end of Section 1 of Rule 2 \14\ to 
state that each applicant and Participant shall maintain DTCC 
Confidential Information in confidence to the same extent and using the 
same means it uses to protect its own confidential information, but no 
less than a reasonable standard of care, and shall not use DTCC 
Confidential Information or disclose DTCC Confidential Information to 
any third party except as necessary to perform its obligations under 
the Rules or as otherwise required by applicable law. DTC would add a 
new definition of DTCC Confidential Information in Section 1 of Rule 1 
\15\ to provide that

[[Page 36836]]

``DTCC Confidential Information'' would mean all non-public information 
provided by DTCC and/or DTC that (i) is marked or otherwise identified 
in writing prior to disclosure to the recipient as confidential, (ii) 
is designated by DTCC or DTC as confidential, or (iii) the recipient 
knows or, under the circumstances surrounding disclosure, ought to 
reasonably know is confidential. DTC would also add a definition of 
DTCC in Section 1 of Rule 1 and remove a corresponding definition in 
Rule 32(A) \16\ since it would be defined in Section 1 of Rule 1.
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    \14\ Section 1 of Rule 2, supra note 3.
    \15\ Section 1 of Rule 1, supra note 3.
    \16\ Rule 32(A), supra note 3.
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    DTC would also add a statement in the provision relating to 
Participant Confidentiality Requirements that each applicant and 
Participant acknowledges that a breach of its confidentiality 
obligations under the Rules may result in serious and irreparable harm 
to DTC and/or DTCC for which there is no adequate remedy at law. In the 
event of such a breach by the applicant or Participant, DTC and/or DTCC 
would be entitled to seek any temporary or permanent injunctive or 
other equitable relief in addition to any monetary damages.
Force Majeure Rule Officer Additions
    The proposed rule change would add the Chief Information Officer 
and the Head of Clearing Agency Services to the list of officers that 
could make a determination of a Market Disruption Event if the Board of 
Directors is unable to convene in Rule 38.\17\
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    \17\ Rule 38, supra note 3.
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Systems Disconnect Rule
    The proposed rule change would add a new Rule 38(A) entitled 
``Systems Disconnect: Threat of Significant Impact to the Corporation's 
Systems'' that would address situations in which DTC determines it is 
necessary for DTC to disconnect a DTCC Systems Participant or DTCC 
Systems Participants from DTC's systems or network due to an imminent 
threat of harm to DTC's or DTCC's systems consistent with the 
description above. The proposed Systems Disconnect Rule would include 
new definitions for ``DTCC Systems,'' ``DTCC Systems Participant,'' 
``Major Event'' and ``Systems Disruption'' consistent with the 
descriptions of the Systems Disconnect Rule above.
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 each of 
the proposed rule changes is consistent with Section 17A(b)(3)(F) of 
the Act,\18\ and Rules 17Ad-22(e)(1) and (e)(21) \19\ promulgated under 
the Act. In addition, DTC believes that the proposed changes to add the 
two senior executive officers in the Force Majeure Rule and to add the 
proposed Systems Disconnect Rule are consistent with Rules 17Ad-
22(e)(2) and (e)(17) under the Act.\20\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ 17 CFR 240.17Ad-22(e)(1) and (e)(21).
    \20\ 17 CFR 240.17Ad-22(e)(2) and (e)(17).
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Section 17A(b)(3)(F)
    Section 17A(b)(3)(F) of the Act \21\ requires, in part, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions, to assure the safeguarding of 
securities and funds which are in the custody or control of DTC or for 
which it is responsible, and to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions.
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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    DTC believes that the proposed changes revising the DTC 
Confidentiality Requirements and adding the Participant Confidentiality 
Requirements are each consistent with this provision of the Act. The 
proposed revisions to the DTC Confidentiality Requirements are 
consistent with this provision because the proposed revisions would 
provide a clear and consistent standard relating to how DTC holds the 
information furnished by Participants pursuant to Section 1 of Rule 
2.\22\ The confidential information that DTC receives pursuant to this 
rule is used by DTC to determine whether to admit a Participant, to 
continue to allow such Participant to be a Participant, or to better 
understand the risks relating to each Participant. Providing a clear 
and consistent standard would facilitate this process by allowing 
Participants to better understand DTC's obligations with respect to 
such information and providing a uniform obligation for DTC with 
respect to such information. DTC believes that facilitating the ability 
of DTC to evaluate Participants would promote the prompt and accurate 
clearance and settlement of securities transactions by DTC. As such, 
DTC believes the proposed rule changes are consistent with Section 
17A(b)(3)(F) of the Act.\23\
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    \22\ Section 1 of Rule 2, supra note 3.
    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    DTC also believes that the proposed rule change adding the 
Participant Confidentiality Requirements is consistent with this 
provision of the Act because the proposed revisions to the Participant 
Confidentiality Requirements would provide a clear and consistent 
contractual obligation for applicants and Participants who are 
requesting confidential information from DTC. Having clear and 
consistent Rules would help applicants and Participants to better 
understand their rights and obligations regarding DTC's clearance and 
settlement services. The information requested by applicants and 
Participants that would be subject to the Participant Confidentiality 
Requirements would be used by applicants and Participants to determine 
whether to participate in DTC's services, DTC system requirements and 
DTC system safeguards. DTC believes that when Participants better 
understand their rights and obligations regarding DTC's clearance and 
settlement services, they can better act in accordance with the Rules. 
DTC believes that better enabling Participants to comply with the Rules 
would promote the prompt and accurate clearance and settlement of 
securities transactions by DTC. As such, DTC believes the proposed rule 
changes are consistent with Section 17A(b)(3)(F) of the Act.\24\
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    \24\ Id.
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    DTC believes that the proposed changes to add the two officers to 
make a determination of a Market Disruption Event and to add the 
Systems Disconnect Rule are also consistent with this provision of the 
Act because those changes would enhance and streamline DTC's ability to 
take necessary actions in the event of a Market Disruption Event or a 
Major Event. Improving the ability of DTC to react to a Market 
Disruption Event or a Major Event would allow DTC to protect its 
Participants and their ability to promptly and accurately clear and 
settle securities transactions, and allow DTC to safeguard securities 
and funds that are in its custody or control. In particular, allowing 
two additional officers that are able to make an interim determination 
of a Market Disruption Event in the event that the Board of Directors 
is unable to convene would add additional flexibility and tools to DTC 
while maintaining proper risk controls and improve the ability of DTC 
to act in the event of a Market Disruption Event. Also, providing for 
the ability of DTC to disconnect DTCC Systems Participants, suspend the 
receipt or transmission of files or communications to or from a DTCC 
Systems Participant, and/or require the DTCC Systems Participant to 
take such

[[Page 36837]]

other actions as are necessary to protect DTC and its Participants 
would, in each case, provide additional tools for DTC in the event of a 
Major Event.
    Improving the governance around the determination of a Market 
Disruption Event, and the implementation of procedures allowing DTC to 
disconnect a DTCC Systems Participant or DTCC Systems Participants from 
DTC's systems or network due to an imminent threat of harm, would 
improve DTC's ability to address and minimize losses to DTC and its 
Participants. Risks, threats and potential vulnerabilities due to a 
Market Disruption Event or a Major Event could impact DTC's ability to 
clear and settle securities transactions, or to safeguard the 
securities and funds which are in its custody or control or for which 
it is responsible. In addition, providing governance around the ability 
to disconnect a DTCC Systems Participant that is having a systems 
disruption that could disrupt the ability of DTC or other DTCC Systems 
Participants from using DTC's systems would remove impediments to and 
perfect the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions. Although 
disconnecting or limiting the service of a DTCC Systems Participant in 
the event of a Major Event would likely be an impediment to such DTCC 
Systems Participant, improving DTC's ability to address and minimize 
losses to DTC and its Participants, and reducing risks, threats and 
potential vulnerabilities due to a Major Event that could impact DTC's 
ability to clear and settle securities transactions, or to safeguard 
the securities and funds which are in its custody or control or for 
which it is responsible, would be consistent with Section 17A(b)(3)(F) 
of the Act.\25\
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    \25\ Id.
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    Therefore, by implementing tools that would help to mitigate these 
risks, DTC believes that the proposed rule change would promote the 
prompt and accurate clearance and settlement of securities 
transactions, assure the safeguarding of securities and funds which are 
in the custody or control of DTC or for which it is responsible, and 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions, consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\26\
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    \26\ Id.
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Rule 17Ad-22(e)(1)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(1) promulgated under the Act,\27\ which requires 
DTC to establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for a well-founded, clear, 
transparent and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions.
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    \27\ 17 CFR 240.17Ad-22(e)(1).
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    Establishing clear and consistent rules for each Participant with 
respect to the DTC Confidentiality Requirements would allow DTC to 
maintain one confidentiality standard for all Participants rather than 
maintaining potentially different confidentiality standards for 
Participants based on the various, unrelated regulatory bodies 
governing such Participants. In addition, setting forth a clear 
contractual obligation relating to Participant Confidentiality 
Requirements would enhance the understanding of the Participants 
receiving information from DTC and allow DTC to treat Participants 
equally with respect to how the information furnished to Participants 
should be protected by the Participants.
    Adding the two officers to make a determination of a Market 
Disruption Event and adding the Systems Disconnect Rule are also 
consistent with Rule 17Ad-22(e)(1) under the Act because those changes 
would describe the circumstances under which DTC could take actions in 
the event of a Market Disruption Event or a Major Event that are 
necessary to protect DTC and its Participants. Providing clear 
guidelines with respect to Market Disruption Events and Major Events 
would allow DTC Participants to understand the rights and obligations 
of the Participants in the event of a Market Disruption Event or a 
Major Event.
    Therefore, by establishing uniform and clear standards with respect 
to its receipt and furnishing of confidential information, and by 
providing clear rights and obligations of DTC and its Participants with 
respect to Market Disruption Events and Major Events, DTC believes that 
the proposed rule change is consistent with the requirements of Rule 
17Ad-22(e)(1) promulgated under the Act.\28\
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    \28\ Id.
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Rule 17Ad-22(e)(21)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(21) promulgated under the Act,\29\ which requires 
DTC to, inter alia, establish, implement, maintain and enforce written 
policies and procedures reasonably designed to be efficient and 
effective in meeting the requirements of its Participants and the 
markets it serves. The proposed rule change would streamline the DTC 
Confidentiality Requirements by providing that DTC would apply one 
standard for all Participants relating to confidential information sent 
to DTC by Participants, which would enhance (i) efficiency by avoiding 
applying varying standards of confidentiality based on the rules and 
regulations of the varying regulatory bodies that regulate the 
Participants, and (ii) effectiveness by reducing potential conflicts of 
laws and providing equal treatment to Participants relating to such 
confidential information.
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    \29\ 17 CFR 240.17Ad-22(e)(21).
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    The addition of the Participant Confidentiality Requirements would 
also provide a uniform and easily discernable requirement for all 
Participants with respect to confidential information provided by DTC 
allowing DTC to provide necessary information to such Participants in a 
safe and efficient manner. Adding two additional officers that are able 
to make an interim determination of a Market Disruption Event in the 
event that the Board of Directors is unable to convene would add 
additional flexibility and tools to DTC while maintaining proper risk 
controls and improve the ability of DTC to act quickly, efficiently and 
effectively in a Market Disruption Event to address and minimize 
losses. Also, providing for the ability of DTC to disconnect DTCC 
Systems Participants, suspend the receipt or transmission of files or 
communications to or from a DTCC Systems Participant, and/or require 
the DTCC Systems Participant to take such other actions as are 
necessary to protect DTC and its Participants would, in each case, 
provide additional tools for DTC in the event of a Major Event and 
improve DTC's ability to act quickly, efficiently and effectively in 
the event of a Major Event to address and minimize losses.
    Therefore, by establishing a more efficient and effective process 
for the treatment of confidential language, and establishing procedures 
designed to improve DTC's ability to act quickly, efficiently and 
effectively in the event of a Market Disruption Event and a Major 
Event, DTC believes that the proposed rule change is consistent with 
the requirements of Rule 17Ad-22(e)(21) promulgated under the Act.\30\
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    \30\ Id.
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Rule 17Ad-22(e)(2)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(2) promulgated under the

[[Page 36838]]

Act,\31\ which requires DTC to, inter alia, establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to provide for governance arrangements that are clear and 
transparent and that specify clear and direct lines of responsibility.
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    \31\ 17 CFR 240.17Ad-22(e)(2).
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    Adding two additional officers that are able to make an interim 
determination of a Market Disruption Event in the event that the Board 
of Directors is unable to convene would add additional flexibility and 
tools to DTC while maintaining proper risk controls, and improve the 
ability of DTC to act quickly, efficiently and effectively in a Market 
Disruption Event and mitigate any impact from such Market Disruption 
Event. Adding these officers to the governance procedures relating to a 
determination of a Market Disruption Event would make such governance 
procedures clear and transparent, and specify clear and direct lines of 
responsibility with respect to the determination of a Market Disruption 
Event, consistent with Rule 17Ad-22(e)(2) under the Act.\32\
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    \32\ Id.
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    Adding the governance procedures relating to making a determination 
of a Major Event in the Systems Disconnect Rule is also consistent with 
Rule 17Ad-22(e)(2) promulgated under the Act.\33\ Identifying the 
officers that have the ability to determine if there is a Major Event, 
and providing for the ability of any management committee on which all 
of such officers serve and the Board of Directors to ratify, modify or 
rescind any determination of a Major Event by an officer would make 
such governance procedures clear and transparent, and specify clear and 
direct lines of responsibility with respect to the determination of a 
Major Event, consistent with Rule 17Ad-22(e)(2).\34\
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    \33\ Id.
    \34\ Id.
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Rule 17Ad-22(e)(17)
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(17)(i) promulgated under the Act,\35\ which 
requires DTC to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to manage the covered 
clearing agency's operational risks by identifying the plausible 
sources of operational risk, both internal and external, and mitigating 
their impact through the use of appropriate systems, policies, 
procedures, and controls.
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    \35\ 17 CFR 240.17Ad-22(e)(17)(i).
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    Adding two additional officers that are able to make an interim 
determination of a Market Disruption Event in the event that the Board 
of Directors is unable to convene would add additional flexibility and 
tools to DTC while maintaining proper risk controls and improve the 
ability of DTC to act quickly, efficiently and effectively in a Market 
Disruption Event and mitigate any impact from such Market Disruption 
Event. Also, providing for the ability of DTC to disconnect DTCC 
Systems Participants, suspend the receipt or transmission of files or 
communications to or from a DTCC Systems Participant, and/or require 
the DTCC Systems Participant to take such other actions as are 
necessary to protect DTC and its Participants would, in each case, 
provide additional tools for DTC in the event of a Major Event and 
improve DTC's ability to act quickly, efficiently and effectively in 
the event of a Major Event and mitigate any impact from such Major 
Event.
    Therefore, by providing clear, efficient procedures of DTC and its 
Participants with respect to Market Disruption Events and Major Events 
that help identify and mitigate operational risks, DTC believes that 
the proposed rule change is consistent with the requirements of Rule 
17Ad-22(e)(17)(i) promulgated under the Act.\36\
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    \36\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed changes relating to the DTC 
Confidentiality Requirements would have any impact on competition. 
These changes would provide one standard for how DTC treats Participant 
information furnished subject to the DTC Confidentiality Requirements 
but would not affect the information that the Participants are required 
to provide or affect the manner in which the Participants must provide 
the information. As such, DTC believes these proposed rule changes 
would not have any impact on competition.
    DTC does not believe the proposed changes relating to adding 
Participant Confidentiality Requirements would have any impact on 
competition. Although the addition of the Participant Confidentiality 
Requirements would be adding obligations on Participants with respect 
to how they treat confidential or proprietary information of DTC or its 
affiliates, such obligations would be minimal because DTC would only 
require that such Participants hold such confidential information using 
the same means they use to protect their own confidential information 
but not less than a reasonable standard of care. The use of this 
standard would protect DTC by providing a clear legal obligation to 
protect such information but would not be burdensome or expensive for 
Participants, and therefore DTC believes that it would not have any 
impact on competition.
    DTC does not believe the changes relating to adding the two 
officers to make a determination of a Market Disruption Event would 
have any impact on competition. The proposed rule change would add two 
senior executive officers of DTC, the Chief Information Officer and the 
Head of Clearing Agency Services, to the list of officers that could 
make a determination of a Market Disruption Event if the Board of 
Directors is unable to convene. Such addition would provide additional 
officers who could determine whether there is a Market Disruption Event 
but would not otherwise affect the rights of Participants or DTC in the 
determination of a Market Disruption Event or if a Market Disruption 
Event is declared. Therefore, DTC does not believe that the addition of 
the two officers would have any impact on competition.
    DTC does not believe that the changes relating to adding the 
Systems Disconnect Rule would have any impact, or impose any burden, on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\37\ To the extent that DTC determines that there is a Major 
Event, it could take or refrain from taking actions, or require 
Participants to take or refrain from taking actions, that could burden 
competition because such requirements could cause Participants to incur 
additional costs, allow DTC to suspend services or communications, or 
disconnect a DTCC Systems Participant from the DTCC Systems. DTC 
believes such burden on competition could be significant but would be 
both necessary and appropriate in furtherance of the purposes of the 
Act, as permitted by Section 17A(b)(3)(I) of the Act,\38\ for the 
reasons described below.
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    \37\ 15 U.S.C. 78q-1(b)(3)(I).
    \38\ Id.
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    DTC believes that the proposed changes to add the Systems 
Disconnect Rule are necessary in furtherance of the purposes of Section 
17A(b)(3)(F) of the Act,\39\ and Rules 17Ad-22(e)(1), (e)(2), (e)(17) 
and (e)(21) promulgated under the Act.\40\ The proposed changes to add 
the Systems Disconnect Rule would (i)

[[Page 36839]]

improve the ability of DTC to react to a Major Event allowing DTC to 
protect itself and its Participants and their ability to promptly and 
accurately clear and settle securities transactions, and allow DTC to 
safeguard securities and funds that are in its custody or control, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act,\41\ (ii) provide clear guidelines with respect to Major Events 
that would allow Participants to understand the rights and obligations 
of the Participants and DTC in the event of a Major Event, consistent 
with Rule 17Ad-22(e)(1) promulgated under the Act,\42\ (iii) identify 
the officers that have the ability to determine if there is a Major 
Event, and provide for the ability of any management committee on which 
all of such officers serve, and the Board of Directors, to ratify, 
modify or rescind any determination of a Major Event by an officer, 
which would make such governance procedures clear and transparent, and 
specify clear and direct lines of responsibility with respect to the 
determination of a Major Event, consistent with Rule 17Ad 22(e)(2) 
promulgated under the Act,\43\ (iv) improve the ability of DTC to act 
quickly, efficiently and effectively in the event of a Major Event, and 
mitigate any impact from such event by providing clear, efficient 
procedures of DTC and its Participants with respect to such event, 
consistent with the requirements of Rule 17Ad-22(e)(17)(i) promulgated 
under the Act \44\ and (v) establish procedures designed to improve 
DTC's ability to act quickly, efficiently and effectively in the event 
of a Major Event, consistent with the requirements of Rule 17Ad-
22(e)(21) promulgated under the Act.\45\
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    \39\ 15 U.S.C. 78q-1(b)(3)(F).
    \40\ 17 CFR 240.17Ad-22(e)(1), (e)(2), (e)(17) and (e)(21).
    \41\ 15 U.S.C. 78q-1(b)(3)(F).
    \42\ 17 CFR 240.17Ad-22(e)(1).
    \43\ 17 CFR 240.17Ad-22(e)(2).
    \44\ 17 CFR 240.17Ad-22(e)(17)(i).
    \45\ 17 CFR 240.17Ad-22(e)(21).
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    In addition, DTC believes that the proposed changes to add the 
Systems Disconnect Rule are appropriate in furtherance of the Act. Such 
changes have been designed to improve the ability of DTC to act 
quickly, efficiently and effectively in the event of a Major Event, and 
mitigate any impact from such event while also providing the 
Participants clear guidelines with respect to such event to allow 
Participants to understand their rights and obligations. Such changes 
have also been designed to apply uniformly to all Participants in the 
event of a Major Event and should not affect DTC's day-to-day 
operations under normal circumstances, or in the management of a 
typical Participant default scenario or non-default event.
    Therefore, DTC does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.\46\
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    \46\ 15 U.S.C. 78q-1(b)(3)(I).
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(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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-2021-011 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-DTC-2021-011. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(https://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2021-011 and should be submitted on 
or before August 3, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14797 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P