Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to the DTC Fee Schedule To Revise Certain Fees Charged to Participants for (i) Participants Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and (iv) Settlement Services, 975-981 [2024-00078]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 5 (Monday, January 8, 2024)]
[Notices]
[Pages 975-981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99264; File No. SR-DTC-2023-014]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to the DTC Fee Schedule To Revise Certain Fees Charged to Participants 
for (i) Participants Fund Maintenance; (ii) Underwriting Services; 
(iii) Asset Services; and (iv) Settlement Services

January 2, 2024.
    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 December 21, 2023, 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)(2) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ would modify the DTC Fee Schedule \6\ 
(``Fee Guide'') to revise certain fees charged to Participants for (i) 
Participants Fund Maintenance; (ii) Underwriting Services; \7\ (iii) 
Asset Services; and (iv) Settlement Services, as described below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ Available at www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/DTC-Fee-Schedule.pdf.
    \7\ Pursuant to Rule 2, Section 1, each Participant shall pay to 
DTC the compensation due it for services rendered to the Participant 
based on DTC's fee schedules. See Rule 2, supra note 5.
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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

Purpose
    The proposed rule change would modify the Fee Guide to revise 
certain fees charged to Participants for (i) Participants Fund 
Maintenance; (ii) Underwriting Services; (iii) Asset Services; and (iv) 
Settlement Services, as described below.
Overview
    DTC operates a ``low cost'' pricing model and has in place 
procedures to control costs and to regularly review pricing levels 
against costs of operation. It reviews pricing levels against its costs 
of operation during the annual budget process. The budget is approved 
annually by the Board. DTC's fees are cost-based plus a low-margin 
markup, as approved by the Board or management (pursuant to authority 
delegated by the Board), as applicable. The markup is applied to 
recover development costs and operating expenses, and to accumulate 
capital sufficient to meet regulatory and economic requirements. When 
estimating expected revenues and costs, DTC typically uses historical, 
current, and expected usage and market trends to determine revenue 
outlook and apply current budgeted assumptions on costs.
    In addition to assessing the overall impact of fee changes at DTC, 
the Board also considers impacts of fee changes from an individual 
product/service category (e.g., Underwriting, Asset Services, 
Participants Fund Maintenance) perspective, taking cost and capital 
considerations relating to a given category into account. After 
evaluation of DTC's short-term and long-term financial position in 
consideration of expected Participant activity, revenues, cost of 
funding, market volatility, and the financial markets more broadly, DTC 
has determined that it should increase the overall amount it collects 
from Participants through fees. In this regard, the proposed rule 
change would increase certain fees relating to Participants Fund 
maintenance and Underwriting Services, and it would eliminate and 
consolidate other Asset Services fees included in the Fee Guide, to 
better align cost and revenue, as described below.
Participant Fund Maintenance Fee Increase
    DTC maintains a pool of funds used for liquidity purposes 
consisting of mandatory and voluntary contributions by Participants 
(``Participants Fund''). The Participants Fund creates liquidity and 
collateral resources to support the business of DTC and to cover losses 
and liabilities incident to that business. For this purpose, every 
Participant has a Required Participants Fund Deposit based on the 
Participant's activity at DTC. The Participants Fund is held in cash at 
DTC and is used in the event a Participant fails to settle.
    In support of maintaining the Participants Fund, DTC charges a 
Participants Fund Maintenance Fee, which is a monthly fee calculated, 
in arrears, as the product of (A) 0.25 percent and (B) the average of 
each Participant's Actual Participants Fund Deposit, as of the end of 
each day, for the month, multiplied by the number of days for that 
month and divided by 360.\8\ DTC proposes to increase the rate used to 
calculate the Participants Fund Maintenance Fee by 10 basis points from 
0.25 percent to 0.35 percent. DTC is proposing this increase in order 
to cover its costs for servicing the fund and to maintain the 
appropriate low-margin markup above costs.
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    \8\ See Fee Guide, supra note 6 at 20.
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    All 193 Participants are projected to incur a 40 percent increase 
to their

[[Page 976]]

individual Participants Fund Maintenance Fee as a result of the 
increase. Of these Participants, six would see an increase between 
$100,000 and $130,000; 27 would see an increase between $10,000 and 
$100,000; and 160 would see an increase of less than $10,000.
Underwriting Fee Increase
    DTC, through its Underwriting Department, serves the financial 
industry by making securities eligible for depository services. Through 
DTC, Participants have the ability to distribute new and secondary 
offerings quickly and economically by electronic book-entry delivery 
and settlement. These securities are then available for depository 
services.
    Due to decreasing issuance volumes since 2021, strategic 
investments in modernization, and continued inflationary headwinds, 
DTC's Underwriting fees, which have not changed in 10 years, are not 
covering its costs. DTC proposes to amend the Fee Guide to increase the 
Underwriting eligibility fees charged to Participants to better align 
costs and revenue.
    Specifically, DTC proposes to increase eligibility fees by 
approximately 20 percent across the following Underwriting fees (bold, 
underlined text indicates additions and bold, strikethrough text 
indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN08JA24.000

    Sixty-five Participants would see an increase in Underwriting fees. 
Of these Participants, 14 would see an increase between $100,000 and 
$800,000; 26 would see an increase between $10,000 and $100,000; and 25 
would see an increase of less than $10,000.
Asset Services--Simplification and Consolidation of Fees
    Asset Services is comprised of diverse asset events outside of 
clearance and settlement. It encompasses over 1.3 million DTC-eligible 
equity and debt securities, and provides efficient and effective 
centralization, simplification, and automation in the handling of 
physical securities. It also processes principal, income, and corporate 
actions for these instruments.
    DTC conducted an extensive review of the current DTC Fee Schedule 
to ensure alignment with current practice and to streamline DTC's fee 
structure for a better client experience. The proposed changes to both 
eliminate and consolidate several Asset Services fees would improve 
customer billing transparency and provide clearer guidance on when fees 
are applied. The proposed changes also further reduce the complexity of 
tiered fee structures and eliminate fees for outdated and non-value-add 
services. These changes will not have a material impact on the total 
dollar amount of Asset Services fees charged to Participants.
    Specifically, the following entries in the Asset Services section 
of the Fee Guide would be revised (bold, underlined text indicates 
additions and bold, strikethrough text indicates deletions):

[[Page 977]]

[GRAPHIC] [TIFF OMITTED] TN08JA24.001


[[Page 978]]


[GRAPHIC] [TIFF OMITTED] TN08JA24.002


[[Page 979]]


Settlement Services
    The following entries in the Settlement Services section of the Fee 
Guide would be revised (bold, underlined text indicates additions and 
bold strikethrough text indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN08JA24.003

[GRAPHIC] [TIFF OMITTED] TN08JA24.004

Participant Outreach
    DTC has conducted ongoing outreach to each Participant in order to 
provide them with notice of the proposed changes and the anticipated 
impact for the Participant. The impact of the proposed changes was 
provided to Participants using year to date July 2023 annualized data. 
Participants asked clarifying questions but did not express concerns.
Implementation Timeframe
    DTC would implement this proposal on January 1, 2024. To that 
effect, a legend would be added to the Fee Guide stating there are 
changes that have become effective upon filing with the but have not 
yet been implemented. The

[[Page 980]]

proposed legend also would include a date on which such changes would 
be implemented and the file number of this proposal, and state that, 
once this proposal is implemented, the legend would automatically be 
removed from the Fee Guide.
2. Statutory Basis
    DTC believes this proposal is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, DTC believes the proposed 
changes to modify fees charged to Participants for (i) Participants 
Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and 
(iv) Settlement Services, as described above, are consistent with 
Section 17A(b)(3)(D) of the Act,\9\ for the reasons described below. 
DTC also believes that the proposed changes to update the Fee Guide 
with the new fees are consistent with Rule 17Ad-22(e)(23)(ii),\10\ as 
promulgated under the Act, for the reasons described below.
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    \9\ 15 U.S.C. 78q-1(b)(3)(D).
    \10\ 17 CFR.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act requires, inter alia, that the 
Rules provide for the equitable allocation of reasonable dues, fees, 
and other charges among Participants.\11\ DTC believes the proposed 
rule change to revise fees charged to Participants for (i) Participants 
Fund Maintenance; (ii) Underwriting Services; (iii) Asset Services; and 
(iv) Settlement Services, would provide for the equitable allocation of 
reasonable fees. Because all 193 Participants would see an increase in 
fees, and those increases are equally shared (e.g., in the case of the 
Participants Fund Maintenance with a consistent 40 percent increase per 
Participant) and directly proportional to the Participants' use of 
DTC's services (e.g., in the case of the Underwriting and Asset Service 
fees), DTC believes the fees continue to be equitably allocated.
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    \11\ 15 U.S.C. 78q-1(b)(3)(D).
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    DTC also believes that the proposed fees would continue to be 
reasonable under the described changes. As described above, DTC's fees 
are cost-based plus a low-margin markup. As such the proposed fee 
changes are simply designed to better align to the projected operating 
costs and expenses of DTC relating to its services. For this reason, 
DTC believes that the proposed fee changes, as described above, are 
reasonable and consistent with Section 17A(b)(3)(D) of the Act.\12\
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    \12\ Id.
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    Rule 17Ad-22(e)(23)(ii) under the Act \13\ requires DTC to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to provide sufficient information to 
enable participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency. The proposed fees would be clearly and transparently published 
in the Fee Guide, which is available on a public website,\14\ thereby 
enabling Participants to identify the fees and costs associated with 
participating in DTC. As such, DTC believes the proposed rule change is 
consistent with Rule 17Ad-22(e)(23)(ii) under the Act.\15\
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    \13\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \14\ See supra note 6.
    \15\ 17 CFR 240.17Ad-22(e)(23)(ii).
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(B) Clearing Agency's Statement on Burden on Competition

    The proposed rule change may impact competition and that impact may 
be a burden because it would result in increased fees paid by 
Participants, as described above. However, DTC does not believe such a 
burden would be significant because the fees would be charged equally 
to all Participants that utilize DTC's services and would merely 
reflect the Participants' activity at DTC. Regardless, DTC believes any 
burden would be necessary and appropriate in furtherance of the 
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\16\
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    \16\ 15 U.S.C. 78q-1(b)(3)(I).
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    DTC believes any such burden would be necessary because the 
proposed fee increases would better align the fees with DTC's 
associated costs, helping DTC to achieve and maintain its net income 
margin. Meanwhile, DTC also believes that any such burden would be 
appropriate because the fees would continue to be equitably and 
reasonably allocated among all Participants, as described above.

(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. If any written comments are received, they would be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at [email protected] or 202-551-5777.

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) of the Act and paragraph (f) 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 [email protected]. Please include 
file number SR-DTC-2023-014 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-DTC-2023-014. 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

[[Page 981]]

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 a.m. and 3 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://www.dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to file number SR-DTC-2023-014 and should be submitted on or 
before January 29, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00078 Filed 1-5-24; 8:45 am]
BILLING CODE 8011-01-P