Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the DTC Corporate Actions Distributions Service Guide, 60941-60944 [2024-16551]

Download as PDF ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 89, No. 145 / Monday, July 29, 2024 / Notices In terms of intra-market competition, the Exchange will apply the proposed surcharge uniformly to all market participants. As discussed above, the majority of NDX contracts have a premium of less than $25.00 and these contracts would not incur the proposed $0.25 surcharge as they would fall under the premium price threshold at which the surcharge would be assessed. By limiting the proposed surcharge to higher-priced NDX contracts (i.e., with a premium price of $25.00 or higher), the Exchange believes that its proposal will continue to promote liquidity in NDX by maintaining lower costs for lowerpriced NDX contracts. Greater liquidity benefits all market participants by providing more trading opportunities, tighter spreads, and added market transparency and price discovery. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other options exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. As noted above, market participants are offered an opportunity to transact in NDX, or separately execute options overlying QQQ. Offering these products provides market participants with a variety of choices in selecting the product they desire to use to gain exposure to the Nasdaq 100 Index. Furthermore, the proposed surcharge is in line with surcharges assessed on other products at another options exchange.16 In addition to the Exchange, market participants have alternative options exchanges that they may participate on and direct their order flow, which list proprietary products that compete with NDX.17 In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does 16 See supra note 8. e.g., pricing for Russell 2000 Index (‘‘RUT’’) on Cboe’s Fees Schedule and Cboe C2 Exchange, Inc.’s (‘‘C2’’) Fees Schedule. See also SPX pricing on Cboe’s Fees Schedule. Both RUT and SPX are proprietary products on the Cboe markets that are broad-based index options, like NDX and NDXP. 17 See VerDate Sep<11>2014 18:51 Jul 26, 2024 Jkt 262001 not believe that the proposed changes will impair the ability of members or competing options exchanges to maintain their competitive standing in the financial markets. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 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)(ii) of the Act.18 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: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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 rule-comments@ sec.gov. Please include file number SR– GEMX–2024–22 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–GEMX–2024–22. 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 PO 00000 18 15 U.S.C. 78s(b)(3)(A)(ii). Frm 00087 Fmt 4703 Sfmt 4703 60941 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 the Exchange. 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–GEMX–2024–22 and should be submitted on or before August 19, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–16548 Filed 7–26–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100581; File No. SR–DTC– 2024–006] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the DTC Corporate Actions Distributions Service Guide July 23, 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 July 17, 2024, 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) 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 1 15 E:\FR\FM\29JYN1.SGM 29JYN1 60942 Federal Register / Vol. 89, No. 145 / Monday, July 29, 2024 / Notices 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 Tax Event Announcement Feature section 6 of the Distributions Guide.7 The proposed change would modify a requirement relating to the Sub-Event Type 8 known as ‘‘1042–S Classifications,’’ as described below. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change would amend The Tax Event Announcement Feature section of the Distributions Guide. The proposed change would modify a requirement relating to the 4 17 CFR 240.19b–4(f)(4). capitalized term not otherwise defined herein has its respective meaning as set forth in the Rules, By-Laws and Organization Certificate of The Depository Trust Company (‘‘DTC Rules’’), available at https://www.dtcc.com/-/media/Files/ Downloads/legal/rules/dtc_rules.pdf, or the DTC Corporate Actions Distributions Service Guide (‘‘Distributions Guide’’), available at https:// www.dtcc.com/∼/media/Files/Downloads/legal/ service-guides/Service-Guide-Distributions.pdf. 6 Tax Event Announcements provide Participants with information-only announcements regarding taxable events that may give rise to tax-related information and/or withholding obligations that occur, even in the absence of an actual distribution of dividend and interest payments (‘‘Tax Events’’). See Distributions Guide, supra note 5, at 13–15. 7 The Distributions Guide, supra note 5, is a Procedure of DTC. Pursuant to the DTC Rules, the term ‘‘Procedures’’ means the Procedures, service guides, and regulations of DTC adopted pursuant to DTC Rule 27, as amended from time to time. See DTC Rule 1, Section 1, supra note 5. They are binding on DTC and each Participant in the same manner that they are bound by the DTC Rules. See DTC Rule 27, supra note 5. 8 Tax Event Announcements are classified by ‘‘Event Type’’ and ‘‘Sub-Event Type.’’ See Distributions Guide, supra note 5, at 13–15. ddrumheller on DSK120RN23PROD with NOTICES1 5 Each VerDate Sep<11>2014 18:51 Jul 26, 2024 Jkt 262001 Sub-Event Type known as ‘‘1042–S Classifications,’’ as described below. 1042–S Classifications—Background Pursuant to Rule 1.1446–4(b)(4) under the Internal Revenue Code of 1986, as amended (‘‘Code’’),9 issuers of publicly traded partnerships 10 are, in effect, required to provide DTC with ‘‘qualified notices,’’ for the issuer’s applicable Eligible Securities held by DTC,11 that classify a distribution for such securities into multiple components for tax withholding and Internal Revenue Service Form 1042–S 12 reporting purposes (‘‘1042–S Classifications’’). For example, on a $1.00 distribution, the qualified notice may state that $0.60 is considered dividend income and $0.40 is income effectively connected with the conduct of a trade or business in the United States. DTC forwards such qualified notices to Participants, as discussed below. Meanwhile, other issuers may not be required under applicable tax law to provide DTC with 1042–S Classifications. For example, a regulated investment company may classify a portion of a distribution as representing interest-related dividends or as a shortterm capital gain dividend, but it would not be required to provide a qualified notice to DTC pursuant to Rule 1.1446– 4(b)(4) under the Code.13 However, DTC accepts 1042–S Classifications voluntarily submitted to DTC by issuers using a template provided by DTC.14 Regardless of whether DTC receives 1042–S Classifications voluntarily or otherwise, it will distribute that information to Participants that hold the applicable securities. The Distributions Guide currently provides that the breakdown of the 1042–S Classifications must be provided to DTC prior to the record date 15 of the distribution and should not be subject to change.16 The information is currently CFR 1.1446–4(b)(4). (providing definition of publicly traded partnership). 11 Such issuers are required to provide such notices to DTC as the registered holder of the subject Eligible Securities via DTC’s nominee, Cede & Co. 12 See Form 1042–S, available at https:// www.irs.gov/pub/irs-pdf/f1042s.pdf. 13 26 CFR 1.1446–4(b)(4). 14 See Distributions Guide, supra note 5, at 15. 15 The record date is the date set by an issuer of a security by which an investor must own the security to be eligible to receive an upcoming distribution. See DTC Operational Arrangements Necessary for Securities to Become and Remain Eligible for DTC Services (‘‘OA’’), available at https://www.dtcc.com/∼/media/Files/Downloads/ legal/issue-eligibility/eligibility/operationalarrangements.pdf, at 26. 16 See Distributions Guide, supra note 5, at 15. PO 00000 9 26 10 Id. Frm 00088 Fmt 4703 Sfmt 4703 required prior to record date to help ensure that DTC has sufficient time to then deliver the corresponding information to the Participants in advance of payment of the distribution, which may trigger a tax withholding and/or reporting obligation for the receiving Participant. The Distributions Guide also currently provides that by providing DTC a completed template or qualified notice, the issuer certifies that the information provided in the template is not subject to change, but that DTC will accept and distribute updated information to Participants to the extent an issuer notifies DTC that the issuer made an error in the information provided and provides DTC with a corrected template or qualified notice, as applicable.17 Proposed Rule Change Time Frame for Submission of 1042–S Classification Information As mentioned above, to promote timeliness and accuracy of issuer information provided to DTC, the Distributions Guide requires the breakdown of the 1042–S Classifications be provided prior to the record date. However, even if an issuer can provide the information prior to record date, it is DTC’s understanding that due to the timing of the availability of income source information to issuers, issuers may be unable to report such information before ex-date,18 which, with certain exceptions, was set to occur one business day before record date in a settlement cycle where settlement occurred two days after trade (‘‘T+2’’).19 However, with the recent shortening of the U.S. settlement cycle from T+2 to one-day following trade date (‘‘T+1’’),20 that timeline is compressed such that ex-date and record date now will be the same date, normally. Therefore, issuers may not be able to submit 1042–S Classifications prior to record date. Since issuers may not be able to submit 1042–S Classification information prior to record date given that ex-date and record date now will occur on the same date in a T+1 settlement cycle, DTC proposes to 17 Id. 18 The ex-date is the date on which a stock starts trading without the benefit of corporate action (i.e., ex-benefit). 19 The ex-date is determined in accordance with the applicable market procedures. E.g., NYSE Listed Company Manual, Section 703.02 (part 2) (Stock Split/Stock Rights/Stock Dividend Listing Process), available at https://nyseguide.srorules.com/listedcompany-manual/09013e2c855788a0. 20 See Securities Exchange Act Release No. 96930 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 2023) (S7– 05–22) (Shortening the Securities Transaction Settlement Cycle). E:\FR\FM\29JYN1.SGM 29JYN1 Federal Register / Vol. 89, No. 145 / Monday, July 29, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 amend the Distributions Guide to state that the breakdown of these classifications must be provided to DTC ‘‘on or before’’ record date. 1042–S Classification Changes and Related Certification As described above, the Distributions Guide currently provides that the breakdown of the 1042–S Classifications information ‘‘should not be subject to change’’ 21 and that information provided in a complete and ‘‘certified’’ template ‘‘is not subject to change;’’ however, the Distributions Guide also provides that DTC will accept and distribute updated information if updated information is provided to correct an error.22 DTC proposes to revise these provisions to make technical changes, provide more clarity, and better align the language to practices, as described below. First, DTC would make a technical change for conciseness. In this regard, the text that states that 1042–S Classifications provided by the issuer ‘‘should not be subject to change’’ will be revised to state that the classifications ‘‘should be final.’’ Second, text that provides that an issuer ‘‘certifies’’ that the information provided to DTC in a template ‘‘is not subject to change’’ would be revised to replace (a) ‘‘certifies’’ with ‘‘confirms’’ and (b) ‘‘is not subject to change’’ to ‘‘should be final.’’ With respect to (a), it is DTC’s understanding that issuers may not be able to certify that information is final until they complete their year-end tax filings. The revision of the reference from ‘‘certifies’’ to ‘‘confirms’’ would continue to provide DTC with comfort that the issuer believes that the 1042–S Classification information is final, without requiring a certification with respect to information that could change. Third, text stating ‘‘DTC will accept and distribute updated information to Participants to the extent an Issuer notifies DTC that the Issuer entered an error in the applicable template or qualified notice provided by it to DTC and the Issuer provides DTC with a corrected template or qualified notice, as applicable’’ will be revised (x) so that the text stating ‘‘notifies DTC that the Issuer entered an error in the applicable template or qualified notices provided by it to DTC’’ will be replaced with ‘‘notifies DTC that the information has changed’’ and (y) to make a technical change to replace ‘‘a corrected template or qualified notice, as applicable’’ with ‘‘corrected classification information in 21 See compliance with applicable tax regulations.’’ The change described in (x) would account for the possibility that information submitted by an issuer may change for a reason other than an error, such as a change realized as part of a year-end tax process. The change described in (y) reflects that reporting requirements relating to1042–S Classifications, and any corrections thereto, provided by issuers to DTC stem from issuers’ reporting obligations under applicable tax regulations. Fourth, also to reflect that the requirements for issuers reporting 1042– S Classifications stem from obligations under applicable tax regulations, the sentence stating, ‘‘DTC reserves the right not to accept classification information from Issuers that do not abide by these requirements’’ would be extended to add ‘‘and/or applicable tax regulations.’’ Fifth, references to ‘‘Record Date’’ and ‘‘Issuer’’ would be updated to lowercase because they are not defined terms. 2. Statutory Basis DTC believes that the proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder applicable to DTC, in particular Section 17A(b)(3)(F) 23 of the Act. Section 17A(b)(3)(F) of the Act requires, inter alia, that the rules of the clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.24 As described above, in addition to certain clarifying and technical changes, the proposed rule change would update the Distributions Guide to provide that (i) the breakdown of 1042–S Classifications must be provided to DTC ‘‘on or before’’ record date, instead of ‘‘prior to’’ record date given the new, shortened settlement cycle of T+1; (ii) the information provided ‘‘should be final,’’ even if provided via a DTC template; and (iii) changed information provided to DTC is not limited to just erroneous entries. By revising provisions in the Distributions Guide relating to The Tax Event Announcement Feature in this regard, DTC believes that the proposed rule change would help facilitate Participants’ compliance with DTC’s time frames for submission of 1042–S Classifications in a T+1 settlement cycle and, thus, compliance with U.S. federal tax withholding obligations for the subject securities, while also continuing to provide DTC with comfort that the 1042–S Classification information received is near, if not, final. Distributions Guide, supra note 5, at 15. 22 Id. VerDate Sep<11>2014 23 15 U.S.C. 78q–1(b)(3)(F). 24 Id. 18:51 Jul 26, 2024 Jkt 262001 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 60943 Therefore, by helping to facilitate Participant’s ability to continue to use DTC’s book-entry transfer and settlement services with respect to Eligible Securities that are subject to 1042–S Classifications, the proposed rule change would help promote the prompt and accurate clearance and settlement of securities transactions, consistent with the requirements of the Act, in particular Section 17A(b)(3)(F) of the Act, cited above. (B) Clearing Agency’s Statement on Burden on Competition DTC believes that the proposed rule change will not impact competition. As described above, the proposed rule change merely facilitates issuers’ and Participants’ ability to continue to make use of 1042–S Classification reporting through DTC without materially altering requirements for submission or use of 1042–S Classification information. (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-tosubmit-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 tradingandmarkets@ sec.gov or 202–551–5777. DTC reserves the right to not respond to any comments received. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action The foregoing rule change has become effective pursuant to Section E:\FR\FM\29JYN1.SGM 29JYN1 60944 Federal Register / Vol. 89, No. 145 / Monday, July 29, 2024 / Notices 19(b)(3)(A) 25 of the Act and paragraph (f) 26 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: ddrumheller on DSK120RN23PROD with NOTICES1 Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules-regulations/self-regulatoryorganization-rulemaking); or • Send an email to rule-comments@ sec.gov. Please include file number SR– DTC–2024–006 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–2024–006. 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-regulations/self-regulatoryorganization-rulemaking). 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 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 (dtcc.com/legal/ 25 15 26 17 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–2024–006 and should be submitted on or before August 19, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–16551 Filed 7–26–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–523, OMB Control No. 3235–0585] Proposed Collection; Comment Request; Extension: Rule 206(4)–7 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. The title for the collection of information is ‘‘Investment Advisers Act rule 206(4)–7, 17 CFR 275.206(4)–7, Compliance procedures and practices.’’ This collection of information is found at 17 CFR 275.206(4)–7, and is mandatory. Rule 206(4)–7 under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) requires each investment adviser registered with the Commission to (1) adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules, (2) review those compliance policies and procedures annually, and (3) designate a chief compliance officer who is responsible for administering the compliance policies and procedures. The rule is designed to protect investors by fostering better compliance with the U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Sep<11>2014 18:51 Jul 26, 2024 27 17 Jkt 262001 PO 00000 CFR 200.30–3(a)(12). Frm 00090 Fmt 4703 Sfmt 4703 securities laws. The collection of information under rule 206(4)–7 is necessary to help ensure that investment advisers maintain comprehensive internal programs that promote the advisers’ compliance with the Advisers Act and its rules. The Commission’s examination and oversight staff may review the information collected to assess investment advisers’ compliance programs. Responses provided to the Commission pursuant to the rule in the context of the Commission’s examination and oversight program are generally kept confidential.1 An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The respondents to this information collection are investment advisers registered with the Commission. Updated data indicate that there were 15,441 advisers registered with the Commission as of December 31, 2023. Each respondent would produce one response, per year. Commission staff has estimated that compliance with rule 206(4)–7 imposes an annual burden of approximately 90 hours per response. Based on this figure, Commission staff estimates a total annual burden of 1,389,690 hours for this collection of information. Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by September 27, 2024. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Austin Gerig, Director/Chief Data Officer, Securities and Exchange Commission, c/o Oluwaseun Ajayi, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_Mailbox@ sec.gov. 1 See section 210(b) of the Advisers Act (15 U.S.C. 80b–10(b)). E:\FR\FM\29JYN1.SGM 29JYN1

Agencies

[Federal Register Volume 89, Number 145 (Monday, July 29, 2024)]
[Notices]
[Pages 60941-60944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16551]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100581; File No. SR-DTC-2024-006]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the DTC Corporate Actions Distributions Service Guide

July 23, 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 July 17, 2024, 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)

[[Page 60942]]

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)(4).
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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 Tax 
Event Announcement Feature section \6\ of the Distributions Guide.\7\ 
The proposed change would modify a requirement relating to the Sub-
Event Type \8\ known as ``1042-S Classifications,'' as described below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company (``DTC 
Rules''), available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/dtc_rules.pdf, or the DTC Corporate Actions 
Distributions Service Guide (``Distributions Guide''), available at 
https://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Service-Guide-Distributions.pdf.
    \6\ Tax Event Announcements provide Participants with 
information-only announcements regarding taxable events that may 
give rise to tax-related information and/or withholding obligations 
that occur, even in the absence of an actual distribution of 
dividend and interest payments (``Tax Events''). See Distributions 
Guide, supra note 5, at 13-15.
    \7\ The Distributions Guide, supra note 5, is a Procedure of 
DTC. Pursuant to the DTC Rules, the term ``Procedures'' means the 
Procedures, service guides, and regulations of DTC adopted pursuant 
to DTC Rule 27, as amended from time to time. See DTC Rule 1, 
Section 1, supra note 5. They are binding on DTC and each 
Participant in the same manner that they are bound by the DTC Rules. 
See DTC Rule 27, supra note 5.
    \8\ Tax Event Announcements are classified by ``Event Type'' and 
``Sub-Event Type.'' See Distributions Guide, supra note 5, at 13-15.
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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 would amend The Tax Event Announcement 
Feature section of the Distributions Guide. The proposed change would 
modify a requirement relating to the Sub-Event Type known as ``1042-S 
Classifications,'' as described below.
1042-S Classifications--Background
    Pursuant to Rule 1.1446-4(b)(4) under the Internal Revenue Code of 
1986, as amended (``Code''),\9\ issuers of publicly traded partnerships 
\10\ are, in effect, required to provide DTC with ``qualified 
notices,'' for the issuer's applicable Eligible Securities held by 
DTC,\11\ that classify a distribution for such securities into multiple 
components for tax withholding and Internal Revenue Service Form 1042-S 
\12\ reporting purposes (``1042-S Classifications''). For example, on a 
$1.00 distribution, the qualified notice may state that $0.60 is 
considered dividend income and $0.40 is income effectively connected 
with the conduct of a trade or business in the United States. DTC 
forwards such qualified notices to Participants, as discussed below.
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    \9\ 26 CFR 1.1446-4(b)(4).
    \10\ Id. (providing definition of publicly traded partnership).
    \11\ Such issuers are required to provide such notices to DTC as 
the registered holder of the subject Eligible Securities via DTC's 
nominee, Cede & Co.
    \12\ See Form 1042-S, available at https://www.irs.gov/pub/irs-pdf/f1042s.pdf.
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    Meanwhile, other issuers may not be required under applicable tax 
law to provide DTC with 1042-S Classifications. For example, a 
regulated investment company may classify a portion of a distribution 
as representing interest-related dividends or as a short-term capital 
gain dividend, but it would not be required to provide a qualified 
notice to DTC pursuant to Rule 1.1446-4(b)(4) under the Code.\13\
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    \13\ 26 CFR 1.1446-4(b)(4).
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    However, DTC accepts 1042-S Classifications voluntarily submitted 
to DTC by issuers using a template provided by DTC.\14\ Regardless of 
whether DTC receives 1042-S Classifications voluntarily or otherwise, 
it will distribute that information to Participants that hold the 
applicable securities.
---------------------------------------------------------------------------

    \14\ See Distributions Guide, supra note 5, at 15.
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    The Distributions Guide currently provides that the breakdown of 
the 1042-S Classifications must be provided to DTC prior to the record 
date \15\ of the distribution and should not be subject to change.\16\ 
The information is currently required prior to record date to help 
ensure that DTC has sufficient time to then deliver the corresponding 
information to the Participants in advance of payment of the 
distribution, which may trigger a tax withholding and/or reporting 
obligation for the receiving Participant.
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    \15\ The record date is the date set by an issuer of a security 
by which an investor must own the security to be eligible to receive 
an upcoming distribution. See DTC Operational Arrangements Necessary 
for Securities to Become and Remain Eligible for DTC Services 
(``OA''), available at https://www.dtcc.com/~/media/Files/Downloads/
legal/issue-eligibility/eligibility/operational-arrangements.pdf, at 
26.
    \16\ See Distributions Guide, supra note 5, at 15.
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    The Distributions Guide also currently provides that by providing 
DTC a completed template or qualified notice, the issuer certifies that 
the information provided in the template is not subject to change, but 
that DTC will accept and distribute updated information to Participants 
to the extent an issuer notifies DTC that the issuer made an error in 
the information provided and provides DTC with a corrected template or 
qualified notice, as applicable.\17\
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    \17\ Id.
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Proposed Rule Change
Time Frame for Submission of 1042-S Classification Information
    As mentioned above, to promote timeliness and accuracy of issuer 
information provided to DTC, the Distributions Guide requires the 
breakdown of the 1042-S Classifications be provided prior to the record 
date. However, even if an issuer can provide the information prior to 
record date, it is DTC's understanding that due to the timing of the 
availability of income source information to issuers, issuers may be 
unable to report such information before ex-date,\18\ which, with 
certain exceptions, was set to occur one business day before record 
date in a settlement cycle where settlement occurred two days after 
trade (``T+2'').\19\
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    \18\ The ex-date is the date on which a stock starts trading 
without the benefit of corporate action (i.e., ex-benefit).
    \19\ The ex-date is determined in accordance with the applicable 
market procedures. E.g., NYSE Listed Company Manual, Section 703.02 
(part 2) (Stock Split/Stock Rights/Stock Dividend Listing Process), 
available at https://nyseguide.srorules.com/listed-company-manual/09013e2c855788a0.
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    However, with the recent shortening of the U.S. settlement cycle 
from T+2 to one-day following trade date (``T+1''),\20\ that timeline 
is compressed such that ex-date and record date now will be the same 
date, normally. Therefore, issuers may not be able to submit 1042-S 
Classifications prior to record date.
---------------------------------------------------------------------------

    \20\ See Securities Exchange Act Release No. 96930 (Feb. 15, 
2023), 88 FR 13872 (Mar. 6, 2023) (S7-05-22) (Shortening the 
Securities Transaction Settlement Cycle).
---------------------------------------------------------------------------

    Since issuers may not be able to submit 1042-S Classification 
information prior to record date given that ex-date and record date now 
will occur on the same date in a T+1 settlement cycle, DTC proposes to

[[Page 60943]]

amend the Distributions Guide to state that the breakdown of these 
classifications must be provided to DTC ``on or before'' record date.
1042-S Classification Changes and Related Certification
    As described above, the Distributions Guide currently provides that 
the breakdown of the 1042-S Classifications information ``should not be 
subject to change'' \21\ and that information provided in a complete 
and ``certified'' template ``is not subject to change;'' however, the 
Distributions Guide also provides that DTC will accept and distribute 
updated information if updated information is provided to correct an 
error.\22\ DTC proposes to revise these provisions to make technical 
changes, provide more clarity, and better align the language to 
practices, as described below.
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    \21\ See Distributions Guide, supra note 5, at 15.
    \22\ Id.
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    First, DTC would make a technical change for conciseness. In this 
regard, the text that states that 1042-S Classifications provided by 
the issuer ``should not be subject to change'' will be revised to state 
that the classifications ``should be final.''
    Second, text that provides that an issuer ``certifies'' that the 
information provided to DTC in a template ``is not subject to change'' 
would be revised to replace (a) ``certifies'' with ``confirms'' and (b) 
``is not subject to change'' to ``should be final.'' With respect to 
(a), it is DTC's understanding that issuers may not be able to certify 
that information is final until they complete their year-end tax 
filings. The revision of the reference from ``certifies'' to 
``confirms'' would continue to provide DTC with comfort that the issuer 
believes that the 1042-S Classification information is final, without 
requiring a certification with respect to information that could 
change.
    Third, text stating ``DTC will accept and distribute updated 
information to Participants to the extent an Issuer notifies DTC that 
the Issuer entered an error in the applicable template or qualified 
notice provided by it to DTC and the Issuer provides DTC with a 
corrected template or qualified notice, as applicable'' will be revised 
(x) so that the text stating ``notifies DTC that the Issuer entered an 
error in the applicable template or qualified notices provided by it to 
DTC'' will be replaced with ``notifies DTC that the information has 
changed'' and (y) to make a technical change to replace ``a corrected 
template or qualified notice, as applicable'' with ``corrected 
classification information in compliance with applicable tax 
regulations.'' The change described in (x) would account for the 
possibility that information submitted by an issuer may change for a 
reason other than an error, such as a change realized as part of a 
year-end tax process. The change described in (y) reflects that 
reporting requirements relating to1042-S Classifications, and any 
corrections thereto, provided by issuers to DTC stem from issuers' 
reporting obligations under applicable tax regulations.
    Fourth, also to reflect that the requirements for issuers reporting 
1042-S Classifications stem from obligations under applicable tax 
regulations, the sentence stating, ``DTC reserves the right not to 
accept classification information from Issuers that do not abide by 
these requirements'' would be extended to add ``and/or applicable tax 
regulations.''
    Fifth, references to ``Record Date'' and ``Issuer'' would be 
updated to lowercase because they are not defined terms.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder 
applicable to DTC, in particular Section 17A(b)(3)(F) \23\ of the Act.
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires, inter alia, that the 
rules of the clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\24\ As 
described above, in addition to certain clarifying and technical 
changes, the proposed rule change would update the Distributions Guide 
to provide that (i) the breakdown of 1042-S Classifications must be 
provided to DTC ``on or before'' record date, instead of ``prior to'' 
record date given the new, shortened settlement cycle of T+1; (ii) the 
information provided ``should be final,'' even if provided via a DTC 
template; and (iii) changed information provided to DTC is not limited 
to just erroneous entries.
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    By revising provisions in the Distributions Guide relating to The 
Tax Event Announcement Feature in this regard, DTC believes that the 
proposed rule change would help facilitate Participants' compliance 
with DTC's time frames for submission of 1042-S Classifications in a 
T+1 settlement cycle and, thus, compliance with U.S. federal tax 
withholding obligations for the subject securities, while also 
continuing to provide DTC with comfort that the 1042-S Classification 
information received is near, if not, final.
    Therefore, by helping to facilitate Participant's ability to 
continue to use DTC's book-entry transfer and settlement services with 
respect to Eligible Securities that are subject to 1042-S 
Classifications, the proposed rule change would help promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with the requirements of the Act, in particular Section 
17A(b)(3)(F) of the Act, cited above.

(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change will not impact 
competition. As described above, the proposed rule change merely 
facilitates issuers' and Participants' ability to continue to make use 
of 1042-S Classification reporting through DTC without materially 
altering requirements for submission or use of 1042-S Classification 
information.

(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.
    DTC reserves the right to not respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section

[[Page 60944]]

19(b)(3)(A) \25\ of the Act and paragraph (f) \26\ 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.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-DTC-2024-006 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-2024-006. 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-regulations/self-regulatory-organization-rulemaking). 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 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 (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-2024-006 
and should be submitted on or before August 19, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16551 Filed 7-26-24; 8:45 am]
BILLING CODE 8011-01-P
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