Self-Regulatory Organizations; The Depository Trust Company; Order Approving of Proposed Rule Change To Decommission the ID Net Service, 88078-88080 [2024-25726]

Download as PDF 88078 Federal Register / Vol. 89, No. 215 / Wednesday, November 6, 2024 / Notices become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 24 and subparagraph (f)(6) of Rule 19b–4 thereunder.25 A proposed rule change filed under Rule 19b–4(f)(6) 26 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),27 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposal may become operative immediately upon filing. According to the Exchange, the proposed rule change is a competitive response to a substantively identical filing submitted by ISE that was recently approved by the Commission.28 The Commission believes that the proposed rule change presents no novel issues and that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing.29 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. 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: 24 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 26 17 CFR 240.19b–4(f)(6). 27 17 CFR 240.19b–4(f)(6)(iii). 28 See supra note 7. 29 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). khammond on DSKJM1Z7X2PROD with NOTICES 25 17 VerDate Sep<11>2014 16:22 Nov 05, 2024 Jkt 265001 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– CboeEDGX–2024–066 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101486; File No. SR–DTC– 2024–010] Self-Regulatory Organizations; The Depository Trust Company; Order Approving of Proposed Rule Change To Decommission the ID Net Service Paper Comments October 31, 2024. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. I. Introduction On September 12, 2024, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–DTC–2024–010 (‘‘Proposed Rule Change’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to decommission the ID Net service (‘‘ID Net Service’’ or ‘‘ID Net’’).3 The Proposed Rule Change was published for comment in the Federal Register on September 27, 2024.4 The Commission has received no comments on the Proposed Rule Change. For the reasons discussed below, the Commission is approving the Proposed Rule Change. All submissions should refer to file number SR–CboeEDGX–2024–066. 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 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–CboeEDGX–2024–066 and should be submitted on or before November 27, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Vanessa A. Countryman, Secretary. [FR Doc. 2024–25731 Filed 11–5–24; 8:45 am] BILLING CODE 8011–01–P 30 17 PO 00000 CFR 200.30–3(a)(12), (59). Frm 00080 Fmt 4703 Sfmt 4703 II. Background DTC serves as a central securities depository providing, in part, custodial services for equity securities, which include the safekeeping, record keeping, book-entry transfer, and pledge of securities among its Participants.5 The ID Net Service is a joint service offering of DTC and its affiliate, National Securities Clearing Corporation (‘‘NSCC’’), available on a voluntary basis to broker/dealers that are participants of both NSCC and DTC and banks that are participants of DTC.6 ID Net allows broker/dealer users to net their affirmed institutional transactions (‘‘Affirmed Transactions’’) with their transactions in NSCC’s Continuous Net Settlement 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Capitalized terms not defined herein are defined in the Rules, By-Laws and Organization Certificate of DTC (‘‘Rules’’) and the DTC Settlement Service Guide (‘‘Settlement Guide’’), available at https:// www.dtcc.com/legal/rules-and-procedures.aspx. 4 See Securities Exchange Act Release No. 101132 (Sept. 23, 2024), 89 FR 79320 (Sept. 27, 2024) (File No. SR–DTC–2024–010) (‘‘Notice of Filing’’). 5 See The Depository Trust Company, Disclosure Framework for Covered Clearing Agencies and Financial Market Infrastructures (Mar. 2023) (‘‘Disclosure Framework’’), available at https:// www.dtcc.com/-/media/Files/Downloads/legal/ policy-and-compliance/DTC_Disclosure_ Framework.pdf. 6 NSCC also filed a proposed rule change with the Commission in connection with decommissioning the ID Net Service. See Securities Exchange Act Release No. 101131 (Sept. 23, 2024), 89 FR 79324 (Sept. 27, 2024) (File No. SR–NSCC–2024–008). 2 17 E:\FR\FM\06NON1.SGM 06NON1 Federal Register / Vol. 89, No. 215 / Wednesday, November 6, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES (‘‘CNS’’) system.7 An institutional transaction is one between a broker/ dealer and its institutional customer. Such institutional customers are not Participants of DTC. Unlike exchange trades and most prime broker trades, most institutional delivery transactions do not currently flow through CNS but instead settle at DTC on a trade-for-trade basis.8 DTC may accept Affirmed Transactions submitted by a utility that provides a matching service (‘‘Matching Utility’’).9 The counterparties on an Affirmed Transaction submitted by a Matching Utility to DTC are a (i) DTC Participant, acting as clearing broker to the Affirmed Transaction and a (ii) DTC Participant bank, acting as the custodian for an institutional customer. The Affirmed Transaction is processed on a trade-for-trade basis at DTC, unless it is designated for ID Net processing by the Matching Utility and meets certain eligibility requirements. In order for an Affirmed Transaction to be eligible for processing in ID Net, (i) both counterparties to the Affirmed Transaction must be a Member of NSCC and a Participant of DTC, or a bank that is a Participant of DTC, that has subscribed to ID Net; and (ii) the transaction must be (a) in a security eligible for processing through NSCC’s CNS and (b) affirmed within established timeframes set forth in the Settlement Guide.10 If an Affirmed Transaction is designated for ID Net and meets the 7 CNS is NSCC’s system for accounting and settling CNS-eligible securities. See NSCC Rule 11 (describing the CNS System) and Procedure VII (describing the CNS Accounting Operation), available at www.dtcc.com/-/media/Files/ Downloads/legal/rules/nscc_rules.pdf. To be CNSeligible, a security must be eligible for book-entry transfer on the books of DTC and must be capable of being processed in the CNS system. All eligible compared and recorded transactions for a particular settlement date are netted by issue into one net long (buy), net short (sell) or flat position for each Member, and those positions are further netted with positions of the same issue that remain open after their originally scheduled settlement date. As central counterparty, NSCC becomes the contraparty for settlement purposes, assuming the obligation of its Members that are receiving securities to receive and pay for those securities and the obligation of Members that are delivering securities to make the delivery. CNS netting thus reduces the number of securities movements required to settle transactions. 8 See DTC Settlement Guide, supra note 3. 9 The Matching Utility must be (i) a clearing agency registered with the Commission, (ii) an entity that has obtained an exemption from such registration from the Commission, or (iii) a ‘‘qualified vendor’’ for trade confirmation/ affirmation services as defined by the rules of a selfregulatory organization. See DTC Settlement Guide, supra note 3, at 40. TCC ITP Matching (US) LLC (‘‘ITP’’), a DTC and NSCC affiliate, is currently the only Matching Utility that submits Affirmed Transactions to DTC. See Notice of Filing, supra note 4, at 79320 n.8. 10 See Settlement Guide, supra note 3, at 40–41. VerDate Sep<11>2014 16:22 Nov 05, 2024 Jkt 265001 eligibility criteria, then DTC will direct the transaction to ID Net, which facilitates the netting of a broker/ dealer’s side of an Affirmed Transaction with that broker/dealer’s CNS activity, via omnibus accounts that are maintained by NSCC at DTC and designated for ID Net activity. If a bank is a counterparty to the ID Net-eligible Affirmed Transaction, then it will either receive or deliver the subject shares versus payment, on a trade-for-trade basis, via the ID Net omnibus accounts. While ID Net allows broker/dealers to realize the benefit of netting for Affirmed Transactions by allowing the broker/dealer to net its ID Net-eligible Affirmed Transactions with its transactions in CNS, banks using ID Net settle ID Net transactions on a trade-fortrade basis as they would for other Affirmed Transactions. In this regard, DTC states that ID Net’s main benefit is to streamline clearance and settlement of ID Net-eligible Affirmed Transactions for broker/dealers.11 III. Description of the Proposed Rule Change DTC states that as part of DTC’s and NSCC’s continuous evaluations to the efficiency and effectiveness of the services they provide and in order to streamline and simplify their services and processes, DTC and NSCC have identified ID Net as an underused service that may be eliminated as part of modernization efforts.12 They each propose to decommission the ID Net Service due to factors including: (i) limited uptake and usage of the service since its adoption; and (ii) the operational complexity of maintaining the service, which also connects with and impacts other core clearance and settlement processes.13 To implement the proposed change, DTC proposes removing all provisions relating to ID Net from the Settlement Guide, including (i) the entire text of the section titled ‘‘ID Net,’’ which contains the DTC Procedures for processing of ID Net transactions,14 and (ii) a reference to ID Net relating to messaging in the section titled ‘‘Affirmed Transactions.’’ 15 In addition, DTC proposes removing the associated ID Net Fee of 2 cents per 11 See Notice of Filing, supra note 4, at 79321. 12 Id. 13 DTC states that this complexity includes (i) special eligibility checks versus the ID Net eligibility criteria and (ii) leveraging of the omnibus accounts to simultaneously allow (a) a bank to process ID Net-eligible transactions on a trade-fortrade basis and (b) the broker/dealer side of an ID Net-eligible transaction to settle via CNS. Notice of Filing, supra note 4, at 79321 n.12. 14 See Settlement Guide, supra note 3, at 40–46. 15 Id. at 38. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 88079 transaction from the Guide to the DTC Fee Schedule (‘‘Fee Guide’’) 16 because the fee would be obsolete without the ID Net Service. Instead, such transactions would, by default, be charged the standard fee charged for Affirmed Transactions of 4 cents per transaction.17 DTC believes that the decommission of the ID Net Service would have minimal impact on its Participants, as only 13 broker/dealers and 20 banks are subscribed to the ID Net Service and the service is not used by all of those broker/dealers and banks.18 Furthermore, without ID Net, Affirmed Transactions can simply settle trade-fortrade, directly between the counterparties like they already do. DTC states that it has performed direct outreach to Participants that use the ID Net Service and has also announced its plans to decommission the ID Net Service in an Important Notice, and that there have been no material objections or concerns raised by Participants.19 IV. Discussion and Commission Findings Section 19(b)(2)(C) of the Act 20 directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to such organization. After careful review of the Proposed Rule Change, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to DTC. In particular, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act.21 A. Consistency With Section 17A(b)(3)(F) of the Act Section 17A(b)(3)(F) of the Act requires that the rules of a clearing 16 See Fee Guide, available at www.dtcc.com/∼/ media/Files/Downloads/legal/fee-guides/DTC-FeeSchedule.pdf. 17 Id. 18 DTC states that ID Net-related transactions currently comprise less than 1 percent of all activity processed by CNS. DTC believes that ID Net usage has been limited since its implementation in 2008 because, in part, the service needs both parties to an ID Net transaction to be subscribers of ID Net, which is not always the case. See Notice of Filing, supra note 4, at 79321 n.11. 19 See Notice of Filing, supra note 4, at 79321; see also DTC Important Notice regarding decommission of the ID Net Service, available at https:// www.dtcc.com/-/media/Files/pdf/2023/8/8/1885223.pdf. 20 15 U.S.C. 78s(b)(2)(C). 21 15 U.S.C. 78q–1(b)(3)(F). E:\FR\FM\06NON1.SGM 06NON1 88080 Federal Register / Vol. 89, No. 215 / Wednesday, November 6, 2024 / Notices agency, such as DTC, be designed to, among other things, promote the prompt and accurate clearance and settlement of securities transactions.22 The Commission believes that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act for the reasons stated below. The Proposed Rule Change would amend the Settlement Guide to reflect the decommission of ID Net and remove the ID Net Fee from the Fee Guide. As discussed in Parts II and III, ID Net is an underused service that is operationally complex to maintain, and its main benefit is to broker/dealers’ streamline clearance and settlement of ID Net-eligible Affirmed Transactions, which may otherwise settle on a tradefor-trade basis. As such, ID Net’s decommission would have minimal impact on DTC and its Participants considering its limited usage. Affirmed Transactions that would have otherwise been directed to ID Net will settle tradefor-trade directly between counterparties, like most other Affirmed Transactions currently do. Therefore, these transactions will continue to settle promptly and accurately, as other Affirmed Transactions do, outside of the ID Net Service. For these reasons, the Commission finds that the Proposed Rule Change should continue to support DTC’s ability to provide prompt and accurate clearance and settlement of securities transactions, consistent with Section 17A(b)(3)(F) of the Act.23 V. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act 24 and the rules and regulations promulgated thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act 25 that proposed rule change SR–DTC–2024– 010, be, and hereby is, approved.26 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Vanessa A. Countryman, Secretary. [FR Doc. 2024–25726 Filed 11–5–24; 8:45 am] khammond on DSKJM1Z7X2PROD with NOTICES BILLING CODE 8011–01–P 22 Id. 23 Id. 24 15 U.S.C. 78q–1. U.S.C. 78s(b)(2). 26 In approving the Proposed Rule Change, the Commission considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 27 17 CFR 200.30–3(a)(12). 25 15 VerDate Sep<11>2014 16:22 Nov 05, 2024 Jkt 265001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101491; File No. SR– CBOE–2024–008] Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Disapproving a Proposed Rule Change To Adopt a New Rule Regarding Order and Execution Management Systems October 31, 2024. I. Introduction On February 13, 2024, Cboe Exchange, Inc. (‘‘Cboe’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposal to adopt a new rule regarding order and execution management systems (‘‘OEMSs’’). The proposed rule change was published for comment in the Federal Register on March 5, 2024.3 On April 16, 2024, pursuant to section 19(b)(2) of the Exchange Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.5 On May 31, 2024, the Commission instituted proceedings under section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change.7 The Commission received comment letters in response to the Notice and the OIP. On August 30, 2024, the Commission issued a notice of designation of a longer period of time within which to approve or disapprove the proposed rule change.8 For the reasons discussed below, this order disapproves the proposed rule change.9 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 99620 (Feb. 28, 2024), 89 FR 15907 (Mar. 5, 2024) (‘‘Notice’’). Comments received can be found on the Commission’s website at: https://www.sec.gov/ comments/sr-cboe-2024-008/srcboe2024008.htm. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 99963 (Apr. 16, 2024), 89 FR 29389 (Apr. 22, 2024). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 100256 (May 31, 2024), 89 FR 48463 (June 6, 2024) (‘‘OIP’’). 8 See Securities Exchange Act Release No. 100880 (Aug. 30, 2024), 89 FR 72537 (Sept. 5, 2024). 9 In disapproving the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). See infra notes 130– 138 and accompanying text. 2 17 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 II. Description of the Proposed Rule Change Nine years ago, the Exchange’s parent company, Cboe Global Markets, Inc, first acquired an OEMS, followed by another OEMS approximately two years later.10 Since the acquisition of these assets, Cboe has submitted filings for each OEMS (which can be used to route orders to the Exchange).11 Now, as described in more detail in the Notice, the Exchange seeks Commission approval of a rule providing that any OEMS 12 that meets the conditions in proposed Rule 3.66 will not be deemed a facility of the Exchange as that term is defined in the Act. Section 3(a)(2) of the Act defines ‘‘facility’’ as follows: The term ‘‘facility’’ when used with respect to an exchange includes its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.13 The Exchange’s proposal would apply to, among others, the Exchangeaffiliated OEMS known as Silexx.14 Silexx is developed, offered, and maintained by Cboe Silexx, LLC. The Exchange and Cboe Silexx, LLC are each a wholly-owned subsidiary of Cboe Global Markets, Inc.15 The Exchange states that a function of OEMSs (such as Silexx) is to allow market participants to enter and route orders to trade securities for execution on any U.S. exchange, including the Exchange.16 The Exchange 10 See Notice, 89 FR 15907 n.5. 11 Id. 12 ‘‘OEMSs generally permit users to route orders to other market participants that use the same OEMS platform or directly to trading venues. OEMS platforms generally provide their users with the capability to create orders, route them for execution, and input parameters to control the size, timing, and other variables of their trades.’’ Notice, 89 FR 15907–08. For additional description of the functionalities of an OEMS, see id. 13 15 U.S.C. 78c(a)(2). Section 3(a)(1) defines an ‘‘exchange’’ as ‘‘any organization, association, or group of persons . . . which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange.’’ The statute then specifically provides that an exchange ‘‘includes . . . the market facilities maintained by such exchange.’’ 15 U.S.C. 78c(a)(1). 14 See infra note 19 and accompanying text defining the term ‘‘Exchange-affiliated OEMS’’. 15 References to ‘‘Silexx’’ are to the OEMS Silexx (the Silexx system) that is provided by the legal entity, Cboe Silexx, LLC. 16 See Notice, 89 FR 15907 and n.3. E:\FR\FM\06NON1.SGM 06NON1

Agencies

[Federal Register Volume 89, Number 215 (Wednesday, November 6, 2024)]
[Notices]
[Pages 88078-88080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25726]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101486; File No. SR-DTC-2024-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving of Proposed Rule Change To Decommission the ID Net 
Service

October 31, 2024.

I. Introduction

    On September 12, 2024, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2024-010 (``Proposed Rule Change'') pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ to decommission the ID Net service (``ID 
Net Service'' or ``ID Net'').\3\ The Proposed Rule Change was published 
for comment in the Federal Register on September 27, 2024.\4\ The 
Commission has received no comments on the Proposed Rule Change. For 
the reasons discussed below, the Commission is approving the Proposed 
Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (``Rules'') and 
the DTC Settlement Service Guide (``Settlement Guide''), available 
at https://www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ See Securities Exchange Act Release No. 101132 (Sept. 23, 
2024), 89 FR 79320 (Sept. 27, 2024) (File No. SR-DTC-2024-010) 
(``Notice of Filing'').
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II. Background

    DTC serves as a central securities depository providing, in part, 
custodial services for equity securities, which include the 
safekeeping, record keeping, book-entry transfer, and pledge of 
securities among its Participants.\5\ The ID Net Service is a joint 
service offering of DTC and its affiliate, National Securities Clearing 
Corporation (``NSCC''), available on a voluntary basis to broker/
dealers that are participants of both NSCC and DTC and banks that are 
participants of DTC.\6\ ID Net allows broker/dealer users to net their 
affirmed institutional transactions (``Affirmed Transactions'') with 
their transactions in NSCC's Continuous Net Settlement

[[Page 88079]]

(``CNS'') system.\7\ An institutional transaction is one between a 
broker/dealer and its institutional customer. Such institutional 
customers are not Participants of DTC. Unlike exchange trades and most 
prime broker trades, most institutional delivery transactions do not 
currently flow through CNS but instead settle at DTC on a trade-for-
trade basis.\8\ DTC may accept Affirmed Transactions submitted by a 
utility that provides a matching service (``Matching Utility'').\9\ The 
counterparties on an Affirmed Transaction submitted by a Matching 
Utility to DTC are a (i) DTC Participant, acting as clearing broker to 
the Affirmed Transaction and a (ii) DTC Participant bank, acting as the 
custodian for an institutional customer. The Affirmed Transaction is 
processed on a trade-for-trade basis at DTC, unless it is designated 
for ID Net processing by the Matching Utility and meets certain 
eligibility requirements.
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    \5\ See The Depository Trust Company, Disclosure Framework for 
Covered Clearing Agencies and Financial Market Infrastructures (Mar. 
2023) (``Disclosure Framework''), available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/DTC_Disclosure_Framework.pdf.
    \6\ NSCC also filed a proposed rule change with the Commission 
in connection with decommissioning the ID Net Service. See 
Securities Exchange Act Release No. 101131 (Sept. 23, 2024), 89 FR 
79324 (Sept. 27, 2024) (File No. SR-NSCC-2024-008).
    \7\ CNS is NSCC's system for accounting and settling CNS-
eligible securities. See NSCC Rule 11 (describing the CNS System) 
and Procedure VII (describing the CNS Accounting Operation), 
available at www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf. To be CNS-eligible, a security must be eligible for 
book-entry transfer on the books of DTC and must be capable of being 
processed in the CNS system. All eligible compared and recorded 
transactions for a particular settlement date are netted by issue 
into one net long (buy), net short (sell) or flat position for each 
Member, and those positions are further netted with positions of the 
same issue that remain open after their originally scheduled 
settlement date. As central counterparty, NSCC becomes the contra-
party for settlement purposes, assuming the obligation of its 
Members that are receiving securities to receive and pay for those 
securities and the obligation of Members that are delivering 
securities to make the delivery. CNS netting thus reduces the number 
of securities movements required to settle transactions.
    \8\ See DTC Settlement Guide, supra note 3.
    \9\ The Matching Utility must be (i) a clearing agency 
registered with the Commission, (ii) an entity that has obtained an 
exemption from such registration from the Commission, or (iii) a 
``qualified vendor'' for trade confirmation/affirmation services as 
defined by the rules of a self-regulatory organization. See DTC 
Settlement Guide, supra note 3, at 40. TCC ITP Matching (US) LLC 
(``ITP''), a DTC and NSCC affiliate, is currently the only Matching 
Utility that submits Affirmed Transactions to DTC. See Notice of 
Filing, supra note 4, at 79320 n.8.
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    In order for an Affirmed Transaction to be eligible for processing 
in ID Net, (i) both counterparties to the Affirmed Transaction must be 
a Member of NSCC and a Participant of DTC, or a bank that is a 
Participant of DTC, that has subscribed to ID Net; and (ii) the 
transaction must be (a) in a security eligible for processing through 
NSCC's CNS and (b) affirmed within established timeframes set forth in 
the Settlement Guide.\10\
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    \10\ See Settlement Guide, supra note 3, at 40-41.
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    If an Affirmed Transaction is designated for ID Net and meets the 
eligibility criteria, then DTC will direct the transaction to ID Net, 
which facilitates the netting of a broker/dealer's side of an Affirmed 
Transaction with that broker/dealer's CNS activity, via omnibus 
accounts that are maintained by NSCC at DTC and designated for ID Net 
activity. If a bank is a counterparty to the ID Net-eligible Affirmed 
Transaction, then it will either receive or deliver the subject shares 
versus payment, on a trade-for-trade basis, via the ID Net omnibus 
accounts.
    While ID Net allows broker/dealers to realize the benefit of 
netting for Affirmed Transactions by allowing the broker/dealer to net 
its ID Net-eligible Affirmed Transactions with its transactions in CNS, 
banks using ID Net settle ID Net transactions on a trade-for-trade 
basis as they would for other Affirmed Transactions. In this regard, 
DTC states that ID Net's main benefit is to streamline clearance and 
settlement of ID Net-eligible Affirmed Transactions for broker/
dealers.\11\
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    \11\ See Notice of Filing, supra note 4, at 79321.
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III. Description of the Proposed Rule Change

    DTC states that as part of DTC's and NSCC's continuous evaluations 
to the efficiency and effectiveness of the services they provide and in 
order to streamline and simplify their services and processes, DTC and 
NSCC have identified ID Net as an underused service that may be 
eliminated as part of modernization efforts.\12\ They each propose to 
decommission the ID Net Service due to factors including: (i) limited 
uptake and usage of the service since its adoption; and (ii) the 
operational complexity of maintaining the service, which also connects 
with and impacts other core clearance and settlement processes.\13\
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    \12\ Id.
    \13\ DTC states that this complexity includes (i) special 
eligibility checks versus the ID Net eligibility criteria and (ii) 
leveraging of the omnibus accounts to simultaneously allow (a) a 
bank to process ID Net-eligible transactions on a trade-for-trade 
basis and (b) the broker/dealer side of an ID Net-eligible 
transaction to settle via CNS. Notice of Filing, supra note 4, at 
79321 n.12.
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    To implement the proposed change, DTC proposes removing all 
provisions relating to ID Net from the Settlement Guide, including (i) 
the entire text of the section titled ``ID Net,'' which contains the 
DTC Procedures for processing of ID Net transactions,\14\ and (ii) a 
reference to ID Net relating to messaging in the section titled 
``Affirmed Transactions.'' \15\
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    \14\ See Settlement Guide, supra note 3, at 40-46.
    \15\ Id. at 38.
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    In addition, DTC proposes removing the associated ID Net Fee of 2 
cents per transaction from the Guide to the DTC Fee Schedule (``Fee 
Guide'') \16\ because the fee would be obsolete without the ID Net 
Service. Instead, such transactions would, by default, be charged the 
standard fee charged for Affirmed Transactions of 4 cents per 
transaction.\17\
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    \16\ See Fee Guide, available at www.dtcc.com/~/media/Files/
Downloads/legal/fee-guides/DTC-Fee-Schedule.pdf.
    \17\ Id.
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    DTC believes that the decommission of the ID Net Service would have 
minimal impact on its Participants, as only 13 broker/dealers and 20 
banks are subscribed to the ID Net Service and the service is not used 
by all of those broker/dealers and banks.\18\ Furthermore, without ID 
Net, Affirmed Transactions can simply settle trade-for-trade, directly 
between the counterparties like they already do.
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    \18\ DTC states that ID Net-related transactions currently 
comprise less than 1 percent of all activity processed by CNS. DTC 
believes that ID Net usage has been limited since its implementation 
in 2008 because, in part, the service needs both parties to an ID 
Net transaction to be subscribers of ID Net, which is not always the 
case. See Notice of Filing, supra note 4, at 79321 n.11.
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    DTC states that it has performed direct outreach to Participants 
that use the ID Net Service and has also announced its plans to 
decommission the ID Net Service in an Important Notice, and that there 
have been no material objections or concerns raised by 
Participants.\19\
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    \19\ See Notice of Filing, supra note 4, at 79321; see also DTC 
Important Notice regarding decommission of the ID Net Service, 
available at https://www.dtcc.com/-/media/Files/pdf/2023/8/8/18852-23.pdf.
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IV. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \20\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. After careful review of the Proposed Rule Change, 
the Commission finds that the Proposed Rule Change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to DTC. In particular, the Commission finds that the 
Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the 
Act.\21\
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    \20\ 15 U.S.C. 78s(b)(2)(C).
    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing

[[Page 88080]]

agency, such as DTC, be designed to, among other things, promote the 
prompt and accurate clearance and settlement of securities 
transactions.\22\ The Commission believes that the Proposed Rule Change 
is consistent with Section 17A(b)(3)(F) of the Act for the reasons 
stated below.
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    \22\ Id.
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    The Proposed Rule Change would amend the Settlement Guide to 
reflect the decommission of ID Net and remove the ID Net Fee from the 
Fee Guide. As discussed in Parts II and III, ID Net is an underused 
service that is operationally complex to maintain, and its main benefit 
is to broker/dealers' streamline clearance and settlement of ID Net-
eligible Affirmed Transactions, which may otherwise settle on a trade-
for-trade basis. As such, ID Net's decommission would have minimal 
impact on DTC and its Participants considering its limited usage. 
Affirmed Transactions that would have otherwise been directed to ID Net 
will settle trade-for-trade directly between counterparties, like most 
other Affirmed Transactions currently do. Therefore, these transactions 
will continue to settle promptly and accurately, as other Affirmed 
Transactions do, outside of the ID Net Service. For these reasons, the 
Commission finds that the Proposed Rule Change should continue to 
support DTC's ability to provide prompt and accurate clearance and 
settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Act.\23\
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    \23\ Id.
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V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act, 
and in particular, with the requirements of Section 17A of the Act \24\ 
and the rules and regulations promulgated thereunder.
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    \24\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\25\ that proposed rule change SR-DTC-2024-010, be, and hereby is, 
approved.\26\
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ In approving the Proposed Rule Change, the Commission 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).

    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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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-25726 Filed 11-5-24; 8:45 am]
BILLING CODE 8011-01-P
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