Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Amendment No. 1 to Advance Notice To Raise Prefunded Liquidity Resources Through the Periodic Issuance and Private Placement of Senior Notes, 102985-102989 [2024-29919]

Download as PDF Federal Register / Vol. 89, No. 243 / Wednesday, December 18, 2024 / Notices All submissions should refer to file number SR–PEARL–2024–57. 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–PEARL–2024–57 and should be submitted on or before January 8, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–29928 Filed 12–17–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION khammond on DSK9W7S144PROD with NOTICES [Release No. 34–101890; File No. SR–DTC– 2023–801] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Amendment No. 1 to Advance Notice To Raise Prefunded Liquidity Resources Through the Periodic Issuance and Private Placement of Senior Notes December 12, 2024. On August 15, 2023, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission 19 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:09 Dec 17, 2024 Jkt 265001 (‘‘Commission’’) advance notice SR– DTC–2023–801 (‘‘Initial Filing’’) pursuant Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b– 4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Act’’).2 The Initial Filing was published for comment in the Federal Register on August 31, 2023.3 The Commission has received comment on the Initial Filing.4 Notice is hereby given that on December 3, 2024, DTC filed with the Commission Amendment No. 1 to the Initial Filing as described in Items I, II and III below, which Items have been prepared by the clearing agency. This Amendment No. 1 supersedes and replaces the Initial Filing in its entirety. The Commission is publishing this notice to solicit comments on Amendment No. 1 from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice Pursuant to the Clearing Supervision Act 5 and Rule 19b–4(n)(1)(i) under the Act,6 DTC is filing this Amendment No. 1 to advance notice SR–DTC–2023–801 7 in connection with a proposal to raise prefunded liquidity resources through the periodic issuance and private placement of senior notes (‘‘Debt Issuance’’). The proceeds from the Debt Issuance would supplement DTC’s existing default liquidity risk management resources, as described in greater detail below. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the Advance Notice and discussed any comments it received on the Advance Notice. 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 and B below, of the most significant aspects of such statements. 1 12 U.S.C. 5465(e)(1). CFR 240.19b–4(n)(1)(i). 3 Securities Exchange Act Release No. 98227 (Aug. 25, 2023), 88 FR 60251 (Aug. 31, 2023). 4 Comments on the Initial Filing are available at https://www.sec.gov/comments/sr-dtc-2023-801/ srdtc2023801.htm. 5 12 U.S.C. 5465(e)(1). 6 17 CFR 240.19b–4(n)(1)(i). 7 See Securities Exchange Act Release No. 98227 (Aug. 25, 2023), 88 FR 60251 (Aug. 31, 2023) (SR– DTC–2023–801). 2 17 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 102985 (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants, or Others Written comments on the advance notice have not been solicited or received. DTC will notify the Commission of any written comments received by DTC. If any written comments are received by DTC, they will be publicly filed as an Exhibit 2 to this filing. Persons submitting comments are cautioned that, 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 not to respond to any comments received. (B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing Supervision Act Description of Proposed Change DTC is proposing to raise prefunded liquidity through the periodic issuance and private placement of senior notes to qualified institutional investors in an aggregate amount not to exceed $3 billion, as described in greater detail below. The proceeds of the Debt Issuance would supplement DTC’s qualifying liquidity resources, which are described in the Clearing Agency Liquidity Risk Management Framework (‘‘Framework’’) 8 and include cash deposits to its Participants Fund and cash that would be obtained by drawing upon DTC’s committed 364-day credit facility with a consortium of banks (‘‘Line of Credit’’).9 8 See Securities Exchange Act Release Nos. 82377 (Dec. 21, 2017), 82 FR 61617 (Dec. 28, 2017) (SR– DTC–2017–004; SR–FICC–2017–008; SR–NSCC– 2017–005). Following the completion of the initial issuance and private placement of senior notes, the Clearing Agencies would file a proposed rule change to amend the Framework to include the proceeds of the Debt Issuance as an additional qualifying liquidity resource of DTC. 9 Capitalized terms not defined herein are defined in the Rules, By-Laws and Organization Certificate of DTC (‘‘Rules’’) available at www.dtcc.com/∼/ E:\FR\FM\18DEN1.SGM Continued 18DEN1 102986 Federal Register / Vol. 89, No. 243 / Wednesday, December 18, 2024 / Notices khammond on DSK9W7S144PROD with NOTICES More precisely, while the specific terms of any future Debt Issuance would depend on a number of factors, as described in greater detail below, DTC is requesting the authority to use the proceeds of any Debt Issuance as default liquidity.10 DTC, along with its affiliates, National Securities Clearing Corporation (‘‘NSCC’’) and Fixed Income Clearing Corporation (‘‘FICC,’’ and, together with NSCC and DTC, the ‘‘Clearing Agencies’’), maintain the Framework which sets forth the manner in which DTC measures, monitors and manages the liquidity risks that arise in or are borne by it.11 DTC’s liquidity risk management strategy and tools are designed to maintain sufficient available liquid resources to complete systemwide settlement on each business day, with a high degree of confidence and notwithstanding the failure to settle of the Participant, or affiliated family of Participants, with the largest settlement obligation.12 The proposed Debt Issuance would provide DTC with an additional source of default liquidity, which would allow it to (a) diversify its sources of default liquidity, including the concentration of liquidity providers, and (b) mitigate risks to DTC that it is unable to secure default liquidity resources in an amount necessary to meet its liquidity needs. DTC utilizes certain rules-based tools, including the Net Debit Cap and the Collateral Monitor, to manage the liquidity risks its Participants’ present to it.13 These two controls work together to protect the DTC settlement system in the event of a Participant default. The Collateral Monitor requires net debit settlement obligations, as they accrue intraday, to be fully collateralized and the Net Debit Cap limits the amount of media/Files/Downloads/legal/rules/dtc_rules.pdf. See also Securities Exchange Act Release No. 80605 (May 5, 2017), 82 FR 21850 (May 10, 2017) (SR– DTC–2017–802; SR–NSCC–2017–802). 10 In addition to default liquidity, DTC may use the proceeds of a Debt Issuance to prepay a prior Debt Issuance before maturity but would not use the proceeds for any other purpose. DTC filed as a confidential exhibit to this filing a sample term sheet that may be indicative of the possible terms of any future Debt Issuance. 11 Supra note 6. Each of the Clearing Agencies is a wholly owned subsidiary of The Depository Trust & Clearing Corporation, which operates on a shared service model with respect to the Clearing Agencies. Most corporate functions are established and managed on an enterprise-wide basis pursuant to intercompany agreements under which it is generally DTCC that provides relevant services to the Clearing Agencies. 12 Id. 13 A description of the calculation of each Participant’s Net Debit Cap and Collateral Monitor is available in the Settlement Service Guide. See DTC Settlement Service Guide, available at www.dtcc.com/-/media/Files/Downloads/legal/ service-guides/Settlement.pdf. VerDate Sep<11>2014 18:09 Dec 17, 2024 Jkt 265001 any Participant’s net debit settlement obligation to an amount that can be satisfied with DTC’s default liquidity resources. As stated above, DTC currently maintains two key default liquidity resources to draw upon in the event of a Participant default: cash deposits to its Participants Fund and cash that would be obtained by drawing upon the Line of Credit.14 By allowing DTC to diversify its sources of default liquidity, the proposal would allow DTC flexibility in the number of resources it has at its disposal, as well as which resources it accesses and at what levels when it has a liquidity need. Diversification mitigates the risk, for example, that DTC is unable to renew its Line of Credit, which is renewed annually and dependent on continued lender interest, at the targeted amount by providing DTC with an alternative and supplemental source of default liquidity. Additionally, diversification of DTC’s sources of default liquidity would provide DTC with the flexibility needed to properly manage anticipated changes to its liquidity needs, thereby allowing DTC to optimize its liquidity resources in line with its liquidity needs. Lastly, allowing DTC to mitigate the risk that it is unable to secure default liquidity resources in an amount necessary to meet its liquidity needs, supports DTC’s liquidity risk management strategy. Therefore, providing additional certainty, stability, and safety to DTC, its Participants, and the U.S. markets that it serves. Terms of the Debt Issuance. The timing of a Debt Issuance would depend on a number of factors, including, for example, market conditions for the issuance of senior notes and the timing of any changes to DTC’s liquidity needs. However, when it determines to do so it would engage a trustee and underwriting banks to issue the senior notes to qualified institutional investors through a private placement and offering in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933.15 DTC would be party to certain transaction documents in connection with each issuance and private placement, including an indenture with the trustee and purchase agreements. The purchase 14 Under DTC Rule 10 (Discretionary Termination) and DTC Rule 11 (Mandatory Termination), a Participant will be in default if it fails to pay any amount due to DTC within specified timeframes, including the failure to fund a settlement obligation, to pay required deposits to the Participants Fund or to pay adequate assurances to DTC within the required timeframes. See supra note 7. 15 15 U.S.C. 77d(a)(2). PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 agreements would each be based on the standard form of dealer agreement for similar debt issuances, which is published by the Securities Industry and Financial Markets Association. While the anticipated material terms and conditions of a future Debt Issuance are summarized below, the actual terms of a future Debt Issuance would depend on a number of factors, including DTC’s liquidity needs and the debt market conditions at the time of issuance. Therefore, with the exception of the authorized aggregate amount that DTC may issue of $3 billion, the anticipated terms summarized below are reasonable estimates, but may not reflect the actual terms of a future Debt Issuance. DTC is proposing to issue up to an aggregate amount of $3 billion in senior notes, as DTC deems reasonable, or as necessitated by liquidity needs. While, at the time of this filing, DTC would not need to issue up to the aggregate amount of $3 billion based on its current liquidity requirements, DTC believes that is advisable to authorize up to this aggregate amount in order to help manage its potential future liquidity needs and the potential risk that it is not able to obtain the requisite amounts from its other sources of default liquidity. The senior notes would be represented by unsecured, unsubordinated and non-convertible medium-term and long-term global notes held in the name of DTC (as the central securities depository) or its nominee, Cede & Co. The notes would be issued and transferred only through the book-entry system of DTC. The senior notes would be interest bearing at either fixed or floating interest rates that are set at market rates customary for such type of debt and reflective of the creditworthiness of DTC. DTC expects the average maturity of the senior notes issued under the Debt Issuance would be no shorter than approximately two years and no longer than approximately ten years, which are the typical lengths of medium-term and long-term debt. DTC does not believe maturities over ten years would be suitable as debt with longer maturities are generally more expensive to issue and may present higher risks related to interest rates. DTC would time each debt issuance and stagger maturity dates of each issuance in order to ladder the maturities. DTC would have the ability to make use of optional features to redeem the issued senior notes, in whole or in part, at any time prior to the maturity date of notes. More specifically, DTC would have the option to prepay any amount of principal owed on the issued senior notes before such E:\FR\FM\18DEN1.SGM 18DEN1 Federal Register / Vol. 89, No. 243 / Wednesday, December 18, 2024 / Notices khammond on DSK9W7S144PROD with NOTICES payment is due, i.e., before the maturity date. DTC would hold the proceeds from the Debt Issuance in either its cash deposit account at the Federal Reserve Bank of New York (‘‘FRBNY’’) or in accounts at other creditworthy financial institutions in accordance with the Clearing Agency Investment Policy.16 These amounts would be available to draw to complete settlement as needed. DTC Liquidity Risk Management. DTC’s liquidity needs for settlement are driven by protecting DTC against the possibility that a Participant may fail to pay its settlement obligations on a business day. The tools available to DTC under its Rules (e.g., the Participants Fund, Net Debit Cap and Collateral Monitor) allow it to regularly test the sufficiency of liquid resources on an intraday and end-of-day basis and adjust to stressed circumstances during a settlement day to protect itself and Participants against liquidity exposure under normal and stressed market conditions.17 DTC calculates its liquidity needs per Participant (at a legal entity level) and further aggregates these amounts at a family level (that is, including all affiliated Participants, based on the assumption that all such affiliates may fail simultaneously). In this regard, DTC monitors settlement flows and net-debit obligations on a daily basis, determines the appropriateness of each Participant’s Net Debit Cap and monitors net settlement activity. As noted above, the Framework describes DTC’s liquidity risk management strategy, which is designed to maintain sufficient liquid resources to complete system-wide settlement on each business day, with a high degree of confidence and notwithstanding the failure to settle of the Participant, or affiliated family of Participants, with the largest settlement obligation.18 The Framework also describes how DTC meets its requirement to hold qualifying liquid resources, as such term is defined 16 See Securities Exchange Act Release Nos. 79528 (Dec. 12, 2016), 81 FR 91232 (Dec. 16, 2016) (SR–DTC–2016–007, SR–FICC–2016–005, SR– NSCC–2016–003); 84949 (Dec. 21, 2018), 83 FR 67779 (Dec. 31, 2018) (SR–DTC–2018–012, SR– FICC–2018–014, SR–NSCC–2018–013). Following the issuance of a Notice of No Objection by the Commission of this proposal, the Clearing Agencies would file a proposed rule change to amend the Clearing Agency Investment Policy to include the proceeds as default liquidity funds, within the definition of ‘‘Investable Funds,’’ as such term is defined therein, and provide that such amounts would be held in bank deposits at eligible commercial banks or at DTC’s cash deposit account at the FRBNY. 17 Supra note 6. 18 Supra note 7. VerDate Sep<11>2014 18:09 Dec 17, 2024 Jkt 265001 in Rule 17ad–22(a)(14) under the Act,19 sufficient to meet its minimum liquidity resource requirement in each relevant currency for which it has payment obligations owed to its Participants. DTC considers each of its existing default liquidity resources to be qualifying liquid resources, and the proceeds from the Debt Issuance would also be default liquidity that is considered a qualifying liquid resource. The proceeds from the Debt Issuance would provide DTC with additional, prefunded, and readily available qualifying liquid resources to be used to complete system-wide settlement if a Participant defaults. For DTC, the Participants Fund, Net Debit Cap and Collateral Monitor tools work together to limit potential liquidity requirements in default scenarios both on an intra-day and end-of-day basis. So, while DTC’s current available liquidity resources are sufficient to satisfy the single-largest family default under stressed but plausible conditions, the Debt Issuance would allow DTC to diversify its sources of default liquidity and mitigate risks to DTC that it is unable to secure default liquidity resources in an amount necessary to meet its liquidity needs. More specifically, the proposal would provide DTC with the flexibility to reduce its reliance on the Line of Credit, which is renewed annually and dependent on continued lender interest and meet any increased liquidity needs it may face in the future. As a source of prefunded, default liquidity, the Debt Issuance would provide additional certainty, stability, and safety to DTC, its Participants, and the U.S. markets that it serves. By diversifying DTC’s sources of qualifying liquid resources, the Debt Issuance could also mitigate concentration risks related to its liquidity providers. More specifically, while DTC would not limit the potential qualified institutional investors that purchase senior notes and therefore, is not able to ensure that the Debt Issuance would reduce concentration risk, the types of entities who typically invest in senior notes (for example, insurance companies, asset managers and pension funds) are generally not Participants of DTC or lenders under the Line of Credit. Therefore, the prospective investors in the senior notes are not expected to be the same firms that currently provide any material amount of default liquidity resources to DTC either through the Line of Credit, or as DTC Participants. In this way, the proposed Debt Issuance would reduce the concentration risk related to its liquidity providers, by 19 17 PO 00000 CFR 240.17ad–22(a)(14). Frm 00136 Fmt 4703 Sfmt 4703 102987 reducing the likelihood that an impairment of a liquidity provider to perform under one qualifying liquid resource would impact DTC’s ability to fully access its other qualifying liquid resources. Anticipated Effect on and Management of Risk In connection with its role as a central securities depository (‘‘CSD’’), DTC provides for both the settlement of bookentry transfer and pledge of interests in eligible deposited securities and net funds settlement. A financially strong and well-managed, well-designed CSD, with appropriate risk management arrangements, can reduce the risk faced by participants, contributing to the goal of systemic financial stability. In order to sufficiently perform this role, it is critical that DTC has access to adequate liquidity resources to enable it to complete system-wide settlement every business day, including following a Participant default. DTC believes that the overall impact of the proposed Debt Issuance on risks presented by DTC would be to reduce the liquidity risks associated with DTC’s net settlement obligations by providing it with an additional source of liquidity to complete system-wide settlement in the event of a Participant default. DTC further believes that a reduction in its liquidity risk would reduce systemic risk and would have a positive impact on the safety and soundness of the wider financial system. While the proposed Debt Issuance, like any liquidity resource, would involve certain risks, most of these risks are standard in any debt issuance. One risk associated with the proposed Debt Issuance would be the risk that DTC does not have sufficient funds to repay issued senior notes when the notes mature. DTC believes that this risk is extremely remote, as the proceeds of the Debt Issuance would be used only in the event of a Participant default, and DTC would replenish that cash, as it would replenish any of its liquidity resources that are used to facilitate settlement in the event of a Participant default, with the proceeds of the close out of that defaulted Participant’s portfolio. This notwithstanding, in the event that proceeds from the close out are insufficient to fully repay a liquidity borrowing, then DTC would look to its loss waterfall to repay any outstanding liquidity borrowings.20 DTC would further mitigate this risk through the timing of each debt issuance and by staggering the maturity dates of the 20 See Rule 4 (Participants Fund and Participants Investment) of the Rules, supra note 7. E:\FR\FM\18DEN1.SGM 18DEN1 102988 Federal Register / Vol. 89, No. 243 / Wednesday, December 18, 2024 / Notices issued senior notes in a way that would provide DTC with time to complete the close out of a defaulted Participant’s portfolio. A second risk is that DTC may be unable to issue new senior notes as issued notes mature due to, for example, stressed markets at the time the issued debt matures. This risk is mitigated by the fact that DTC maintains a number of different default liquidity resources, described above, and would not depend on the Debt Issuance as its sole source of liquidity. DTC may be exposed to interest rate risk, which is the risk that a change in interest rates could cause an increase to the net cost of carry of the Debt Issuance.21 DTC would mitigate this risk by issuing senior notes at different maturities and at both fixed interest rates and floating interest rates. The interest rates for the senior notes issued at floating interest rates would generally correlate with the rates on investments of those proceeds and would be expected to result in a largely stable net spread between the borrowing interest rate and the investment interest rate, mitigating this risk. For the senior notes issued with a fixed interest rate, DTC would consider interest rate swaps as a method to mitigate interest rate risk, depending on market environment at that time. DTC could also face a related financial risk that the expense of a Debt Issuance exceeds DTC’s income and may have a negative impact on DTC’s financial health or its creditworthiness. DTC would mitigate this risk by evaluating the expected net cost of carry (discussed above) of a Debt Issuance prior to issuing any debt, and if the financing costs for the issuance of senior notes increase, such that it is not financially advisable to issue additional senior notes, then DTC may determine to use its alternative liquidity resources to meet its liquidity needs during those market conditions. DTC believes that the significant systemic risk mitigation benefits of providing DTC with additional, prefunded liquidity resources outweigh these risks. khammond on DSK9W7S144PROD with NOTICES Consistency With Clearing Supervision Act DTC believes that that proposal would be consistent with Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing 21 The ‘‘net cost of carry’’ generally refers to the difference between the interest earned on the invested proceeds of an issuance and the interest rate paid on that issuance. VerDate Sep<11>2014 18:09 Dec 17, 2024 Jkt 265001 Supervision Act’’), specifically with the risk management objectives and principles of Section 802(b)(1), and with certain of the risk management standards adopted by the Commission pursuant to Section 805(a)(2), for the reasons described below.22 (i) Consistency With Section 805(b)(1) of the Clearing Supervision Act Although the Clearing Supervision Act does not specify a standard of review for an advance notice, its stated purpose is instructive: to mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.23 DTC believes the proposal is consistent with Section 805(b)(1) of the Clearing Supervision Act because it would support the mitigation of systemic risk in the financial system and promote financial stability in the event of a Participant default by strengthening DTC’s liquidity. The proposed Debt Issuance is designed to reduce DTC’s liquidity risks by providing it with an additional source of liquidity to complete system-wide settlement in the event of a Participant default. By supplementing DTC’s existing default liquidity resources with prefunded liquidity, the proposal would contribute to DTC’s goal of assuring that DTC has adequate liquidity resources to meet its settlement obligations notwithstanding the default of any of its Participants. In its critical role as a CSD, DTC provides for both the settlement of bookentry transfer and pledge of interests in eligible deposited securities and net funds settlement. In order to sufficiently perform this role, it is critical that DTC has access to adequate liquidity resources to enable it to complete system-wide settlement every business day, including following a Participant default. Therefore, a reduction in DTC’s liquidity risk would reduce systemic risk and would have a positive impact on the safety and soundness of the wider financial system. As a result, DTC believes the proposed Debt Issuance would be consistent with the objectives and principles of Section 805(b)(1) of the Clearing Supervision Act, which specify the promotion of robust risk management, promotion of safety and soundness, reduction of systemic risks and support of the stability of the broader financial system by, among other things, strengthening the liquidity of systemically important financial market utilities, such as DTC.24 (ii) Consistency With Rule 17ad– 22(e)(7)(i) and (ii) Under the Act Section 805(a)(2) of the Clearing Supervision Act authorizes the Commission to prescribe risk management standards for the payment, clearing and settlement activities of designated clearing entities, like DTC, and financial institutions engaged in designated activities for which the Commission is the supervisory agency or the appropriate financial regulator.25 The Commission has accordingly adopted risk management standards under Section 805(a)(2) of the Clearing Supervision Act 26 and Section 17A of the Act (‘‘Covered Clearing Agency Standards’’).27 The Covered Clearing Agency Standards require covered clearing agencies to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to meet certain minimum requirements for their operations and risk management practices on an ongoing basis.28 DTC believes that the proposed Debt Issuance is consistent with Rule 17ad– 22(e)(7)(i) and (ii) of the Covered Clearing Agency Standards for the reasons described below.29 Rule 17ad–22(e)(7)(i) under the Act requires that DTC establish, implement, maintain and enforce written policies and procedures reasonably designed to maintain sufficient liquid resources at the minimum in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of foreseeable stress scenarios that includes, but is not limited to, the default of the participant family that would generate the largest aggregate payment obligation for the covered clearing agency in extreme but plausible market conditions.30 Rule 17ad–22(e)(7)(ii) under the Act requires that DTC establish, implement, maintain and enforce written policies and procedures reasonably designed to hold qualifying liquid resources sufficient to meet the minimum liquidity resource requirement under Rule 17ad–22(e)(7)(i) 24 12 25 12 U.S.C. 5464(b)(1). U.S.C. 5464(a)(2). 26 Id. 27 17 CFR 240.17ad–22(e). 28 Id. 22 12 23 12 PO 00000 U.S.C. 5464(a)(2) and (b)(1). U.S.C. 5464(b)(1). Frm 00137 Fmt 4703 Sfmt 4703 29 17 30 17 E:\FR\FM\18DEN1.SGM CFR 240.17ad–22(e)(7)(i), (ii). CFR 240.17ad–22(e)(7)(i). 18DEN1 Federal Register / Vol. 89, No. 243 / Wednesday, December 18, 2024 / Notices in each relevant currency for which DTC has payment obligations owed to its Participants.31 As described above, the proposed Debt Issuance would provide DTC with an additional resource of prefunded default liquidity, which it would use to complete system-wide settlement every business day, including following a Participant default. The proceeds of the Debt Issuance would be cash held by DTC at either its cash deposit account at the FRBNY or at a creditworthy commercial bank, pursuant to the Clearing Agency Investment Policy.32 Therefore, the proceeds of the Debt Issuance would be considered a qualifying liquid resource, as defined by Rule 17ad–22(a)(14).33 As such, the proposed Debt Issuance would support DTC’s ability to hold sufficient qualifying liquid resources to meet its minimum liquidity resource requirement under Rule 17ad–22(e)(7)(i) under the Act.34 For these reasons, DTC believes the proposal would support DTC’s compliance with Rule 17ad–22(e)(7)(i) and (ii) under the Act by providing it with an additional qualifying liquid resource.35 khammond on DSK9W7S144PROD with NOTICES III. Date of Effectiveness of the Advance Notice, and Timing for Commission Action The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date that the proposed change was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. The clearing agency shall not implement the proposed change if the Commission has any objection to the proposed change. The Commission may extend the period for review by an additional 60 days if the proposed change raises novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. A proposed change may be implemented in less than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does 31 17 CFR 240.17ad–22(e)(7)(ii). For purposes of this Rule, ‘‘qualifying liquid resources’’ are defined in Rule 17ad–22(a)(14) as including, in part, cash held either at the central bank of issue or at creditworthy commercial banks. 17 CFR 240.17ad– 22(a)(14). 32 Supra note 14. 33 17 CFR 240.17ad–22(a)(14). 34 17 CFR 240.17ad–22(e)(7)(i). 35 17 CFR 240.17ad–22(e)(7)(i), (ii). VerDate Sep<11>2014 18:09 Dec 17, 2024 Jkt 265001 not object to the proposed change and authorizes the clearing agency to implement the proposed change on an earlier date, subject to any conditions imposed by the Commission. The clearing agency shall post notice on its website of proposed changes that are implemented. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the Advance Notice is consistent with the Clearing Supervision 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-regulatoryorganization-rulemaking); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– DTC–2023–801 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–2023–801. 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 Advance Notice that are filed with the Commission, and all written communications relating to the Advance Notice 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 (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 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 102989 obscene or subject to copyright protection. All submissions should refer to File Number SR–DTC–2023–801 and should be submitted on or before January 8, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.36 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–29919 Filed 12–17–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101894; File No. SR–MIAX– 2024–45] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Fees for Dedicated Cross Connection Access to the Testing Systems Environment December 12, 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 November 29, 2024, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to establish a fee for market participants that choose to utilize the Exchange’s testing systems environment via a dedicated cross connection. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/all-options-exchanges/rulefilings, at MIAX’s principal office, and at the Commission’s Public Reference Room. 36 17 CFR 200.30–3(a)(91). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\18DEN1.SGM 18DEN1

Agencies

[Federal Register Volume 89, Number 243 (Wednesday, December 18, 2024)]
[Notices]
[Pages 102985-102989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29919]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101890; File No. SR-DTC-2023-801]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Amendment No. 1 to Advance Notice To Raise 
Prefunded Liquidity Resources Through the Periodic Issuance and Private 
Placement of Senior Notes

December 12, 2024.
    On August 15, 2023, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') advance 
notice SR-DTC-2023-801 (``Initial Filing'') pursuant Section 806(e)(1) 
of Title VIII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act entitled the Payment, Clearing, and Settlement 
Supervision Act of 2010 (``Clearing Supervision Act'') \1\ and Rule 
19b-4(n)(1)(i) under the Securities Exchange Act of 1934 (``Act'').\2\ 
The Initial Filing was published for comment in the Federal Register on 
August 31, 2023.\3\ The Commission has received comment on the Initial 
Filing.\4\ Notice is hereby given that on December 3, 2024, DTC filed 
with the Commission Amendment No. 1 to the Initial Filing as described 
in Items I, II and III below, which Items have been prepared by the 
clearing agency. This Amendment No. 1 supersedes and replaces the 
Initial Filing in its entirety. The Commission is publishing this 
notice to solicit comments on Amendment No. 1 from interested persons.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ Securities Exchange Act Release No. 98227 (Aug. 25, 2023), 
88 FR 60251 (Aug. 31, 2023).
    \4\ Comments on the Initial Filing are available at https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801.htm.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    Pursuant to the Clearing Supervision Act \5\ and Rule 19b-
4(n)(1)(i) under the Act,\6\ DTC is filing this Amendment No. 1 to 
advance notice SR-DTC-2023-801 \7\ in connection with a proposal to 
raise prefunded liquidity resources through the periodic issuance and 
private placement of senior notes (``Debt Issuance''). The proceeds 
from the Debt Issuance would supplement DTC's existing default 
liquidity risk management resources, as described in greater detail 
below.
---------------------------------------------------------------------------

    \5\ 12 U.S.C. 5465(e)(1).
    \6\ 17 CFR 240.19b-4(n)(1)(i).
    \7\ See Securities Exchange Act Release No. 98227 (Aug. 25, 
2023), 88 FR 60251 (Aug. 31, 2023) (SR-DTC-2023-801).
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the Advance Notice 
and discussed any comments it received on the Advance Notice. 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 and B below, of the most significant aspects of such 
statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    Written comments on the advance notice have not been solicited or 
received. DTC will notify the Commission of any written comments 
received by DTC. If any written comments are received by DTC, they will 
be publicly filed as an Exhibit 2 to this filing.
    Persons submitting comments are cautioned that, 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 not to respond to any comments received.

(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing 
Supervision Act

Description of Proposed Change
    DTC is proposing to raise prefunded liquidity through the periodic 
issuance and private placement of senior notes to qualified 
institutional investors in an aggregate amount not to exceed $3 
billion, as described in greater detail below. The proceeds of the Debt 
Issuance would supplement DTC's qualifying liquidity resources, which 
are described in the Clearing Agency Liquidity Risk Management 
Framework (``Framework'') \8\ and include cash deposits to its 
Participants Fund and cash that would be obtained by drawing upon DTC's 
committed 364-day credit facility with a consortium of banks (``Line of 
Credit'').\9\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release Nos. 82377 (Dec. 21, 
2017), 82 FR 61617 (Dec. 28, 2017) (SR-DTC-2017-004; SR-FICC-2017-
008; SR-NSCC-2017-005). Following the completion of the initial 
issuance and private placement of senior notes, the Clearing 
Agencies would file a proposed rule change to amend the Framework to 
include the proceeds of the Debt Issuance as an additional 
qualifying liquidity resource of DTC.
    \9\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (``Rules'') 
available at www.dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.pdf. See also Securities Exchange Act Release No. 80605 
(May 5, 2017), 82 FR 21850 (May 10, 2017) (SR-DTC-2017-802; SR-NSCC-
2017-802).

---------------------------------------------------------------------------

[[Page 102986]]

    More precisely, while the specific terms of any future Debt 
Issuance would depend on a number of factors, as described in greater 
detail below, DTC is requesting the authority to use the proceeds of 
any Debt Issuance as default liquidity.\10\
---------------------------------------------------------------------------

    \10\ In addition to default liquidity, DTC may use the proceeds 
of a Debt Issuance to prepay a prior Debt Issuance before maturity 
but would not use the proceeds for any other purpose. DTC filed as a 
confidential exhibit to this filing a sample term sheet that may be 
indicative of the possible terms of any future Debt Issuance.
---------------------------------------------------------------------------

    DTC, along with its affiliates, National Securities Clearing 
Corporation (``NSCC'') and Fixed Income Clearing Corporation (``FICC,'' 
and, together with NSCC and DTC, the ``Clearing Agencies''), maintain 
the Framework which sets forth the manner in which DTC measures, 
monitors and manages the liquidity risks that arise in or are borne by 
it.\11\ DTC's liquidity risk management strategy and tools are designed 
to maintain sufficient available liquid resources to complete system-
wide settlement on each business day, with a high degree of confidence 
and notwithstanding the failure to settle of the Participant, or 
affiliated family of Participants, with the largest settlement 
obligation.\12\
---------------------------------------------------------------------------

    \11\ Supra note 6. Each of the Clearing Agencies is a wholly 
owned subsidiary of The Depository Trust & Clearing Corporation, 
which operates on a shared service model with respect to the 
Clearing Agencies. Most corporate functions are established and 
managed on an enterprise-wide basis pursuant to intercompany 
agreements under which it is generally DTCC that provides relevant 
services to the Clearing Agencies.
    \12\ Id.
---------------------------------------------------------------------------

    The proposed Debt Issuance would provide DTC with an additional 
source of default liquidity, which would allow it to (a) diversify its 
sources of default liquidity, including the concentration of liquidity 
providers, and (b) mitigate risks to DTC that it is unable to secure 
default liquidity resources in an amount necessary to meet its 
liquidity needs. DTC utilizes certain rules-based tools, including the 
Net Debit Cap and the Collateral Monitor, to manage the liquidity risks 
its Participants' present to it.\13\ These two controls work together 
to protect the DTC settlement system in the event of a Participant 
default. The Collateral Monitor requires net debit settlement 
obligations, as they accrue intraday, to be fully collateralized and 
the Net Debit Cap limits the amount of any Participant's net debit 
settlement obligation to an amount that can be satisfied with DTC's 
default liquidity resources.
---------------------------------------------------------------------------

    \13\ A description of the calculation of each Participant's Net 
Debit Cap and Collateral Monitor is available in the Settlement 
Service Guide. See DTC Settlement Service Guide, available at 
www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf.
---------------------------------------------------------------------------

    As stated above, DTC currently maintains two key default liquidity 
resources to draw upon in the event of a Participant default: cash 
deposits to its Participants Fund and cash that would be obtained by 
drawing upon the Line of Credit.\14\ By allowing DTC to diversify its 
sources of default liquidity, the proposal would allow DTC flexibility 
in the number of resources it has at its disposal, as well as which 
resources it accesses and at what levels when it has a liquidity need. 
Diversification mitigates the risk, for example, that DTC is unable to 
renew its Line of Credit, which is renewed annually and dependent on 
continued lender interest, at the targeted amount by providing DTC with 
an alternative and supplemental source of default liquidity. 
Additionally, diversification of DTC's sources of default liquidity 
would provide DTC with the flexibility needed to properly manage 
anticipated changes to its liquidity needs, thereby allowing DTC to 
optimize its liquidity resources in line with its liquidity needs. 
Lastly, allowing DTC to mitigate the risk that it is unable to secure 
default liquidity resources in an amount necessary to meet its 
liquidity needs, supports DTC's liquidity risk management strategy. 
Therefore, providing additional certainty, stability, and safety to 
DTC, its Participants, and the U.S. markets that it serves.
---------------------------------------------------------------------------

    \14\ Under DTC Rule 10 (Discretionary Termination) and DTC Rule 
11 (Mandatory Termination), a Participant will be in default if it 
fails to pay any amount due to DTC within specified timeframes, 
including the failure to fund a settlement obligation, to pay 
required deposits to the Participants Fund or to pay adequate 
assurances to DTC within the required timeframes. See supra note 7.
---------------------------------------------------------------------------

    Terms of the Debt Issuance. The timing of a Debt Issuance would 
depend on a number of factors, including, for example, market 
conditions for the issuance of senior notes and the timing of any 
changes to DTC's liquidity needs. However, when it determines to do so 
it would engage a trustee and underwriting banks to issue the senior 
notes to qualified institutional investors through a private placement 
and offering in reliance on an exemption from registration under 
Section 4(a)(2) of the Securities Act of 1933.\15\ DTC would be party 
to certain transaction documents in connection with each issuance and 
private placement, including an indenture with the trustee and purchase 
agreements. The purchase agreements would each be based on the standard 
form of dealer agreement for similar debt issuances, which is published 
by the Securities Industry and Financial Markets Association.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 77d(a)(2).
---------------------------------------------------------------------------

    While the anticipated material terms and conditions of a future 
Debt Issuance are summarized below, the actual terms of a future Debt 
Issuance would depend on a number of factors, including DTC's liquidity 
needs and the debt market conditions at the time of issuance. 
Therefore, with the exception of the authorized aggregate amount that 
DTC may issue of $3 billion, the anticipated terms summarized below are 
reasonable estimates, but may not reflect the actual terms of a future 
Debt Issuance.
    DTC is proposing to issue up to an aggregate amount of $3 billion 
in senior notes, as DTC deems reasonable, or as necessitated by 
liquidity needs. While, at the time of this filing, DTC would not need 
to issue up to the aggregate amount of $3 billion based on its current 
liquidity requirements, DTC believes that is advisable to authorize up 
to this aggregate amount in order to help manage its potential future 
liquidity needs and the potential risk that it is not able to obtain 
the requisite amounts from its other sources of default liquidity.
    The senior notes would be represented by unsecured, unsubordinated 
and non-convertible medium-term and long-term global notes held in the 
name of DTC (as the central securities depository) or its nominee, Cede 
& Co. The notes would be issued and transferred only through the book-
entry system of DTC. The senior notes would be interest bearing at 
either fixed or floating interest rates that are set at market rates 
customary for such type of debt and reflective of the creditworthiness 
of DTC.
    DTC expects the average maturity of the senior notes issued under 
the Debt Issuance would be no shorter than approximately two years and 
no longer than approximately ten years, which are the typical lengths 
of medium-term and long-term debt. DTC does not believe maturities over 
ten years would be suitable as debt with longer maturities are 
generally more expensive to issue and may present higher risks related 
to interest rates. DTC would time each debt issuance and stagger 
maturity dates of each issuance in order to ladder the maturities. DTC 
would have the ability to make use of optional features to redeem the 
issued senior notes, in whole or in part, at any time prior to the 
maturity date of notes. More specifically, DTC would have the option to 
prepay any amount of principal owed on the issued senior notes before 
such

[[Page 102987]]

payment is due, i.e., before the maturity date.
    DTC would hold the proceeds from the Debt Issuance in either its 
cash deposit account at the Federal Reserve Bank of New York 
(``FRBNY'') or in accounts at other creditworthy financial institutions 
in accordance with the Clearing Agency Investment Policy.\16\ These 
amounts would be available to draw to complete settlement as needed.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release Nos. 79528 (Dec. 12, 
2016), 81 FR 91232 (Dec. 16, 2016) (SR-DTC-2016-007, SR-FICC-2016-
005, SR-NSCC-2016-003); 84949 (Dec. 21, 2018), 83 FR 67779 (Dec. 31, 
2018) (SR-DTC-2018-012, SR-FICC-2018-014, SR-NSCC-2018-013). 
Following the issuance of a Notice of No Objection by the Commission 
of this proposal, the Clearing Agencies would file a proposed rule 
change to amend the Clearing Agency Investment Policy to include the 
proceeds as default liquidity funds, within the definition of 
``Investable Funds,'' as such term is defined therein, and provide 
that such amounts would be held in bank deposits at eligible 
commercial banks or at DTC's cash deposit account at the FRBNY.
---------------------------------------------------------------------------

    DTC Liquidity Risk Management. DTC's liquidity needs for settlement 
are driven by protecting DTC against the possibility that a Participant 
may fail to pay its settlement obligations on a business day. The tools 
available to DTC under its Rules (e.g., the Participants Fund, Net 
Debit Cap and Collateral Monitor) allow it to regularly test the 
sufficiency of liquid resources on an intraday and end-of-day basis and 
adjust to stressed circumstances during a settlement day to protect 
itself and Participants against liquidity exposure under normal and 
stressed market conditions.\17\ DTC calculates its liquidity needs per 
Participant (at a legal entity level) and further aggregates these 
amounts at a family level (that is, including all affiliated 
Participants, based on the assumption that all such affiliates may fail 
simultaneously). In this regard, DTC monitors settlement flows and net-
debit obligations on a daily basis, determines the appropriateness of 
each Participant's Net Debit Cap and monitors net settlement activity.
---------------------------------------------------------------------------

    \17\ Supra note 6.
---------------------------------------------------------------------------

    As noted above, the Framework describes DTC's liquidity risk 
management strategy, which is designed to maintain sufficient liquid 
resources to complete system-wide settlement on each business day, with 
a high degree of confidence and notwithstanding the failure to settle 
of the Participant, or affiliated family of Participants, with the 
largest settlement obligation.\18\ The Framework also describes how DTC 
meets its requirement to hold qualifying liquid resources, as such term 
is defined in Rule 17ad-22(a)(14) under the Act,\19\ sufficient to meet 
its minimum liquidity resource requirement in each relevant currency 
for which it has payment obligations owed to its Participants. DTC 
considers each of its existing default liquidity resources to be 
qualifying liquid resources, and the proceeds from the Debt Issuance 
would also be default liquidity that is considered a qualifying liquid 
resource.
---------------------------------------------------------------------------

    \18\ Supra note 7.
    \19\ 17 CFR 240.17ad-22(a)(14).
---------------------------------------------------------------------------

    The proceeds from the Debt Issuance would provide DTC with 
additional, prefunded, and readily available qualifying liquid 
resources to be used to complete system-wide settlement if a 
Participant defaults. For DTC, the Participants Fund, Net Debit Cap and 
Collateral Monitor tools work together to limit potential liquidity 
requirements in default scenarios both on an intra-day and end-of-day 
basis. So, while DTC's current available liquidity resources are 
sufficient to satisfy the single-largest family default under stressed 
but plausible conditions, the Debt Issuance would allow DTC to 
diversify its sources of default liquidity and mitigate risks to DTC 
that it is unable to secure default liquidity resources in an amount 
necessary to meet its liquidity needs. More specifically, the proposal 
would provide DTC with the flexibility to reduce its reliance on the 
Line of Credit, which is renewed annually and dependent on continued 
lender interest and meet any increased liquidity needs it may face in 
the future. As a source of prefunded, default liquidity, the Debt 
Issuance would provide additional certainty, stability, and safety to 
DTC, its Participants, and the U.S. markets that it serves.
    By diversifying DTC's sources of qualifying liquid resources, the 
Debt Issuance could also mitigate concentration risks related to its 
liquidity providers. More specifically, while DTC would not limit the 
potential qualified institutional investors that purchase senior notes 
and therefore, is not able to ensure that the Debt Issuance would 
reduce concentration risk, the types of entities who typically invest 
in senior notes (for example, insurance companies, asset managers and 
pension funds) are generally not Participants of DTC or lenders under 
the Line of Credit. Therefore, the prospective investors in the senior 
notes are not expected to be the same firms that currently provide any 
material amount of default liquidity resources to DTC either through 
the Line of Credit, or as DTC Participants. In this way, the proposed 
Debt Issuance would reduce the concentration risk related to its 
liquidity providers, by reducing the likelihood that an impairment of a 
liquidity provider to perform under one qualifying liquid resource 
would impact DTC's ability to fully access its other qualifying liquid 
resources.
Anticipated Effect on and Management of Risk
    In connection with its role as a central securities depository 
(``CSD''), DTC provides for both the settlement of book-entry transfer 
and pledge of interests in eligible deposited securities and net funds 
settlement. A financially strong and well-managed, well-designed CSD, 
with appropriate risk management arrangements, can reduce the risk 
faced by participants, contributing to the goal of systemic financial 
stability. In order to sufficiently perform this role, it is critical 
that DTC has access to adequate liquidity resources to enable it to 
complete system-wide settlement every business day, including following 
a Participant default. DTC believes that the overall impact of the 
proposed Debt Issuance on risks presented by DTC would be to reduce the 
liquidity risks associated with DTC's net settlement obligations by 
providing it with an additional source of liquidity to complete system-
wide settlement in the event of a Participant default. DTC further 
believes that a reduction in its liquidity risk would reduce systemic 
risk and would have a positive impact on the safety and soundness of 
the wider financial system.
    While the proposed Debt Issuance, like any liquidity resource, 
would involve certain risks, most of these risks are standard in any 
debt issuance. One risk associated with the proposed Debt Issuance 
would be the risk that DTC does not have sufficient funds to repay 
issued senior notes when the notes mature. DTC believes that this risk 
is extremely remote, as the proceeds of the Debt Issuance would be used 
only in the event of a Participant default, and DTC would replenish 
that cash, as it would replenish any of its liquidity resources that 
are used to facilitate settlement in the event of a Participant 
default, with the proceeds of the close out of that defaulted 
Participant's portfolio. This notwithstanding, in the event that 
proceeds from the close out are insufficient to fully repay a liquidity 
borrowing, then DTC would look to its loss waterfall to repay any 
outstanding liquidity borrowings.\20\ DTC would further mitigate this 
risk through the timing of each debt issuance and by staggering the 
maturity dates of the

[[Page 102988]]

issued senior notes in a way that would provide DTC with time to 
complete the close out of a defaulted Participant's portfolio. A second 
risk is that DTC may be unable to issue new senior notes as issued 
notes mature due to, for example, stressed markets at the time the 
issued debt matures. This risk is mitigated by the fact that DTC 
maintains a number of different default liquidity resources, described 
above, and would not depend on the Debt Issuance as its sole source of 
liquidity.
---------------------------------------------------------------------------

    \20\ See Rule 4 (Participants Fund and Participants Investment) 
of the Rules, supra note 7.
---------------------------------------------------------------------------

    DTC may be exposed to interest rate risk, which is the risk that a 
change in interest rates could cause an increase to the net cost of 
carry of the Debt Issuance.\21\ DTC would mitigate this risk by issuing 
senior notes at different maturities and at both fixed interest rates 
and floating interest rates. The interest rates for the senior notes 
issued at floating interest rates would generally correlate with the 
rates on investments of those proceeds and would be expected to result 
in a largely stable net spread between the borrowing interest rate and 
the investment interest rate, mitigating this risk. For the senior 
notes issued with a fixed interest rate, DTC would consider interest 
rate swaps as a method to mitigate interest rate risk, depending on 
market environment at that time.
---------------------------------------------------------------------------

    \21\ The ``net cost of carry'' generally refers to the 
difference between the interest earned on the invested proceeds of 
an issuance and the interest rate paid on that issuance.
---------------------------------------------------------------------------

    DTC could also face a related financial risk that the expense of a 
Debt Issuance exceeds DTC's income and may have a negative impact on 
DTC's financial health or its creditworthiness. DTC would mitigate this 
risk by evaluating the expected net cost of carry (discussed above) of 
a Debt Issuance prior to issuing any debt, and if the financing costs 
for the issuance of senior notes increase, such that it is not 
financially advisable to issue additional senior notes, then DTC may 
determine to use its alternative liquidity resources to meet its 
liquidity needs during those market conditions.
    DTC believes that the significant systemic risk mitigation benefits 
of providing DTC with additional, prefunded liquidity resources 
outweigh these risks.
Consistency With Clearing Supervision Act
    DTC believes that that proposal would be consistent with Title VIII 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
entitled the Payment, Clearing, and Settlement Supervision Act of 2010 
(``Clearing Supervision Act''), specifically with the risk management 
objectives and principles of Section 802(b)(1), and with certain of the 
risk management standards adopted by the Commission pursuant to Section 
805(a)(2), for the reasons described below.\22\
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 5464(a)(2) and (b)(1).
---------------------------------------------------------------------------

(i) Consistency With Section 805(b)(1) of the Clearing Supervision Act
    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, its stated purpose is instructive: to 
mitigate systemic risk in the financial system and promote financial 
stability by, among other things, promoting uniform risk management 
standards for systemically important financial market utilities and 
strengthening the liquidity of systemically important financial market 
utilities.\23\
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

    DTC believes the proposal is consistent with Section 805(b)(1) of 
the Clearing Supervision Act because it would support the mitigation of 
systemic risk in the financial system and promote financial stability 
in the event of a Participant default by strengthening DTC's liquidity. 
The proposed Debt Issuance is designed to reduce DTC's liquidity risks 
by providing it with an additional source of liquidity to complete 
system-wide settlement in the event of a Participant default. By 
supplementing DTC's existing default liquidity resources with prefunded 
liquidity, the proposal would contribute to DTC's goal of assuring that 
DTC has adequate liquidity resources to meet its settlement obligations 
notwithstanding the default of any of its Participants.
    In its critical role as a CSD, DTC provides for both the settlement 
of book-entry transfer and pledge of interests in eligible deposited 
securities and net funds settlement. In order to sufficiently perform 
this role, it is critical that DTC has access to adequate liquidity 
resources to enable it to complete system-wide settlement every 
business day, including following a Participant default. Therefore, a 
reduction in DTC's liquidity risk would reduce systemic risk and would 
have a positive impact on the safety and soundness of the wider 
financial system.
    As a result, DTC believes the proposed Debt Issuance would be 
consistent with the objectives and principles of Section 805(b)(1) of 
the Clearing Supervision Act, which specify the promotion of robust 
risk management, promotion of safety and soundness, reduction of 
systemic risks and support of the stability of the broader financial 
system by, among other things, strengthening the liquidity of 
systemically important financial market utilities, such as DTC.\24\
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 5464(b)(1).
---------------------------------------------------------------------------

(ii) Consistency With Rule 17ad-22(e)(7)(i) and (ii) Under the Act
    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe risk management standards for the payment, 
clearing and settlement activities of designated clearing entities, 
like DTC, and financial institutions engaged in designated activities 
for which the Commission is the supervisory agency or the appropriate 
financial regulator.\25\ The Commission has accordingly adopted risk 
management standards under Section 805(a)(2) of the Clearing 
Supervision Act \26\ and Section 17A of the Act (``Covered Clearing 
Agency Standards'').\27\ The Covered Clearing Agency Standards require 
covered clearing agencies to establish, implement, maintain, and 
enforce written policies and procedures that are reasonably designed to 
meet certain minimum requirements for their operations and risk 
management practices on an ongoing basis.\28\
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 5464(a)(2).
    \26\ Id.
    \27\ 17 CFR 240.17ad-22(e).
    \28\ Id.
---------------------------------------------------------------------------

    DTC believes that the proposed Debt Issuance is consistent with 
Rule 17ad-22(e)(7)(i) and (ii) of the Covered Clearing Agency Standards 
for the reasons described below.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 240.17ad-22(e)(7)(i), (ii).
---------------------------------------------------------------------------

    Rule 17ad-22(e)(7)(i) under the Act requires that DTC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to maintain sufficient liquid resources at the 
minimum in all relevant currencies to effect same-day and, where 
appropriate, intraday and multiday settlement of payment obligations 
with a high degree of confidence under a wide range of foreseeable 
stress scenarios that includes, but is not limited to, the default of 
the participant family that would generate the largest aggregate 
payment obligation for the covered clearing agency in extreme but 
plausible market conditions.\30\ Rule 17ad-22(e)(7)(ii) under the Act 
requires that DTC establish, implement, maintain and enforce written 
policies and procedures reasonably designed to hold qualifying liquid 
resources sufficient to meet the minimum liquidity resource requirement 
under Rule 17ad-22(e)(7)(i)

[[Page 102989]]

in each relevant currency for which DTC has payment obligations owed to 
its Participants.\31\
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17ad-22(e)(7)(i).
    \31\ 17 CFR 240.17ad-22(e)(7)(ii). For purposes of this Rule, 
``qualifying liquid resources'' are defined in Rule 17ad-22(a)(14) 
as including, in part, cash held either at the central bank of issue 
or at creditworthy commercial banks. 17 CFR 240.17ad-22(a)(14).
---------------------------------------------------------------------------

    As described above, the proposed Debt Issuance would provide DTC 
with an additional resource of prefunded default liquidity, which it 
would use to complete system-wide settlement every business day, 
including following a Participant default. The proceeds of the Debt 
Issuance would be cash held by DTC at either its cash deposit account 
at the FRBNY or at a creditworthy commercial bank, pursuant to the 
Clearing Agency Investment Policy.\32\ Therefore, the proceeds of the 
Debt Issuance would be considered a qualifying liquid resource, as 
defined by Rule 17ad-22(a)(14).\33\ As such, the proposed Debt Issuance 
would support DTC's ability to hold sufficient qualifying liquid 
resources to meet its minimum liquidity resource requirement under Rule 
17ad-22(e)(7)(i) under the Act.\34\
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    \32\ Supra note 14.
    \33\ 17 CFR 240.17ad-22(a)(14).
    \34\ 17 CFR 240.17ad-22(e)(7)(i).
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    For these reasons, DTC believes the proposal would support DTC's 
compliance with Rule 17ad-22(e)(7)(i) and (ii) under the Act by 
providing it with an additional qualifying liquid resource.\35\
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    \35\ 17 CFR 240.17ad-22(e)(7)(i), (ii).
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III. Date of Effectiveness of the Advance Notice, and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. The clearing agency shall not implement the proposed change 
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed change and authorizes the clearing agency to implement the 
proposed change on an earlier date, subject to any conditions imposed 
by the Commission.
    The clearing agency shall post notice on its website of proposed 
changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the Advance 
Notice is consistent with the Clearing Supervision 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-2023-801 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-2023-801. 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 Advance Notice that are filed 
with the Commission, and all written communications relating to the 
Advance Notice 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 (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-2023-801 and should 
be submitted on or before January 8, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(91).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29919 Filed 12-17-24; 8:45 am]
BILLING CODE 8011-01-P
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