Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices 8953 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 3490747 

(December 21, 2020), 85 FR 85765 (December 29, 

2020) (File No. SR–DTC–2020–019) (‘‘Notice’’). 

4 DTC’s Distributions Guide is available at http:// 

www.dtcc.com/∼/media/Files/Downloads/legal/ 

service-guides/Service%20Guide%20

Distributions.pdf. Capitalized terms not defined 

herein are defined in the Rules, By-Laws, and 

Organization Certification of DTC (‘‘Rules’’), 

available at http://www.dtcc.com/∼/media/Files/ 

Downloads/legal/rules/dtc_rules.pdf. 

5The ‘‘ex-date’’ or ‘‘ex-dividend date’’ is the day 

the stock starts trading without the value of an 

already-declared dividend. 

6The record date is the cut-off date used to 

determine which shareholders are entitled to a 

corporate dividend. Typically, the ex-date is the 

day before the record date. 

7The payable date refers to the date that any 

declared stock dividends are due to be paid out. 

Investors who purchased their stock before the exdate are eligible to receive dividends on the payable 

date. 

8The physical movement of securities (such as, 

deposits, withdrawals-by-transfer, and certificateson-demand) are not transactions that are included 

in the interim accounting process; thus, they do not 

result in adjustments between Participants. See 

Notice, 85 FR at 85766. 

9 Id. 

10 DTC states that on the rare occasions, a 

corporate action event (e.g., a merger) would occur 

during an interim period that would require DTC 

to make special processing arrangements. See id. 

11See, e.g., FINRA Rule 11140—Transactions in 

Securities ‘‘Ex-Dividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’ available at https://www.finra.org/rulesguidance/rulebooks/finra-rules/11140. 

12Notice, 85 FR at 85767. 

13 DTC has participated in various conversations 

with exchanges, industry representatives, and 

Participants to better understand and help address 

this issue. See id. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91063; File No. SR–DTC– 

2020–019] 

Self-Regulatory Organizations; The 

Depository Trust Company; Order 

Approving a Proposed Rule Change To 

Update the Distributions Service Guide 

February 4, 2021. 

I. Introduction 

On December 21, 2020, The 

Depository Trust Company (‘‘DTC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 proposed rule 

change SR–DTC–2020–019. The 

proposed rule change was published for 

comment in the Federal Register on 

December 29, 2020.3 The Commission 

did not receive any comment letters on 

the proposed rule change. For the 

reasons discussed below, the 

Commission is approving the proposed 

rule change. 

II. Description of the Proposed Rule 

Change 

DTC proposes to amend its Corporate 

Actions Distributions Service Guide 

(‘‘Distributions Guide’’) 4 to (1) more 

clearly explain the interim accounting 

process, generally, (2) provide an 

explanation for the interim accounting 

process for a security being delisted, (3) 

change how DTC manages interim 

accounting when an ex-date 5 is changed 

due to an unscheduled closure of a 

stock exchange, (4) remove the 

statements that DTC’s U.S. Tax 

Withholding (‘‘UTW’’) service is 

available to subaccounts of U.S. 

Participants and that users of the UTW 

service must enter into a Withholding 

Agent Agreement, and (v) make certain 

conforming and technical changes, 

including updating the copyright date, 

each described in greater detail below. 

A. Changes to the General Description 

of Interim Accounting 

Interim accounting is an important 

part of the entitlements and allocations 

process for distributions for DTC. The 

interim period (also referred to in the 

Distributions Guide as the due bill 

period) is the period during which a 

settling trade has due bills attached to 

it. A due bill is an indication of a seller’s 

obligation to deliver a pending 

distribution (e.g., cash dividend, stock 

dividend, interest payment, etc.) to the 

buyer in a securities transaction. For 

distributions that are the subject of a 

due bill, the interim period extends 

from the Interim Accounting Start Date 

(i.e., record date +1) 6 up to the Due Bill 

Redemption Date (which is typically exdate +1 for equities and payable date –1 

for debt).7

Normally, the registered holder of a 

security on the close of business on the 

record date is entitled to the 

distribution. There are times, however, 

when that is not the case. Such times 

generally fall into two categories. First, 

for equity issues, there are times when 

the listed exchange will declare an exdate that is not one business day prior 

to the record date (e.g., an ex-date that 

equals payable date +1). At such times, 

a buyer is entitled to the distribution 

when the registered holder of an equity 

issue sells the security prior to the exdate. Second, for most bonds, the buyer 

of the security is entitled to the interest 

payment (i.e., the distribution) on trades 

that settle up to and including the day 

before the payable date, even though the 

buyer is not the record date holder. 

With DTC’s interim accounting 

process, during a due bill period, DTC 

tracks all settled activity, where the 

receiver (typically a buyer) is entitled to 

a distribution, and adjusts Participants’ 

record-date positions, crediting the 

receiver and debiting the deliverer 

(typically a seller) the distribution 

amount.8 DTC states that this process 

helps ensure accurate payment on the 

payable date and eliminate timeconsuming and costly paper 

processing.9

DTC proposes to amend the 

Distributions Guide to provide greater 

clarity and transparency regarding the 

foregoing description of the interim 

accounting process. 

B. Interim Accounting on a Security 

Being Delisted 

In certain scenarios, listed exchanges 

might not announce an ex-date that is 

on or after the date the corresponding 

security is being delisted. In such 

instances, if the listed exchange does 

not declare an ex-date, but instead 

provides direction that trades in a 

particular security up to a specified date 

include the distribution, then DTC 

captures interim accounting based on 

the exchange’s direction.10 The current 

Distributions Guide does not clearly 

describe the foregoing process. DTC 

proposes to update the Distributions 

Guide to clearly describe the process. 

DTC also proposes to update the 

copyright date of the Distributions 

Guide. 

C. Interim Accounting for an Ex-Date 

Change Due to Unscheduled Closing of 

a Stock Exchange 

Occasionally, there is an unscheduled 

closing of one or more stock exchanges 

(due to, e.g., a national day of mourning, 

an event causing significant market 

disruption or regional impact, etc.). 

During an unscheduled closing, a listed 

exchange typically moves ex-dates that 

were scheduled for that date to the next 

open business day, which is usually the 

record date. Such a move is necessary 

because ex-dates must occur on a 

business day that the listed exchange is 

open.11

Currently, when an exchange moves 

ex-dates due to unscheduled closing of 

the exchange, DTC continues to apply 

the interim accounting process 

described above.12 According to DTC, 

when there is an unscheduled closure, 

the intent of the exchange is for the final 

day of trading with a due bill to fall on 

the business day prior to the 

unscheduled closure, so that there 

would be no executed trades in the 

security on the day of closure.13

However, because this scenario causes 

ex-dates and record dates to coincide, 

8954 Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices 

14 Id. 

15 Id. 

16 Id. 

17 Id. 

18 Distributions Guide, U.S. Tax Withholding, pg 

23, supra note 4. 

19See 26 CFR 1.1441–7(a). 

20See Notice, 85 FR at 85767. 

21 Id. 

22 Id. 

23 15 U.S.C. 78s(b)(2)(C). 

24 15 U.S.C. 78q–1(b)(3)(F). 

25 17 CFR 240.17Ad–22(e)(21). 

26 15 U.S.C. 78q–1(b)(3)(F). 

27 Id. 

28 Id. 

29 Id. 

30 17 CFR 240.17Ad–22(e)(21). 

and because the interim accounting 

process is based on a two-day settlement 

cycle, an unintended consequence is the 

application of due bills to activity one 

day after record date.14 Since DTC 

continues to apply its standard interim 

accounting process, Participants are 

required to perform adjustments to 

reverse the interim accounting on 

activity to which the interim accounting 

should not have applied, creating 

unnecessary work for the Participants.15

In order to avoid the need for such 

adjustments, DTC proposes to no longer 

apply the interim accounting process 

when an exchange moves an ex-date 

due to an unexpected closure of the 

exchange. 

D. UTW Service 

DTC states that its UTW service is 

designed to help ensure that the 

appropriate non-resident alien 

withholding tax is applied to U.S.- 

sourced income paid to DTC’s direct 

non-U.S. Participants.16 DTC further 

states that the applicable withholding 

tax is determined based on the type of 

income being paid along with the tax 

forms provided by the Participant.17

The Distributions Guide currently 

provides that the UTW service is 

available to non-U.S. Participants, 

including subaccounts of U.S. 

Participants, and that users of the UTW 

service must enter into a Withholding 

Agent Agreement.18 DTC believes that 

U.S. tax regulations 19 require DTC to 

withhold U.S. tax on payments it makes 

to its non-U.S. Participants.20 However, 

according to DTC, U.S. tax regulations 

do not contemplate a process under 

which DTC would withhold tax 

obligations of its U.S. Participants.21

DTC also acknowledges its obligations 

apply regardless of whether there is or 

is not an agreement between DTC and 

its Participants to do so.22 DTC proposes 

to revise the Distributions Guide to 

reflect its understanding of the foregoing 

U.S. tax regulations. 

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 23

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 

carefully considering 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 24 and Rule 

17Ad–22(e)(21) promulgated under the 

Act,25 for the reasons described below. 

A. Consistency With Section 

17A(b)(3)(F) 

Section 17A(b)(3)(F) of the Act 26

requires, in part, that the rules of a 

clearing agency be designed, in general, 

to protect investors and the public 

interest. As described above, the 

proposed rule change would update the 

Distributions Guide to more clearly 

explain the interim accounting process 

and, more specifically, provide an 

explanation of the interim accounting 

process for a security being delisted, as 

well as update the copyright date. 

Additionally, as described above, the 

proposed rule change would amend the 

Distributions Guide for consistency with 

DTC’s understanding of relevant U.S. 

tax regulations. The Commission 

believes that these changes would 

provide DTC’s Participants and the 

public with greater clarity and 

transparency regarding DTC’s interim 

accounting process, which, in turn, is 

generally to the benefit of investors and 

the public. Accordingly, the 

Commission believes that the proposed 

rule change is designed, in general, to 

protect investors and the public interest, 

consistent with Section 17A(b)(3)(F) of 

the Act.27

Section 17A(b)(3)(F) of the Act 28 also 

requires, in part, that the rules of a 

clearing agency be designed to remove 

impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions. As 

described above, the proposed rule 

change would change how DTC 

manages interim accounting when an 

exchange moves an ex-date due to an 

unscheduled closure of the exchange, so 

that DTC will no longer capture interim 

activity that results from such a 

scenario. As a result, Participants would 

no longer need to perform adjustments 

to reverse the interim accounting on 

activity to which the interim accounting 

should not have otherwise applied. By 

eliminating this need, the proposed rule 

change should help streamline DTC’s 

interim accounting process for tracking 

due bills associated with Participants’ 

securities transactions. Because interim 

accounting is part of DTC’s broader 

mechanism for the clearance and 

settlement of securities transactions, the 

Commission believes that by 

streamlining DTC’s interim accounting 

process, the proposed rule change is 

designed to remove impediments and 

perfect the mechanism of the system for 

the prompt and accurate clearance and 

settlement of securities transactions, 

consistent with Section 17A(b)(3)(F) of 

the Act.29

B. Consistency With Rule 17Ad– 

22(e)(21) 

Rule 17Ad–22(e)(21) under the Act 30

requires that DTC establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to, 

in part, be efficient and effective in 

meeting the requirements of its 

Participants and the markets it serves. 

As described above, the proposed rule 

change would amend the Distributions 

Guide to (1) provide greater general 

clarity and transparency regarding 

DTC’s interim accounting process, (2) 

explain the interim accounting process 

for a security being delisted, (3) no 

longer apply interim accounting when 

an exchange changes an ex-date due to 

an unscheduled closure of the exchange, 

and (4) remove the statements that the 

UTW service is available to subaccounts 

of U.S. Participants and that users of the 

UTW service must enter into a 

Withholding Agent Agreement. 

The foregoing proposed changes 

would improve the Distributions Guide 

by clarifying DTC’s interim accounting 

processes, as well as the application and 

requirements of the UTW service. As a 

result, the proposed changes would help 

better inform DTC’s Participants 

regarding those matters. Moreover, as 

described above, the proposed change to 

no longer apply interim accounting 

when there is an unscheduled closure of 

an exchange would provide efficiencies 

to Participants by obviating the need for 

them to make unnecessary interim 

accounting adjustments. 

Accordingly, for the reasons stated 

above, the Commission believes that the 

proposed rule change is designed to 

enhance DTC’s efficiency and 

effectiveness in meeting the 

requirements of its Participants and the 

Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices 8955 

31 Id. 

32 15 U.S.C. 78q–1. 

33 15 U.S.C. 78s(b)(2). 

34 In approving the proposed rule change, the 

Commission considered its impact on efficiency, 

competition, and capital formation. 15 U.S.C. 78c(f). 

35 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89028 

(June 8, 2020), 85 FR 35967. Comments on the 

proposed rule change can be found at: https://

www.sec.gov/comments/sr-nasdaq-2020-026/ 

srnasdaq2020026.htm. 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 89342, 

85 FR 44951 (July 24, 2020). The Commission 

designated September 10, 2020 as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

approve or disapprove, the proposed rule change. 

6Amendment No. 1 is available at https://

www.sec.gov/comments/sr-nasdaq-2020-026/ 

srnasdaq2020026-7677529-222672.pdf. 

7 15 U.S.C. 78s(b)(2)(B). 

8See Securities Exchange Act Release No. 89794, 

85 FR 57260 (September 15, 2020). 

9Amendment No. 2 is available at: https://

www.sec.gov/comments/sr-nasdaq-2020-026/ 

srnasdaq2020026-8048419-225740.pdf. 

10See Securities Exchange Act Release No. 90553, 

85 FR 79062 (December 8, 2020). 

11 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

markets it serves, consistent with Rule 

17Ad–22(e)(21) under the Act.31

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule changes are consistent with the 

requirements of the Act and in 

particular with the requirements of 

Section 17A of the Act 32 and the rules 

and regulations promulgated 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 33 that 

proposed rule change SR–DTC–2020– 

019, be, and hereby is, approved.34

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02712 Filed 2–9–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91057; File No. SR– 

NASDAQ–2020–026] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Withdrawal of a Proposed Rule 

Change, as Modified by Amendment 

Nos. 1 and 2, To Adopt a New 

Requirement Related to the 

Qualification of Management for 

Companies From Restrictive Markets 

February 4, 2021. 

On May 29, 2020, The Nasdaq Stock 

Market LLC (‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

adopt a new requirement related to the 

qualification of management for 

companies whose business is 

principally administered in a 

jurisdiction that has secrecy laws, 

blocking statutes, national security laws, 

or other laws or regulations restricting 

access to information by regulators of 

U.S.-listed companies. The proposed 

rule change was published for comment 

in the Federal Register on June 12, 

2020.3 On July 20, 2020, pursuant to 

Section 19(b)(2) of the 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 disapprove the 

proposed rule change.5 On August 21, 

2020, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

which replaced and superseded the 

proposed rule change as originally 

filed.6 On September 9, 2020, the 

Commission published notice of 

Amendment No. 1 and instituted 

proceedings under Section 19(b)(2)(B) of 

the Act 7 to determine whether to 

approve or disapprove the proposed 

rule change, as modified by Amendment 

No. 1.8 On November 17, 2020, the 

Exchange filed Amendment No. 2 to the 

proposed rule change.9 On December 2, 

2020, the Commission extended the 

period for consideration of the proposed 

rule change to February 7, 2021.10 On 

February 1, 2021, the Exchange 

withdrew the proposed rule change 

(SR–NASDAQ–2020–026). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02708 Filed 2–9–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91060; File No. SR–Phlx– 

2021–05] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Phlx Rules 

February 4, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

26, 2021, Nasdaq PHLX LLC (‘‘Phlx’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

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 proposes to amend 

Phlx Rules at Options 1, Section 1, 

‘‘Applicability, Definitions and 

References’’; Options 2, Section 4, 

‘‘Obligations of Market Makers’’; 

Options 2, Section 6, ‘‘Market Maker 

Orders’’; Options 3, Section 6, ‘‘Firm 

Quotations’’; Options 3, Section 7, 

‘‘Types of Orders and Order and Quote 

Protocols’’; Options 3, Section 10, 

‘‘Electronic Execution Priority and 

Processing in the System’’; Options 3, 

Section 13, ‘‘Price Improvement XL 

(‘‘PIXL’’)’’; Options 3, Section 15, 

‘‘Simple Order Risk Protections’’; 

Options 3, Section 23, ‘‘Data Feeds and 

Trade Information’’; Options 5, Section 

4, ‘‘Order Routing’’; Options 8, Section 

2, ‘‘Definitions’’; and Options 8, Section 

32, ‘‘Types of Floor-Based (Non-System) 

Orders’’. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the