Federal Register / Vol. 83, No. 139 / Thursday, July 19, 2018 / Notices 34263 

79 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b–4, 

respectively. On December 18, 2017, DTC filed the 

Proposed Rule Change as advance notice SR–DTC– 

2017–803 (‘‘Advance Notice’’) with the Commission 

pursuant to 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’’) and Rule 19b–4(n)(1)(i) of the 

Act. (12 U.S.C. 5465(e)(1) and 17 CFR 240.19b– 

4(n)(1)(i), respectively.) On January 30, 2018, the 

Commission published in the Federal Register 

notice of filing of the Advance Notice. The notice 

also extended the review period for the Advance 

Notice pursuant to Section 806(e)(1)(H) of the 

Clearing Supervision Act. (12 U.S.C. 5465(e)(1)(H).) 

See Securities Exchange Act Release No. 82579 

(January 24, 2018), 83 FR 4310 (January 30, 2018) 

(SR–DTC–2017–803). On April 10, 2018, the 

Commission required additional information for 

consideration of the Advance Notice, pursuant to 

Section 806(e)(1)(D) of the Clearing Supervision 

Act, which provided the Commission with an 

additional 60-days in the review period beginning 

on the date that the information requested is 

received by the Commission. (12 U.S.C. 

5465(e)(1)(D).) See Memorandum from the Office of 

Clearance and Settlement Supervision, Division of 

Trading and Markets, titled ‘‘Commission’s Request 

for Additional Information,’’ available at http://

www.sec.gov/rules/sro/dtc-an.shtml. On June 28, 

2018, DTC filed Amendment No. 1 to the Advance 

Notice. To promote the public availability and 

transparency of its post-notice amendment, DTC 

submitted a copy of Amendment No. 1 through the 

Commission’s electronic public comment letter 

mechanism. Accordingly, Amendment No. 1 to the 

Advance Notice has been posted on the 

Commission’s website at https://www.sec.gov/rules/ 

sro/dtc-an.htm and thus been publicly available 

since June 29, 2018. On July 6, 2018, the 

Commission received the information requested, 

which added an additional 60-days to the review 

period pursuant to Sections 806(e)(1)(E) and (G) of 

the Clearing Supervision Act. (12 U.S.C. 

5465(e)(1)(E) and (G).) See Memorandum from the 

Office of Clearance and Settlement Supervision, 

Division of Trading and Markets, titled ‘‘Response 

to the Commission’s Request for Additional 

Information,’’ available at http://www.sec.gov/ 

rules/sro/dtc-an.shtml. The proposal, as set forth in 

both the Advance Notice and the Proposed Rule 

Change, shall not take effect until all required 

regulatory actions are completed. 

2Securities Exchange Act Release No. 82432 

(January 2, 2018), 83 FR 884 (January 8, 2018) (SR– 

DTC–2017–021). 

3Securities Exchange Act Release No. 82669 

(February 8, 2018), 83 FR 6653 (February 14, 2018) 

(SR–DTC–2017–021; SR–FICC–2017–021; SR– 

NSCC–2017–017). 

4Securities Exchange Act Release No. 82912 

(March 20, 2018), 83 FR 12999 (March 26, 2018) 

(SR–DTC–2017–021). 

5Securities Exchange Act Release No. 83509 

(June 25, 2018), 83 FR 30785 (June 29, 2018) (SR– 

DTC–2017–021; SR–FICC–2017–021; SR–NSCC– 

2017–017). 

6To promote the public availability and 

transparency of its post-notice amendment, DTC 

submitted a copy of Amendment No. 1 through the 

Commission’s electronic public comment letter 

mechanism. Accordingly, Amendment No. 1 to the 

Proposed Rule Change has been posted on the 

Continued 

clarity of the Rules regarding the loss 

allocation process. Clarifying DTC’s 

Voluntary Retirement provisions would 

improve the clarity of the Rules and 

help ensure that DTC’s Voluntary 

Retirement process is transparent and 

clear to all Participants. Making 

technical and conforming changes to 

ensure the Rules remain clear and 

accurate would facilitate Participants’ 

understanding of the Rules and their 

obligations thereunder. As such, DTC 

believes that these proposed rule 

changes would not have any impact on 

competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments relating to this 

proposed rule change have not been 

solicited or received. DTC will notify 

the Commission of any written 

comments received by DTC. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

DTC–2017–022 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–DTC–2017–022. 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 (http://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 

10:00 a.m. and 3:00 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 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–DTC– 

2017–022 and should be submitted on 

or before August 3, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.79

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–15364 Filed 7–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83628; File No. SR–DTC– 

2017–021] 

Self-Regulatory Organizations; The 

Depository Trust Company; Notice of 

Filing of Amendment No. 1 to a 

Proposed Rule Change To Adopt a 

Recovery & Wind-Down Plan and 

Related Rules 

July 13, 2018. 

On December 18, 2017, 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’’) and Rule 

19b–4 thereunder, proposed rule change 

SR–DTC–2017–021 (‘‘Proposed Rule 

Change’’) to adopt a recovery and winddown plan and related rules.1 The 

Proposed Rule Change was published 

for comment in the Federal Register on 

January 8, 2018.2 On February 8, 2018, 

the Commission designated a longer 

period within which to approve, 

disapprove, or institute proceedings to 

determine whether to approve or 

disapprove the Proposed Rule Change.3

On March 20, 2018, the Commission 

instituted proceedings to determine 

whether to approve or disapprove the 

Proposed Rule Change.4 On June 25, 

2018, the Commission designated a 

longer period for Commission action on 

the proceedings to determine whether to 

approve or disapprove the Proposed 

Rule Change.5 On June 28, 2018, DTC 

filed Amendment No. 1 to the Proposed 

Rule Change to amend and replace in its 

entirety the Proposed Rule Change as 

originally submitted on December 18, 

2017.6 As of the date of this release, the 


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Commission’s website at https://www.sec.gov/rules/ 

sro/dtc.htm and thus been publicly available since 

June 29, 2018. 

7Capitalized terms used herein and not otherwise 

defined herein are defined in the Rules, available 

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

rules/DTC_rules.pdf. 

8 17 CFR 240.17Ad–22(e)(3)(ii). 

9See Securities Exchange Act Release No. 82579 

(January 24, 2018), 83 FR 4310 (January 30, 2018) 

(SR–DTC–2017–803). 

Commission has not received any 

comments on the Proposed Rule 

Change. 

The Proposed Rule Change, as 

amended by Amendment No. 1, is 

described in Items I and II below, which 

Items have been prepared by DTC. The 

Commission is publishing this notice to 

solicit comments on the Proposed Rule 

Change, as amended by Amendment No. 

1, from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The Proposed Rule Change of DTC 

proposes to (1) adopt the Recovery & 

Wind-down Plan of DTC (‘‘R&W Plan’’ 

or ‘‘Plan’’); and (2) amend the Rules, ByLaws and Organization Certificate of 

DTC (‘‘Rules’’) 7 in order to adopt Rule 

32(A) (Wind-down of the Corporation) 

and Rule 38 (Market Disruption and 

Force Majeure) (each proposed Rule 

32(A) and proposed Rule 38, a 

‘‘Proposed Rule’’ and, collectively, the 

‘‘Proposed Rules’’). 

The R&W Plan would be maintained 

by DTC in compliance with Rule 17Ad– 

22(e)(3)(ii) under the Act by providing 

plans for the recovery and orderly winddown of DTC necessitated by credit 

losses, liquidity shortfalls, losses from 

general business risk, or any other 

losses, as described below.8 The 

Proposed Rules are designed to (1) 

facilitate the implementation of the 

R&W Plan when necessary and, in 

particular, allow DTC to effectuate its 

strategy for winding down and 

transferring its business; (2) provide 

Participants with transparency around 

critical provisions of the R&W Plan that 

relate to their rights, responsibilities and 

obligations; and (3) provide DTC with 

the legal basis to implement those 

provisions of the R&W Plan when 

necessary, as described below. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, the 

clearing agency included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item III below. The 

clearing agency has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

Description of Amendment No. 1 

This filing constitutes Amendment 

No. 1 (‘‘Amendment’’) to the Proposed 

Rule Change (also referred to below as 

the ‘‘Original Filing’’) previously filed 

by DTC.9 DTC is amending the proposed 

R&W Plan and the Original Filing in 

order to clarify certain matters and make 

minor technical and conforming 

changes to the R&W Plan, as described 

below and as marked on Exhibit 4 

hereto. To the extent such changes to 

the Plan require changes to the Original 

Filing, the information provided under 

‘‘Description of Proposed Changes’’ in 

the Original Filing has been amended 

and is restated in its entirety below. 

Other sections of the Original Filing are 

unchanged and are restated in their 

entity for convenience. 

First, this Amendment would clarify 

the use in the Plan of the term 

‘‘Participant Default Losses.’’ This 

Amendment would also clarify the 

actions and tools available in the third 

phase of the Crisis Continuum, which is 

referred to as the ‘‘Participant Default 

phase.’’ This Amendment would also 

make conforming changes as necessary 

to reflect the use of these terms. 

Second, this Amendment would 

clarify that actions and tools described 

in the Plan that are available in one 

phase of the Crisis Continuum may be 

used in subsequent phases of the Crisis 

Continuum, when appropriate to 

address the applicable situation. This 

Amendment would also clarify that 

allocation of losses resulting from a 

Participant Default would be applied 

when provide for in, and in accordance 

with, Rule 4. 

Third, this Amendment would clarify 

that the Recovery Corridor (as defined 

therein) is not a ‘‘sub-phase’’ of the 

recovery phase. Rather, the Recovery 

Corridor is a period of time that would 

occur toward the end of the Participant 

Default phase, when indicators are that 

DTC may transition into the recovery 

phase. Thus, the Recovery Corridor 

precedes the recovery phase. 

Fourth, this Amendment would make 

revisions to address the allocation of 

losses resulting from a Participant 

Default in order to more closely conform 

such statements to the changes 

proposed by the Loss Allocation Filing, 

as defined below. 

Fifth, this Amendment would clarify 

the notifications that DTC would be 

required to make under the Proposed 

Rule 38 (Market Disruption and Force 

Majeure). 

Finally, this Amendment would make 

minor, technical and conforming 

revisions to correct typographical errors 

and to simplify descriptions. For 

example, such revisions would use 

lower case for terms that are not defined 

therein, and would use upper case for 

terms that are defined. The Amendment 

would also simplify certain descriptions 

by removing extraneous words and 

statements that are repetitive. These 

minor, technical revisions would not 

alter the substance of the proposal. 

Description of Proposed Changes 

DTC is proposing to adopt the R&W 

Plan to be used by the Board and 

management in the event DTC 

encounters scenarios that could 

potentially prevent it from being able to 

provide its critical services as a going 

concern. The R&W Plan would identify 

(i) the recovery tools available to DTC to 

address the risks of (a) uncovered losses 

or liquidity shortfalls resulting from the 

default of one or more of its 

Participants, and (b) losses arising from 

non-default events, such as damage to 

its physical assets, a cyber-attack, or 

custody and investment losses, and (ii) 

the strategy for implementation of such 

tools. The R&W Plan would also 

establish the strategy and framework for 

the orderly wind-down of DTC and the 

transfer of its business in the remote 

event the implementation of the 

available recovery tools does not 

successfully return DTC to financial 

viability. 

As discussed in greater detail below, 

the R&W Plan would provide, among 

other matters, (i) an overview of the 

business of DTC and its parent, The 

Depository Trust & Clearing Corporation 

(‘‘DTCC’’); (ii) an analysis of DTC’s 

intercompany arrangements and critical 

links to other financial market 

infrastructures (‘‘FMIs’’); (iii) a 

description of DTC’s services, and the 

criteria used to determine which 

services are considered critical; (iv) a 

description of the DTC and DTCC 

governance structure; (v) a description 

of the governance around the overall 

recovery and wind-down program; (vi) a 

discussion of tools available to DTC to 

mitigate credit/market and liquidity 

risks, including recovery indicators and 

triggers, and the governance around 

management of a stress event along a 

‘‘Crisis Continuum’’ timeline; (vii) a 


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10See Securities Exchange Act Release No. 81105 

(July 7, 2017), 82 FR 32399 (July 13, 2017) (SR– 

DTC–2017–003; SR–FICC–2017–007; SR–NSCC– 

2017–004). 

11See id. 

12See Rule 4 (Participants Fund and Participants 

Investment), supra note 7. DTC is proposing 

changes to Rule 4 regarding allocation of losses in 

a separate filing submitted simultaneously with the 

Original Filing. See Securities Exchange Act 

Release Nos. 82432 (January 2, 2018), 83 FR 884 

(January 8, 2018) (SR–DTC–2017–021) and 82579 

(January 24, 2018), 83 FR 4310 (January 30, 2018) 

(SR–DTC–2017–803) (collectively referred to herein 

as the ‘‘Loss Allocation Filing’’). DTC has submitted 

an amendment to the Loss Allocation Filing. A copy 

of the amendment to the Loss Allocation Filing is 

available at http://www.dtcc.com/legal/sec-rulefilings.aspx. DTC expects the Commission to review 

both proposals, as amended, together, and, as such, 

the proposal described in this filing anticipates the 

approval and implementation of those proposed 

changes to the Rules. 

13 DTCC operates on a shared services model with 

respect to DTC and its other subsidiaries. Most 

corporate functions are established and managed on 

an enterprise-wide basis pursuant to intercompany 

agreements under which it is generally DTCC that 

provides a relevant service to a subsidiary, 

including DTC. 14 17 CFR 240.17Ad–22(e)(3)(ii). 

discussion of potential non-default 

losses and the resources available to 

DTC to address such losses, including 

recovery triggers and tools to mitigate 

such losses; (viii) an analysis of the 

recovery tools’ characteristics, including 

how they are comprehensive, effective, 

and transparent, how the tools provide 

appropriate incentives to Participants 

to, among other things, control and 

monitor the risks they may present to 

DTC, and how DTC seeks to minimize 

the negative consequences of executing 

its recovery tools; and (ix) the 

framework and approach for the orderly 

wind-down and transfer of DTC’s 

business, including an estimate of the 

time and costs to effect a recovery or 

orderly wind-down of DTC. 

The R&W Plan would be structured as 

a roadmap, and would identify and 

describe the tools that DTC may use to 

effect a recovery from the events and 

scenarios described therein. Certain 

recovery tools that would be identified 

in the R&W Plan are based in the Rules 

(including the Proposed Rules) and, as 

such, descriptions of those tools would 

include descriptions of, and reference 

to, the applicable Rules and any related 

internal policies and procedures. Other 

recovery tools that would be identified 

in the R&W Plan are based in 

contractual arrangements to which DTC 

is a party, including, for example, 

existing committed or pre-arranged 

liquidity arrangements. Further, the 

R&W Plan would state that DTC may 

develop further supporting internal 

guidelines and materials that may 

provide operationally for matters 

described in the Plan, and that such 

documents would be supplemental and 

subordinate to the Plan. 

Key factors considered in developing 

the R&W Plan and the types of tools 

available to DTC were its governance 

structure and the nature of the markets 

within which DTC operates. As a result 

of these considerations, many of the 

tools available to DTC that would be 

described in the R&W Plan are DTC’s 

existing, business-as-usual risk 

management and default management 

tools, which would continue to be 

applied in scenarios of increasing stress. 

In addition to these existing, businessas-usual tools, the R&W Plan would 

describe DTC’s other principal recovery 

tools, which include, for example, (i) 

identifying, monitoring and managing 

general business risk and holding 

sufficient liquid net assets funded by 

equity (‘‘LNA’’) to cover potential 

general business losses pursuant to the 

Clearing Agency Policy on Capital 

Requirements (‘‘Capital Policy’’),10 (ii) 

maintaining the Clearing Agency Capital 

Replenishment Plan (‘‘Replenishment 

Plan’’) as a viable plan for the 

replenishment of capital should DTC’s 

equity fall close to or below the amount 

being held pursuant to the Capital 

Policy,11 and (iii) the process for the 

allocation of losses among Participants 

as provided in Rule 4.12 The R&W Plan 

would provide governance around the 

selection and implementation of the 

recovery tool or tools most relevant to 

mitigate a stress scenario and any 

applicable loss or liquidity shortfall. 

The development of the R&W Plan is 

facilitated by the Office of Recovery & 

Resolution Planning (‘‘R&R Team’’) of 

DTCC.13 The R&R Team reports to the 

DTCC Management Committee 

(‘‘Management Committee’’) and is 

responsible for maintaining the R&W 

Plan and for the development and 

ongoing maintenance of the overall 

recovery and wind-down planning 

process. The Board, or such committees 

as may be delegated authority by the 

Board from time to time pursuant to its 

charter, would review and approve the 

R&W Plan biennially, and would also 

review and approve any changes that 

are proposed to the R&W Plan outside 

of the biennial review. 

As discussed in greater detail below, 

the Proposed Rules would define the 

procedures that may be employed in the 

event of a DTC wind-down, and would 

provide for DTC’s authority to take 

certain actions on the occurrence of a 

‘‘Market Disruption Event,’’ as defined 

therein. Significantly, the Proposed 

Rules would provide Participants with 

transparency and certainty with respect 

to these matters. The Proposed Rules 

would facilitate the implementation of 

the R&W Plan, particularly DTC’s 

strategy for winding down and 

transferring its business, and would 

provide DTC with the legal basis to 

implement those aspects of the R&W 

Plan. 

DTC R&W Plan 

The R&W Plan is intended to be used 

by the Board and DTC’s management in 

the event DTC encounters scenarios that 

could potentially prevent it from being 

able to provide its critical services as a 

going concern. The R&W Plan would be 

structured to provide a roadmap, define 

the strategy, and identify the tools 

available to DTC to either (i) recover, in 

the event it experiences losses that 

exceed its prefunded resources (such 

strategies and tools referred to herein as 

the ‘‘Recovery Plan’’) or (ii) wind-down 

its business in a manner designed to 

permit the continuation of its critical 

services in the event that such recovery 

efforts are not successful (such strategies 

and tools referred to herein as the 

‘‘Wind-down Plan’’). The description of 

the R&W Plan below is intended to 

highlight the purpose and expected 

effects of the material aspects of the 

R&W Plan, and to provide Participants 

with appropriate transparency into 

these features. 

Business Overview, Critical Services, 

and Governance 

The introduction to the R&W Plan 

would identify the document’s purpose 

and its regulatory background, and 

would outline a summary of the Plan. 

The stated purpose of the R&W Plan is 

that it is to be used by the Board and 

DTC management in the event DTC 

encounters scenarios that could 

potentially prevent it from being able to 

provide its critical services as a going 

concern. The R&W Plan would be 

maintained by DTC in compliance with 

Rule 17Ad–22(e)(3)(ii) under the Act 14

by providing plans for the recovery and 

orderly wind-down of DTC. 

The R&W Plan would describe 

DTCC’s business profile, provide a 

summary of DTC’s services, and identify 

the intercompany arrangements and 

critical links between DTC and other 

FMIs. This overview section would 

provide a context for the R&W Plan by 

describing DTC’s business, 

organizational structure and critical 

links to other entities. By providing this 

context, this section would facilitate the 

analysis of the potential impact of 

utilizing the recovery tools set forth in 

later sections of the Recovery Plan, and 


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15 DTC has other links in addition to those 

mentioned above. The current list of linked CSDs 

is available on the DTCC website. 

16See Rule 9(C) (Transactions in MMI Securities), 

supra note 7. 

17See DTC Reorganizations Service Guide, 

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

Downloads/legal/service-guides/ 

Reorganizations.pdf. 

18See DTC Distributions Service Guide, available 

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

legal/service-guides/Service%20Guide

%20Distributions.pdf. 

19See DTC Settlement Service Guide, available at 

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

service-guides/Settlement.pdf. 

20The charter of the Board Risk Committee is 

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

Downloads/legal/policy-and-compliance/DTCCBOD-Risk-Committee-Charter.pdf. 

the analysis of the factors that would be 

addressed in implementing the Winddown Plan. 

DTCC is a user-owned and usergoverned holding company and is the 

parent company of DTC and its 

affiliates, National Securities Clearing 

Corporation (‘‘NSCC’’) and Fixed 

Income Clearing Corporation (‘‘FICC,’’ 

and, together with NSCC and DTC, the 

‘‘Clearing Agencies’’). The Plan would 

describe how corporate support services 

are provided to DTC from DTCC and 

DTCC’s other subsidiaries through 

intercompany agreements under a 

shared services model. 

The Plan would provide a description 

of established links between DTC and 

other FMIs, both domestic and foreign, 

including central securities depositories 

(‘‘CSDs’’) and central counterparties 

(‘‘CCPs’’), as well as the twelve U.S. 

Federal Reserve Banks. In general, these 

links are either ‘‘inbound’’ or ‘‘issuer’’ 

links, in which the other FMI is a 

Participant and/or a Pledgee and 

maintains one or more accounts at DTC, 

or ‘‘outbound’’ or ‘‘investor’’ links in 

which DTC maintains one or more 

accounts at another FMI. Key FMIs with 

which DTC maintains critical links 

include CDS Clearing and Depository 

Services Inc. (‘‘CDS’’), the Canadian 

CSD, with participant links in both 

directions; Euroclear Bank SA/NV 

(‘‘EB’’) for cross-border collateral 

management services; and The Options 

Clearing Corporation (‘‘OCC’’) and the 

Federal Reserve Bank of New York 

(‘‘FRBNY’’), each of which is both a 

Participant and a Pledgee. The critical 

link for the U.S. marketplace is the 

relationship between DTC and NSCC, 

through which continuous net 

settlement (‘‘CNS’’) transactions are 

completed by settlement at DTC, and 

DTC acts as settlement agent for NSCC 

for end-of-day funds settlement.15 This 

section of the Plan, identifying and 

briefly describing DTC’s established 

links, would provide a mapping of 

critical connections and dependencies 

that may need to be relied on or 

otherwise addressed in connection with 

the implementation of either the 

Recovery Plan or the Wind-down Plan. 

The Plan would define the criteria for 

classifying certain of DTC’s services as 

‘‘critical,’’ and would identify those 

critical services and the rationale for 

their classification. This section would 

provide an analysis of the potential 

systemic impact from a service 

disruption, and is important for 

evaluating how the recovery tools and 

the wind-down strategy would facilitate 

and provide for the continuation of 

DTC’s critical services to the markets it 

serves. The criteria that would be used 

to identify a DTC service or function as 

critical would include consideration as 

to (1) whether there is a lack of 

alternative providers or products; (2) 

whether failure of the service could 

impact DTC’s ability to perform its 

book-entry and settlement services; (3) 

whether failure of the service could 

impact DTC’s ability to perform its 

payment system functions; and (4) 

whether the service is interconnected 

with other participants and processes 

within the U.S. financial system, for 

example, with other FMIs, settlement 

banks and broker-dealers. The Plan 

would then list each of those services, 

functions or activities that DTC has 

identified as ‘‘critical’’ based on the 

applicability of these four criteria. Such 

critical services would include, for 

example, MMIs and Commercial Paper 

Processing,16 Mandatory and Voluntary 

Corporate Actions,17 Cash and Stock 

Distributions,18 and End of Day Net 

Money Settlement.19 The R&W Plan 

would also include a non-exhaustive list 

of DTC services that are not deemed 

critical. 

The evaluation of which services 

provided by DTC are deemed critical is 

important for purposes of determining 

how the R&W Plan would facilitate the 

continuity of those services. As 

discussed further below, while DTC’s 

Wind-down Plan would provide for the 

transfer of all critical services to a 

transferee in the event DTC’s winddown is implemented, it would 

anticipate that any non-critical services 

that are ancillary and beneficial to a 

critical service, or that otherwise have 

substantial user demand from the 

continuing membership, would also be 

transferred. 

The Plan would describe the 

governance structure of both DTCC and 

DTC. This section of the Plan would 

identify the ownership and governance 

model of these entities at both the Board 

of Directors and management levels. 

The Plan would state that the stages of 

escalation required to manage recovery 

under the Recovery Plan or to invoke 

DTC’s wind-down under the Winddown Plan would range from relevant 

business line managers up to the Board 

through DTC’s governance structure. 

The Plan would then identify the parties 

responsible for certain activities under 

both the Recovery Plan and the Winddown Plan, and would describe their 

respective roles. The Plan would 

identify the Risk Committee of the 

Board (‘‘Board Risk Committee’’) as 

being responsible for oversight of risk 

management activities at DTC, which 

include focusing on both oversight of 

risk management systems and processes 

designed to identify and manage various 

risks faced by DTC, and, due to DTC’s 

critical role in the markets in which it 

operates, oversight of DTC’s efforts to 

mitigate systemic risks that could 

impact those markets and the broader 

financial system.20 The Plan would 

identify the DTCC Management Risk 

Committee (‘‘Management Risk 

Committee’’) as primarily responsible 

for general, day-to-day risk management 

through delegated authority from the 

Board Risk Committee. The Plan would 

state that the Management Risk 

Committee has delegated specific dayto-day risk management, including 

management of risks addressed through 

margining systems and related 

activities, to the DTCC Group Chief Risk 

Office (‘‘GCRO’’), which works with 

staff within the DTCC Financial Risk 

Management group. Finally, the Plan 

would describe the role of the 

Management Committee, which 

provides overall direction for all aspects 

of DTC’s business, technology, and 

operations and the functional areas that 

support these activities. 

The Plan would describe the 

governance of recovery efforts in 

response to both default losses and nondefault losses under the Recovery Plan, 

identifying the groups responsible for 

those recovery efforts. Specifically, the 

Plan would state that the Management 

Risk Committee provides oversight of 

actions relating to the default of a 

Participant, which would be reported 

and escalated to it through the GCRO, 

and the Management Committee 

provides oversight of actions relating to 

non-default events that could result in 

a loss, which would be reported and 

escalated to it from the DTCC Chief 

Financial Officer (‘‘CFO’’) and the DTCC 

Treasury group that reports to the CFO, 

and from other relevant subject matter 

experts based on the nature and 

circumstances of the non-default 


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21The Plan would state that these groups would 

be involved to address how to mitigate the financial 

impact of non-default losses, and in recommending 

mitigating actions, the Management Committee 

would consider information and recommendations 

from relevant subject matter experts based on the 

nature and circumstances of the non-default event. 

Any necessary operational response to these events, 

however, would be managed in accordance with 

applicable incident response/business continuity 

process; for example, processes established by the 

DTCC Technology Risk Management group would 

be followed in response to a cyber event. 

22The Plan defines an ‘‘Affiliated Family’’ of 

Participants as a number of affiliated entities that 

are all Participants of DTC. 

23 In the Plan, ‘‘cease to act’’ and the actions that 

may lead to such decision, are used within the 

context of the Rules, including Rule 4 (Participants 

Fund and Participants Investment), Rule 9(A) 

(Transactions in Securities and Money Payments), 

Rule 9(B) (Transactions in Eligible Securities), Rule 

9(C) (Transactions in MMI Securities), Rule 10 

(Discretionary Termination), Rule 11 (Mandatory 

Termination) and Rule 12 (Insolvency), supra note 

7. Further, the term ‘‘Participant Default’’ would 

also be used in the Plan as such term is defined in 

Rule 4, as proposed to be amended by the Loss 

Allocation filing, supra note 12. 

24 DTC’s liquidity risk management strategy, 

including the manner in which DTC would deploy 

liquidity tools as well as its intraday use of 

liquidity, is described in the Clearing Agency 

Liquidity Risk Management Framework. See 

Securities Exchange Act Release No. 80489 (April 

19, 2017), 82 FR 19120 (April 25, 2017) (SR–DTC– 

2017–004, SR–DTC–2017–005, SR–FICC–2017– 

008). 

25See Rule 4 (Participants Fund and Participants 

Investment), supra note 7. 

26See Rule 1, Section 1, supra note 7. For DTC, 

credit risk and market risk are closely related, as 

DTC monitors credit exposures from Participants 

through these risk management controls, which 

limit Participant settlement obligations to the 

amount of available liquidity resources and require 

those obligations to be fully collateralized. The 

pledge or liquidation of collateral in an amount 

sufficient to restore liquidity resources depends on 

market values and demand, i.e., market risk 

exposure. Such risk management controls are part 

of DTC’s market risk management strategy and are 

designed to comply with Rule 17Ad–22(e)(4) under 

the Act, where these risks are referred to as ‘‘credit 

risks.’’ See also 17 CFR 240.17Ad–22(e)(4). 

27 Id. 

event.21 More generally, the Plan would 

state that the type of loss and the nature 

and circumstances of the events that 

lead to the loss would dictate the 

components of governance to address 

that loss, including the escalation path 

to authorize those actions. As described 

further below, both the Recovery Plan 

and the Wind-down Plan would 

describe the governance of escalations, 

decisions, and actions under each of 

those plans. 

Finally, the Plan would describe the 

role of the R&R Team in managing the 

overall recovery and wind-down 

program and plans for each of the 

Clearing Agencies. 

DTC Recovery Plan 

The Recovery Plan is intended to be 

a roadmap of those actions that DTC 

may employ to monitor and, as needed, 

stabilize its financial condition. As each 

event that could lead to a financial loss 

could be unique in its circumstances, 

the Recovery Plan would not be 

prescriptive and would permit DTC to 

maintain flexibility in its use of 

identified tools and in the sequence in 

which such tools are used, subject to 

any conditions in the Rules or the 

contractual arrangement on which such 

tool is based. DTC’s Recovery Plan 

would consist of (1) a description of the 

risk management surveillance, tools, 

and governance that DTC would employ 

across evolving stress scenarios that it 

may face as it transitions through a 

‘‘Crisis Continuum,’’ described below; 

(2) a description of DTC’s risk of losses 

that may result from non-default events, 

and the financial resources and recovery 

tools available to DTC to manage those 

risks and any resulting losses; and (3) an 

evaluation of the characteristics of the 

recovery tools that may be used in 

response to either losses arising out of 

a Participant Default (as defined below) 

or non-default losses, as described in 

greater detail below. In all cases, DTC 

would act in accordance with the Rules, 

within the governance structure 

described in the R&W Plan, and in 

accordance with applicable regulatory 

oversight to address each situation in 

order to best protect DTC, its 

Participants and the markets in which it 

operates. 

Managing Participant Default Losses 

and Liquidity Needs Through the Crisis 

Continuum. The Plan would describe 

the risk management surveillance, tools, 

and governance that DTC may employ 

across an increasing stress environment, 

which is referred to as the ‘‘Crisis 

Continuum.’’ This description would 

identify those tools that can be 

employed to mitigate losses, and 

mitigate or minimize liquidity needs, as 

the market environment becomes 

increasingly stressed. The phases of the 

Crisis Continuum would include (1) a 

stable market phase, (2) a stressed 

market phase, (3) a phase commencing 

with DTC’s decision to cease to act for 

a Participant or Affiliated Family of 

Participants (referred to in the Plan as 

the ‘‘Participant Default phase’’),22 and 

(4) a recovery phase. This section of the 

Recovery Plan would address 

conditions and circumstances relating to 

DTC’s decision to cease to act for a 

Participant pursuant to the Rules.23 For 

ease of reference, the R&W Plan would, 

for purposes of the Plan, use the term 

‘‘Participant Default Losses’’ to refer to 

losses that arise out of or relate to the 

Participant Default and resulting cease 

to act (including any losses that arise 

from liquidation of the Participant’s 

Collateral). 

The Recovery Plan would provide 

context to its roadmap through this 

Crisis Continuum by describing DTC’s 

ongoing management of credit, market 

risk and liquidity risk, and its existing 

process for measuring and reporting its 

risks as they align with established 

thresholds for its tolerance of those 

risks. The Recovery Plan would discuss 

the management of credit/market risk 

and liquidity exposures together, 

because the tools that address these 

risks can be deployed either separately 

or in a coordinated approach in order to 

address both exposures. DTC manages 

these risk exposures collectively to limit 

their overall impact on DTC and its 

Participants. DTC has built-in 

mechanisms to limit exposures and 

replenish financial resources used in a 

stress event, in order to continue to 

operate in a safe and sound manner. 

DTC is a closed, collateralized system in 

which liquidity resources are matched 

against risk management controls, so, at 

any time, the potential net settlement 

obligation of the Participant or 

Affiliated Family of Participants with 

the largest net settlement obligation 

cannot exceed the amount of liquidity 

resources.24 While Collateral securities 

are subject to market price risk, DTC 

manages its liquidity and market risks 

through the calculation of the required 

deposits to the Participants Fund 25 and 

risk management controls, i.e., collateral 

haircuts, the Collateral Monitor 26 and 

Net Debit Cap.27

The Recovery Plan would outline the 

metrics and indicators that DTC has 

developed to evaluate a stress situation 

against established risk tolerance 

thresholds. Each risk mitigation tool 

identified in the Recovery Plan would 

include a description of the escalation 

thresholds that allow for effective and 

timely reporting to the appropriate 

internal management staff and 

committees, or to the Board. The 

Recovery Plan would make clear that 

these tools and escalation protocols 

would be calibrated across each phase 

of the Crisis Continuum. The Recovery 

Plan would also establish that DTC 

would retain the flexibility to deploy 

such tools either separately or in a 

coordinated approach, and to use other 

alternatives to these actions and tools as 

necessitated by the circumstances of a 

particular Participant Default event, in 

accordance with the Rules. Therefore, 

the Recovery Plan would both provide 

DTC with a roadmap to follow within 

each phase of the Crisis Continuum, and 

would permit it to adjust its risk 


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28 DTC’s stress testing practices are described in 

the Clearing Agency Stress Testing Framework 

(Market Risk). See Securities Exchange Act Release 

No. 80485 (April 19, 2017), 82 FR 19131 (April 25, 

2017) (SR–DTC–2017–005, SR–FICC–2017–009, 

SR–NSCC–2017–006). 

29See Rule 10 (Discretionary Termination); Rule 

11 (Mandatory Termination); Rule 12 (Insolvency), 

supra note 7. 

30See supra note 12. The Loss Allocation Filing 

proposes to amend Rule 4 to define the amount 

DTC would contribute to address a loss resulting 

from either a Participant Default or a non-default 

event as the ‘‘Corporate Contribution.’’ This amount 

would be 50 percent (50%) of the ‘‘General 

Business Risk Capital Requirement,’’ which is 

calculated pursuant to the Capital Policy and is an 

amount sufficient to cover potential general 

business losses so that DTC can continue operations 

and services as a going concern if those losses 

materialize, in compliance with Rule 17Ad– 

22(e)(15) under the Act. See also supra note 10; 17 

CFR 240.17Ad–22(e)(15). 

31The Loss Allocation Filing proposes to amend 

Rule 4 to introduce the concept of an ‘‘Event 

Period’’ as the ten (10) Business Days beginning on 

(i) with respect to a Participant Default, the day on 

which DTC notifies Participants that it has ceased 

to act for a Participant, or (ii) with respect to a nondefault loss, the day that DTC notifies Participants 

of the determination by the Board of Directors that 

there is a non-default loss event, as described in 

greater detail in that filing. The proposed Rule 4 

would define a ‘‘round’’ as a series of loss 

allocations relating to an Event Period, and would 

provide that the first Loss Allocation Notice in a 

first, second, or subsequent round shall expressly 

state that such notice reflects the beginning of a 

first, second, or subsequent round. The maximum 

allocable loss amount of a round is equal to the sum 

of the ‘‘Loss Allocation Caps’’ (as defined in the 

proposed Rule 4) of those Participants included in 

the round. See supra note 12. 

32The Corridor Actions that would be identified 

in the Plan are indicative, but not prescriptive; 

management measures to address the 

unique circumstances of each event. 

The Recovery Plan would describe the 

conditions that mark each phase of the 

Crisis Continuum, and would identify 

actions that DTC could take as it 

transitions through each phase in order 

to both prevent losses from 

materializing through active risk 

management, and to restore the 

financial health of DTC during a period 

of stress. 

The stable market phase of the Crisis 

Continuum would describe active risk 

management activities in the normal 

course of business. These activities 

would include performing (1) backtests 

to evaluate the adequacy of the 

collateral level and the haircut 

sufficiency for covering market price 

volatility and (2) stress testing to cover 

market price moves under real historical 

and hypothetical scenarios to assess the 

haircut adequacy under extreme but 

plausible market conditions. The 

backtesting and stress testing results are 

escalated, as necessary, to internal and 

Board committees.28

The Recovery Plan would describe 

some of the indicators of the stress 

market phase of the Crisis Continuum, 

which would include, for example, 

volatility in market prices of certain 

assets where there is increased 

uncertainty among market participants 

about the fundamental value of those 

assets. This phase would involve 

general market stresses, when no 

Participant Default would be imminent. 

Within the description of this phase, the 

Recovery Plan would provide that DTC 

may take targeted, routine risk 

management measures as necessary and 

as permitted by the Rules. 

Within the Participant Default phase 

of the Crisis Continuum, the Recovery 

Plan would provide a roadmap for the 

existing procedures that DTC would 

follow in the event of a Participant 

Default and any decision by DTC to 

cease to act for that Participant.29 The 

Recovery Plan would provide that the 

objectives of DTC’s actions upon a 

Participant Default are to (1) minimize 

losses and market exposure, and (2), to 

the extent practicable, minimize 

disturbances to the affected markets. 

The Recovery Plan would describe 

tools, actions, and related governance 

for both market risk monitoring and 

liquidity risk monitoring through this 

phase. For example, in connection with 

managing its market risk during this 

phase, DTC would, pursuant to its Rules 

and existing procedures, (1) monitor 

and assess the adequacy of its 

Participants Fund and Net Debit Caps; 

and (2) follow its operational 

procedures relating to the execution of 

a liquidation of the Defaulting 

Participant’s Collateral securities 

through close collaboration and 

coordination across multiple functions. 

Management of liquidity risk through 

this phase would involve ongoing 

monitoring of, among other things, the 

adequacy of the Participants Fund and 

risk controls, and the Recovery Plan 

would identify certain actions DTC may 

deploy as it deems necessary to mitigate 

a potential liquidity shortfall, which 

would include, for example, the 

reduction of Net Debit Caps of some or 

all Participants, or seeking additional 

liquidity resources. The Recovery Plan 

would state that, throughout this phase, 

relevant information would be escalated 

and reported to both internal 

management committees and the Board 

Risk Committee. 

The Recovery Plan would also 

identify financial resources available to 

DTC, pursuant to the Rules, to address 

losses arising out of a Participant 

Default. Specifically, Rule 4, as 

proposed to be amended by the Loss 

Allocation Filing, would provide that 

losses remaining after application of the 

Defaulting Participant’s resources be 

satisfied first by applying a ‘‘Corporate 

Contribution,’’ and then, if necessary, by 

allocating remaining losses among the 

membership in accordance with such 

Rule 4, as amended.30

In order to provide for an effective 

and timely recovery, the Recovery Plan 

would describe the period of time that 

would occur near the end of the 

Participant Default phase, during which 

DTC may experience stress events or 

observe early warning indicators that 

allow it to evaluate its options and 

prepare for the recovery phase (referred 

to in the Plan as the ‘‘Recovery 

Corridor’’). The Recovery Plan would 

then describe the recovery phase of the 

Crisis Continuum, which would begin 

on the date that DTC issues the first 

Loss Allocation Notice of the second 

loss allocation round with respect to a 

given ‘‘Event Period.’’ 31 The recovery 

phase would describe actions that DTC 

may take to avoid entering into a winddown of its business. 

DTC expects that significant 

deterioration of liquidity resources 

would cause it to enter the Recovery 

Corridor. As such, the Plan would 

describe the actions DTC may take 

aimed at replenishing those resources 

Recovery Corridor indicators may 

include, for example, a rapid and 

material increase in market prices or 

sequential or simultaneous failures of 

multiple Participants or Affiliated 

Families of Participants over a 

compressed time period. Throughout 

the Recovery Corridor, DTC would 

monitor the adequacy of its resources 

and the expected timing of 

replenishment of those resources, and 

would do so through the monitoring of 

certain corridor indicator metrics. 

The majority of the corridor 

indicators, as identified in the Recovery 

Plan, relate directly to conditions that 

may require DTC to adjust its strategy 

for hedging and liquidating Collateral 

securities, and any such changes would 

include an assessment of the status of 

the corridor indicators. Corridor 

indicators would include, for example, 

effectiveness and speed of DTC’s efforts 

to liquidate Collateral securities, and an 

impediment to the availability of its 

resources to repay any borrowings due 

to any Participant default. For each 

corridor indicator, the Recovery Plan 

would identify (1) measures of the 

indicator, (2) evaluations of the status of 

the indicator, (3) metrics for 

determining the status of the 

deterioration or improvement of the 

indicator, and (4) ‘‘Corridor Actions,’’ 

which are steps that may be taken to 

improve the status of the indicator,32 as 


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therefore, if DTC needs to consider alternative 

actions due to the applicable facts and 

circumstances, the escalation of those alternative 

actions would follow the same escalation protocol 

identified in the Plan for the Corridor Indicator to 

which the action relates. 

33As these matters are described in greater detail 

in the Loss Allocation Filing and in the proposed 

amendments to Rule 4, described therein, reference 

is made to that filing and the details are not 

repeated here. See supra note 12. 

34See Securities Exchange Act Release No. 80605 

(May 5, 2017), 82 FR 21850 (May 10, 2017) (SR– 

DTC–2017–802; SR–NSCC–2017–802). 

35 DTC may borrow amounts needed to complete 

settlement from Participants by net credit 

reductions to their settlement accounts, secured by 

the Collateral of the defaulting Participant. See 

Securities Exchange Act Release Nos. 24689 (July 9, 

1987), 52 FR 26613 (July 15, 1987) (SR–DTC–87– 

4); 41879 (September 15, 1999), 64 FR 51360 

(September 22, 1999) (SR–DTC–99–15); 42281 

(December 28, 1999), 65 FR 1420 (January 10, 2000) 

(SR–DTC–99–25). 

36This ‘‘three lines of defense’’ approach to risk 

management includes (1) a first line of defense 

comprised of the various business lines and 

functional units that support the products and 

services offered by DTC; (2) a second line of defense 

comprised of control functions that support DTC, 

including the risk management, legal and 

compliance areas; and (3) a third line of defense, 

which is performed by an internal audit group. The 

Clearing Agency Risk Management Framework 

includes a description of this ‘‘three lines of 

defense’’ approach to risk management, and 

addresses how DTC comprehensively manages 

various risks, including operational, general 

business, investment, custody, and other risks that 

arise in or are borne by it. See Securities Exchange 

Act Release No. 81635 (September 15, 2017), 82 FR 

44224 (September 21, 2017) (SR–DTC–2017–013; 

SR–FICC–2017–016; SR–NSCC–2017–012). The 

Clearing Agency Operational Risk Management 

Framework describes the manner in which DTC 

manages operational risks, as defined therein. See 

Securities Exchange Act Release No. 81745 

(September 28, 2017), 82 FR 46332 (October 4, 

2017) (SR–DTC–2017–014; SR–FICC–2017–017; 

SR–NSCC–2017–013). 

well as management escalations 

required to authorize those steps. 

Because DTC has never experienced the 

default of multiple Participants, it has 

not, historically, measured the 

deterioration or improvements metrics 

of the corridor indicators. As such, these 

metrics were chosen based on the 

business judgment of DTC management. 

The Recovery Plan would also 

describe the reporting and escalation of 

the status of the corridor indicators 

throughout the Recovery Corridor. 

Significant deterioration of a corridor 

indicator, as measured by the metrics 

set out in the Recovery Plan, would be 

escalated to the Board. DTC 

management would review the corridor 

indicators and the related metrics at 

least annually, and would modify these 

metrics as necessary in light of 

observations from simulations of 

Participant Defaults and other analyses. 

Any proposed modifications would be 

reviewed by the Management Risk 

Committee and the Board Risk 

Committee. The Recovery Plan would 

estimate that DTC may remain in the 

Recovery Corridor stage between one 

day and two weeks. This estimate is 

based on historical data observed in past 

Participant Default events, the results of 

simulations of Participant Defaults, and 

periodic liquidity analyses conducted 

by DTC. The actual length of a Recovery 

Corridor would vary based on actual 

market conditions observed at the time, 

and DTC would expect the Recovery 

Corridor to be shorter in market 

conditions of increased stress. 

The Recovery Plan would outline 

steps by which DTC may allocate its 

losses, which would occur when and in 

the order provided in Rule 4, as 

amended.33 The Recovery Plan would 

also identify tools that may be used to 

address foreseeable shortfalls of DTC’s 

liquidity resources following a 

Participant Default, and would provide 

that these tools may be used as 

appropriate during the Crisis 

Continuum to address liquidity 

shortfalls if they arise. The goal in 

managing DTC’s liquidity resources is to 

maximize resource availability in an 

evolving stress situation, to maintain 

flexibility in the order and use of 

sources of liquidity, and to repay any 

third party lenders in a timely manner. 

Liquidity tools include, for example, 

DTC’s committed 364-day credit 

facility 34 and Net Credit Reductions.35

The Recovery Plan would state that the 

availability and capacity of these 

liquidity tools cannot be accurately 

predicted and are dependent on the 

circumstances of the applicable stress 

period, including market price 

volatility, actual or perceived 

disruptions in financial markets, the 

costs to DTC of utilizing these tools, and 

any potential impact on DTC’s credit 

rating. 

As stated above, the Recovery Plan 

would state that DTC will have entered 

the recovery phase on the date that it 

issues the first Loss Allocation Notice of 

the second loss allocation round with 

respect to a given Event Period. The 

Recovery Plan would provide that, 

during the recovery phase, DTC would 

continue and, as needed, enhance, the 

monitoring and remedial actions already 

described in connection with previous 

phases of the Crisis Continuum, and 

would remain in the recovery phase 

until its financial resources are expected 

to be or are fully replenished, or until 

the Wind-down Plan is triggered, as 

described below. 

The Recovery Plan would describe 

governance for the actions and tools that 

may be employed within each phase of 

the Crisis Continuum, which would be 

dictated by the facts and circumstances 

applicable to the situation being 

addressed. Such facts and 

circumstances would be measured by 

the various indicators and metrics 

applicable to that phase of the Crisis 

Continuum, and would follow relevant 

escalation protocol that would be 

described in the Recovery Plan. The 

Recovery Plan would also describe the 

governance procedures around a 

decision to cease to act for a Participant, 

pursuant to the Rules, and around the 

management and oversight of the 

subsequent liquidation of Collateral 

securities. The Recovery Plan would 

state that, overall, DTC would retain 

flexibility in accordance with the Rules, 

its governance structure, and its 

regulatory oversight, to address a 

particular situation in order to best 

protect DTC and its Participants, and to 

meet the primary objectives, throughout 

the Crisis Continuum, of minimizing 

losses and, where consistent and 

practicable, minimizing disturbance to 

affected markets. 

Non-Default Losses. The Recovery 

Plan would outline how DTC may 

address losses that result from events 

other than a Participant Default. While 

these matters are addressed in greater 

detail in other documents, this section 

of the Plan would provide a roadmap to 

those documents and an outline for 

DTC’s approach to monitoring and 

managing losses that could result from 

a non-default event. The Plan would 

first identify some of the risks DTC faces 

that could lead to these losses, which 

include, for example, the business and 

profit/loss risks of unexpected declines 

in revenue or growth of expenses; the 

operational risks of disruptions to 

systems or processes that could lead to 

large losses, including those resulting 

from, for example, a cyber-attack; and 

custody or investment risks that could 

lead to financial losses. The Recovery 

Plan would describe DTC’s overall 

strategy for the management of these 

risks, which includes a ‘‘three lines of 

defense’’ approach to risk management 

that allows for comprehensive 

management of risk across the 

organization.36 The Recovery Plan 

would also describe DTC’s approach to 

financial risk and capital management. 

The Plan would identify key aspects of 

this approach, including, for example, 

an annual budget process, business line 

performance reviews with management, 

and regular review of capital 

requirements against LNA. These risk 

management strategies are collectively 

intended to allow DTC to effectively 

identify, monitor, and manage risks of 

non-default losses. 


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37See supra note 30. 

38See supra note 30. 

39See supra note 12. 

40See supra note 10. 

41See supra note 12. 

42Standards for Covered Clearing Agencies, 

Securities Exchange Act Release No. 78961 

(September 28, 2016), 81 FR 70786 (October 13, 

2016) (S7–03–14). 43 11 U.S.C. 1101 et seq. 

44The Wind-down Plan would state that, given 

DTC’s position as a user-governed financial market 

utility, it is possible that its Participants might 

voluntarily elect to provide additional support 

during the recovery phase leading up to a potential 

trigger of the Wind-down Plan, but would also 

make clear that DTC cannot predict the willingness 

of Participants to do so. 

The Plan would identify the two 

categories of financial resources DTC 

maintains to cover losses and expenses 

arising from non-default risks or events 

as (1) LNA, maintained, monitored, and 

managed pursuant to the Capital Policy, 

which include (a) amounts held in 

satisfaction of the General Business Risk 

Capital Requirement,37 (b) the Corporate 

Contribution,38 and (c) other amounts 

held in excess of DTC’s capital 

requirements pursuant to the Capital 

Policy; and (2) resources available 

pursuant to the loss allocation 

provisions of Rule 4.39

The Plan would address the process 

by which the CFO and the DTCC 

Treasury group would determine which 

available LNA resources are most 

appropriate to cover a loss that is caused 

by a non-default event. This 

determination involves an evaluation of 

a number of factors, including the 

current and expected size of the loss, 

the expected time horizon over when 

the loss or additional expenses would 

materialize, the current and projected 

available LNA, and the likelihood LNA 

could be successfully replenished 

pursuant to the Replenishment Plan, if 

triggered.40 Finally the Plan would 

discuss how DTC would apply its 

resources to address losses resulting 

from a non-default event, including the 

order of resources it would apply if the 

loss or liability is expected to exceed 

DTC’s excess LNA amounts, or is large 

relative thereto, and the Board has 

declared the event a ‘‘Declared NonDefault Loss Event’’ pursuant to Rule 

4.41

The Plan would also describe 

proposed Rule 38 (Market Disruption 

and Force Majeure), which DTC is 

proposing to adopt in its Rules. This 

Proposed Rule would provide 

transparency around how DTC would 

address extraordinary events that may 

occur outside its control. Specifically, 

the Proposed Rule would define a 

‘‘Market Disruption Event’’ and the 

governance around a determination that 

such an event has occurred. The 

Proposed Rule would also describe 

DTC’s authority to take actions during 

the pendency of a Market Disruption 

Event that it deems appropriate to 

address such an event and facilitate the 

continuation of its services, if 

practicable, as described in greater 

detail below. 

The Plan would describe the 

interaction between the Proposed Rule 

and DTC’s existing processes and 

procedures addressing business 

continuity management and disaster 

recovery (generally, the ‘‘BCM/DR 

procedures’’), making clear that the 

Proposed Rule is designed to support 

those BCM/DR procedures and to 

address circumstances that may be 

exogenous to DTC and not necessarily 

addressed by the BCM/DR procedures. 

Finally, the Plan would describe that, 

because the operation of the Proposed 

Rule is specific to each applicable 

Market Disruption Event, the Proposed 

Rule does not define a time limit on its 

application. However, the Plan would 

note that actions authorized by the 

Proposed Rule would be limited to the 

pendency of the applicable Market 

Disruption Event, as made clear in the 

Proposed Rule. Overall, the Proposed 

Rule is designed to mitigate risks caused 

by Market Disruption Events and, 

thereby, minimize the risk of financial 

loss that may result from such events. 

Recovery Tool Characteristics. The 

Recovery Plan would describe DTC’s 

evaluation of the tools identified within 

the Recovery Plan, and its rationale for 

concluding that such tools are 

comprehensive, effective, and 

transparent, and that such tools provide 

appropriate incentives to Participants 

and minimize negative impact on 

Participants and the financial system, in 

compliance with guidance published by 

the Commission in connection with the 

adoption of Rule 17Ad–22(e)(3)(ii) 

under the Act.42 DTC’s analysis and the 

conclusions set forth in this section of 

the Recovery Plan are described in 

greater detail in Item 3(b) of this filing, 

below. 

DTC Wind-Down Plan 

The Wind-down Plan would provide 

the framework and strategy for the 

orderly wind-down of DTC if the use of 

the recovery tools described in the 

Recovery Plan do not successfully 

return DTC to financial viability. While 

DTC believes that, given the 

comprehensive nature of the recovery 

tools, such event is extremely unlikely, 

as described in greater detail below, 

DTC is proposing a wind-down strategy 

that provides for (1) the transfer of 

DTC’s business, assets, securities 

inventory, and membership to another 

legal entity, (2) such transfer being 

effected in connection with proceedings 

under Chapter 11 of the U.S. Federal 

Bankruptcy Code,43 and (3) after 

effectuating this transfer, DTC 

liquidating any remaining assets in an 

orderly manner in bankruptcy 

proceedings. DTC believes that the 

proposed transfer approach to a winddown would meet its objectives of (1) 

assuring that DTC’s critical services will 

be available to the market as long as 

there are Participants in good standing, 

and (2) minimizing disruption to the 

operations of Participants and financial 

markets generally that might be caused 

by DTC’s failure. 

In describing the transfer approach to 

DTC’s Wind-down Plan, the Plan would 

identify the factors that DTC considered 

in developing this approach, including 

the fact that DTC does not own material 

assets that are unrelated to its clearance 

and settlement activities. As such, a 

business reorganization or ‘‘bail-in’’ of 

debt approach would be unlikely to 

mitigate significant losses. Additionally, 

DTC’s approach was developed in 

consideration of its critical and unique 

position in the U.S. markets, which 

precludes any approach that would 

cause DTC’s critical services to no 

longer be available. 

First, the Wind-down Plan would 

describe the potential scenarios that 

could lead to the wind-down of DTC, 

and the likelihood of such scenarios. 

The Wind-down Plan would identify 

the time period leading up to a decision 

to wind-down DTC as the ‘‘Runway 

Period.’’ This period would follow the 

implementation of any recovery tools, as 

it may take a period of time, depending 

on the severity of the market stress at 

that time, for these tools to be effective 

or for DTC to realize a loss sufficient to 

cause it to be unable to borrow to 

complete settlement and to repay such 

borrowings.44 The Plan would identify 

some of the indicators that DTC has 

entered this Runway Period, which 

would include, for example, 

simultaneous successive Participant 

Defaults, significant Participant 

retirements, and DTC’s inability to 

replenish financial resources following 

the liquidation of Collateral securities. 

The trigger for implementing the 

Wind-down Plan would be a 

determination by the Board that 

recovery efforts have not been, or are 

unlikely to be, successful in returning 

DTC to viability as a going concern. As 

described in the Plan, DTC believes this 

is an appropriate trigger because it is 

both broad and flexible enough to cover 


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45Arrangements with FAST Agents and DRS 

Agents (each as defined in proposed Rule 32(A)) 

and with Settling Banks would also be assigned to 

the Transferee, so that the approach would be 

transparent to issuers and their transfer agents, as 

well as to Settling Banks. 

46 11 U.S.C. 1101 et seq. 

47See id. at 363. 

48The proposed transfer arrangements outlined in 

the Wind-down Plan do not contemplate the 

transfer of any credit or funding agreements, which 

are generally not assignable by DTC. However, to 

the extent the Transferee adopts rules substantially 

identical to those DTC has in effect prior to the 

transfer, it would have the benefit of any rulesbased liquidity funding. The Wind-down Plan 

contemplates that no Participants Fund would be 

transferred to the Transferee, as it is not held in a 

bankruptcy remote manner and it is the primary 

prefunded liquidity resource to be accessed in the 

recovery phase. 

a variety of scenarios, and would align 

incentives of DTC and Participants to 

avoid actions that might undermine 

DTC’s recovery efforts. Additionally, 

this approach takes into account the 

characteristics of DTC’s recovery tools 

and enables the Board to consider (1) 

the presence of indicators of a 

successful or unsuccessful recovery, and 

(2) potential for knock-on effects of 

continued iterative application of DTC’s 

recovery tools. 

The Wind-down Plan would describe 

the general objectives of the transfer 

strategy, and would address 

assumptions regarding the transfer of 

DTC’s critical services, business, assets, 

securities inventory, and membership 45

to another legal entity that is legally, 

financially, and operationally able to 

provide DTC’s critical services to 

entities that wish to continue their 

membership following the transfer 

(‘‘Transferee’’). The Wind-down Plan 

would provide that the Transferee 

would be either (1) a third party legal 

entity, which may be an existing or 

newly established legal entity or a 

bridge entity formed to operate the 

business on an interim basis to enable 

the business to be transferred 

subsequently (‘‘Third Party 

Transferee’’); or (2) an existing, debt-free 

failover legal entity established ex-ante 

by DTCC (‘‘Failover Transferee’’) to be 

used as an alternative Transferee in the 

event that no viable or preferable Third 

Party Transferee timely commits to 

acquire DTC’s business. DTC would 

seek to identify the proposed 

Transferee, and negotiate and enter into 

transfer arrangements during the 

Runway Period and prior to making any 

filings under Chapter 11 of the U.S. 

Federal Bankruptcy Code.46 As stated 

above, the Wind-down Plan would 

anticipate that the transfer to the 

Transferee, including the transfer and 

establishment of the Participant and 

Pledgee securities accounts on the books 

of the Transferee, be effected in 

connection with proceedings under 

Chapter 11 of the U.S. Federal 

Bankruptcy Code, and pursuant to a 

bankruptcy court order under Section 

363 of the Bankruptcy Code, such that 

the transfer would be free and clear of 

claims against, and interests in, DTC, 

except to the extent expressly provided 

in the court’s order.47

In order to effect a timely transfer of 

its services and minimize the market 

and operational disruption of such 

transfer, DTC would expect to transfer 

all of its critical services and any noncritical services that are ancillary and 

beneficial to a critical service, or that 

otherwise have substantial user demand 

from the continuing membership. Given 

the transfer of the securities inventory 

and the establishment on the books of 

the Transferee Participant and Pledgee 

securities accounts, DTC anticipates 

that, following the transfer, it would not 

itself continue to provide any services, 

critical or not. Following the transfer, 

the Wind-down Plan would anticipate 

that the Transferee and its continuing 

membership would determine whether 

to continue to provide any transferred 

non-critical service on an ongoing basis, 

or terminate the non-critical service 

following some transition period. DTC’s 

Wind-down Plan would anticipate that 

the Transferee would enter into a 

transition services agreement with 

DTCC so that DTCC would continue to 

provide the shared services it currently 

provides to DTC, including staffing, 

infrastructure and operational support. 

The Wind-down Plan would also 

anticipate the assignment of DTC’s 

‘‘inbound’’ link arrangements to the 

Transferee. The Wind-down Plan would 

provide that in the case of ‘‘outbound’’ 

links, DTC would seek to have the 

linked FMIs agree, at a minimum, to 

accept the Transferee as a link party for 

a transition period.48

The Wind-down Plan would provide 

that, following the effectiveness of the 

transfer to the Transferee, the winddown of DTC would involve addressing 

any residual claims against DTC through 

the bankruptcy process and liquidating 

the legal entity. As such, and as stated 

above, the Wind-down Plan does not 

contemplate DTC continuing to provide 

services in any capacity following the 

transfer time, and any services not 

transferred would be terminated. 

The Wind-down Plan would also 

identify the key dependencies for the 

effectiveness of the transfer, which 

include regulatory approvals that would 

permit the Transferee to be legally 

qualified to provide the transferred 

services from and after the transfer, and 

approval by the applicable bankruptcy 

court of, among other things, the 

proposed sale, assignments, and 

transfers to the Transferee. 

The Wind-down Plan would address 

governance matters related to the 

execution of the transfer of DTC’s 

business and its wind-down. The Winddown Plan would address the duties of 

the Board to execute the wind-down of 

DTC in conformity with (1) the Rules, 

(2) the Board’s fiduciary duties, which 

mandate that it exercise reasonable 

business judgment in performing these 

duties, and (3) DTC’s regulatory 

obligations under the Act as a registered 

clearing agency. The Wind-down Plan 

would also identify certain factors the 

Board may consider in making these 

decisions, which would include, for 

example, whether DTC could safely 

stabilize the business and protect its 

value without seeking bankruptcy 

protection, and DTC’s ability to 

continue to meet its regulatory 

requirements. 

The Wind-down Plan would describe 

(1) actions DTC or DTCC may take to 

prepare for wind-down in the period 

before DTC experiences any financial 

distress, (2) actions DTC would take 

both during the recovery phase and the 

Runway Period to prepare for the 

execution of the Wind-down Plan, and 

(3) actions DTC would take upon 

commencement of bankruptcy 

proceedings to effectuate the Winddown Plan. 

Finally, the Wind-down Plan would 

include an analysis of the estimated 

time and costs to effectuate the plan, 

and would provide that this estimate be 

reviewed and approved by the Board 

annually. In order to estimate the length 

of time it might take to achieve a 

recovery or orderly wind-down of DTC’s 

critical operations, as contemplated by 

the R&W Plan, the Wind-down Plan 

would include an analysis of the 

possible sequencing and length of time 

it might take to complete an orderly 

wind-down and transfer of critical 

operations, as described in earlier 

sections of the R&W Plan. The Winddown Plan would also include in this 

analysis consideration of other factors, 

including the time it might take to 

complete any further attempts at 

recovery under the Recovery Plan. The 

Wind-down Plan would then multiply 

this estimated length of time by DTC’s 

average monthly operating expenses, 

including adjustments to account for 

changes to DTC’s profit and expense 

profile during these circumstances, over 

the previous twelve months to 

determine the amount of LNA that it 

should hold to achieve a recovery or 


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49See supra note 10. 

50See supra note 10. 

orderly wind-down of DTC’s critical 

operations. The estimated wind-down 

costs would constitute the ‘‘Recovery/ 

Wind-down Capital Requirement’’ 

under the Capital Policy.49 Under that 

policy, the General Business Risk 

Capital Requirement is calculated as the 

greatest of three estimated amounts, one 

of which is this Recovery/Wind-down 

Capital Requirement.50

The R&W Plan is designed as a 

roadmap, and the types of actions that 

may be taken both leading up to and in 

connection with implementation of the 

Wind-down Plan would be primarily 

addressed in other supporting 

documentation referred to therein. 

The Wind-down Plan would address 

proposed Rule 32(A) (Wind-down of the 

Corporation and proposed Rule 38 

(Force Majeure and Market Disruption)), 

which would be adopted to facilitate the 

implementation of the Wind-down Plan, 

as discussed below. 

Proposed Rules 

In connection with the adoption of 

the R&W Plan, DTC is proposing to 

adopt the Proposed Rules, each 

described below. The Proposed Rules 

would facilitate the execution of the 

R&W Plan and would provide 

Participants with transparency as to 

critical aspects of the Plan, particularly 

as they relate to the rights and 

responsibilities of both DTC and its 

Participants. The Proposed Rules also 

provide a legal basis to these aspects of 

the Plan. 

Rule 32(A) (Wind-Down of the 

Corporation) 

The proposed Rule 32(A) (‘‘Winddown Rule’’) would be adopted to 

facilitate the execution of the Winddown Plan. The Wind-down Rule would 

include a proposed set of defined terms 

that would be applicable only to the 

provisions of this Proposed Rule. The 

Wind-down Rule would make clear that 

a wind-down of DTC’s business would 

occur (1) after a decision is made by the 

Board, and (2) in connection with the 

transfer of DTC’s services to a 

Transferee, as described therein. 

Generally, the proposed Wind-down 

Rule is designed to create clear 

mechanisms for the transfer of Eligible 

Participants and Pledgees, Settling 

Banks, DRS Agents, and FAST Agents 

(as these terms would be defined in the 

Wind-down Rule), and DTC’s inventory 

of financial assets in order to provide for 

continued access to critical services and 

to minimize disruption to the markets in 

the event the Wind-down Plan is 

initiated. 

Wind-down Trigger. First, the 

Proposed Rule would make clear that 

the Board is responsible for initiating 

the Wind-down Plan, and would 

identify the criteria the Board would 

consider when making this 

determination. As provided for in the 

Wind-down Plan and in the proposed 

Wind-down Rule, the Board would 

initiate the Plan if, in the exercise of its 

business judgment and subject to its 

fiduciary duties, it has determined that 

the execution of the Recovery Plan has 

not or is not likely to restore DTC to 

viability as a going concern, and the 

implementation of the Wind-down Plan, 

including the transfer of DTC’s business, 

is in the best interests of DTC, its 

Participants and Pledgees, its 

shareholders and creditors, and the U.S. 

financial markets. 

Identification of Critical Services; 

Designation of Dates and Times for 

Specific Actions. The Proposed Rule 

would provide that, upon making a 

determination to initiate the Winddown Plan, the Board would identify 

the critical and non-critical services that 

would be transferred to the Transferee at 

the Transfer Time (as defined below and 

in the Proposed Rule), as well as any 

non-critical services that would not be 

transferred to the Transferee. The 

proposed Wind-down Rule would 

establish that any services transferred to 

the Transferee will only be provided by 

the Transferee as of the Transfer Time, 

and that any non-critical services that 

are not transferred to the Transferee 

would be terminated at the Transfer 

Time. The Proposed Rule would also 

provide that the Board would establish 

(1) an effective time for the transfer of 

DTC’s business to a Transferee 

(‘‘Transfer Time’’), and (2) the last day 

that instructions in respect of securities 

and other financial products may be 

effectuated through the facilities of DTC 

(the ‘‘Last Activity Date’’). The Proposed 

Rule would make clear that DTC would 

not accept any transactions for 

settlement after the Last Activity Date. 

Any transactions to be settled after the 

Transfer Time would be required to be 

submitted to the Transferee, and would 

not be DTC’s responsibility. 

Notice Provisions. The proposed 

Wind-down Rule would provide that, 

upon a decision to implement the Winddown Plan, DTC would provide its 

Participants, Pledgees, DRS Agents, 

FAST Agents, Settling Banks and 

regulators with a notice that includes 

material information relating to the 

Wind-down Plan and the anticipated 

transfer of DTC’s Participants and 

business, including, for example, (1) a 

brief statement of the reasons for the 

decision to implement the Wind-down 

Plan; (2) identification of the Transferee 

and information regarding the 

transaction by which the transfer of 

DTC’s business would be effected; (3) 

the Transfer Time and Last Activity 

Date; and (4) identification of 

Participants and the critical and noncritical services that would be 

transferred to the Transferee at the 

Transfer Time, as well as those NonEligible Participants (as defined below 

and in the Proposed Rule) and any noncritical services that would not be 

included in the transfer. DTC would 

also make available the rules and 

procedures and membership agreements 

of the Transferee. 

Transfer of Membership. The 

proposed Wind-down Rule would 

address the expected transfer of DTC’s 

membership to the Transferee, which 

DTC would seek to effectuate by 

entering into an arrangement with a 

Failover Transferee, or by using 

commercially reasonable efforts to enter 

into such an arrangement with a Third 

Party Transferee. Thus, under the 

proposal, in connection with the 

implementation of the Wind-down Plan 

and with no further action required by 

any party: 

(1) Each Eligible Participant would 

become (i) a Participant of the 

Transferee and (ii) a party to a 

Participants agreement with the 

Transferee; 

(2) each Participant that is delinquent 

in the performance of any obligation to 

DTC or that has provided notice of its 

election to withdraw as a Participant (a 

‘‘Non-Eligible Participant’’) as of the 

Transfer Time would become (i) the 

holder of a transition period securities 

account maintained by the Transferee 

on its books (‘‘Transition Period 

Securities Account’’) and (ii) a party to 

a Transition Period Securities Account 

agreement of the Transferee; 

(3) each Pledgee would become (i) a 

Pledgee of the Transferee and (ii) a party 

to a Pledgee agreement with the 

Transferee; 

(4) each DRS Agent would become (i) 

a DRS Agent of the Transferee and (ii) 

a party to a DRS Agent agreement with 

the Transferee; 

(5) each FAST Agent would become 

(i) a FAST Agent of the Transferee and 

(ii) a party to a FAST Agent agreement 

with the Transferee; and 

(6) each Settling Bank for Participants 

and Pledgees would become (i) a 

Settling Bank for Participants and 

Pledgees of the Transferee and (ii) a 

party to a Settling Bank Agreement with 

the Transferee. 


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51Nothing in the proposed Wind-down Rule 

would seek to prevent a Participant that retired its 

membership at DTC from applying for membership 

with the Transferee. Once its DTC membership is 

terminated, however, such firm would not be able 

to benefit from the membership assignment that 

would be effected by this proposed Wind-down 

Rule, and it would have to apply for membership 

directly with the Transferee, subject to its 

membership application and review process. 

Further, the Proposed Rule would 

make clear that it would not prohibit (1) 

Non-Eligible Participants from applying 

for membership with the Transferee, (2) 

Non-Eligible Participants that have 

become holders of Transition Period 

Securities Accounts (‘‘Transition Period 

Securities Account Holders’’) of the 

Transferee from withdrawing as a 

Transition Period Securities Account 

Holder from the Transferee, subject to 

the rules and procedures of the 

Transferee, and (3) Participants, 

Pledgees, DRS Agents, FAST Agents, 

and Settling Banks that would be 

transferred to the Transferee from 

withdrawing from membership with the 

Transferee, subject to the rules and 

procedures of the Transferee. Under the 

Proposed Rule, Non-Eligible 

Participants that have become 

Transition Period Securities Account 

Holders of the Transferee shall have the 

rights and be subject to the obligations 

of Transition Period Securities Account 

Holders set forth in special provisions of 

the rules and procedures of the 

Transferee applicable to such Transition 

Period Securities Account Holder. 

Specifically, Non-Eligible Participants 

that become Transition Period 

Securities Account Holders must, 

within the Transition Period (as defined 

in the Proposed Rule), instruct the 

Transferee to transfer the financial 

assets credited to its Transition Period 

Securities Account (i) to a Participant of 

the Transferee through the facilities of 

the Transferee or (ii) to a recipient 

outside the facilities of the Transferee, 

and no additional financial assets may 

be delivered versus payment to a 

Transition Period Securities Account 

during the Transition Period. 

Transfer of Inventory of Financial 

Assets. The proposed Wind-down Rule 

would provide that DTC would enter 

into arrangements with a Failover 

Transferee, or would use commercially 

reasonable efforts to enter into 

arrangements with a Third Party 

Transferee, providing that, in either 

case, at Transfer Time: 

(1) DTC would transfer to the 

Transferee (i) its rights with respect to 

its nominee Cede & Co. (‘‘Cede’’) (and 

thereby its rights with respect to the 

financial assets owned of record by 

Cede), (ii) the financial assets held by it 

at the FRBNY, (iii) the financial assets 

held by it at other CSDs, (iv) the 

financial assets held in custody for it 

with FAST Agents, (v) the financial 

assets held in custody for it with other 

custodians and (vi) the financial assets 

it holds in physical custody. 

(2) The Transferee would establish 

security entitlements on its books for 

Eligible Participants of DTC that become 

Participants of the Transferee that 

replicate the security entitlements that 

DTC maintained on its books 

immediately prior to the Transfer Time 

for such Eligible Participants, and DTC 

would simultaneously eliminate such 

security entitlements from its books. 

(3) The Transferee would establish 

security entitlements on its books for 

Non-Eligible Participants of DTC that 

become Transition Period Securities 

Account Holders of the Transferee that 

replicate the security entitlements that 

DTC maintained on its books 

immediately prior to the Transfer Time 

for such Non-Eligible Participants, and 

DTC would simultaneously eliminate 

such security entitlements from its 

books. 

(4) The Transferee would establish 

pledges on its books in favor of Pledgees 

that become Pledgees of the Transferee 

that replicate the pledges that DTC 

maintained on its books immediately 

prior to the Transfer Time in favor of 

such Pledgees, and DTC shall 

simultaneously eliminate such pledges 

from its books. 

Comparability Period. The proposed 

automatic mechanism for the transfer of 

DTC’s membership is intended to 

provide DTC’s membership with 

continuous access to critical services in 

the event of DTC’s wind-down, and to 

facilitate the continued prompt and 

accurate clearance and settlement of 

securities transactions. Further to this 

goal, the proposed Wind-down Rule 

would provide that DTC would enter 

into arrangements with a Failover 

Transferee, or would use commercially 

reasonable efforts to enter into 

arrangements with a Third Party 

Transferee, providing that, in either 

case, with respect to the critical services 

and any non-critical services that are 

transferred from DTC to the Transferee, 

for at least a period of time to be agreed 

upon (‘‘Comparability Period’’), the 

business transferred from DTC to the 

Transferee would be operated in a 

manner that is comparable to the 

manner in which the business was 

previously operated by DTC. 

Specifically, the proposed Wind-down 

Rule would provide that: (1) The rules 

of the Transferee and terms of 

Participant, Pledgee, DRS Agent, FAST 

Agent and Settling Bank agreements 

would be comparable in substance and 

effect to the analogous Rules and 

agreements of DTC, (2) the rights and 

obligations of any Participants, 

Pledgees, DRS Agents, FAST Agents, 

and Settling Banks that are transferred 

to the Transferee would be comparable 

in substance and effect to their rights 

and obligations as to DTC, and (3) the 

Transferee would operate the 

transferred business and provide any 

services that are transferred in a 

comparable manner to which such 

services were provided by DTC. 

The purpose of these provisions and 

the intended effect of the proposed 

Wind-down Rule is to facilitate a 

smooth transition of DTC’s business to 

a Transferee and to provide that, for at 

least the Comparability Period, the 

Transferee (1) would operate the 

transferred business in a manner that is 

comparable in substance and effect to 

the manner in which the business was 

operated by DTC, and (2) would not 

require sudden and disruptive changes 

in the systems, operations and business 

practices of the new Participants, 

Pledgees, DRS Agents, FAST Agents, 

and Settling Banks of the Transferee. 

Subordination of Claims Provisions 

and Miscellaneous Matters. The 

proposed Wind-down Rule would also 

include a provision addressing the 

subordination of unsecured claims 

against DTC of its Participants who fail 

to participate in DTC’s recovery efforts 

(i.e., such firms are delinquent in their 

obligations to DTC or elect to retire from 

DTC in order to minimize their 

obligations with respect to the 

allocation of losses, pursuant to the 

Rules). This provision is designed to 

incentivize Participants to participate in 

DTC’s recovery efforts.51

The proposed Wind-down Rule 

would address other ex-ante matters, 

including provisions providing that its 

Participants, Pledgees, DRS Agents, 

FAST Agents and Settling Banks (1) will 

assist and cooperate with DTC to 

effectuate the transfer of DTC’s business 

to a Transferee, (2) consent to the 

provisions of the rule, and (3) grant DTC 

power of attorney to execute and deliver 

on their behalf documents and 

instruments that may be requested by 

the Transferee. Finally, the Proposed 

Rule would include a limitation of 

liability for any actions taken or omitted 

to be taken by DTC pursuant to the 

Proposed Rule. The purpose of the 

limitation of liability is to facilitate and 

protect DTC’s ability to act 

expeditiously in response to 

extraordinary events. As noted, such 

limitation of liability would be available 

only following triggering of the Winddown Plan. In addition, and as a 

separate matter, the limitation of 


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52 15 U.S.C. 78q–1(b)(3)(F). 

53 17 CFR 240.17Ad–22(e)(3)(ii). 

54 Id. at 240.17Ad–22(e)(15)(ii). 

55 15 U.S.C. 78q–1(b)(3)(F). 56 Id. 

liability provides Participants with 

transparency for the unlikely situation 

when those extraordinary events could 

occur, as well supporting the legal 

framework within which DTC would 

take such actions. These provisions, 

collectively, are designed to enable DTC 

to take such acts as the Board 

determines necessary to effectuate an 

orderly transfer and wind-down of its 

business should recovery efforts prove 

unsuccessful. 

Rule 38 (Market Disruption and Force 

Majeure) 

The proposed Rule 38 (‘‘Force 

Majeure Rule’’) would address DTC’s 

authority to take certain actions upon 

the occurrence, and during the 

pendency, of a ‘‘Market Disruption 

Event,’’ as defined therein. The 

Proposed Rule is designed to clarify 

DTC’s ability to take actions to address 

extraordinary events outside of the 

control of DTC and of its membership, 

and to mitigate the effect of such events 

by facilitating the continuity of services 

(or, if deemed necessary, the temporary 

suspension of services). To that end, 

under the proposed Force Majeure Rule, 

DTC would be entitled, during the 

pendency of a Market Disruption Event, 

to (1) suspend the provision of any or 

all services, and (2) take, or refrain from 

taking, or require its Participants and 

Pledgees to take, or refrain from taking, 

any actions it considers appropriate to 

address, alleviate, or mitigate the event 

and facilitate the continuation of DTC’s 

services as may be practicable. 

The proposed Force Majeure Rule 

would identify the events or 

circumstances that would be considered 

a ‘‘Market Disruption Event,’’ including, 

for example, events that lead to the 

suspension or limitation of trading or 

banking in the markets in which DTC 

operates, or the unavailability or failure 

of any material payment, bank transfer, 

wire or securities settlement systems. 

The proposed Force Majeure Rule 

would define the governance 

procedures for how DTC would 

determine whether, and how, to 

implement the provisions of the rule. A 

determination that a Market Disruption 

Event has occurred would generally be 

made by the Board, but the Proposed 

Rule would provide for limited, interim 

delegation of authority to a specified 

officer or management committee if the 

Board would not be able to take timely 

action. In the event such delegated 

authority is exercised, the proposed 

Force Majeure Rule would require that 

the Board be convened as promptly as 

practicable, no later than five Business 

Days after such determination has been 

made, to ratify, modify, or rescind the 

action. The proposed Force Majeure 

Rule would also provide for prompt 

notification to the Commission, and 

advance consultation with Commission 

staff, when practicable, including 

notification when an event is no longer 

continuing and the relevant actions are 

terminated. The Proposed Rule would 

require Participants and Pledgees to 

notify DTC immediately upon becoming 

aware of a Market Disruption Event, 

and, likewise, would require DTC to 

notify its Participants and Pledgees if it 

has triggered the Proposed Rule and of 

actions taken or intended to be taken 

thereunder. 

Finally, the Proposed Rule would 

address other related matters, including 

a limitation of liability for any failure or 

delay in performance, in whole or in 

part, arising out of the Market 

Disruption Event. The purpose of the 

limitation of liability would be similar 

to the purpose of the analogous 

provision in the proposed Wind-down 

Rule, which is to facilitate and protect 

DTC’s ability to act expeditiously in 

response to extraordinary events. 

(a) Statutory Basis 

DTC believes that the proposal is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a registered 

clearing agency. In particular, DTC 

believes that the R&W Plan and each of 

the Proposed Rules are consistent with 

Section 17A(b)(3)(F) of the Act,52 the 

R&W Plan and each of the Proposed 

Rules are consistent with Rule 17Ad– 

22(e)(3)(ii) under the Act,53 and the 

R&W Plan is consistent with Rule 

17Ad–22(e)(15)(ii) under the Act,54 for 

the reasons described below. 

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

requires, in part, that the rules of DTC 

be designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions, and to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

DTC or for which it is responsible.55

The Recovery Plan and the proposed 

Force Majeure Rule would promote the 

prompt and accurate clearance and 

settlement of securities transactions by 

providing DTC with a roadmap for 

actions it may employ to mitigate losses, 

and monitor and, as needed, stabilize, 

its financial condition, which would 

allow it to continue its critical clearance 

and settlement services in stress 

situations. Further, as described above, 

the Recovery Plan is designed to 

identify the actions and tools DTC may 

use to address and minimize losses to 

both DTC and its Participants. The 

Recovery Plan and the proposed Force 

Majeure Rule would provide DTC’s 

management and the Board with 

guidance in this regard by identifying 

the indicators and governance around 

the use and application of such tools to 

enable them to address stress situations 

in a manner most appropriate for the 

circumstances. Therefore, the Recovery 

Plan and the proposed Force Majeure 

Rule would also contribute to the 

safeguarding of securities and funds 

which are in the custody or control of 

DTC or for which it is responsible by 

enabling actions that would address and 

minimize losses. 

The Wind-down Plan and the 

proposed Wind-down Rule, which 

would facilitate the implementation of 

the Wind-down Plan, would also 

promote the prompt and accurate 

clearance and settlement of securities 

transactions and assure the safeguarding 

of securities and funds which are in the 

custody or control of DTC or for which 

it is responsible. The Wind-down Plan 

and the proposed Wind-down Rule 

would collectively establish a 

framework for the transfer and orderly 

wind-down of DTC’s business. These 

proposals would establish clear 

mechanisms for the transfer of DTC’s 

critical services and membership as well 

as clear provision for the transfer of the 

securities inventory it holds in fungible 

bulk for Participants. By doing so, the 

Wind-down Plan and these Proposed 

Rules are designed to facilitate the 

continuity of DTC’s critical services and 

enable its Participants and Pledgees to 

maintain access to DTC’s services 

through the transfer of its membership 

in the event DTC defaults or the Winddown Plan is triggered by the Board. 

Therefore, by facilitating the continuity 

of DTC’s critical clearance and 

settlement services, DTC believes the 

proposals would promote the prompt 

and accurate clearance and settlement of 

securities transactions. Further, by 

creating a framework for the transfer 

and orderly wind-down of DTC’s 

business, DTC believes the proposals 

would enhance the safeguarding of 

securities and funds which are in the 

custody or control of DTC or for which 

it is responsible. 

Therefore, DTC believes the R&W 

Plan and each of the Proposed Rules are 

consistent with the requirements of 

Section 17A(b)(3)(F) of the Act.56

Rule 17Ad–22(e)(3)(ii) under the Act 

requires DTC to establish, implement, 

maintain and enforce written policies 


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Federal Register / Vol. 83, No. 139 / Thursday, July 19, 2018 / Notices 34275 

57 17 CFR 240.17Ad–22(e)(3)(ii). 

58 Id. 

59 Id. 

60 Id. 

61 Id. at 240.19b–4. 

62Supra note 42. 

63 17 CFR 240.17Ad–22(e)(3)(ii). 

64 Id. at 240.17Ad–22(e)(15)(ii). 

and procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by the covered 

clearing agency, which includes plans 

for the recovery and orderly wind-down 

of the covered clearing agency 

necessitated by credit losses, liquidity 

shortfalls, losses from general business 

risk, or any other losses.57 The R&W 

Plan and each of the Proposed Rules are 

designed to meet the requirements of 

Rule 17Ad–22(e)(3)(ii). 

The R&W Plan would be maintained 

by DTC in compliance with Rule 17Ad– 

22(e)(3)(ii) in that it provides plans for 

the recovery and orderly wind-down of 

DTC necessitated by credit losses, 

liquidity shortfalls, losses from general 

business risk, or any other losses, as 

described above.58 Specifically, the 

Recovery Plan would define the risk 

management activities, stress conditions 

and indicators, and tools that DTC may 

use to address stress scenarios that 

could eventually prevent it from being 

able to provide its critical services as a 

going concern. Through the framework 

of the Crisis Continuum, the Recovery 

Plan would address measures that DTC 

may take to address risks of credit losses 

and liquidity shortfalls, and other losses 

that could arise from a Participant 

Default. The Recovery Plan would also 

address the management of general 

business risks and other non-default 

risks that could lead to losses. 

The Wind-down Plan would be 

triggered by a determination by the 

Board that recovery efforts have not 

been, or are unlikely to be, successful in 

returning DTC to viability as a going 

concern. Once triggered, the Winddown Plan would set forth clear 

mechanisms for the transfer of DTC’s 

membership and business, and would 

be designed to facilitate continued 

access to DTC’s critical services and to 

minimize market impact of the transfer. 

By establishing the framework and 

strategy for the execution of the transfer 

and wind-down of DTC in order to 

facilitate continuous access to DTC’s 

critical services, the Wind-down Plan 

establishes a plan for the orderly winddown of DTC. Therefore, DTC believes 

the R&W Plan would provide plans for 

the recovery and orderly wind-down of 

the covered clearing agency necessitated 

by credit losses, liquidity shortfalls, 

losses from general business risk, or any 

other losses, and, as such, meets the 

requirements of Rule 17Ad– 

22(e)(3)(ii).59

As described in greater detail above, 

the Proposed Rules are designed to 

facilitate the execution of the R&W Plan, 

provide Participants with transparency 

regarding the material provisions of the 

Plan, and provide DTC with a legal basis 

for implementation of those provisions. 

As such, DTC also believes the Proposed 

Rules meet the requirements of Rule 

17Ad–22(e)(3)(ii).60

DTC has evaluated the recovery tools 

that would be identified in the Recovery 

Plan and has determined that these tools 

are comprehensive, effective, and 

transparent, and that such tools provide 

appropriate incentives to DTC’s 

Participants to manage the risks they 

present. The recovery tools, as outlined 

in the Recovery Plan and in the 

proposed Force Majeure Rule, provide 

DTC with a comprehensive set of 

options to address its material risks and 

support the resiliency of its critical 

services under a range of stress 

scenarios. DTC also believes the 

recovery tools are effective, as DTC has 

both legal basis and operational 

capability to execute these tools in a 

timely and reliable manner. Many of the 

recovery tools are provided for in the 

Rules; Participants are bound by the 

Rules through their Participants 

Agreements with DTC, and the Rules are 

adopted pursuant to a framework 

established by Rule 19b–4 under the 

Act,61 providing a legal basis for the 

recovery tools found therein. Other 

recovery tools have legal basis in 

contractual arrangements to which DTC 

is a party, as described above. Further, 

as many of the tools are embedded in 

DTC’s ongoing risk management 

practices or are embedded into its 

predefined default-management 

procedures, DTC is able to execute these 

tools, in most cases, when needed and 

without material operational or 

organizational delay. 

The majority of the recovery tools are 

also transparent, as they are or are 

proposed to be included in the Rules, 

which are publicly available. DTC 

believes the recovery tools also provide 

appropriate incentives to its owners and 

Participants, as they are designed to 

control the amount of risk they present 

to DTC’s clearance and settlement 

system. Finally, DTC’s Recovery Plan 

provides for a continuous evaluation of 

the systemic consequences of executing 

its recovery tools, with the goal of 

minimizing their negative impact. The 

Recovery Plan would outline various 

indicators over a timeline of increasing 

stress, the Crisis Continuum, with 

escalation triggers to DTC management 

or the Board, as appropriate. This 

approach would allow for timely 

evaluation of the situation and the 

possible impacts of the use of a recovery 

tool in order to minimize the negative 

effects of the stress scenario. Therefore, 

DTC believes that the recovery tools that 

would be identified and described in its 

Recovery Plan, including the authority 

provided to it in the proposed Force 

Majeure Rule, would meet the criteria 

identified within guidance published by 

the Commission in connection with the 

adoption of Rule 17Ad–22(e)(3)(ii).62

Therefore, DTC believes the R&W 

Plan and each of the Proposed Rules are 

consistent with Rule 17Ad– 

22(e)(3)(ii).63

Rule 17Ad–22(e)(15)(ii) under the Act 

requires DTC to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

identify, monitor, and manage its 

general business risk and hold sufficient 

LNA to cover potential general business 

losses so that DTC can continue 

operations and services as a going 

concern if those losses materialize, 

including by holding LNA equal to the 

greater of either (x) six months of the 

covered clearing agency’s current 

operating expenses, or (y) the amount 

determined by the board of directors to 

be sufficient to ensure a recovery or 

orderly wind-down of critical 

operations and services of the covered 

clearing agency.64 While the Capital 

Policy addresses how DTC holds LNA 

in compliance with these requirements, 

the Wind-down Plan would include an 

analysis that would estimate the amount 

of time and the costs to achieve a 

recovery or orderly wind-down of DTC’s 

critical operations and services, and 

would provide that the Board review 

and approve this analysis and 

estimation annually. The Wind-down 

Plan would also provide that the 

estimate would be the ‘‘Recovery/Winddown Capital Requirement’’ under the 

Capital Policy. Under that policy, the 

General Business Risk Capital 

Requirement, which is the sufficient 

amount of LNA that DTC should hold to 

cover potential general business losses 

so that it can continue operations and 

services as a going concern if those 

losses materialize, is calculated as the 

greatest of three estimated amounts, one 

of which is this Recovery/Wind-down 

Capital Requirement. Therefore, DTC 

believes the R&W Plan, as it interrelates 


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65 Id. 

66 15 U.S.C. 78q–1(b)(3)(I). 67 17 CFR 200.30–3(a)(12). 

with the Capital Policy, is consistent 

with Rule 17Ad–22(e)(15)(ii).65

(B) Clearing Agency’s Statement on 

Burden on Competition 

DTC does not believe the proposal 

would have any impact, or impose any 

burden, on competition not necessary or 

appropriate in furtherance of the 

purpose of the Act.66 The proposal 

would apply uniformly to all 

Participants and Pledgees. DTC does not 

anticipate that the proposal would affect 

its day-to-day operations under normal 

circumstances, or in the management of 

a typical Participant default scenario or 

non-default event. DTC is not proposing 

to alter the standards or requirements 

for becoming or remaining a Participant 

or Pledgee, or otherwise using its 

services. DTC also does not propose to 

change its methodology for calculation 

of Participants Fund contributions. The 

proposal is intended to (1) address the 

risk of loss events and identify the tools 

and resources available to it to 

withstand and recover from such events, 

so that it can restore normal operations, 

and (2) provide a framework for its 

orderly wind-down and the transfer of 

its business in the event those recovery 

tools do not restore DTC to financial 

viability, as described herein. 

The R&W Plan and each of the 

Proposed Rules have been developed 

and documented in order to satisfy 

applicable regulatory requirements, as 

discussed above. 

With respect to the Recovery Plan, the 

proposal generally reflects DTC’s 

existing tools and existing internal 

procedures. Existing tools that would 

have a direct impact on the rights, 

responsibilities or obligations of 

Participants are reflected in the existing 

Rules or are proposed to be included in 

the Rules. Accordingly, the Recovery 

Plan and the proposed Force Majeure 

Rule are intended to provide a roadmap, 

define the strategy and identify the tools 

available to DTC in connection with its 

recovery efforts. By proposing to 

enhance DTC’s existing internal 

management and its regulatory 

compliance related to its recovery 

efforts, DTC does not believe the 

Recovery Plan or the proposed Force 

Majeure Rule would have any impact, or 

impose any burden, on competition. 

With respect to the Wind-down Plan 

and the proposed Wind-down Rule, 

which facilitate the execution of the 

Wind-down Plan, the proposal would 

operate to effect the transfer of all 

eligible Participants and Pledgees to the 

Transferee, and would not prohibit any 

market participant from either bidding 

to become the Transferee or from 

applying for membership with the 

Transferee. The proposal also would not 

prohibit any Participant or Pledgee from 

withdrawing from DTC prior to the 

Transfer Time, as is permitted under the 

Rules today, or from applying for 

membership with the Transferee. 

Therefore, as the proposal would treat 

each similarly situated Participant and 

Pledgee identically under the Winddown Plan and under the Proposed 

Wind-down Rule, DTC does not believe 

the Wind-down Plan or the proposed 

Wind-down Rule would have any 

impact, or impose any burden, on 

competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

While DTC has not solicited or 

received any written comments relating 

to this proposal, DTC has conducted 

outreach to its Members in order to 

provide them with notice of the 

proposal. DTC will notify the 

Commission of any written comments 

received by DTC. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

DTC–2017–021 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–DTC–2017–021. 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 (http://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 

10:00 a.m. and 3:00 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 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–DTC– 

2017–021 and should be submitted on 

or before August 3, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.67

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–15363 Filed 7–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Submission for OMB Review; 

Comment Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Extension: 

Regulation AC; SEC File No. 270–517, 

OMB Control No. 3235–0575 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the 

Securities and Exchange Commission 

(‘‘Commission’’) has submitted to the 

Office of Management and Budget 

(‘‘OMB’’) a request for approval of 

extension of the previously approved 

collection of information provided for in 

Regulation Analyst Certification 

(‘‘Regulation AC’’) (17 CFR 242.500– 

505), under the Securities Exchange Act 

of 1934 (15 U.S.C. 78a et seq.). 

Regulation AC requires that research 

reports published, circulated, or 

provided by a broker or dealer or 

covered person contain a statement 

attesting that the views expressed in 

each research report accurately reflect 


sradovich on DSK3GMQ082PROD with NOTICES