[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Notices]
[Pages 34246-34263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15364]



[[Page 34246]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83629; File No. SR-DTC-2017-022]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Amendment No. 1 to a Proposed Rule Change To Amend 
the Loss Allocation Rules and Make Other Changes

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-2017-022 
(``Proposed Rule Change'') to amend the loss allocation rules and make 
other changes; the Proposed Rule Change was published for comment in 
the Federal Register on January 8, 2018.\1\ 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.\2\ On March 20, 2018, the 
Commission instituted proceedings to determine whether to approve or 
disapprove the Proposed Rule Change; 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.\3\ 
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.\4\ As of the date of this 
release, the Commission has not received any comments on the Proposed 
Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, respectively. 
Securities Exchange Act Release No. 82426 (January 2, 2018), 83 FR 
913 (January 8, 2018) (SR-DTC-2017-022). On December 18, 2017, DTC 
filed the Proposed Rule Change as advance notice SR-DTC-2017-804 
(``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. 82582 (January 24, 2018), 83 FR 4297 (January 30, 
2018) (SR-DTC-2017-804). 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.
    \2\ Securities Exchange Act Release No. 82670 (February 8, 
2018), 83 FR 6626 (February 14, 2018) (SR-DTC-2017-022; SR-FICC-
2017-022; SR-NSCC-2017-018).
    \3\ Securities Exchange Act Release No. 82914 (March 20, 2018), 
83 FR 12978 (March 26, 2018) (SR-DTC-2017-022); Securities Exchange 
Act Release No. 83510 (June 25, 2018), 83 FR 30791 (June 29, 2018) 
(SR-DTC-2017-022; SR-FICC-2017-022; SR-NSCC-2017-018).
    \4\ 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 Proposed Rule Change has been 
posted on the Commission's website at https://www.sec.gov/rules/sro/dtc.htm and thus been publicly available since June 29, 2018.
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    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 would revise Rule 4 (Participants Fund and 
Participants Investment) to (i) provide separate sections for (x) the 
use of the Participants Fund \5\ as a liquidity resource for settlement 
and (y) loss allocation among Participants of losses and liabilities 
arising out of Participant defaults or due to non-default events; and 
(ii) enhance the resiliency of DTC's loss allocation process so that 
DTC can take timely action to contain multiple loss events that occur 
in succession during a short period of time. In connection therewith, 
the proposed rule change would (i) align the loss allocation rules of 
the three clearing agencies of The Depository Trust & Clearing 
Corporation (``DTCC''), namely DTC, National Securities Clearing 
Corporation (``NSCC''), and Fixed Income Clearing Corporation 
(``FICC'') (collectively, the ``DTCC Clearing Agencies''), so as to 
provide consistent treatment, to the extent practicable and 
appropriate, especially for firms that are participants of two or more 
DTCC Clearing Agencies, (ii) increase transparency and accessibility of 
the provisions relating to the use of the Participants Fund as a 
liquidity resource for settlement and the loss allocation provisions, 
by enhancing their readability and clarity, (iii) require a defined 
corporate contribution to losses and liabilities that are incurred by 
DTC prior to any allocation among Participants, whether such losses and 
liabilities arise out of Participant defaults or due to non-default 
events, (iv) reduce the time within which DTC is required to return a 
former Participant's Actual Participants Fund Deposit, and (v) make 
conforming and technical changes. In addition, the proposed rule change 
would amend Section 6 of Rule 4 to clarify the requirements for a 
Participant that wants to voluntarily terminate its business with DTC, 
and to align, where appropriate, with the proposed voluntary 
termination provisions of the NSCC and FICC rules. The proposed rule 
change would also amend Rule 1 (Definitions; Governing Law) to add 
cross-references to terms that would be defined in proposed Rule 4, and 
would amend Rule 2 (Participants and Pledgees), in relevant part, to 
align with proposed Section 6 of Rule 4, as discussed below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of DTC (``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item 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.

[[Page 34247]]

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
Description of the Amendment
    This filing constitutes Amendment No. 1 (``Amendment'') to rule 
filing SR-DTC-2017-022 (``Rule Filing'') previously filed by DTC on 
December 18, 2017.\6\ This Amendment amends and replaces the Rule 
Filing in its entirety. DTC submits this Amendment in order to further 
clarify the operation of the proposed rule changes on loss allocation 
by providing additional information and examples. This Amendment would 
also clarify the requirements for a Participant that wants to 
voluntarily terminate its business with DTC. In particular, this 
Amendment would:
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    \6\ See Securities Exchange Act Release No. 82426 (January 2, 
2018), 83 FR 913 (January 8, 2018) (SR-DTC-2017-022).
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    (i) Clarify that the term ``Participant Default,'' referring to the 
failure of a Participant to satisfy any obligation to DTC, includes the 
failure of a Defaulting Participant to satisfy its obligations as 
provided in Rule 9(B).\7\
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    \7\ Although Rule 4 is being amended to align with NSCC and 
FICC, where appropriate, a ``Defaulting Participant'' is not 
analogous to a ``Defaulting Member'' under the proposed NSCC and 
FICC rules. This is because the term ``Defaulting Participant'' 
already has a specific meaning pursuant to Rule 9(B) which is 
necessary and appropriate to that Rule. Instead, the proposed new 
term ``CTA Participant'' would be analogous to the NSCC and FICC 
proposed term ``Defaulting Member.''
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    (ii) Add the defined term ``CTA Participant,'' which would be 
defined as a Participant for which the Corporation has ceased to act 
pursuant to Rule 10 (Discretionary Termination), Rule 11 (Voluntary 
Termination) or Rule 12 (Insolvency).
    (iii) Clarify which Participants would be subject to loss 
allocation with respect to Default Loss Events (defined below) and 
Declared Non-Default Loss Events (defined below) occurring during an 
Event Period (defined below). Specifically, pursuant to the Amendment, 
proposed Section 5 of Rule 4 would provide that each Participant that 
is a Participant on the first day of an Event Period would be obligated 
to pay its pro rata share of losses and liabilities arising out of or 
relating to each Default Loss Event (other than a Default Loss Event 
with respect to which it is the CTA Participant) and each Declared Non-
Default Loss Event occurring during the Event Period. In addition, 
proposed Section 5 of Rule 4 would make it clear that any CTA 
Participant for which DTC ceases to act on a non-Business Day, 
triggering an Event Period that commences on the next Business Day, 
would be deemed to be a Participant on the first day of that Event 
Period.
    (iv) Clarify the obligations and Loss Allocation Cap (defined 
below) of a Participant that terminates its business with DTC in 
respect of a loss allocation round. Specifically, pursuant to the 
Amendment, the Participant would nevertheless remain obligated for its 
pro rata share of losses and liabilities with respect to any Event 
Period for which it is otherwise obligated under Rule 4; however, its 
aggregate obligation would be limited to the amount of its Loss 
Allocation Cap, as fixed in the loss allocation round for which it 
withdrew.
    (v) Clarify that each CTA Participant would be obligated to DTC for 
the entire amount of any loss or liability incurred by DTC arising out 
of or relating to any Default Loss Event with respect to such CTA 
Participant. To the extent that such loss or liability is not satisfied 
pursuant to proposed Section 3 of Rule 4, DTC would apply a Corporate 
Contribution and charge the remaining amount of such loss or liability 
as provided in proposed Section 5 of Rule 4.
    (vi) Clarify that, although a CTA Participant would not be 
allocated a ratable share of losses and liabilities arising out of or 
relating to its own Default Loss Event, it would remain obligated to 
DTC for such losses and liabilities. More particularly, pursuant to the 
Amendment, the proposed rule change would provide that no loss 
allocation under proposed Rule 4 would constitute a waiver of any claim 
DTC may have against a Participant for any losses or liabilities to 
which the Participant is subject under DTC Rules and Procedures, 
including, without limitation, any loss or liability to which it may be 
subject under proposed Rule 4.
    (vii) For enhanced transparency and to align, where appropriate, 
with the rules of NSCC and FICC, clarify the process for the Voluntary 
Retirement (defined below) of a Participant.
    In addition, pursuant to the Amendment, DTC is making other 
clarifying and technical changes to the proposed rule change, as 
proposed herein.
Nature of the Proposed Change
    The proposed rule change would revise Rule 4 (Participants Fund and 
Participants Investment) to (i) provide separate sections for (x) the 
use of the Participants Fund as a liquidity resource for settlement and 
(y) loss allocation among Participants of losses and liabilities 
arising out of Participant defaults or due to non-default events; and 
(ii) enhance the resiliency of DTC's loss allocation process so that 
DTC can take timely action to contain multiple loss events that occur 
in succession during a short period of time. In connection therewith, 
the proposed rule change would (i) align the loss allocation rules of 
the DTCC Clearing Agencies, so as to provide consistent treatment, to 
the extent practicable and appropriate, especially for firms that are 
participants of two or more DTCC Clearing Agencies,\8\ (ii) increase 
transparency and accessibility of the provisions relating to the use of 
the Participants Fund as a liquidity resource for settlement and the 
loss allocation provisions, by enhancing their readability and clarity, 
(iii) require a defined corporate contribution to losses and 
liabilities that are incurred by DTC prior to any allocation among 
Participants, whether such losses and liabilities arise out of 
Participant defaults or due to non-default events, (iv) reduce the time 
within which DTC is required to return a former Participant's Actual 
Participants Fund Deposit, and (v) make conforming and technical 
changes. In addition, the proposed rule change would amend Section 6 of 
Rule 4 to clarify the requirements for a Participant that wants to 
voluntarily terminate its business with DTC, and to align, where 
appropriate, with the proposed voluntary termination provisions of the 
NSCC and FICC rules. The proposed rule change would also amend Rule 1 
(Definitions; Governing Law) to add cross-references to terms that 
would be defined in proposed Rule 4, and would amend Rule 2 
(Participants and Pledgees), in relevant part, to align with proposed 
Section 6 of Rule 4, as discussed below.
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    \8\ On December 18, 2017, NSCC and FICC submitted proposed rule 
changes and advance notices to enhance their rules regarding 
allocation of losses. Securities Exchange Act Release Nos. 82428 
(January 2, 2018), 83 FR 897 (January 8, 2018) (SR-NSCC-2017-018), 
and 82584 (January 24, 2018), 83 FR 4377 (January 30, 2018) (SR-
NSCC-2017-806); Securities Exchange Act Release Nos. 82427 (January 
2, 2018), 83 FR 854 (January 8, 2018) (SR-FICC-2017-022) and 82583 
(January 24, 2018), 83 FR 4358 (January 30, 2018) (SR-FICC-2017-
806). On June 28, 2018, NSCC and FICC filed proposed amendments to 
the proposed rule changes and advance notices with the Commission 
and the Board of Governors of the Federal Reserve System, 
respectively, available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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(i) Background
    Current Rule 4 provides a single set of tools and a common process 
for the use of the Participants Fund for both liquidity purposes to 
complete settlement among non-defaulting Participants, if one or more 
Participants

[[Page 34248]]

fails to settle,\9\ and for the satisfaction of losses and liabilities 
due to Participant defaults \10\ or certain other losses or liabilities 
incident to the business of DTC.\11\ The proposed rule change would 
amend and add provisions to separate use of the Participants Fund as a 
liquidity resource to complete settlement, reflected in proposed 
Section 4 of Rule 4, and for loss allocation, reflected in proposed 
Section 5 of Rule 4. There wouldn't be any substantive change to the 
rights and obligations of Participants under proposed Sections 4 and 5 
of Rule 4.\12\ The proposed rule changes reinforce the distinction, 
conceptual and sequential, between the mechanisms to complete 
settlement on a Business Day and to mutualize losses that may result 
from a failure to settle, or other loss-generating events. The change 
is also proposed so that the loss allocation provisions of proposed 
Section 5 of Rule 4 more closely align to similar provisions of the 
NSCC and FICC rules, to the extent appropriate.
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    \9\ DTC is a central securities depository providing key 
services that are structured to support daily settlement of book-
entry transfers of securities, in accordance with its Rules and 
Procedures. In particular, Rule 9(A) (Transactions in Securities and 
Money Payments), Rule 9(B) (Transactions in Eligible Securities), 
Rule 9(C) (Transactions in MMI Securities), Rule 9(D) (Settling 
Banks), and Rule 9(E) (Clearing Agency Agreements) provide the 
mechanism to achieve a ``DVP Model 2 Deferred Net Settlement 
System'' (as defined in Annex D of the Principles for Financial 
Market Infrastructures issued by The Committee on Payments and 
Market Infrastructures and the Technical Committee of the 
International Organization of Securities Commissions (April 2012), 
available at https://www.bis.org/cpmi/publ/d101a.pdf. Briefly, in 
relevant part, Rule 9(B) provides that ``[e]ach Participant and the 
Corporation shall settle the balance of the Settlement Account of 
the Participant on a daily basis in accordance with these Rules and 
the Procedures. Except as provided in the Procedures, the 
Corporation shall not be obligated to make any settlement payments 
to any Participants until the Corporation has received all of the 
settlement payments that Settling Banks and Participants are 
required to make to the Corporation.'' Supra note 5. Pursuant to 
these provisions of Rule 9(B), securities will be delivered to 
Participants that satisfy their settlement obligations in the end-
of-day net settlement process.
    \10\ The failure of a Participant to satisfy its settlement 
obligation constitutes a liability to DTC. Insofar as DTC undertakes 
to complete settlement among Participants other than the Participant 
that failed to settle, that liability may give rise to losses as 
well. DTC is designed to provide settlement finality at the end of 
the day and notwithstanding the failure to settle of a Participant 
or Affiliated Family of Participants with the largest net settlement 
obligation, a ``cover 1'' standard. There are no reversals of 
deliveries; a Participant that fails to settle will not receive 
securities that were intended to be delivered to it, because it has 
not paid for them. These securities, among others, serve as 
collateral for DTC to use to secure a borrowing of funds in order, 
in accordance with its Rules and Procedures, to settle with non-
defaulting Participants (including those delivering Participants 
that delivered to the non-settling Participant). To this end, 
delivery versus payment transactions (``DVP'') will not be processed 
intraday to a receiving Participant that will incur a related 
payment obligation unless that Participant satisfies risk management 
controls. The two risk management controls are the Collateral 
Monitor and Net Debit Cap. Net Debit Caps limit the potential 
settlement obligation of any Participant to an amount for which DTC 
has sufficient liquidity resources to cover this risk. The 
Collateral Monitor tests whether a Participant has sufficient 
collateral for DTC to pledge or liquidate if that Participant were 
to fail to meet its settlement obligation. To process a DVP, the 
value of the delivery that is debited to the receiving Participant 
cannot cause the net debit balance of the Participant to exceed its 
Net Debit Cap, and the amount of the net debit balance after giving 
effect to the debit must be fully collateralized. Accordingly, DTC 
may incur a liability or loss whenever it completes settlement 
despite the failure to settle of a Participant, or Affiliated Family 
of Participants, because it is either using the Participants Fund 
deposits of other Participants in the manner specified in existing 
and proposed Rule 4 and/or borrowing the necessary funds. DTC 
obligations under the line of credit include the obligation to pay 
interest on loans outstanding and to repay the loan; the 
Participants Fund is designed as not only a direct liquidity 
resource but as a back-up liquidity resource to satisfy these 
liabilities. As to the Participants Fund itself, DTC undertakes in 
Section 9 of existing and proposed Rule 4, to restore funds to 
Participants whose deposits may have been charged if there is 
ultimately any excess recovery. It should be noted that the 
Defaulting Participant remains principally obligated for all losses, 
costs and expenses associated with its Participant Default and, so, 
a recovery out of the estate of a Defaulting Participant is at least 
a hypothetical possibility.
    \11\ Section 1(f) of Rule 4 defines the term ``business'' with 
respect to DTC as ``the doing of all things in connection with or 
relating to the Corporation's performance of the services specified 
in the first and second paragraphs of Rule 6 or the cessation of 
such services.'' Supra note 5.
    \12\ It may be noted that absent extreme circumstances, DTC 
believes that it is unlikely that DTC would need to act under 
proposed Sections 4 or 5 of Rule 4.
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    The proposed rule change would retain the core principles of 
current Rule 4 for both application of the Participants Fund as a 
liquidity resource to complete settlement and for loss allocation, 
while clarifying or refining certain provisions and introducing certain 
new concepts relating to loss allocation. In connection with the use of 
the Participants Fund as a liquidity resource to complete settlement 
when a Participant fails to settle, the proposed rule would introduce 
the term ``pro rata settlement charge,'' for the use of the 
Participants Fund to complete settlement as apportioned among non-
defaulting Participants. The existing term generically applied to such 
a use or to a loss allocation is simply a ``pro rata charge''.\13\
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    \13\ See Rule 4, Section 5, supra note 5.
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    For loss allocation, the proposed rule change, like current Rule 4, 
would continue to apply to both default and non-default losses and 
liabilities, and, to the extent allocated among Participants, would be 
charged ratably in accordance with their Required Participants Fund 
Deposits.\14\ A new provision would require DTC to contribute to a loss 
or liability, either arising from a Participant default or non-default 
event, prior to any allocation among Participants. The proposed rule 
change would also introduce the new concepts of an ``Event Period'' and 
a ``round'' to address the allocation of losses arising from multiple 
events that occur in succession during a short period of time. These 
proposed rule changes would be substantially similar in these respects 
to analogous proposed rule changes for NSCC and FICC.
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    \14\ It may be noted that for NSCC and FICC, the proposed rule 
changes for loss allocation include a ``look-back'' period to 
calculate a member's pro rata share and cap. The concept of a look-
back or average is already built into DTC's calculation of 
Participants Fund requirements, which are based on a rolling sixty 
(60) day average of a Participant's six highest intraday net debit 
peaks.
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Current Rule 4 Provides for Application of the Participants Fund 
Through Pro Rata Charges
    Current Rule 4 addresses the Participants Fund and Participants 
Investment requirements and, among other things, the permitted uses of 
the Participants Fund and Participants Investment.\15\ Pursuant to 
current Rule 4, DTC maintains a cash Participants Fund. The Required 
Participants Fund Deposit for any Participant is based on the liquidity 
risk it poses to DTC relative to other Participants.
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    \15\ Each Participant is required to invest in DTC Series A 
Preferred Stock, ratably on a basis calculated in substantially the 
same manner as the Required Participants Fund Deposit. The Preferred 
Stock constitutes capital of DTC and is also available for use as 
provided in current and proposed Section 3 of Rule 4. This proposed 
rule change does not alter the Required Preferred Stock Investment.
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    Default of a Participant. Under current Section 3 of Rule 4, if a 
Participant is obligated to DTC and fails to satisfy any obligation, 
DTC may, in such order and in such amounts as DTC shall determine in 
its sole discretion: (a) Apply some or all of the Actual Participants 
Fund Deposit of such Participant to such obligation; (b) Pledge some or 
all of the shares of Preferred Stock of such Participant to its lenders 
as collateral security for a loan under the End-of-Day Credit Facility; 
\16\ and/or (c) sell some or all of the shares of Preferred Stock of 
such Participant to other Participants (who shall be

[[Page 34249]]

required to purchase such shares pro rata their Required Preferred 
Stock Investments at the time of such purchase), and apply the proceeds 
of such sale to satisfy such obligation.
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    \16\ As part of its liquidity risk management regime, DTC 
maintains a 364-day committed revolving line of credit with a 
syndicate of commercial lenders, renewed every year. The committed 
aggregate amount of the End-of-Day Credit Facility (currently $1.9 
billion) together with the Participants Fund constitute DTC's 
liquidity resources for settlement. Based on these amounts, DTC sets 
Net Debit Caps that limit settlement obligations.
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    Application of the Participants Fund. Current Section 4 of Rule 4 
addresses the application of the Participants Fund if DTC incurs a loss 
or liability, which would include application of the Participants Fund 
to complete settlement \17\ or the allocation of losses once 
determined, including non-default losses. For both liquidity and loss 
scenarios, current Section 4 of Rule 4 provides that an application of 
the Participants Fund would be apportioned among Participants ratably 
in accordance with their Required Participants Fund Deposits, less any 
additional amount that a Participant was required to Deposit to the 
Participants Fund pursuant to Section 2 of Rule 9(A).\18\ It also 
provides for the optional use of an amount of DTC's retained earnings 
and undivided profits.
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    \17\ In contrast to NSCC and FICC, DTC is not a central 
counterparty and does not guarantee obligations of its membership. 
The Participants Fund is a mutualized pre-funded liquidity and loss 
resource. As such, in contrast to NSCC and FICC, DTC does not have 
an obligation to ``repay'' the Participants Fund, and the 
application of the Participants Fund does not convert to a loss. See 
supra note 10.
    \18\ Section 2 of Rule 9(A) provides, in part, ``At the request 
of the Corporation, a Participant or Pledgee shall immediately 
furnish the Corporation with such assurances as the Corporation 
shall require of the financial ability of the Participant or Pledgee 
to fulfill its commitments and shall conform to any conditions which 
the Corporation deems necessary for the protection of the 
Corporation, other Participants or Pledgees, including deposits to 
the Participants Fund . . .'' Supra note 5. Pursuant to the proposed 
rule change, the additional amount that a Participant is required to 
Deposit to the Participants Fund pursuant to Section 2 of Rule 9(A) 
would be defined as an ``Additional Participants Fund Deposit.'' 
This is not a new concept, only the addition of a defined term for 
greater clarity.
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    After the Participants Fund is applied pursuant to current Section 
4, DTC must promptly notify each Participant and the Commission of the 
amount applied and the reasons therefor.
    Current Rule 4 further requires Participants whose Actual 
Participants Fund Deposits have been ratably charged to restore their 
Required Participants Fund Deposits, if such charges create a 
deficiency. Such payments are due upon demand. Iterative pro rata 
charges relating to the same loss or liability are permitted in order 
to satisfy the loss or liability.
    Rule 4 currently provides that a Participant may, within ten (10) 
Business Days after receipt of notice of any pro rata charge, notify 
DTC of its election to terminate its business with DTC, and the 
exposure of the terminating Participant for pro rata charges would be 
capped at the greater of (a) the amount of its Aggregate Required 
Deposit and Investment, as fixed immediately prior to the time of the 
first pro rata charge, plus 100% of the amount thereof, or (b) the 
amount of all prior pro rata charges attributable to the same loss or 
liability with respect to which the Participant has not timely 
exercised its right to terminate.
Overview of the Proposed Rule Changes
A. Application of Participants Fund to Participant Default and for 
Settlement
    Proposed Section 3 of Rule 4 would retain the concept that when a 
Participant is obligated to DTC and fails to satisfy such obligation, 
which would be defined as a ``Participant Default,'' DTC may apply the 
Actual Participants Fund Deposit of the Participant to such obligation 
to satisfy the Participant Default. The proposed rule change would 
reflect that the defined term ``Participant Default,'' referring to the 
failure of a Participant to satisfy any obligation to DTC, includes the 
failure of a Defaulting Participant to satisfy its obligations as 
provided in Rule 9(B) (where ``Defaulting Participant'' is defined). 
The proposed definition of ``Participant Default'' is for drafting 
clarity and use in related provisions of proposed Rule 4.
    Proposed Section 4 would address the situation of a Defaulting 
Participant failure to settle (which is one type of Participant 
Default) if the application of the Actual Participants Fund Deposit of 
that Defaulting Participant, pursuant to proposed Section 3, is not 
sufficient to complete settlement among Participants other than the 
Defaulting Participant (each, a ``non-defaulting Participant'').\19\
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    \19\ As described above, proposed Rule 4 splits the liquidity 
and loss provisions to more closely align to similar loss allocation 
provisions in NSCC and FICC rules. Pursuant to the proposed rule 
change, DTC would also align, where appropriate, the liquidity and 
loss provisions within proposed Rule 4. DTC would retain the 
existing Rule 4 concepts of calculating the ratable share of a 
Participant, charging each non-defaulting Participant a pro rata 
share of an application of the Participants Fund to complete 
settlement, providing notice to Participants of such charge, and 
providing each Participant the option to cap its liability for such 
charges by electing to terminate its business with DTC. However, 
pursuant to the proposed rule change, DTC would modify these 
concepts and certain associated processes to more closely align with 
the analogous proposed loss allocation provisions in proposed Rule 4 
(e.g., Loss Allocation Notice, Loss Allocation Termination 
Notification Period, and Loss Allocation Cap).
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    Proposed Section 4 would expressly state that the Participants Fund 
shall constitute a liquidity resource which may be applied by DTC, in 
such amounts as it may determine, in its sole discretion, to fund 
settlement among non-defaulting Participants in the event of the 
failure of a Defaulting Participant to satisfy its settlement 
obligation on any Business Day. Such an application of the Participants 
Fund would be charged ratably to the Actual Participants Fund Deposits 
of the non-defaulting Participants on that Business Day. The pro rata 
charge per non-defaulting Participant would be based on the ratio of 
its Required Participants Fund Deposit to the sum of the Required 
Participants Fund Deposits of all such Participants on that Business 
Day (excluding any Additional Participants Fund Deposits in both the 
numerator and denominator of such ratio). The proposed rule change 
would identify this as a ``pro rata settlement charge,'' in order to 
distinguish application of the Participants Fund to fund settlement 
from pro rata loss allocation charges that would be established in 
proposed Section 5 of Rule 4.
    The calculation of each non-defaulting Participant's pro rata 
settlement charge would be similar to the current Section 4 calculation 
of a pro rata charge except that, for greater simplicity, it would not 
include the current distinction for common members of another clearing 
agency pursuant to a Clearing Agency Agreement.\20\ For enhanced 
clarity as to the date of determination of the ratio, it would be based 
on the Required Participants Fund Deposits as fixed on the Business Day 
of the application of the Participants Fund, as opposed to the current 
language ``at the time the loss or liability was discovered.'' \21\
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    \20\ Rule 4, Section 4(a)(1), supra note 5. DTC has determined 
that this option is unnecessary because, in practice, DTC would 
never have liability under a Clearing Agency Agreement that exceeds 
the excess assets of the Participant that defaulted.
    \21\ DTC believes that this change would provide an objective 
date that is more appropriate for the application of the 
Participants Fund to complete settlement, because the ``time the 
loss or liability was discovered'' would necessarily have to be the 
day the Participants Fund was applied to complete settlement.
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    The proposed rule change would retain the concept that requires 
DTC, following the application of the Participants Fund to complete 
settlement, to notify each Participant and the Commission of the charge 
and the reasons therefor (``Settlement Charge Notice'').
    The proposed rule change also would retain the concept of providing 
each non-defaulting Participant an opportunity to elect to terminate 
its business with DTC and thereby cap its exposure to further pro rata 
settlement charges. The proposed rule change would shorten the 
notification period

[[Page 34250]]

for the election to terminate from ten (10) Business Days to five (5) 
Business Days,\22\ and would also change the beginning date of such 
notification period from the receipt of the notice to the date of the 
issuance of the Settlement Charge Notice.\23\ A Participant that elects 
to terminate its business with DTC would, subject to its cap, remain 
responsible for (i) its pro rata settlement charge that was the subject 
of the Settlement Charge Notice and (ii) all other pro rata settlement 
charges until the Participant Termination Date (as defined below and in 
the proposed rule change). The proposed cap on pro rata settlement 
charges of a Participant that has timely notified DTC of its election 
to terminate its business with DTC would be the amount of its Aggregate 
Required Deposit and Investment, as fixed on the day of the pro rata 
settlement charge that was the subject of the Settlement Charge Notice, 
plus 100% of the amount thereof (``Settlement Charge Cap''). The 
proposed Settlement Charge Cap would be no greater than the current 
cap.\24\
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    \22\ DTC believes this shorter period would be sufficient for a 
Participant to decide whether to give notice to terminate its 
business with DTC in response to a settlement charge. In addition, a 
five (5) Business Day pro rata settlement charge notification period 
would conform to the proposed loss allocation notification period in 
this proposed rule change and in the proposed rule changes for NSCC 
and FICC. See infra note 37.
    \23\ DTC believes that setting the start date of the 
notification period to an objective date would enhance transparency 
and provide a common timeframe to all affected Participants.
    \24\ Current Section 8 of Rule 4 provides for a cap that is 
equal to the greater of (a) the amount of its Aggregate Required 
Deposit and Investment, as fixed immediately prior to the time of 
the first pro rata charge, plus 100% of the amount thereof, or (b) 
the amount of all prior pro rata charges attributable to the same 
loss or liability with respect to which the Participant has not 
timely exercised its right to limit its obligation as provided 
above. Supra note 5. The alternative limit in clause (b) would be 
eliminated in proposed Section 8(a) in favor of a single defined 
standard.
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    The pro rata application of the Actual Participants Fund Deposits 
of non-defaulting Participants to complete settlement when there is a 
Participant Default is not the allocation of a loss. A pro rata 
settlement charge would relate solely to the completion of settlement. 
New proposed loss allocation concepts described below, including, but 
not limited to, a ``round,'' ``Event Period,'' and ``Corporate 
Contribution,'' would not apply to pro rata settlement charges.\25\
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    \25\ Proposed Sections 3, 4 and 5 of Rule 4 together relate, in 
whole or in part, to what may happen when there is a Participant 
Default. Proposed Section 3 is the basic provision of remedies if a 
Participant fails to satisfy an obligation to DTC. Proposed Section 
4 is a specific remedy for a failure to settle by a Defaulting 
Participant, i.e., a specific type of Participant Default. Proposed 
Section 5 is also a remedial provision for a Participant Default 
when, additionally, DTC ceases to act for the Participant and there 
are remaining losses or liabilities. If a Participant Default 
occurs, the application of proposed Section 3 would be required, the 
application of proposed Section 4 would be at the discretion of DTC. 
Whether or not proposed Section 4 has been applied, once there is a 
loss due to a Participant Default and DTC ceases to act for the 
Participant, proposed Section 5 would apply. See supra note 10.
    A principal type of Participant Default is a failure to settle. 
A Participant's obligation to pay any amount due in settlement is 
secured by Collateral of the Participant. When the Defaulting 
Participant fails to pay its settlement obligation, under Rule 9(B), 
Section 2, DTC has the right to Pledge or sell such Collateral to 
satisfy the obligation. Supra note 5. (It is more likely that DTC 
would borrow against the Collateral to complete settlement on the 
Business Day, because it is unlikely to be able to liquidate 
Collateral for same day funds in time to settle on that Business 
Day.) If DTC Pledges the Collateral to secure a loan to fund 
settlement (e.g., under the End-of-Day Credit Facility), the 
Collateral would have to be sold to obtain funds to repay the loan. 
In any such sale of the Collateral, there is a risk, heightened in 
times of market stress, that the proceeds of the sale would be 
insufficient to repay the loan. That deficiency would be a liability 
or loss to which proposed Section 5 of Rule 4 would apply, i.e., a 
Default Loss Event.
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B. Changes To Enhance Resiliency of DTC's Loss Allocation Process
    In order to enhance the resiliency of DTC's loss allocation process 
and to align, to the extent practicable and appropriate, its loss 
allocation approach to that of the other DTCC Clearing Agencies, DTC 
proposes to introduce certain new concepts and to modify other aspects 
of its loss allocation waterfall. The proposed rule change would adopt 
an enhanced allocation approach for losses, whether arising from 
Default Loss Events or Declared Non-Default Loss Events (as defined 
below and in the proposed rule change). In addition, the proposed rule 
change would clarify the loss allocation process as it relates to 
losses arising from or relating to multiple default or non-default 
events in a short period of time.
    Accordingly, DTC is proposing four (4) key changes to enhance DTC's 
loss allocation process:
(1) Mandatory Corporate Contribution
    Current Section 4 of Rule 4 provides that if there is an 
unsatisfied loss or liability, DTC may, in its sole discretion and in 
such amount as DTC would determine, ``charge the existing retained 
earnings and undivided profits'' of DTC.
    Under the proposed rule change, DTC would replace the discretionary 
application of an unspecified amount of retained earnings and undivided 
profits with a mandatory, defined Corporate Contribution (as defined 
below and in the proposed rule change). The Corporate Contribution 
would be used for losses and liabilities that are incurred by DTC with 
respect to an Event Period (as defined below and in the proposed rule 
change), whether arising from a Default Loss Event or Declared Non-
Default Loss Event, before the allocation of losses to Participants.
    The proposed ``Corporate Contribution'' would be defined to be an 
amount equal to fifty percent (50%) of DTC's General Business Risk 
Capital Requirement.\26\ DTC's General Business Risk Capital 
Requirement, as defined in DTC's Clearing Agency Policy on Capital 
Requirements,\27\ is, at a minimum, equal to the regulatory capital 
that DTC is required to maintain in compliance with Rule 17Ad-22(e)(15) 
under the Securities Exchange Act of 1934, as amended (the 
``Act'').\28\ The proposed Corporate Contribution would be held in 
addition to DTC's General Business Risk Capital Requirement.
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    \26\ DTC calculates its General Business Risk Capital 
Requirement as the amount equal to the greatest of (i) an amount 
determined based on its general business profile, (ii) an amount 
determined based on the time estimated to execute a recovery or 
orderly wind-down of DTC's critical operations, and (iii) an amount 
determined based on an analysis of DTC's estimated operating 
expenses for a six (6) month period.
    \27\ See Securities Exchange Act Release No. 81105 (July 7, 
2017), 82 FR 32399 (July 13, 2017) (SR-DTC-2017-003).
    \28\ 17 CFR 240.17Ad-22(e)(15).
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    The proposed Corporate Contribution would apply to losses arising 
from Default Loss Events and Declared Non-Default Loss Events, and 
would be a mandatory contribution of DTC prior to any allocation among 
Participants.\29\ As proposed, if the proposed Corporate Contribution 
is fully or partially used against a loss or liability relating to an 
Event Period, the Corporate Contribution would be reduced to the 
remaining unused amount, if any, during the following two hundred fifty 
(250) Business Days in order to permit DTC to replenish the Corporate 
Contribution.\30\ To ensure transparency, Participants would receive 
notice of any such reduction to the Corporate Contribution.
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    \29\ The proposed rule change would not require a Corporate 
Contribution with respect to a pro rata settlement charge. However, 
as discussed above, if, after a Participant Default, the proceeds of 
the sale of the Collateral of the Participant are insufficient to 
repay the lenders under the End-of-Day Credit Facility, and DTC has 
ceased to act for the Participant, the shortfall would be a loss 
arising from a Default Loss Event, subject to the Corporate 
Contribution.
    \30\ DTC believes that two hundred fifty (250) Business Days 
would be a reasonable estimate of the time frame that DTC would 
require to replenish the Corporate Contribution by equity in 
accordance with DTC's Clearing Agency Policy on Capital 
Requirements, including a conservative additional period to account 
for any potential delays and/or unknown exigencies in times of 
distress.
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    By requiring a defined contribution of DTC corporate funds towards 
losses and

[[Page 34251]]

liabilities arising from Default Loss Events and Declared Non-Default 
Loss Events, the proposed rule change would limit Participant 
obligations to the extent of such Corporate Contribution and thereby 
provide greater clarity and transparency to Participants as to the 
calculation of their exposure to losses and liabilities.
    Proposed Rule 4 would also further clarify that DTC can voluntarily 
apply amounts greater than the Corporate Contribution against any loss 
or liability (including non-default losses) of DTC, if the Board of 
Directors, in its sole discretion, believes such to be appropriate 
under the factual situation existing at the time.
    The proposed rule changes relating to the calculation and mandatory 
application of the Corporate Contribution are set forth in proposed 
Section 5 of Rule 4.
(2) Introducing an Event Period
    The proposed rule change would clearly define the obligations of 
DTC and its Participants regarding the allocation of losses or 
liabilities relating to or arising out of a Default Loss Event or a 
Declared Non-Default Loss Event. The proposed rule change would define 
``Default Loss Event'' as the determination by DTC to cease to act for 
a Participant pursuant to Rule 10, Rule 11, or Rule 12 (such 
Participant, a ``CTA Participant''). ``Declared Non-Default Loss 
Event'' would be defined as the determination by the Board of Directors 
that a loss or liability incident to the clearance and settlement 
business of DTC may be a significant and substantial loss or liability 
that may materially impair the ability of DTC to provide clearance and 
settlement services in an orderly manner and will potentially generate 
losses to be mutualized among Participants in order to ensure that DTC 
may continue to offer clearance and settlement services in an orderly 
manner. In order to balance the need to manage the risk of sequential 
loss events against Participants' need for certainty concerning maximum 
loss allocation exposures, DTC is proposing to introduce the concept of 
an ``Event Period'' to address the losses and liabilities that may 
arise from or relate to multiple Default Loss Events and/or Declared 
Non-Default Loss Events that arise in quick succession. Specifically, 
the proposal would group Default Loss Events and Declared Non-Default 
Loss Events occurring in a period of ten (10) Business Days (``Event 
Period'') for purposes of allocating losses to Participants in one or 
more rounds, subject to the limits of loss allocation set forth in the 
proposed rule change and as explained below.\31\ In the case of a loss 
or liability arising from or relating to a Default Loss Event, an Event 
Period would begin on the day on which DTC notifies Participants that 
it has ceased to act for a Participant (or the next Business Day, if 
such day is not a Business Day). In the case of a Declared Non-Default 
Loss Event, the Event Period would begin on the day that DTC notifies 
Participants of the Declared Non-Default Loss Event (or the next 
Business Day, if such day is not a Business Day). If a subsequent 
Default Loss Event or Declared Non-Default Loss Event occurs within the 
Event Period, any losses or liabilities arising out of or relating to 
any such subsequent event would be resolved as losses or liabilities 
that are part of the same Event Period, without extending the duration 
of such Event Period. An Event Period may include both Default Loss 
Events and Declared Non-Default Loss Events, and there would not be 
separate Event Periods for Default Loss Events or Declared Non-Default 
Loss Events occurring within overlapping ten (10) Business Day periods.
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    \31\ DTC believes that having a ten (10) Business Day Event 
Period would provide a reasonable period of time to encompass 
potential sequential Default Loss Events and/or Declared Non-Default 
Loss Events that are likely to be closely linked to an initial event 
and/or a severe market dislocation episode, while still providing 
appropriate certainty for Participants concerning their maximum 
exposure to allocated losses with respect to such events.
---------------------------------------------------------------------------

    The amount of losses that may be allocated by DTC, subject to the 
required Corporate Contribution, and to which a Loss Allocation Cap 
would apply for any Participant that elects to terminate its business 
with DTC in respect of a loss allocation round, would include any and 
all losses from any Default Loss Events and any Declared Non-Default 
Loss Events during the Event Period, regardless of the amount of time, 
during or after the Event Period, required for such losses to be 
crystallized and allocated.\32\
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    \32\ As discussed below, each Participant that is a Participant 
on the first day of an Event Period would be obligated to pay its 
pro rata share of losses and liabilities arising out of or relating 
to each Default Loss Event (other than a Default Loss Event with 
respect to which it is the CTA Participant) and each Declared Non-
Default Loss Event occurring during the Event Period.
---------------------------------------------------------------------------

    The proposed rule changes relating to the implementation of an 
Event Period are set forth in proposed Section 5 of Rule 4.
(3) Introducing the Concept of ``Rounds'' and Loss Allocation Notice
    Pursuant to the proposed rule change, a loss allocation ``round'' 
would mean a series of loss allocations relating to an Event Period, 
the aggregate amount of which is limited by the sum of the Loss 
Allocation Caps of affected Participants (a ``round cap''). When the 
aggregate amount of losses allocated in a round equals the round cap, 
any additional losses relating to the applicable Event Period would be 
allocated in one or more subsequent rounds, in each case subject to a 
round cap for that round. DTC would continue the loss allocation 
process in successive rounds until all losses from the Event Period are 
allocated among Participants that have not submitted a Termination 
Notice (as defined below and in the proposed rule change) in accordance 
with proposed Section 6(b) of Rule 4.
    Each loss allocation would be communicated to Participants by the 
issuance of a notice that advises each Participant of the amount being 
allocated to it (each, a ``Loss Allocation Notice''). The calculation 
of each Participant's pro rata allocation charge would be similar to 
the current Section 4 calculation of a pro rata charge except that, for 
greater simplicity, it would not include the current distinction for 
common members of another clearing agency pursuant to a Clearing Agency 
Agreement.\33\ In addition, for enhanced clarity as to the date of 
determination of the ratio, it would be based on the Required 
Participants Fund Deposits as fixed on the first day of the Event 
Period, as opposed to the current language ``at the time the loss or 
liability was discovered.'' \34\
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    \33\ See supra note 20.
    \34\ DTC believes that this change would provide an objective 
date that is appropriate for the new proposed loss allocation 
process, which would be designed to allocate aggregate losses 
relating to an Event Period, rather than one loss at a time.
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    Each Loss Allocation Notice would specify the relevant Event Period 
and the round to which it relates. Participants would receive two (2) 
Business Days' notice of a loss allocation,\35\ and Participants would 
be required to pay the requisite amount no later than the second 
Business Day following the issuance of such notice.\36\

[[Page 34252]]

Multiple Loss Allocation Notices may be issued with respect to each 
round, up to the round cap.
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    \35\ DTC believes allowing Participants two (2) Business Days to 
satisfy their loss allocation obligations would provide Participants 
sufficient notice to arrange funding, if necessary, while allowing 
DTC to address losses in a timely manner.
    \36\ Current Section 4 of Rule 4 provides that if the 
Participants Fund is applied to a loss or liability, DTC must notify 
each Participant of the charge and the reasons therefor. Proposed 
Section 5 would modify this process to (i) require DTC to give prior 
notice; and (ii) require Participants to pay loss allocation 
charges, rather than directly charging their Required Participants 
Fund Deposits. DTC believes that shifting from the two-step 
methodology of applying the Participants Fund and then requiring 
Participants to immediately replenish it to requiring direct payment 
would increase efficiency, while preserving the right to charge the 
Settlement Account of the Participant in the event the Participant 
doesn't timely pay. Such a failure to pay would be, self-evidently, 
a Participant Default, triggering recourse to the Actual 
Participants Fund Deposit of the Participant under proposed Section 
3 of Rule 4. In addition, this change would provide greater 
stability for DTC in times of stress by allowing DTC to retain the 
Participants Fund, its critical pre-funded resource, while charging 
loss allocations. DTC believes doing so would allow DTC to retain 
the Participants Fund as a liquidity resource which may be applied 
to fund settlement among non-defaulting Participants, if a 
Defaulting Participant fails to settle. By being able to manage its 
liquidity resources throughout the loss allocation process, DTC 
would be able to continue to provide its critical operations and 
services during what would be expected to be a stressful period.
---------------------------------------------------------------------------

    The first Loss Allocation Notice in any first, second, or 
subsequent round would expressly state that such Loss Allocation Notice 
reflects the beginning of the first, second, or subsequent round, as 
the case may be, and that each Participant in that round has five (5) 
Business Days \37\ from the issuance \38\ of such first Loss Allocation 
Notice for the round (such period, a ``Loss Allocation Termination 
Notification Period'') to notify DTC of its election to terminate its 
business with DTC (such notification, whether with respect to a 
Settlement Charge Notice or Loss Allocation Notice, a ``Termination 
Notice'') pursuant to proposed Section 8(b) of Rule 4 and thereby 
benefit from its Loss Allocation Cap.
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    \37\ Current Section 8 of Rule 4 provides that the time period 
for a Participant to give notice of its election to terminate its 
business with DTC in respect of a pro rata charge is ten (10) 
Business Days after receiving notice of a pro rata charge. DTC 
believes that it is appropriate to shorten such time period from ten 
(10) Business Days to five (5) Business Days because DTC needs 
timely notice of which Participants would not be terminating their 
business with DTC for the purpose of calculating the loss allocation 
for any subsequent round. DTC believes that five (5) Business Days 
would provide Participants with sufficient time to decide whether to 
cap their loss allocation obligations by terminating their business 
with DTC.
    \38\ See supra note 23.
---------------------------------------------------------------------------

    The round cap of any second or subsequent round may differ from the 
first or preceding round cap because there may be fewer Participants in 
a second or subsequent round if Participants elect to terminate their 
business with DTC as provided in proposed Section 8(b) of Rule 4 
following the first Loss Allocation Notice in any round.
    For example, for illustrative purposes only, after the required 
Corporate Contribution, if DTC has a $4 billion loss determined with 
respect to an Event Period and the sum of Loss Allocation Caps for all 
Participants subject to the loss allocation is $3 billion, the first 
round would begin when DTC issues the first Loss Allocation Notice for 
that Event Period. DTC could issue one or more Loss Allocation Notices 
for the first round until the sum of losses allocated equals $3 
billion. Once the $3 billion is allocated, the first round would end 
and DTC would need a second round in order to allocate the remaining $1 
billion of loss. DTC would then issue a Loss Allocation Notice for the 
$1 billion and this notice would be the first Loss Allocation Notice 
for the second round. The issuance of the Loss Allocation Notice for 
the $1 billion would begin the second round.
    The proposed rule change would link the Loss Allocation Cap to a 
round in order to provide Participants the option to limit their loss 
allocation exposure at the beginning of each round. As proposed, a 
Participant could limit its loss allocation exposure to its Loss 
Allocation Cap by providing notice of its election to terminate its 
business with DTC within five (5) Business Days after the issuance of 
the first Loss Allocation Notice in any round.
    The proposed rule changes relating to the implementation of 
``rounds'' and Loss Allocation Notices are set forth in proposed 
Section 5 of Rule 4.
(4) Capping Terminating Participants' Loss Allocation Exposure and 
Related Changes
    As discussed above, the proposed rule change would continue to 
provide Participants the opportunity to limit their loss allocation 
exposure by offering a termination option; however, the associated 
termination process would be modified.
    As proposed, if a Participant timely provides notice of its 
election to terminate its business with DTC as provided in proposed 
Section 8(b) of Rule 4, its maximum payment obligation with respect to 
any loss allocation round would be the amount of its Aggregate Required 
Deposit and Investment, as fixed on the first day of the Event Period, 
plus 100% of the amount thereof (``Loss Allocation Cap''),\39\ provided 
that the Participant complies with the requirements of the termination 
process in proposed Section 6(b) of Rule 4. DTC may retain the entire 
Actual Participants Fund Deposit of a Participant subject to loss 
allocation, up to the Participant's Loss Allocation Cap. If a 
Participant's Loss Allocation Cap exceeds the Participant's then-
current Required Participants Fund Deposit, it must still pay the 
excess amount.
---------------------------------------------------------------------------

    \39\ The alternative limit in clause (b) would be eliminated in 
proposed Section 8(b) in favor of a single defined standard. See 
supra note 24.
---------------------------------------------------------------------------

    As proposed, Participants would have five (5) Business Days from 
the issuance of the first Loss Allocation Notice in any round to decide 
whether to terminate its business with DTC, and thereby benefit from 
its Loss Allocation Cap. The start of each round \40\ would allow a 
Participant the opportunity to notify DTC of its election to terminate 
its business with DTC after satisfaction of the losses allocated in 
such round.
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    \40\ i.e., a Participant will only have the opportunity to 
terminate after the first Loss Allocation Notice in any round, and 
not after each Loss Allocation Notice in any round.
---------------------------------------------------------------------------

    Specifically, the first round and each subsequent round of loss 
allocation would allocate losses up to a round cap of the aggregate of 
all Loss Allocation Caps of those Participants included in the round. 
If a Participant provides notice of its election to terminate its 
business with DTC, it would be subject to loss allocation in that 
round, up to its Loss Allocation Cap. If the first round of loss 
allocation does not fully cover DTC's losses, a second round will be 
noticed to those Participants that did not elect to terminate in the 
previous round. As noted above, the amount of any second or subsequent 
round cap may differ from the first or preceding round cap because 
there may be fewer Participants in a second or subsequent round if 
Participants elect to terminate their business with DTC as provided in 
proposed Section 8(b) of Rule 4 following the first Loss Allocation 
Notice in any round.
    Pursuant to the proposed rule change, in order to avail itself of 
its Loss Allocation Cap, the Participant would need to follow the 
requirements in proposed Section 6(b) of Rule 4. In addition to 
retaining the substance of the existing requirements for any 
termination that are set forth in current Section 6 of Rule 4, proposed 
Section 6 also would provide that a Participant that provides a 
Termination Notice in connection with a loss allocation must: (1) 
Specify in the Termination Notice an effective date of termination 
(``Participant Termination Date''), which date shall be no later than 
ten (10) Business Days following the last day of the applicable Loss 
Allocation Termination Notification Period; (2) cease all activities 
and use of the Corporation's services other than activities and 
services necessary to terminate the business of the Participant with 
DTC; and (3) ensure that all activities and use of DTC services by such 
Participant cease on or prior to the Participant Termination Date.

[[Page 34253]]

    The proposed rule changes are designed to enable DTC to continue 
the loss allocation process in successive rounds until all of DTC's 
losses are allocated. Until all losses related to an Event Period are 
allocated and paid, DTC may retain the entire Actual Participants Fund 
Deposit of a Participant subject to loss allocation, up to the 
Participant's Loss Allocation Cap.
    The proposed rule changes relating to capping terminating 
Participants' loss allocation exposure and related changes to the 
termination process are set forth in proposed Sections 5, 6, and 8 of 
Rule 4.
C. Clarifying Changes Relating to Loss Allocation for Non-Default 
Events
    The proposed rule changes are intended to make the provisions in 
the Rules governing loss allocation more transparent and accessible to 
Participants. In particular, DTC is proposing the following change 
relating to loss allocation to provide clarity around the governance 
for the allocation of losses arising from a non-default event.\41\
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    \41\ Non-default losses may arise from events such as damage to 
physical assets, a cyber-attack, or custody and investment losses.
---------------------------------------------------------------------------

    Currently, DTC can use the Participants Fund to satisfy losses and 
liabilities arising from a Participant Default or arising from an event 
that is not due to a Participant Default (i.e., a non-default loss), 
provided that such loss or liability is incident to the business of 
DTC.\42\
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    \42\ See supra note 11.
---------------------------------------------------------------------------

    DTC is proposing to clarify the governance around non-default 
losses that would trigger loss allocation to Participants by specifying 
that the Board of Directors would have to determine that there is a 
non-default loss that may be a significant and substantial loss or 
liability that may materially impair the ability of DTC to provide 
clearance and settlement services in an orderly manner and will 
potentially generate losses to be mutualized among the Participants in 
order to ensure that DTC may continue to offer clearance and settlement 
services in an orderly manner. The proposed rule change would provide 
that DTC would then be required to promptly notify Participants of this 
determination, which is referred to in the proposed rule as a Declared 
Non-Default Loss Event, as discussed above.
    Finally, as previously discussed, pursuant to the proposed rule 
change, proposed Rule 4 would include language to clarify that (i) the 
Corporate Contribution would apply to losses or liabilities arising 
from a Default Loss Event or a Declared Non-Default Loss Event, and 
(ii) the loss allocation waterfall would be applied in the same manner 
regardless of whether a loss arises from a Default Loss Event or a 
Declared Non-Default Loss Event.
    The proposed rule changes relating to Declared Non-Default Loss 
Events and Participants' obligations for such events are set forth in 
proposed Section 5 of Rule 4.
D. Loss Allocation Waterfall Comparison
    The following example illustrates the differences between the 
current and proposed loss allocation provisions:
    Assumptions:
    (i) Participant A defaults on a Business Day (Day 1). On the same 
day, DTC ceases to act for Participant A, and notifies Participants of 
the cease to act. After applying Participant A's Participants Fund and 
liquidating Participant A's Collateral, DTC has a loss of $350 million.
    (ii) Participant X voluntarily retires from membership five 
Business Days after DTC ceases to act for Participant A (Day 6).
    (iii) Participant B defaults seven Business Days after DTC ceases 
to act for Participant A (Day 8). On the same day, DTC ceases to act 
for Participant B, and notifies Participants of the cease to act. After 
applying Participant B's Participants Fund and liquidating Participant 
B's Collateral, DTC has a loss of $350 million.
    (iv) The current DTC loss allocation provisions do not require a 
corporate contribution. DTC may, in its sole discretion and in such 
amounts as DTC may determine, charge the existing retained earnings and 
undivided profits of DTC. For the purposes of this example, it is 
assumed that DTC has determined, in its discretion, that DTC will 
contribute 25% of its retained earnings and undivided profits. The 
amount of DTC's retained earnings and undivided profits is $364 
million.
    (v) DTC's General Business Risk Capital Requirement is $158 
million.
    Current Loss Allocation:
    Under the current loss allocation provisions, with respect to the 
losses arising out of Participant A's default, DTC will contribute $91 
million ($364 million * 25%) from retained earnings and undivided 
profits, and then allocate the remaining loss of $259 million ($350 
million - $91 million) to Participants.
    With respect to the losses arising out of Participant B's default, 
DTC will contribute $68 million (($364 million - $91 million) * 25%) 
from the balance of its retained earnings and undivided profits, and 
then allocate the remaining loss of $282 million ($350 million - $68 
million) to Participants. Because Participant X voluntarily retired 
before DTC ceased to act for Participant B, Participant X is not 
subject to loss allocation with respect to losses arising out of 
Participant B's default.
    Altogether, with respect to the losses arising out of defaults of 
Participant A and Participant B, DTC will contribute $159 million of 
retained earnings and undivided profits, and will allocate losses of 
$541 million to Participants.
    Proposed Loss Allocation:
    Under the proposed loss allocation provisions, a Default Loss Event 
with respect to Participant A's default would have occurred on Day 1, 
and a Default Loss Event with respect to Participant B's default would 
have occurred on Day 8. Because the Default Loss Events occurred during 
a 10-Business Day period they would be grouped together into an Event 
Period for purposes of allocating losses to Participants. The Event 
Period would begin on the 1st Business Day and end on the 10th Business 
Day.
    With respect to losses arising out of Participant A's default, DTC 
would apply a Corporate Contribution of $79 million ($158 million * 
50%) and then allocate the remaining loss of $271 million ($350 million 
- $79 million) to Participants. With respect to losses arising out of 
Participant B's default, DTC would not apply a Corporate Contribution 
since it would have already contributed the maximum Corporate 
Contribution of 50% of its General Business Risk Capital Requirement. 
DTC would allocate the loss of $350 million arising out of Participant 
B's default to Participants. Because Participant X was a Participant on 
the first day of the Event Period, it would be subject to loss 
allocation with respect to all events occurring during the Event 
Period, even if the event occurred after its retirement. Therefore, 
Participant X would be subject to loss allocation with respect to 
Participant B's default.
    Altogether, with respect to the losses arising out of defaults of 
Participant A and Participant B, DTC would apply a Corporate 
Contribution of $79 million and allocate losses of $621 million to 
Participants.
    The principal differences in the above example are due to: (i) The 
proposed changes to the calculation and application of Corporate 
Contribution, and (ii) the proposed introduction of an Event Period.

[[Page 34254]]

E. Clarifying Changes Regarding Voluntary Retirement
    Section 1 of Rule 2 provides that a Participant may terminate its 
business with DTC by notifying DTC in the appropriate manner.\43\ To 
provide additional transparency to Participants with respect to the 
voluntary retirement of a Participant, and to align, where appropriate, 
with the proposed rule changes of NSCC and FICC with respect to 
voluntary termination, DTC is proposing to add proposed Section 6(a) to 
Rule 4, which would be titled, ``Upon Any Voluntary Retirement.'' 
Proposed Section 6(a) of Rule 4 would (i) clarify the requirements \44\ 
for a Participant that wants to voluntarily terminate its business with 
DTC, and (ii) address the situation where a Participant submits a 
Voluntary Retirement Notice (defined below) and subsequently receives a 
Settlement Charge Notice or the first Loss Allocation Notice in a round 
on or prior to the Voluntary Retirement Date (defined below).
---------------------------------------------------------------------------

    \43\ Section 1 of Rule 2 provides, in relevant part, that ``[a] 
Participant may terminate its business with the Corporation by 
notifying the Corporation as provided in Sections 7 or 8 of Rule 4 
or, if for a reason other than those specified in said Sections 7 
and 8, by notifying the Corporation thereof; the Participant shall, 
upon receipt of such notice by the Corporation, cease to be a 
Participant. In the event that a Participant shall cease to be a 
Participant, the Corporation shall thereupon cease to make its 
services available to the Participant, except that the Corporation 
may perform services on behalf of the Participant or its successor 
in interest necessary to terminate the business of the Participant 
or its successor with the Corporation, and the Participant or its 
successor shall pay to the Corporation the fees and charges provided 
by these Rules with respect to services performed by the Corporation 
subsequent to the time when the Participant ceases to be a 
Participant.'' Supra note 5. DTC is proposing to modify the 
provision to clarify that the termination would be subject to 
proposed Section 6 of Rule 4.
    \44\ The requirements would reflect current practice.
---------------------------------------------------------------------------

    Specifically, DTC is proposing that if a Participant elects to 
terminate its business with DTC pursuant to Section 1 of Rule 2 for 
reasons other than those specified in proposed Section 8 (a ``Voluntary 
Retirement''), the Participant would be required to:
    (1) Provide a written notice of such termination to DTC 
(``Voluntary Retirement Notice''), as provided for in Section 1 of Rule 
2;
    (2) specify in the Voluntary Retirement Notice a desired date for 
the termination of its business with DTC (``Voluntary Retirement 
Date'');
    (3) cease all activities and use of DTC services other than 
activities and services necessary to terminate the business of the 
Participant with DTC; and
    (4) ensure that all activities and use of DTC services by the 
Participant cease on or prior to the Voluntary Retirement Date.\45\
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    \45\ Typically, a Participant would ultimately submit a notice 
after having ceased its transactions and transferred all securities 
out of its Account.
---------------------------------------------------------------------------

    Proposed Section 6(a) of Rule 4 would provide that if the 
Participant fails to comply with the requirements of proposed Section 
6(a), its Voluntary Retirement Notice would be deemed void.\46\
---------------------------------------------------------------------------

    \46\ The purpose of this proposed provision is to clarify that a 
failure of a Participant to comply with proposed Section 6(a) of 
Rule 4 would mean that the Participant would continue to be a 
Participant, as if the Voluntary Retirement Notice had not been 
received by DTC. For example, Participant A submits a Voluntary 
Retirement Notice to DTC on April 1st and indicates a Voluntary 
Retirement Date of April 15th, but fails to comply with the 
requirements of proposed Section 6(a) of Rule 4 by the Voluntary 
Retirement Date. The Participant would continue to be a Participant 
after the Voluntary Retirement Date. If an Event Period subsequently 
occurs before the Participant submits a new Voluntary Retirement 
Notice and voluntarily retires in compliance with proposed Section 
6(a), such Participant would be obligated to pay its pro rata shares 
of losses and liabilities arising from that Event Period.
---------------------------------------------------------------------------

    Further, proposed Section 6(a) of Rule 4 would provide that if a 
Participant submits a Voluntary Retirement Notice and subsequently 
receives a Settlement Charge Notice or the first Loss Allocation Notice 
in a round on or prior to the Voluntary Retirement Date, such 
Participant must timely submit a Termination Notice in order to benefit 
from its Settlement Charge Cap or Loss Allocation Cap, as the case may 
be. In such a case, the Termination Notice would supersede and void the 
pending Voluntary Retirement Notice submitted by the Participant.
F. Changes to the Retention Time for the Actual Participants Fund 
Deposit of a Former Participant
    Current Rule 4 provides that after three months from when a Person 
has ceased to be a Participant, DTC shall return to such Person (or its 
successor in interest or legal representative) the amount of the Actual 
Participants Fund Deposit of the former Participant plus accrued and 
unpaid interest to the date of such payment (including any amount added 
to the Actual Participants Fund Deposit of the former Participant 
through the sale of the Participant's Preferred Stock), provided that 
DTC receives such indemnities and guarantees as DTC deems satisfactory 
with respect to the matured and contingent obligations of the former 
Participant to DTC. Otherwise, within four years after a Person has 
ceased to be a Participant, DTC shall return to such Person (or its 
successor in interest or legal representative) the amount of the Actual 
Participants Fund Deposit of the former Participant plus accrued and 
unpaid interest to the date of such payment, except that DTC may offset 
against such payment the amount of any known loss or liability to DTC 
arising out of or related to the obligations of the former Participant 
to DTC.
    DTC is proposing to reduce the time, after a Participant ceases to 
be a Participant, at which DTC would be required to return the amount 
of the Actual Participants Fund Deposit of the former Participant plus 
accrued and unpaid interest, whether the Participant ceases to be such 
because it elected to terminate its business with DTC in response to a 
Settlement Charge Notice or Loss Allocation Notice or otherwise. 
Pursuant to the proposed rule change, the time period would be reduced 
from four (4) years to two (2) years. All other requirements relating 
to the return of the Actual Participants Fund Deposit would remain the 
same.
    The four (4) year retention period was implemented at a time when 
there were more deposits and processing of physical certificates, as 
well as added risks related to manual processing, and related claims 
could surface many years after an alleged event. DTC believes that the 
change to two (2) years is appropriate because, currently, as DTC and 
the industry continue to move toward automation and dematerialization, 
claims typically surface more quickly. Therefore, DTC believes that a 
shorter retention period of two (2) years would be sufficient to 
maintain a reasonable level of coverage for possible claims arising in 
connection with the activities of a former Participant, while allowing 
DTC to provide some relief to former Participants by returning their 
Actual Participants Fund Deposits more quickly.
(ii) Proposed Rule Changes
    The foregoing changes as well as other changes (including a number 
of technical and conforming changes) that DTC is proposing in order to 
improve the transparency and accessibility of Rule 4 are described in 
detail below.
A. Changes Relating to Participant Default, Pro Rata Settlement Charges 
and Loss Allocation
Section 3
    As discussed above, current Section 3 of Rule 4 provides that, if a 
Participant fails to satisfy an obligation to DTC, DTC may, in such 
order and in such amounts as DTC determines, apply the Actual 
Participants Fund Deposit of the defaulting Participant, Pledge the 
shares of Preferred Stock of the defaulting

[[Page 34255]]

Participant to its lenders as collateral security for a loan, and/or 
sell the shares of Preferred Stock of the defaulting Participant to 
other Participants. Pursuant to the proposed rule change, Section 3 
would retain most of these provisions, with the following 
modifications:
    DTC proposes to add the term ``Participant Default'' in proposed 
Section 3 as a defined term for the failure of a Participant to satisfy 
an obligation to DTC, for drafting clarity and use in related 
provisions. The proposed rule change would reflect that the defined 
term ``Participant Default,'' referring to the failure of a Participant 
to satisfy any obligation to DTC, includes the failure of a Defaulting 
Participant to satisfy its obligations as provided in Rule 9(B). In 
addition, the proposed rule change clarifies that, in the case of a 
Participant Default, DTC would first apply the Actual Participants Fund 
Deposit of the Participant to any unsatisfied obligations, before 
taking any other actions. This proposed clarification would reflect the 
current practice of DTC, and would provide Participants with enhanced 
transparency into the actions DTC would take with respect to the 
Participants Fund deposits and Participants Investment of a Participant 
that has failed to satisfy its obligations to DTC.
    DTC proposes to correct the term ``End-of-Day Facility,'' to the 
existing defined term ``End-of-Day Credit Facility.'' DTC further 
proposes to clarify that, if DTC Pledges some or all of the shares of 
Preferred Stock of a Participant to its lenders as collateral security 
for a loan under the End-of-Day Credit Facility, DTC would apply the 
proceeds of such loan to the obligation the Participant had failed to 
satisfy, which is not expressly stated in current Section 3 of Rule 4.
    In addition, DTC is proposing to make three ministerial changes to 
enhance readability by: (i) Removing the duplicative ``in,'' in the 
phrase ``in such order and in such amounts,'' (ii) replacing the word 
``eliminate'' with ``satisfy,'' and (iii) to conform to proposed 
changes, renumbering the list of actions that DTC may take when there 
is a Participant Default.
    DTC is also proposing to add the heading ``Application of 
Participants Fund Deposits and Preferred Stock Investments to 
Participant Default'' to Section 3.
Section 4 and Section 5
    As noted above, current Section 4 of Rule 4 provides that if DTC 
incurs a loss or liability which is not satisfied by charging the 
Participant responsible for the loss pursuant to Section 3 of Rule 4, 
then DTC may, in any order and in any amount as DTC may determine, in 
its sole discretion, to the extent necessary to satisfy such loss or 
liability, ratably apply some or all of the Actual Participants Fund 
Deposits of all other Participants to such loss or liability and/or 
charge the existing retained earnings and undivided profits of DTC. 
This provision relates to losses and liabilities that may be due to the 
failure of a Participant to satisfy obligations to DTC, if the Actual 
Participants Fund Deposit of that Participant does not fully satisfy 
the obligation, or to losses and liabilities for which no single 
Participant is obligated, i.e., a ``non-default loss.''
    As discussed above, current Rule 4 currently provides a single set 
of tools and common processes for using the Participants Fund as both a 
liquidity resource and for the satisfaction of other losses and 
liabilities. The proposed rule change would provide separate liquidity 
and loss allocation provisions. More specifically, proposed Section 4 
of Rule 4 would reflect the process for a ``pro rata settlement 
charge,'' the application of the Actual Participants Fund Deposits of 
non-defaulting Participants for liquidity purposes in order to complete 
settlement, when a Defaulting Participant fails to satisfy its 
settlement obligation and the amount charged to its Actual Participants 
Fund Deposit by DTC pursuant to Section 3 of Rule 4 is insufficient to 
complete settlement. Proposed Section 5 of Rule 4 would contain the 
proposed loss allocation provisions.
Proposed Section 4
    Pursuant to the proposed rule change, current Section 4 would be 
replaced in its entirety by proposed Section 4, and titled 
``Application of Participants Fund Deposits of Non-Defaulting 
Participants.'' First, for clarity, proposed Section 4 would expressly 
state that ``[t]he Participants Fund shall constitute a liquidity 
resource which may be applied by the Corporation in such amounts as the 
Corporation shall determine, in its sole discretion, to fund settlement 
if there is a Defaulting Participant and the amount charged to the 
Actual Participants Fund Deposit of the Defaulting Participant pursuant 
to Section 3 of this Rule is not sufficient to complete settlement. In 
that case, the Corporation may apply the Actual Participants Fund 
Deposits of Participants other than the Defaulting Participant (each, a 
``non-defaulting Participant'') as provided in this Section and/or 
apply such other liquidity resources as may be available to the 
Corporation from time to time, including the End-of-Day Credit 
Facility.''
    Proposed Section 4 would retain the current principle that DTC must 
notify Participants and the Commission when it applies the Participants 
Fund deposits of non-defaulting Participants, by stating that if the 
Actual Participants Fund Deposits of non-defaulting Participants are 
applied to complete settlement, DTC must promptly notify each 
Participant and the Commission of the amount of the charge and the 
reasons therefor, and would define such notice as a Settlement Charge 
Notice.
    Proposed Section 4 would retain the current calculation of pro rata 
charges by providing that each non-defaulting Participant's pro rata 
share \47\ of any such application of the Participants Fund, defined as 
a ``pro rata settlement charge,'' would be equal to (i) its Required 
Participants Fund Deposit, as such Required Participants Fund Deposit 
was fixed on the Business Day of such application \48\ less its 
Additional Participants Fund Deposit, if any, on that day, divided by 
(ii) the sum of the Required Participants Fund Deposits of all non-
defaulting Participants, as such Required Participants Fund Deposits 
were fixed on that day, less the sum of the Additional Participants 
Fund Deposits, if any, of such non-defaulting Participants on that day.
---------------------------------------------------------------------------

    \47\ See supra note 20.
    \48\ See supra note 21.
---------------------------------------------------------------------------

    Proposed Section 4 would also provide a period of time within which 
a Participant could notify DTC of its election to terminate its 
business with DTC and thereby cap its liability, by providing that a 
Participant would have a period of five (5) Business Days following the 
issuance of a Settlement Charge Notice (``Settlement Charge Termination 
Notification Period'') to notify DTC of its election to terminate its 
business with DTC pursuant to proposed Section 8(a), and thereby 
benefit from its Settlement Charge Cap, as set forth in proposed 
Section 8(a).\49\ Proposed Section 4 would also require that any 
Participant that gives DTC notice of its election to terminate its 
business with DTC must comply with proposed Section 6(b) of Rule 4,\50\ 
and if it does not, its election to terminate would be deemed void.
---------------------------------------------------------------------------

    \49\ See supra note 22.
    \50\ Proposed Section 6(b) is discussed below.
---------------------------------------------------------------------------

    Proposed Section 4 would further provide that DTC may retain the 
entire amount of the Actual Participants Fund Deposit of a Participant 
subject to a pro rata settlement charge, up to the amount of the 
Participant's Settlement Charge

[[Page 34256]]

Cap in accordance with proposed Section 8(a) of Rule 4.
    Current Section 5 of Rule 4 provides that ``[e]xcept as provided in 
Section 8 of this Rule, if a pro rata charge is made pursuant to 
Section 4 of the current Rule against the Required Participants Fund 
Deposit of a Participant, and, as a consequence, the Actual 
Participants Fund Deposit of such Participant is less than its Required 
Participants Fund Deposit, the Participant shall, upon the demand of 
the Corporation, within such time as the Corporation shall require, 
Deposit to the Participants Fund the amount in cash needed to eliminate 
any resulting deficiency in its Required Participants Fund Deposit. If 
the Participant shall fail to make such deposit to the Participants 
Fund, the Corporation may take disciplinary action against the 
Participant pursuant to these Rules. Any disciplinary action which the 
Corporation takes pursuant to these Rules, or the voluntary or 
involuntary cessation of participation by the Participant, shall not 
affect the obligations of the Participant to the Corporation or any 
remedy to which the Corporation may be entitled under applicable law.''
    Proposed Section 4 would incorporate current Section 5 of Rule 4, 
modified as follows: (i) Conformed to reflect the consolidation of 
Section 5 into proposed Section 4, (ii) replacement of ``Except as 
provided in'' with ``Subject to,'' to harmonize with language used 
elsewhere in proposed Rule 4, and (iii) corrections of two 
typographical errors, in order to accurately reflect that the Actual 
Participants Fund Deposit of a Participant would be applied, and not 
the Required Participants Fund Deposit, and to capitalize the word 
``deposit'' because it is a defined term.
Proposed Section 5
    Proposed Section 5 of Rule 4 would address the substantially new 
and revised proposed loss allocation, which would apply to losses and 
liabilities relating to or arising out of a Default Loss Event or a 
Declared Non-Default Loss Event. Pursuant to the proposed rule change, 
DTC would restructure and modify its existing loss allocation waterfall 
as described below. The heading ``Loss Allocation Waterfall'' would be 
added to proposed Section 5.
    Proposed Section 5 would establish the concept of an ``Event 
Period'' to provide for a clear and transparent way of handling 
multiple loss events occurring in a period of ten (10) Business Days, 
which would be grouped into an Event Period. As stated above, both 
Default Loss Events and Declared Non-Default Loss Events could occur 
within the same Event Period.
    The Event Period with respect to a Default Loss Event would begin 
on the day on which DTC notifies Participants that it has ceased to act 
for the Participant (or the next Business Day, if such day is not a 
Business Day). In the case of a Declared Non-Default Loss Event, the 
Event Period would begin on the day that DTC notifies Participants of 
the Declared Non-Default Loss Event (or the next Business Day, if such 
day is not a Business Day). Proposed Section 5 would provide that if a 
subsequent Default Loss Event or Declared Non-Default Loss Event occurs 
during an Event Period, any losses or liabilities arising out of or 
relating to any such subsequent event would be resolved as losses or 
liabilities that are part of the same Event Period, without extending 
the duration of such Event Period.
    As proposed, each CTA Participant would be obligated to DTC for the 
entire amount of any loss or liability incurred by DTC arising out of 
or relating to any Default Loss Event with respect to such CTA 
Participant. Under the proposal, to the extent that such loss or 
liability is not satisfied pursuant to proposed Section 3 of Rule 4, 
DTC would apply a Corporate Contribution thereto and charge the 
remaining amount of such loss or liability as provided in proposed 
Section 5.
    Under proposed Section 5, the loss allocation waterfall would begin 
with a new mandatory Corporate Contribution from DTC. Rule 4 currently 
provides that the use of any retained earnings and undivided profits by 
DTC is a voluntary contribution of a discretionary amount of its 
retained earnings. Proposed Section 5 of Rule 4 would, instead, require 
a defined corporate contribution to losses and liabilities that are 
incurred by DTC with respect to an Event Period. As proposed, the 
Corporate Contribution to losses or liabilities that are incurred by 
DTC with respect to an Event Period would be defined as an amount that 
is equal to fifty percent (50%) of the amount calculated by DTC in 
respect of its General Business Risk Capital Requirement as of the end 
of the calendar quarter immediately preceding the Event Period.\51\ 
DTC's General Business Risk Capital Requirement, as defined in DTC's 
Clearing Agency Policy on Capital Requirements,\52\ is, at a minimum, 
equal to the regulatory capital that DTC is required to maintain in 
compliance with Rule 17Ad-22(e)(15) under the Act.\53\
---------------------------------------------------------------------------

    \51\ See supra note 26.
    \52\ See supra note 27.
    \53\ 17 CFR 240.17Ad-22(e)(15).
---------------------------------------------------------------------------

    If DTC applies the Corporate Contribution to a loss or liability 
arising out of or relating to one or more Default Loss Events or 
Declared Non-Default Loss Events relating to an Event Period, then for 
any subsequent Event Periods that occur during the next two hundred 
fifty (250) Business Days, the Corporate Contribution would be reduced 
to the remaining unused portion of the Corporate Contribution amount 
that was applied for the first Event Period.\54\ Proposed Section 5 
would require DTC to notify Participants of any such reduction to the 
Corporate Contribution.
---------------------------------------------------------------------------

    \54\ See supra note 30.
---------------------------------------------------------------------------

    Proposed Section 5 of Rule 4 would provide that nothing in the 
Rules would prevent DTC from voluntarily applying amounts greater than 
the Corporate Contribution against any DTC loss or liability, if the 
Board of Directors, in its sole discretion, believes such to be 
appropriate under the factual situation existing at the time.
    Proposed Section 5 of Rule 4 would provide that DTC shall apply the 
Corporate Contribution to losses and liabilities that arise out of or 
relate to one or more Default Loss Events and/or Declared Non-Default 
Loss Events that occur within an Event Period. The proposed rule change 
also provides that if losses and liabilities with respect to such Event 
Period remain unsatisfied following application of the Corporate 
Contribution, DTC would allocate such losses and liabilities to 
Participants, as described below.
    Proposed Section 5 of Rule 4 would state that each Participant that 
is a Participant on the first day of an Event Period would be obligated 
to pay its pro rata share of losses and liabilities arising out of or 
relating to each Default Loss Event (other than a Default Loss Event 
with respect to which it is the CTA Participant) and each Declared Non-
Default Loss Event occurring during the Event Period. In addition, 
proposed Section 5 of Rule 4 would make it clear that any CTA 
Participant for which DTC ceases to act on a non-Business Day, 
triggering an Event Period that commences on the next Business Day, 
would be deemed to be a Participant on the first day of that Event 
Period. In addition, DTC is proposing to clarify that after a first 
round of loss allocations with respect to an Event Period, only 
Participants that have not submitted a Termination Notice in accordance 
with proposed Section 6(b) of Rule 4 would be subject to loss 
allocations with respect to subsequent rounds relating to that Event 
Period. The proposed change would also provide that DTC may retain the 
entire Actual Participants Fund

[[Page 34257]]

Deposit of a Participant subject to loss allocation, up to the 
Participant's Loss Allocation Cap in accordance with proposed Section 
8(b) of Rule 4.
    Pursuant to the proposed rule change, DTC would notify Participants 
subject to loss allocation of the amounts being allocated to them by a 
Loss Allocation Notice in successive rounds of loss allocations. 
Proposed Section 5 would state that a loss allocation ``round'' would 
mean a series of loss allocations relating to an Event Period, the 
aggregate amount of which is limited by the sum of the Loss Allocation 
Caps of affected Participants (a ``round cap''). When the aggregate 
amount of losses allocated in a round equals the round cap, any 
additional losses relating to the applicable Event Period would be 
allocated in one or more subsequent rounds, in each case subject to a 
round cap for that round. DTC may continue the loss allocation process 
in successive rounds until all losses from the Event Period are 
allocated among Participants that have not submitted a Termination 
Notice in accordance with proposed Section 6(b) of Rule 4.
    Each Loss Allocation Notice would specify the relevant Event Period 
and the round to which it relates. The first Loss Allocation Notice in 
any first, second, or subsequent round would expressly state that such 
Loss Allocation Notice reflects the beginning of the first, second, or 
subsequent round, as the case may be, and that each Participant in that 
round has five (5) Business Days from the issuance of such first Loss 
Allocation Notice for the round \55\ to notify DTC of its election to 
terminate its business with DTC pursuant to proposed Section 8(b) of 
Rule 4, and thereby benefit from its Loss Allocation Cap.\56\
---------------------------------------------------------------------------

    \55\ i.e., the Loss Allocation Termination Notification Period 
for that round.
    \56\ See supra note 37.
---------------------------------------------------------------------------

    Loss allocation obligations would continue to be calculated based 
upon a Participant's pro rata share of the loss.\57\ As proposed, each 
Participant's pro rata share of losses and liabilities to be allocated 
in any round would be equal to (i) (A) its Required Participants Fund 
Deposit, as such Required Participants Fund Deposit was fixed on the 
first day of the Event Period,\58\ less (B) its Additional Participants 
Fund Deposit, if any, on such day, divided by (ii) (A) the sum of the 
Required Participants Fund Deposits of all Participants subject to loss 
allocation in such round, as such Required Participants Fund Deposits 
were fixed on such day, less (B) the sum of any Additional Participants 
Fund Deposits, if any, of all Participants subject to loss allocation 
in such round on such day.\59\
---------------------------------------------------------------------------

    \57\ See supra note 20.
    \58\ See supra note 21.
    \59\ See supra note 16.
---------------------------------------------------------------------------

    As proposed, Participants would have two (2) Business Days after 
DTC issues a first round Loss Allocation Notice to pay the amount 
specified in any such notice. In contrast to the current Section 4, 
under which DTC may apply the Actual Participants Fund Deposits of 
Participants directly to the satisfaction of loss allocation amounts, 
under proposed Section 5, DTC would require Participants to pay their 
loss allocation amounts (leaving their Actual Participants Fund 
Deposits intact).\60\ On a subsequent round (i.e., if the first round 
did not cover the entire loss of the Event Period because DTC was only 
able to allocate up to the sum of the Loss Allocation Caps of those 
Participants included in the round), Participants would also have two 
(2) Business Days after notice by DTC to pay their loss allocation 
amounts (again subject to their Loss Allocation Caps), unless a 
Participant timely notified (or will timely notify) DTC of its election 
to terminate its business with DTC with respect to a prior loss 
allocation round.
---------------------------------------------------------------------------

    \60\ See supra note 36.
---------------------------------------------------------------------------

    Under the proposal, if a Participant fails to make its required 
payment in respect of a Loss Allocation Notice by the time such payment 
is due, DTC would have the right to proceed against such Participant as 
a Participant that has failed to satisfy an obligation in accordance 
with proposed Section 3 of Rule 4 described above. For additional 
clarity, proposed Section 5 of Rule 4 would state that all amounts due 
from a Participant pursuant to proposed Section 5 of Rule 4 may be 
debited from the Settlement Account of such Participant. Proposed 
Section 5 of Rule 4 would also provide that DTC may retain the entire 
Actual Participants Fund Deposit of a Participant subject to loss 
allocation, up to the Participant's Loss Allocation Cap in accordance 
with Section 8(b) of Rule 4. Participants that wish to terminate their 
business with DTC would be required to comply with the requirements in 
proposed Section 6(b) of Rule 4, described further below. Specifically, 
proposed Section 5 would provide that if, after notifying DTC of its 
election to terminate its business with DTC pursuant to proposed 
Section 8(b) of Rule 4, the Participant fails to comply with the 
provisions of proposed Section 6(b) of Rule 4, its notice of 
termination would be deemed void and any further losses resulting from 
the applicable Event Period may be allocated against it as if it had 
not given such notice.
Section 6
    Section 6 of Rule 4 currently provides that whenever a Participant 
ceases to be such, it continues to be obligated (a) to satisfy any 
deficiency in the amount of its Required Participants Fund Deposit and/
or Required Preferred Stock Investment that it did not satisfy prior to 
such time, including (i) any deficiency resulting from a pro rata 
charge with respect to which the Participant has given notice to DTC of 
its election to terminate its business with DTC pursuant to Section 8 
of Rule 4 and (ii) any deficiency the Participant is required to 
satisfy pursuant to Sections 3 (an obligation that a Participant failed 
to satisfy) or 5 (the requirement of a Participant to eliminate the 
deficiency in its Required Participants Fund Deposit) of Rule 4 and (b) 
to discharge any liability of the Participant to DTC resulting from the 
transactions of the Participant open at the time it ceases to be a 
Participant or on account of transactions occurring while it was a 
Participant.
    The heading ``Obligations of Participant Upon Termination'' would 
be added to Section 6 of Rule 4. As discussed above, DTC is proposing 
to add proposed Section 6(a) to Rule 4, which would (i) clarify the 
requirements for the Voluntary Retirement of a Participant, and (ii) 
address the situation where a Participant submits a Voluntary 
Retirement Notice and subsequently receives a Settlement Charge Cap or 
the first Loss Allocation Notice in a round on or prior to the 
Voluntary Retirement Date. Proposed Section 6(a) of Rule 4 would also 
provide that if a Participant submits a Voluntary Retirement Notice and 
subsequently receives a Settlement Charge Notice or the first Loss 
Allocation Notice in a round on or prior to the Voluntary Retirement 
Date, such Participant must timely submit a Termination Notice in order 
to benefit from its Settlement Charge Cap or Loss Allocation Cap, 
respectively. In such a case, the Termination Notice would supersede 
and void the pending Voluntary Retirement Notice submitted by the 
Participant.
    DTC is proposing to add Proposed Section 6(b), titled ``Upon 
Termination Following Settlement Charge or Loss Allocation.'' Proposed 
Section 6(b) would state that if a Participant timely notifies DTC of 
its election to terminate its business with DTC in respect of a pro 
rata settlement charge as set forth in proposed Section 4 of Rule 4 or 
a loss allocation as set forth in proposed

[[Page 34258]]

Section 5 of Rule 4, defined as a ``Termination Notice'', the 
Participant would be required to: (1) Specify in the Termination Notice 
a Participant Termination Date, which date shall be no later than ten 
Business Days following the last day of the applicable Settlement 
Charge Termination Notification Period or Loss Allocation Termination 
Notification Period; (2) cease all activities and use of the 
Corporation's services other than activities and services necessary to 
terminate the business of the Participant with DTC; and (3) ensure that 
all activities and use of DTC services by such Participant cease on or 
prior to the Participant Termination Date.
    Proposed Section 6(b) of Rule 4 would provide that a Participant 
that terminates its business with DTC in compliance with proposed 
Section 6(b) would remain obligated for its pro rata share of losses 
and liabilities with respect to any Event Period for which it is 
otherwise obligated; however, its aggregate obligation would be limited 
to the amount of its Loss Allocation Cap (as fixed in the round for 
which it withdrew).
    DTC is proposing to include a sentence in proposed Section 6(b) to 
make it clear that if the Participant fails to comply with the 
requirements set forth in this section, its Termination Notice will be 
deemed void, and the Participant will remain subject to further pro 
rata settlement charges pursuant to proposed Section 4 of Rule 4 or 
loss allocations pursuant to proposed Section 5 of Rule 4, as 
applicable, as if it had not given such notice.
    For clarity, DTC is proposing to consolidate the requirements from 
current Section 6 of Rule 4 into proposed Section 6(c) of Rule 4, 
titled ``After Any Termination,'' and modify them to conform to other 
proposed rule changes. In particular, DTC is proposing to clarify that 
a Participant that ceases to be such would continue to be subject to 
proposed Section 5 of Rule 4 for any Event Period for which it was a 
Participant on the first day of the Event Period. Proposed Section 6(c) 
of Rule 4 would state that whenever a Participant ceases to be such, it 
would continue to be obligated (i) to satisfy any deficiency in the 
amounts of its Required Participants Fund Deposit and/or Required 
Preferred Stock Investment that it did not satisfy prior to such time, 
including any deficiency the Participant is required to satisfy 
pursuant to proposed Sections 3 or 4 of Rule 4, (ii) subject to 
proposed Section 8, to satisfy any loss allocation pursuant to proposed 
Section 5 of Rule 4, and (iii) to discharge any liability of the 
Participant to DTC resulting from the transactions of the Participant 
open at the time it ceases to be a Participant or on account of 
transactions occurring while it was a Participant.
Section 8
    Pursuant to the proposed rule change, Section 8 would be titled 
``Termination; Obligation for Pro Rata Settlement Charges and Loss 
Allocations,'' and would be divided among proposed Section 8(a) 
``Settlement Charges,'' proposed Section 8(b) ``Loss Allocations,'' 
proposed Section 8(c) ``Maximum Obligation,'' and proposed Section 8(d) 
``Obligation to Replenish Deposit.''
    Pursuant to proposed Section 8(a), if a Participant, within five 
(5) Business Days after issuance of a Settlement Charge Notice pursuant 
to proposed Section 4 of Rule 4, gives notice to DTC of its election to 
terminate its business with DTC, the Participant would remain obligated 
for (i) its pro rata settlement charge that was the subject of such 
Settlement Charge Notice and (ii) all other pro rata settlement charges 
made by DTC until the Participant Termination Date. Subject to proposed 
Section 8(c), the terminating Participant's obligation would be limited 
to the amount of its Aggregate Required Deposit and Investment, as 
fixed on the day of the pro rata settlement charge that was the subject 
of the Settlement Charge Notice, plus 100% of the amount thereof, which 
is substantively the same limitation as provided for pro rata charges 
in current Section 8 of Rule 4.\61\
---------------------------------------------------------------------------

    \61\ See supra note 24.
---------------------------------------------------------------------------

    Pursuant to proposed Section 8(b), if a Participant, within five 
(5) Business Days after the issuance of a first Loss Allocation Notice 
for any round pursuant to proposed Section 5 of Rule 4 gives notice to 
DTC of its election to terminate its business with DTC, the Participant 
would remain liable for (i) the loss allocation that was the subject of 
such notice and (ii) all other loss allocations made by DTC with 
respect to the same Event Period. Subject to proposed Section 8(c), the 
obligation of a Participant which elects to terminate its business with 
DTC would be limited to the amount of its Aggregate Required Deposit 
and Investment, as fixed on the first day of the Event Period, plus 
100% of the amount thereof, which is substantively the same limitation 
as provided for pro rata charges in current Section 8 of Rule 4.\62\
---------------------------------------------------------------------------

    \62\ See supra note 39.
---------------------------------------------------------------------------

    Proposed Section 8(c) would provide that under no circumstances 
would the aggregate obligation of a Participant under proposed Section 
8(a) and proposed Section 8(b) exceed the amount of its Aggregate 
Required Deposit and Investment, as fixed on the earlier of the (i) day 
of the pro rata settlement charge that was the subject of the 
Settlement Charge Notice giving rise to a Termination Notice, and (ii) 
first day of the Event Period that was the subject of the first Loss 
Allocation Notice in a round giving rise to a Termination Notice, plus 
100% of the amount thereof. The purpose of proposed Section 8(c) is to 
address a situation where a Participant could otherwise be subject to 
both a Settlement Charge Cap and Loss Allocation Cap.
    Proposed Section 8(d) would retain the last paragraph in current 
Section 8 of Rule 4, replacing ``pro rata charge'' with ``pro rata 
settlement charge'' and'' loss allocation.'' \63\ Proposed Section 8(d) 
would provide that if the amount of the Actual Participants Fund 
Deposit of a Participant is insufficient to satisfy a pro rata 
settlement charge pursuant to proposed Section 4 and proposed Section 
8(a) or a loss allocation pursuant to proposed Section 5 and proposed 
Section 8(b), the Participant would be obligated to Deposit the amount 
of any such deficiency to the Participants Fund notwithstanding the 
fact that the Participant subsequently ceases to be a Participant.
---------------------------------------------------------------------------

    \63\ This is a ministerial change because this paragraph 
currently applies to current Section 4 of Rule 4, which includes 
charges to complete settlement and for loss allocation, as would be 
provided in proposed Section 4 and proposed Section 5 of Rule 4.
---------------------------------------------------------------------------

Section 9
    Pursuant to the proposed rule change, proposed Section 9 of Rule 4 
would provide that the recovery and repayment provisions in current 
Rule 4 apply to both pro rata settlement charges and loss 
allocations.\64\ Specifically, proposed Section 9 would provide that if 
an amount is charged ratably pursuant to proposed Section 4 or 
allocated ratably pursuant to proposed Section 5 and such amount is 
recovered by DTC, in whole or in part, the net amount of the recovery 
shall be repaid ratably (on the same basis that it was originally 
charged or allocated) to the Persons against which the amount was 
originally charged or allocated by

[[Page 34259]]

(i) crediting the appropriate amounts to the Actual Participants Fund 
Deposits of Persons which are still Participants and (ii) paying the 
appropriate amounts in cash to Persons which are not still 
Participants. In addition, proposed Section 9 would clarify that no 
loss allocation under proposed Rule 4 would constitute a waiver of any 
claim DTC may have against a Participant for any losses or liabilities 
to which the Participant is subject under DTC Rules and Procedures, 
including, without limitation, any loss or liability to which it may be 
subject under proposed Rule 4.
---------------------------------------------------------------------------

    \64\ This is a ministerial change because Section 9 currently 
applies to current Section 4 of Rule 4, which includes charges to 
complete settlement and for loss allocation, as would be provided in 
proposed Section 4 and proposed Section 5 of Rule 4.
---------------------------------------------------------------------------

    DTC further proposes to add the heading ``No Waiver; Recovery and 
Repayment'' to proposed Section 9.
B. Other Proposed Clarifying, Conforming and Technical Changes to Rule 
4
Section 1
    Section 1(a) and Section 1(b). Section 1(a) addresses, among other 
things, the formula for determining the Required Participants Fund 
Deposits of Participants. DTC is proposing to insert the words ``or 
wind-down'' to make it clear that the formulas for determining the 
Required Participants Fund Deposits of Participants and the amount of 
the minimum Required Participants Fund Deposit would be fixed by DTC so 
as to assure that the aggregate amount of Required Participants Fund 
Deposits of Participants will be increased to provide for the costs and 
expenses incurred by it incidental to the wind-down of DTC, in addition 
to the voluntary liquidation of DTC.\65\ Further, DTC proposes to 
delete the extraneous phrase ``if any.'' For increased clarity and 
readability, DTC is proposing to consolidate Section 1(b) into Section 
1(a), and to relocate the sentences ``The Corporation may require a 
Participant to Deposit an additional amount to the Participants Fund 
pursuant to Section 2 of Rule 9(A). Any such additional amount shall be 
part of the Required Participants Fund Deposit of such Participant.'' 
from Section 1(a) to a new proposed Section 1(b). In addition to the 
relocation, DTC would add a defined term for such additional amount, as 
``Additional Participants Fund Deposit,'' for drafting convenience and 
transparency throughout proposed Rule 4. Further, DTC proposes to add 
the headings ``Required Participants Fund Deposits'' and ``Additional 
Participants Fund Deposits'' to Section 1(a) and proposed Section 1(b), 
respectively.
---------------------------------------------------------------------------

    \65\ On December 18, 2017, DTC submitted a proposed rule change 
and advance notice to adopt the Recovery & Wind-down Plan of DTC, 
and amend the Rules in order to adopt Rule 32(A) (Wind-down of the 
Corporation) and Rule 38 (Market Disruption and Force Majeure). 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). On June 28, 
2018, DTC filed amendments to the proposed rule change and advance 
notice with the Commission and the Board of Governors of the Federal 
Reserve System, respectively, available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
---------------------------------------------------------------------------

    Section 1(c). For enhanced readability, DTC is proposing to add the 
heading ``Voluntary Participants Fund Deposits'' to Section 1(c) of 
Rule 4, and to replace the word ``as'' with ``in the manner.''
    Section 1(d). For enhanced clarity, DTC is proposing to modify 
Section 1(d) to make it clear that any Additional Participants Fund 
Deposit is required to be in cash. DTC is also proposing to delete the 
extraneous phrase ``pursuant to this Section'' and to replace language 
regarding Section 2 of Rule 9(A) with the proposed defined term 
``Additional Participants Fund Deposit.'' Further, DTC proposes to add 
the heading ``Cash Participants Fund'' to Section 1(d) of Rule 4.
    Section 1(e). For enhanced clarity, DTC is proposing to add the 
language ``among Account Families'' to clarify the scope of the 
allocation described in Section 1(e). In addition, DTC proposes to add 
the heading ``Allocation of Participants Fund Deposits Among Account 
Families'' to Section 1(e) of Rule 4.
    Section 1(f). Section 1(f) addresses, among other things, the 
permitted use of the Participants Fund. For consistency with the 
balance of Section 1(f), the first paragraph would be amended to state 
that the Actual Participants Fund Deposits of Participants ``may be 
used or invested'' instead of stating ``shall be applied.'' Section 
1(f) provides, in part, that the Participants Fund is limited to the 
satisfaction of losses or liabilities of DTC incident to the business 
of DTC. Section 1(f) currently defines ``business'' with respect to DTC 
as ``the doing of all things in connection with or relating to [DTC's] 
performance of the services specified in the first and second 
paragraphs of Rule 6 or the cessation of such services.'' For enhanced 
transparency of the permitted uses of the Participants Fund, proposed 
Section 1(f) would be amended to explicitly state that the Actual 
Participants Fund Deposits of Participants may be used (i) to satisfy 
the obligations of Participants to DTC, as provided in proposed Section 
3, (ii) to fund settlement among non-defaulting Participants, as 
provided in proposed Section 4 and (iii) to satisfy losses and 
liabilities of DTC incident to the business of DTC, as provided in 
proposed Section 5. Section 1(f) would also be amended to make the 
definition of ``business'' applicable to the entirety of Rule 4, 
instead of just Section 1(f), as the term would appear elsewhere in the 
rule pursuant to the proposed rule change. In addition, DTC proposes to 
add the heading ``Maintenance, Permitted Use and Investment of 
Participants Fund'' to Section 1(f) of Rule 4.
    Section 1(g) (consolidated into proposed Section 1(f)). Pursuant to 
the proposed rule change, DTC would consolidate current Section 1(g) 
into proposed Section 1(f), and modify language to make it clear that 
DTC may invest cash in the Participants Fund in accordance with the 
Clearing Agency Investment Policy adopted by DTC.\66\ Further, language 
would be streamlined by replacing ``securities, repurchase agreements 
or deposits'' with ``financial assets,'' and ``securities and 
repurchase agreements in which such cash is invested'' with ``its 
investment of such cash.''
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 79528 (December 12, 
2016), 81 FR 91232 (December 16, 2016) (SR-DTC-2016-007). The 
Clearing Agency Investment Policy (the ``Policy'') governs the 
management, custody, and investment of cash deposited to the 
Participants Fund, the proprietary liquid net assets (cash and cash 
equivalents) of DTC and other funds held by DTC. The Policy sets 
forth guiding principles for the investment of those funds, which 
include adherence to a conservative investment philosophy that 
places the highest priority on maximizing liquidity and avoiding 
risk, as well as mandating the segregation and separation of funds. 
The Policy also addresses the process for evaluating credit ratings 
of counterparties and identifies permitted investments within 
specified parameters. In general, assets are required to be held by 
regulated and creditworthy financial institution counterparties and 
invested in financial instruments that, with respect to the 
Participants Fund, may include deposits with banks, including the 
Federal Reserve Bank of New York, collateralized reverse-repurchase 
agreements, direct obligations of the U.S. government and money-
market mutual funds.
---------------------------------------------------------------------------

    Section 1(h) (proposed Section 1(g)).
    As discussed above, DTC is proposing to replace ``four'' years with 
``two'' years, in order to reduce the time within which DTC would be 
required to return the Actual Participants Fund Deposit of a former 
Participant. In addition, DTC is proposing to (i) add the heading 
``Return of Participants Fund Deposits to Participants'' to proposed 
Section 1(g), (ii) update a cross reference, and (iii) correct two 
typographical errors.
Section 2
    Pursuant to the proposed rule change, Section 2 of Rule 4 would be 
titled ``Participants Investment.''
    Section 2(a)-2(d) (Proposed Section 2(a)). For clarity, DTC is 
proposing to consolidate Sections 2(b)-2(d) into proposed Section 2(a) 
and would add

[[Page 34260]]

the heading ``Required Preferred Stock Investments'' to proposed 
Section 2(a). In addition, DTC proposes to modify certain language to 
update references and cross-references to specific subsections to 
reflect the proposed changes to the numbering of the subsections in 
proposed Section 2 of Rule 4.
    Section 2(e) (Proposed Section 2(b)). For enhanced clarity, DTC is 
proposing to add the language ``among Account Families'' to clarify the 
scope of the allocation described in proposed Section 2(b). In 
addition, DTC proposes to add the heading ``Allocation of Preferred 
Stock Investments Among Account Families'' to proposed Section 2(b) of 
Rule 4.
    Section 2(f) (Proposed Section 2(c)). DTC is proposing to add 
language to clarify that when any Pledge of a Preferred Stock Security 
Interest pursuant to proposed Section 2(c) of Rule 4 is made by 
appropriate entries on the books of DTC, the Rules, in addition to such 
entries, shall be deemed to be a security agreement for purposes of the 
New York Uniform Commercial Code. In addition, DTC proposes to update a 
cross-reference to proposed Section 2(c). In addition, DTC proposes to 
add the heading ``Security Interest in Preferred Stock Investments of 
Participants'' to proposed Section 2(c).
    Sections 2(g)-2(i) (Proposed Sections 2(d)-2(f)). DTC proposes to 
add the headings ``Dividends on Preferred Stock Investments of 
Participants,'' ``Sale of Preferred Stock Investments of 
Participants,'' and ``Permitted Transfers of Preferred Stock 
Investments of Participants'' to proposed Sections 2(d), 2(e), and 
2(f), respectively. Proposed Sections 2(e) and 2(f) would be modified 
to update cross-references to certain subsections. In addition, 
proposed Section 2(f) would be modified to renumber paragraphs and 
internal lists for consistency with the numbering schemes in Rule 4.
    Section 7. For clarity, DTC is proposing to amend Section 7 of Rule 
4 to (i) replace language referencing Additional Participants Fund 
Deposits with the proposed defined term, (ii) update cross-references 
to reflect proposed renumbering, and (iii) add the headings ``Increased 
Participants Fund Deposits and Preferred Stock Investments,'' 
``Required Participants Fund Deposits,'' and ``Required Preferred Stock 
Investments'' to proposed Sections 7, 7(a) and 7(b) of Rule 4, 
respectively.
C. Proposed Changes to Rule 1
    DTC is proposing to amend Rule 1 (Definitions; Governing Law) to 
add cross-references to proposed terms that would be defined in Rule 4, 
and to delete one defined term. The defined terms to be added are: 
``Additional Participants Fund Deposit,'' ``Corporate Contribution,'' 
``CTA Participant,'' ``Declared Non-Default Loss Event,'' ``Default 
Loss Event,'' ``Event Period,'' ``Loss Allocation Cap,'' ``Loss 
Allocation Notice,'' ``Loss Allocation Termination Notification 
Period,'' ``Participant Default,'' ``Participant Termination Date,'' 
``Settlement Charge Cap,'' ``Settlement Charge Notice,'' ``Settlement 
Charge Termination Notification Period,'' ``Termination Notice,'' 
``Voluntary Retirement,'' Voluntary Retirement Date,'' and ``Voluntary 
Retirement Notice''. The term ``Section 8 Pro Rata Charge'' would be 
deleted from Rule 1, because it would be deleted from proposed Rule 4 
as no longer necessary.
D. Proposed Changes to Rule 2
    Section 1. The proposed rule change would modify Section 1 of Rule 
2 by adding ``subject to Section 6 of Rule 4'' to the end of the 
following provision: ``A Participant may terminate its business with 
the Corporation by notifying the Corporation as provided in Sections 7 
or 8 of Rule 4 or, if for a reason other than those specified in said 
Sections 7 and 8, by notifying the Corporation thereof; the Participant 
shall, upon receipt of such notice by the Corporation, cease to be a 
Participant.'' DTC is proposing to add this language in order to 
clarify that the termination would be subject to the requirements in 
proposed Section 6 of Rule 4.
Participant Outreach
    Beginning in August 2017, DTC has conducted outreach to 
Participants in order to provide them with advance notice of the 
proposed changes. As of the date of this filing, no written comments 
relating to the proposed changes have been received in response to this 
outreach. The Commission will be notified of any written comments 
received.
Implementation Timeframe
    Pending Commission approval, DTC expects to implement this proposal 
within two (2) Business Days after approval. Participants would be 
advised of the implementation date of this proposal through issuance of 
a DTC Important Notice.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Specifically, DTC believes 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \67\ and Rules 17Ad-22(e)(7)(i), 17Ad-22(e)(13) and 
(e)(23)(i),\68\ each as promulgated under the Act, for the reasons 
described below.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78q-1(b)(3)(F).
    \68\ 17 CFR 240.17Ad-22(e)(7)(i), (e)(13) and (e)(23)(i).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the Rules 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.\69\ The proposed rule changes to (1) require a Corporate 
Contribution to a loss, (2) introduce an Event Period, and (3) 
introduce the concept of ``rounds'' (and accompanying Loss Allocation 
Notices) and apply this concept to the timing of loss allocation 
payments and the Participant termination process in connection with the 
loss allocation process, taken together, are intended to enhance the 
overall resiliency of DTC's loss allocation process
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    By replacing the discretionary application of DTC retained earnings 
to losses and liabilities with a mandatory and defined amount of the 
Corporate Contribution, the proposed rule change is designed to provide 
enhanced transparency and accessibility to Participants as to how much 
DTC would contribute in the event of a loss or liability. The proposed 
rule change also clarifies that the proposed Corporate Contribution 
would apply to both Default Loss Events and Declared Non-Default Loss 
Events. The proposed rule change would provide greater transparency as 
to the proposed replenishment period for the Corporate Contribution, 
which would allow Participants to better assess the adequacy of DTC's 
loss allocation process. Taken together, the proposed rule changes with 
respect to the Corporate Contribution would enhance the overall 
resiliency of DTC's loss allocation process by specifying the 
calculation and application of DTC's Corporate Contribution, including 
the proposed replenishment period, and would allow Participants to 
better assess the adequacy of DTC's loss allocation process.
    By introducing the concept of an Event Period, DTC would be able to 
group Default Loss Events and Declared Non-Default Loss Events 
occurring within a period of ten (10) Business

[[Page 34261]]

Days for purposes of allocating losses to Participants. DTC believes 
that the Event Period would provide a defined structure for the loss 
allocation process to encompass potential sequential Default Loss 
Events or Declared Non-Default Loss Events that may or may not be 
closely linked to an initial event and/or a market dislocation episode. 
Having this structure would enhance the overall resiliency of DTC's 
loss allocation process because the proposed rule would expressly 
address losses that may arise from multiple Default Loss Events and/or 
Declared Non-Default Loss Events that arise in quick succession. 
Moreover, the proposed Event Period structure would provide certainty 
for Participants concerning their maximum exposure to mutualized loss 
allocation with respect to such events.
    By introducing the concept of ``rounds'' (and accompanying Loss 
Allocation Notices) and applying this concept to the timing of loss 
allocation payments and the Participant termination process in 
connection with the loss allocation process, DTC would (i) set forth a 
defined amount that it would allocate to Participants during each round 
(i.e., the round cap), (ii) advise Participants of loss allocation 
obligation information as well as round information through the 
issuance of Loss Allocation Notices, and (iii) provide Participants 
with the option to limit their loss allocation exposure after the 
issuance of the first Loss Allocation Notice in each round. These 
proposed rule changes would enhance the overall resiliency of DTC's 
loss allocation process because they would expressly permit DTC to 
continue the loss allocation process in successive rounds until all of 
DTC's losses are allocated and enable DTC to identify continuing 
Participants for purposes of calculating subsequent loss allocation 
obligations in successive rounds. Moreover, the proposed rule changes 
would define for Participants a clear manner and process in which they 
could cap their loss allocation exposure to DTC.
    Taken together, the foregoing proposed rule changes would establish 
a stronger (for all the reasons discussed above) and clearer loss 
allocation process for DTC, which DTC believes would allow it to take 
timely action to address losses. The ability to timely address losses 
would allow DTC to continue to meet its clearance and settlement 
obligations, especially in circumstances that may involve a series of 
substantially contemporaneous loss events. Therefore, DTC believes that 
these proposed rule changes would promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.
    By reducing the time within which DTC is required to return the 
Actual Participants Fund Deposit of a former Participant, DTC would 
enable firms that have exited DTC to have access to their funds sooner 
than under current Rule 4 while maintaining the protection of DTC and 
its provision of clearance and settlement services. DTC would continue 
to be protected under the proposed rule change, which will maintain the 
provision that DTC may offset the return of funds against the amount of 
any loss or liability of DTC arising out of or relating to the 
obligations of the former Participant to DTC, and would provide that 
DTC could retain the funds for up to two (2) years. As such, DTC would 
maintain a necessary level of coverage for possible claims arising in 
connection with the DTC activities of a former Participant. Therefore, 
DTC believes that this proposed rule change would promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.
    The proposed rule changes to clarify the Voluntary Retirement of a 
Participant would improve the clarity of the Rule and help to ensure 
that DTC's Voluntary Retirement process is transparent and clear to 
Participants. Having clear Voluntary Retirement provisions would enable 
Participants to better understand the Voluntary Retirement process and 
provide Participants with increased predictability and certainty 
regarding their rights and obligations with respect to such process. 
Enabling Participants to readily understand DTC's Voluntary Retirement 
process and their rights and obligations in connection thereto would 
help a Participant that is voluntarily terminating its business with 
DTC, and the membership at large, to understand the point at which a 
Participant may no longer a Participant of DTC, and would thereby 
promote the prompt and accurate clearance and settlement of securities 
transactions, consistent with Section 17A(b)(3)(F) of the Act.
    Rule 17Ad-22(e)(7)(i) under the Act requires, in part, that DTC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to effectively measure, monitor, and 
manage the liquidity risk that arises in or is borne by DTC, including 
measuring, monitoring, and managing its settlement and funding flows on 
an ongoing and timely basis, and its use of intraday liquidity, by 
maintaining sufficient liquid resources to effect same-day settlement 
of payment obligations with a high degree of confidence under a wide 
range of foreseeable stress scenarios.\70\ By clarifying the remedies 
available to DTC with respect to a Participant Default, including the 
application of the Participants Fund as a liquidity resource, and by 
clarifying and providing the related processes, the proposed rule 
change is designed so that DTC may manage its settlement and funding 
flows on a timely basis and apply the Participants Fund as a liquid 
resource in order to effect same day settlement of payment obligations 
with a high degree of confidence. Therefore, DTC believes that the 
proposed rule changes with respect to the application of the Actual 
Participants Fund Deposits of non-defaulting Participants to complete 
settlement are consistent with Rule 17Ad-22(e)(7)(i) under the Act.
---------------------------------------------------------------------------

    \70\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(13) under the Act requires, in part, that DTC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to ensure DTC has the authority and 
operational capacity to take timely action to contain losses and 
liquidity demands and continue to meet its obligations.\71\ The 
proposed rule changes to (1) require a defined Corporate Contribution 
to a loss, (2) introduce an Event Period, (3) introduce the concept of 
``rounds'' (and accompanying Loss Allocation Notices) and apply this 
concept to the timing of loss allocation payments and the Participant 
termination process in connection with the loss allocation process, 
taken together, are designed to enhance the resiliency of DTC's loss 
allocation process. Having a resilient loss allocation process would 
help ensure that DTC can effectively and timely address losses relating 
to or arising out of Default Loss Events and/or Declared Non-Default 
Loss Events, which in turn would help DTC contain losses and continue 
to conduct its clearance and settlement business. In addition, by 
providing clarity as to the application of the Participants Fund to 
fund settlement in the event of a Participant Default, the proposed 
rule change is designed to clarify that DTC is authorized to use the 
Participants Fund to fund settlement. Therefore, DTC believes that the 
proposed rule changes to enhance the resiliency of DTC's loss 
allocation process, and to provide clarity as to the application of the 
Participants Fund to fund settlement, are consistent with Rule 17Ad-
22(e)(13) under the Act.
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    \71\ Id. at 240.17Ad-22(e)(13).

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[[Page 34262]]

    Rule 17Ad-22(e)(23)(i) under the Act requires DTC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to publicly disclose all relevant rules and 
material procedures, including key aspects of DTC's default rules and 
procedures.\72\ The proposed rule changes to (i) separate the 
provisions for the use of the Participants Fund for settlement and for 
loss allocation, (ii) make clarifying changes to the provisions 
regarding the application of the Participants Fund to complete 
settlement and for the allocation of losses, (iii) further align the 
loss allocation rules of the DTCC Clearing Agencies, (iv) improve the 
overall transparency and accessibility of the provisions in the Rules 
governing loss allocation, and (v) make technical and conforming 
changes, would not only ensure that DTC's loss allocation rules are, to 
the extent practicable and appropriate, consistent with the loss 
allocation rules of the other DTCC Clearing Agencies, but also would 
help to ensure that DTC's loss allocation rules are transparent and 
clear to Participants. Aligning the loss allocation rules of the DTCC 
Clearing Agencies would provide consistent treatment, to the extent 
practicable and appropriate, especially for firms that are participants 
of two or more DTCC Clearing Agencies. Having transparent and clear 
loss allocation rules would enable Participants to better understand 
the key aspects of DTC's Rules and Procedures relating to Participant 
Default, as well as non-default events, and provide Participants with 
increased predictability and certainty regarding their exposures and 
obligations. As such, DTC believes that the proposed rule changes with 
respect to pro rata settlement charges, and to align the loss 
allocation rules across the DTCC Clearing Agencies and to improve the 
overall transparency and accessibility of DTC's loss allocation rules 
are consistent with Rule 17Ad-22(e)(23)(i) under the Act.
---------------------------------------------------------------------------

    \72\ Id. at 240.17Ad-22(e)(23)(i).
---------------------------------------------------------------------------

    The proposed rule changes to clarify the Voluntary Retirement of a 
Participant would improve the clarity of the Rules and help to ensure 
that DTC's Voluntary Retirement process is transparent and clear to 
Participants. Having clear Voluntary Retirement provisions would enable 
Participants to better understand the Voluntary Retirement process and 
provide Participants with increased predictability and certainty 
regarding their rights and obligations with respect to such process. As 
such, DTC believes that the proposed rule changes with respect to 
Voluntary Retirement are also consistent with Rule 17Ad-22(e)(23)(i) 
under the Act.

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

    DTC does not believe that the proposed rule changes to clarify the 
remedies available to DTC with respect to a Participant Default, 
including the application of the Participants Fund as a liquidity 
resource, and to clarify and provide the related processes, would 
impact competition.\73\ The proposed rule changes retain the existing 
core concepts of the pro rata use of the Participants Fund deposits of 
non-defaulting Participants to complete settlement when a Participant 
fails to settle, and does not materially change their rights to elect 
to terminate their business with DTC and limit their exposure to 
settlement charges. Based on the foregoing, DTC believes that the 
proposed rule changes relating to pro rata settlement charges would not 
have any impact on competition.
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    \73\ 15 U.S.C. 78q-1(b)(3)(I).
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    DTC believes that the proposed rule change to replace the 
discretionary application of DTC retained earnings to losses and 
liabilities with a mandatory and defined Corporate Contribution would 
impact competition, but would not impose a burden on competition.\74\ 
By requiring a defined corporate contribution to losses and liabilities 
that are incurred by DTC before the allocation of losses to 
Participants, the proposed rule change would relieve Participants of a 
defined amount of potential obligations, which would allow them to 
apply those resources elsewhere. Based on the foregoing, DTC believes 
that the proposed rule changes relating to the Corporate Contribution 
would not impose a burden on competition, but may promote competition.
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    \74\ Id.
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    DTC does not believe that the proposed rule changes to enhance the 
resiliency of DTC's loss allocation process would impact 
competition.\75\ As described above, the proposed rule changes to (1) 
introduce an Event Period, and (2) introduce the concept of ``rounds'' 
(and accompanying Loss Allocation Notices) and apply this concept to 
the timing of loss allocation payments and the Participant termination 
process in connection with the loss allocation process, taken together, 
are intended to enhance the overall resiliency of DTC's loss allocation 
process, and would apply equally to all Participants. Moreover, the 
proposed changes with respect to loss allocation retain the core 
concept of the allocation of losses and liabilities among Participants 
proportionally to the amount of risk that their activities present to 
DTC as measured by their Required Participants Fund Deposits.\76\ Since 
there would not be a change to the mutualized obligations with respect 
to a loss arising from a Default Loss Event or Declared Non-Default 
Loss Event, the proposed rule changes with respect to loss allocation 
would not substantively affect the rights and obligations of 
Participants.
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    \75\ Id.
    \76\ Supra note 14.
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    DTC believes that the proposed rule change to reduce the time after 
a Participant ceases to be a Participant within which DTC would be 
required to return the amount of the Actual Participants Fund Deposit 
of the former Participant may have an impact on competition, but would 
not impose a burden on competition.\77\ This proposed rule change is 
intended to enable firms who have exited DTC to have use of their funds 
sooner, while at the same time retaining the existing requirements 
around the return. The reduction of the applicable timeframe from four 
(4) years to two (2) years would improve systemic efficiency by 
releasing the resources of the former Participant sooner, allowing them 
to allocate those resources where needed. Based on the foregoing, DTC 
believes the proposed rule change to reduce the time within which DTC 
is required to return the Actual Participants Fund Deposit of a former 
Participant would not impose a burden on competition, but may promote 
competition.
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    \77\ 15 U.S.C. 78q-1(b)(3)(I).
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    DTC also does not believe that the proposed rule changes to (i) 
further align the loss allocation rules of the DTCC Clearing Agencies, 
(ii) increase the transparency and accessibility of provisions in the 
Rules governing loss allocation, and (iii) make technical and 
conforming changes, would impact competition.\78\ These changes would 
apply equally to all Participants. Further alignment of the loss 
allocation rules of the DTCC Clearing Agencies are intended to increase 
the consistency of the Rules with the rules of other DTCC Clearing 
Agencies in order to provide consistent treatment, to the extent 
practicable and appropriate, especially for firms that are participants 
of two or more DTCC Clearing Agencies. Having transparent and 
accessible provisions in the Rules governing loss allocation are 
intended to improve the readability and

[[Page 34263]]

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.
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    \78\ Id.
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(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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8"><span class="__cf_email__" data-cfemail="196b6c757c347a7674747c776d6a596a7c7a377e766f">[email protected]</span></a>. Please include 
File Number SR-DTC-2017-022 on the subject line.

Paper Comments

    <bullet> 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-rule-filings.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\
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    \79\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15364 Filed 7-18-18; 8:45 am]
 BILLING CODE 8011-01-P


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