Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 44955 

66 17 CFR 240.17Ad–22(e)(3)(ii). 

67 17 CFR 240.17Ad–22(e)(15)(i). 

68 17 CFR 240.17Ad–22(e)(3)(ii). 

69 17 CFR 240.17Ad–22(e)(15)(ii). 

70Supra note 13. 

71 17 CFR 240.17Ad–22(e)(15)(i) and (ii). 

72 15 U.S.C. 78q–1. 

73 15 U.S.C. 78s(b)(2). 

74 In approving the Proposed Rule Change, the 

Commission has considered the Proposed Rule 

Change’s impact on efficiency, competition, and 

capital formation. See 15 U.S.C. 78c(f). 

75 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On December 18, 2017, DTC filed the proposed 

rule change as advance notice SR–DTC–2017–804 

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 (‘‘Advance Notice’’). 12 U.S.C. 

5465(e)(1) and 17 CFR 240.19b–4(n)(1)(i), 

respectively. The Advance Notice was published for 

comment in the Federal Register on January 30, 

2018. In that publication, the Commission also 

extended the review period of the Advance Notice 

for an additional 60 days, pursuant to Section 

806(e)(1)(H) of the Clearing Supervision Act. 12 

U.S.C. 5465(e)(1)(H); 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 from DTC pursuant to Section 

806(e)(1)(D) of the Clearing Supervision Act, which 

tolled the Commission’s period of review of the 

Advance Notice until 60 days from the date the 

information required by the Commission was 

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

5465(e)(1)(D); see 12 U.S.C. 5465(e)(1)(E)(ii) and 

(G)(ii); 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 amend and replace in its entirety the 

Advance Notice as originally filed on December 18, 

2017, which was published in the Federal Register 

on August 6, 2018. Securities Exchange Act Release 

No. 83746 (July 31, 2018), 83 FR 38357 (August 6, 

2018) (SR–DTC–2017–804). DTC submitted a 

courtesy copy of Amendment No. 1 to the Advance 

Notice through the Commission’s electronic public 

comment letter mechanism. Accordingly, 

Amendment No. 1 to the Advance Notice has been 

publicly available on the Commission’s website at 

http://www.sec.gov/rules/sro/dtc-an.shtml since 

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

received a response to its request for additional 

information in consideration of the Advance Notice, 

which, in turn, added a further 60 days to the 

review period pursuant to Section 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 Commission did not 

receive any comments. The proposal, as set forth in 

both the Advance Notice and the proposed rule 

change, each as modified by Amendments No. 1, 

shall not take effect until all required regulatory 

actions are completed. 

4Securities Exchange Act Release No. 82426 

(January 2, 2018), 83 FR 913 (January 8, 2018) (SR– 

DTC–2017–022). 

Therefore, the Commission finds that 

the R&W Plan is consistent with Rule 

17Ad–22(e)(3)(ii) under the Act.66

D. Consistency With Rules 17Ad– 

22(e)(15)(i)–(ii) Under the Act 

Rule 17Ad–22(e)(15)(i) under the Act 

requires a covered clearing agency to 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to identify, 

monitor, and manage its general 

business risk and hold sufficient liquid 

net assets funded by equity to cover 

potential general business losses so that 

the covered clearing agency can 

continue operations and services as a 

going concern if those losses 

materialize, including by determining 

the amount of liquid net assets funded 

by equity based upon its general 

business risk profile and the length of 

time required to achieve a recovery or 

orderly wind-down, as appropriate, of 

its critical operations and services if 

such action is taken.67 Rule 17Ad– 

22(e)(15)(ii) under the Act requires a 

covered clearing agency to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to identify, 

monitor, and manage its general 

business risk and hold sufficient liquid 

net assets funded by equity to cover 

potential general business losses so that 

the covered clearing agency can 

continue operations and services as a 

going concern if those losses 

materialize, including by holding liquid 

net assets funded by equity equal to the 

greater of either (x) six months of the 

covered clearing agency’s current 

operating expenses, or (y) the amount 

determined by the board of directors to 

be sufficient to ensure a recovery or 

orderly wind-down of critical 

operations and services of the covered 

clearing agency, as contemplated by the 

plans established under Rule 17Ad– 

22(e)(3)(ii) under the Act,68 discussed 

above.69

As discussed above, FICC’s Capital 

Policy is designed to address how FICC 

holds LNA in compliance with these 

requirements,70 while the Wind-down 

Plan would include an analysis to 

estimate the amount of time and cost to 

achieve a recovery or orderly winddown of FICC’s critical operations and 

services, and would provide that the 

Board review and approve this analysis 

and estimation annually. The Winddown Plan also would provide that the 

estimate would be the Recovery/Winddown Capital Requirement under the 

Capital Policy. Under that policy, the 

General Business Risk Capital 

Requirement, which is the amount of 

LNA that FICC plans to hold to cover 

potential general business losses so that 

it can continue operations and services 

as a going concern if those losses 

materialize, is calculated as the greatest 

of three estimated amounts, one of 

which is this Recovery/Wind-down 

Capital Requirement. Therefore, the 

Commission finds that the R&W Plan is 

consistent with Rules 17Ad–22(e)(15)(i) 

and (ii) under the Act.71

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the 

Act 72 and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,73 that 

proposed rule change SR–FICC–2017– 

021, as modified by Amendment No. 1, 

be, and it hereby is, approved 74 as of 

the date of this order or the date of a 

notice by the Commission authorizing 

FICC to implement advance notice SR– 

FICC–2017–805, as modified by 

Amendment No. 1, whichever is later. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.75

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19055 Filed 8–31–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83969; File No. SR–DTC– 

2017–022] 

Self-Regulatory Organizations; The 

Depository Trust Company; Order 

Approving a Proposed Rule Change, 

as Modified by Amendment No. 1, To 

Amend the Loss Allocation Rules and 

Make Other Changes 

August 28, 2018. 

On December 18, 2017, The 

Depository Trust Company (‘‘DTC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–DTC–2017–022, 

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

Securities Exchange Act of 1934 

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

amend DTC’s application of the 

Participants Fund, loss allocation rules, 

voluntary retirement process for 

Participants, the return of certain 

deposits to former Participants, and 

make other conforming and technical 

changes.3 The proposed rule change was 

published for comment in the Federal 

Register on January 8, 2018.4 On 

February 8, 2018, the Commission 


sradovich on DSK3GMQ082PROD with NOTICES
44956 Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 

5Securities 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). 

6Securities Exchange Act Release No. 82914 

(March 20, 2018), 83 FR 12978 (March 26, 2018) 

(SR–DTC–2017–022). 

7Securities 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). 

8Securities Exchange Act Release No. 83629 (July 

13, 2018), 83 FR 34246 (July 19, 2018) (SR–DTC– 

2017–022) (‘‘Notice of Amendment No. 1’’). DTC 

submitted a courtesy copy of Amendment No. 1 to 

the proposed rule change through the Commission’s 

electronic public comment letter mechanism. 

Accordingly, Amendment No. 1 to the proposed 

rule change has been publicly available on the 

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

sro/dtc.htm since June 29, 2018. 

9Each capitalized term not otherwise defined 

herein has its respective meaning as set forth in the 

Rules, available at http://www.dtcc.com/legal/rulesand-procedures.aspx. 

10 DTCC is a user-owned and user-governed 

holding company and is the parent company of 

DTC, FICC, and NSCC. DTCC operates on a shared 

services model with respect to the DTCC Clearing 

Agencies. Most corporate functions are established 

and managed on an enterprise-wide basis pursuant 

to intercompany agreements under which it is 

generally DTCC that provides a relevant service to 

a DTCC Clearing Agency. 

11See Notice of Amendment No. 1, supra note 8. 

12 DTC states that it maintains a 364-day 

committed revolving line of credit with a syndicate 

of commercial lenders, renewed every year. DTC 

further states that 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. 

13 DTC states that 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. 

14Section 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 9. 

15 DTC states that, in contrast to NSCC and FICC, 

DTC is not a central counterparty and does not 

guarantee obligations of its membership. DTC states 

that the Participants Fund is a mutualized prefunded liquidity and loss resource. Therefore, 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. 16Section 2 of Rule 9(A) provides, in part, ‘‘[a]t 

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 9. Pursuant to the proposed 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.’’ 

designated a longer period within which 

to approve, disapprove, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.5 On March 20, 2018, the 

Commission instituted proceedings to 

determine whether to approve or 

disapprove the proposed rule change.6

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.7

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 filed on December 18, 2017.8

The Commission did not receive any 

comments. This order approves the 

proposed rule change, as modified by 

Amendment No. 1 (hereinafter, 

‘‘Proposed Rule Change’’). 

I. Description 

The Proposed Rule Change consists of 

proposed changes to DTC’s Rules, ByLaws and Organization Certificate of 

DTC (‘‘Rules’’) 9 in order to (1) modify 

the application of the Participants Fund; 

(2) modify the loss allocation process; 

(3) align DTC’s loss allocation rule 

among the three clearing agencies of 

The Depository Trust & Clearing 

Corporation (‘‘DTCC’’)—Fixed Income 

Clearing Corporation (‘‘FICC’’) 

(including the Government Securities 

Division (‘‘FICC/GSD’’) and the 

Mortgage-Backed Securities Division 

(‘‘FICC/MBSD’’)), National Securities 

Clearing Corporation (‘‘NSCC’’), and 

DTC (collectively, the ‘‘DTCC Clearing 

Agencies’’); 10 (4) modify the voluntary 

retirement process; (5) reduce the time 

within which DTC is required to return 

a former Participant’s Actual 

Participants Fund Deposit; and (6) make 

conforming and technical changes. Each 

of these proposed changes is described 

below. A detailed description of the 

specific rule text changes proposed in 

this Proposed Rule Change can be found 

in the Notice of Amendment No. 1.11

A. Application of the Participants Fund 

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 (1) apply some or all of the 

Actual Participants Fund Deposit of 

such Participant to such obligation; (2) 

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; 12

and/or (3) sell some or all of the shares 

of Preferred Stock of such Participant to 

other Participants (who shall be 

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. 

Current Rule 4 provides a single set of 

tools and a common process for the use 

of the Participants Fund for both (1) 

liquidity purposes to complete 

settlement among non-defaulting 

Participants, if one or more Participants 

fails to settle, and (2) the satisfaction of 

losses and liabilities due to Participant 

defaults 13 or non-default losses that are 

incident to the business of DTC.14 For 

both liquidity 15 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).16

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 causing the 

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 current Rules, after the 

Participants Fund is applied pursuant to 

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 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 (1) the 

amount of its Aggregate Required 

Deposit and Investment, as fixed 

immediately prior to the time of the first 

pro rata charge, plus 100 percent of the 

amount thereof, or (2) 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. 

Proposed Section 3 of Rule 4 would 

provide that a Participant Default occurs 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 44957 

17As 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 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 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). 18Rule 4, Section 4(a)(1), supra note 9. DTC states 

that it 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. 19 DTC states 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. 

20 DTC states a five Business Day 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 

Business Day pro rata settlement charge notification 

period would conform to the proposed loss 

allocation notification period in this proposed 

change and in the proposed changes for NSCC and 

FICC. 

21 DTC states 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. 

22Current 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 percent 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 9. The alternative limit in clause (b) 

would be eliminated in proposed Section 8(a) in 

favor of a single defined standard. 

when a Participant becomes a 

Defaulting Participant pursuant to Rule 

9(B) or is otherwise obligated to DTC 

pursuant to the Rules and Procedures, 

and fails to satisfy any such obligation. 

The proposal would clarify that DTC 

would apply some or all of the Actual 

Participants Fund Deposit of a 

Defaulting Participant to its obligation 

to satisfy the Participant Default, to the 

extent necessary to eliminate such 

obligation. If such application would be 

insufficient to satisfy such obligation, 

DTC may, in its sole discretion, to the 

extent necessary to satisfy such 

obligation (1) 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, and apply the proceeds 

of such loan to satisfy such obligation; 

and/or (2) sell some or all of the shares 

of Preferred Stock of such Participant to 

other Participants (who shall be 

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. 

The proposed change would also 

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. DTC states that the 

proposed changes reinforce the 

distinction between the mechanisms to 

complete settlement on a Business Day, 

and to mutualize losses that may result 

from a failure to settle or other lossgenerating events. DTC also states that 

the change would more closely align the 

loss allocation provisions of proposed 

Section 5 of Rule 4 to similar provisions 

of the NSCC and FICC rules, to the 

extent appropriate. 

Proposed Section 4 would address the 

situation of a Defaulting Participant 

failure to settle 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’’).17

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 nondefaulting Participants on that Business 

Day. 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,’’ 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 pro rata settlement charge for 

each 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 calculation of each nondefaulting Participant’s pro rata 

settlement charge would be similar to 

the current Section 4 calculation of a 

pro rata charge except, as DTC states, 

that, for greater simplicity, it would not 

include the current distinction for 

common members of another clearing 

agency pursuant to a Clearing Agency 

Agreement.18 DTC states that 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.’’ 19 The 

proposed change would require 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 change would provide 

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. As proposed, Participants 

would have five Business Days 20 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 Settlement 

Charge Cap. In addition, the proposal 

would 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.21 A 

Participant that elects to terminate its 

business with DTC would, subject to its 

cap, remain responsible for (1) its pro 

rata settlement charge that was the 

subject of the Settlement Charge Notice, 

and (2) all other pro rata settlement 

charges until the Participant 

Termination Date. 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 percent of the amount thereof 

(‘‘Settlement Charge Cap’’). The 

proposed Settlement Charge Cap would 

be no greater than the current cap.22

DTC states that the pro rata 

application of the Actual Participants 

Fund Deposits of non-defaulting 

Participants to complete settlement 

when there is a Participant Default is 


sradovich on DSK3GMQ082PROD with NOTICES
44958 Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 

23 DTC states that 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 designed to be the 

basic provision of remedies if a Participant fails to 

satisfy an obligation to DTC. Proposed Section 4 is 

designed to be a specific remedy for a failure to 

settle by a Defaulting Participant (i.e., a specific 

type of Participant Default). Proposed Section 5 is 

designed to be a remedial provision for a 

Participant Default when, additionally, DTC ceases 

to act for the Participant and there are remaining 

losses or liabilities. DTC states that if a Participant 

Default occurs, the application of proposed Section 

3 would be required, while 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. 

24The proposed change would not apply the 

Corporate Contribution if the Participants Fund is 

used with respect to a pro rata settlement charge. 

However, 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, the 

Corporate Contribution would be applied. 

25 DTC calculates its General Business Risk 

Capital Requirement as the amount equal to the 

greatest of (1) an amount determined based on its 

general business profile, (2) an amount determined 

based on the time estimated to execute a recovery 

or orderly wind-down of DTC’s critical operations, 

and (3) an amount determined based on an analysis 

of DTC’s estimated operating expenses for a six 

month period. 

26See Securities Exchange Act Release No. 81105 

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

DTC–2017–003, SR–NSCC–2017–004, SR–FICC– 

2017–007). 

27 17 CFR 240.17Ad–22(e)(15). 

28 DTC states that 250 Business Days would be a 

reasonable estimate of the time frame that DTC 

would be required 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. 

29 DTC states that having a 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. 

not the allocation of a loss. A pro rata 

settlement charge would relate solely to 

the completion of settlement. The 

proposed loss allocation concepts 

described below would not apply to pro 

rata settlement charges.23

B. Changes to the Loss Allocation 

Process 

DTC’s current loss allocation rules 

address the use of the Participants Fund 

for both liquidity purposes to complete 

settlement among non-defaulting 

Participants, and for the satisfaction of 

losses and liabilities due to Participant 

defaults or certain other losses or 

liabilities incident to the business of 

DTC, together. For both liquidity and 

loss scenarios, current Section 4 of Rule 

4 provides that DTC may apply some or 

all of the Actual Participants Fund 

Deposits of all other Participants, and/ 

or charge the existing retained earnings 

and undivided profits of DTC. 

Currently, if DTC applies the Actual 

Participants Fund Deposits, any loss or 

liability will 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). 

Current Section 4 of Rule 4 provides 

that if there is an unsatisfied loss or 

liability, DTC may, in its sole discretion, 

charge the existing retained earnings 

and undivided profits of DTC. 

DTC proposes to change the manner 

in which each of the aspects of the loss 

allocation process described above 

would be employed. The proposal 

would clarify or adjust certain elements, 

and introduce certain new loss 

allocation concepts, as further discussed 

below. In addition, the proposal would 

address 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, also as 

described below. 

DTC proposes five key changes to 

enhance DTC’s loss allocation process. 

Specifically, DTC proposes to make 

changes regarding (1) the Corporate 

Contribution, (2) the Event Period, (3) 

the loss allocation round and notice, (4) 

the loss allocation termination notice 

and cap, and (5) the governance around 

non-default losses, each of which is 

discussed below. 

(1) 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 change, DTC would 

replace the discretionary application of 

an unspecified amount of retained 

earnings and undivided profits with a 

mandatory, defined Corporate 

Contribution. The proposed Corporate 

Contribution would apply to losses and 

liabilities that are incurred by DTC with 

respect to an Event Period, whether 

arising from a Default Loss Event or 

Declared Non-Default Loss Event, before 

the allocation of losses to Participants.24

The proposed Corporate Contribution 

would be defined to be an amount equal 

to 50 percent of DTC’s General Business 

Risk Capital Requirement.25 DTC’s 

General Business Risk Capital 

Requirement, as defined in DTC’s 

Clearing Agency Policy on Capital 

Requirements,26 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.27

The proposed Corporate Contribution 

would be held in addition to DTC’s 

General Business Risk Capital 

Requirement. Proposed Rule 4 also 

would 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. As proposed, if the 

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 250 

Business Days in order to permit DTC to 

replenish the Corporate Contribution.28

Under the proposal, Participants would 

receive notice of any such reduction to 

the Corporate Contribution. 

(2) Event Period 

DTC states that in order to clearly 

define the obligations of DTC and its 

Participants regarding loss allocation 

and to balance the need to manage the 

risk of sequential loss events against 

Participants’ need for certainty 

concerning their maximum loss 

allocation exposures, DTC proposes to 

introduce the concept of an Event 

Period to the Rules 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 NonDefault Loss Events occurring within a 

period of 10 Business Days (‘‘Event 

Period’’) for purposes of allocating 

losses to Participants in one or more 

rounds, subject to the limits of loss 

allocation as explained below.29

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, an 

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 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 44959 

30Each 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 NonDefault Loss Event occurring during the Event 

Period. 

31See supra note 18. 

32 DTC states 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. 

33Current 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 10 Business Days after 

receiving notice of a pro rata charge. DTC states that 

it is appropriate to shorten such time period from 

10 Business Days to five 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 states that five Business 

Days would provide Participants with sufficient 

time to decide whether to cap their loss allocation 

obligations by terminating their business with DTC. 

34 DTC states that allowing Participants two 

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. 

35Under the proposal, a Participant would 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. 

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. 

An Event Period may include both 

Default Loss Events and Declared NonDefault Loss Events, and there would 

not be separate Event Periods for Default 

Loss Events or Declared Non-Default 

Loss Events occurring during 

overlapping 10 Business Day periods. 

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.30

DTC states that in order to enhance 

clarity, the proposed change would 

define ‘‘Default Loss Event’’ as the 

determination by DTC to cease to act for 

a Participant (‘‘CTA Participant’’) 

pursuant to Rule 10, Rule 11, or Rule 12. 

The proposed change also would define 

‘‘Declared Non-Default Loss Event’’ 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 its services in an orderly manner. 

(3) Loss Allocation Round and Loss 

Allocation Notice 

Under the proposal, 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 would be 

communicated to Participants by the 

issuance of a notice that advises each 

Participant of the amount being 

allocated to it (‘‘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 it would not include the current 

distinction for common members of 

another clearing agency pursuant to a 

Clearing Agency Agreement.31 In 

addition, 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.’’ 32

Each Loss Allocation Notice would 

specify the relevant Event Period and 

the round to which it relates. Multiple 

Loss Allocation Notices may be issued 

with respect to each round, up to the 

round cap. 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 Business Days 33 from the 

issuance 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. In other words, the proposed 

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. 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 8(b) 

of Rule 4, would be subject to further 

loss allocation with respect to that Event 

Period. 

DTC’s current loss allocation 

provisions provide that if a charge is 

made against a Participant’s Actual 

Participants Fund Deposits, and as 

result thereof the Participant’s deposit is 

less than its Required Participants Fund 

Deposit, the Participant will, upon 

demand by DTC, be required to 

replenish its deposit to eliminate the 

deficiency within such time as DTC 

shall require. Under the proposal, 

Participants would receive two Business 

Days’ notice of a loss allocation, and be 

required to pay the requisite amount no 

later than the second Business Day 

following the issuance of such notice.34

(4) Termination Notice and Loss 

Allocation Cap 

DTC’s current Rules provide that a 

Participant may terminate its business 

with DTC by notifying DTC. DTC 

proposes to enhance the termination 

procedure to clarify and align with the 

rules of NSCC and FICC, where 

appropriate. As proposed, Participants 

would have five 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 35 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. In 

addition, DTC would also change the 

beginning date of such notification 

period from the receipt of the notice to 

the date of the issuance of the first Loss 

Allocation Notice for any round. 

Pursuant to the proposed change, a 

Participant would be able to elect to 

terminate its membership by following 

the requirements in proposed Section 


sradovich on DSK3GMQ082PROD with NOTICES
44960 Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 

36The alternative limit in clause (b) would be 

eliminated in proposed Section 8(b) in favor of a 

single defined standard. 

37Non-default losses may arise from events such 

as damage to physical assets, a cyber-attack, or 

custody and investment losses. 

38Section 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 9. DTC is proposing 

to modify the provision to clarify that the 

termination would be subject to proposed Section 

6 of Rule 4. 

39Typically, a Participant would ultimately 

submit a notice after having ceased its transactions 

and transferred all securities out of its Account. 

8(b) of Rule 4: (1) Specify in its 

Termination Notice an effective date of 

termination (‘‘Participant Termination 

Date’’), which date shall be no later than 

10 Business Days following the last day 

of the applicable Loss Allocation 

Termination Notification Period; (2) 

cease all activities and use of DTC’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. 

Under the current Rules, the exposure 

of the terminating Participant for pro 

rata charges would be capped at the 

greater of (1) the amount of its Aggregate 

Required Deposit and Investment, as 

fixed immediately prior to the time of 

the first pro rata charge, plus 100 

percent of the amount thereof, or (2) 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. Under the proposal, 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 percent of 

the amount thereof (‘‘Loss Allocation 

Cap’’).36 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, the 

Participant would still be required to 

pay for the excess amount. 

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; however, 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. 

(5) Declared Non-Default Loss Event 

The Rules currently permit DTC to 

apply the Participants Fund to nondefault losses,37 provided that such loss 

or liability is incident to the business of 

DTC. DTC proposes to enhance 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 would 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 change would 

provide that DTC would then be 

required to promptly notify Participants 

of this determination, which would be 

referred to as a ‘‘Declared Non-Default 

Loss Event.’’ In addition, DTC proposes 

to specify that (1) the Corporate 

Contribution would apply to losses or 

liabilities arising from a Default Loss 

Event or a Declared Non-Default Loss 

Event, and (2) the loss allocation 

process 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. 

C. Voluntary Retirement Process 

Section 1 of Rule 2 provides that a 

Participant may terminate its business 

with DTC by notifying DTC in the 

appropriate manner.38 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 (1) clarify 

the requirements for a Participant that 

wants to voluntarily terminate its 

business with DTC, and (2) address the 

situation where 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. 

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.39 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. 

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. 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 44961 

40 15 U.S.C. 78s(b)(2)(C). 

41 15 U.S.C. 78q–1(b)(3)(F). 

42 17 CFR 240.17Ad–22(e)(4)(viii). 

43 17 CFR 240.17Ad–22(e)(7)(i). 

44 17 CFR 240.17Ad–22(e)(13). 

45 17 CFR 240.17Ad–22(e)(23)(i) and (ii). 

46 15 U.S.C. 78q–1(b)(3)(F). 

D. Accelerated Return of Former 

Participant’s Clearing Fund Deposit 

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 proposes 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 change, the 

time period would be reduced from four 

years to two years. All other 

requirements relating to the return of 

the Actual Participants Fund Deposit 

would remain the same. 

DTC states that the four 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 states that the change to two 

years is appropriate because, currently, 

as DTC and the industry continue to 

move toward automation and 

dematerialization, claims typically 

surface more quickly. Therefore, DTC 

states that a shorter retention period of 

two 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. 

E. Conforming and Technical Changes 

DTC proposes to make various 

conforming and technical changes 

necessary to harmonize the remaining 

current Rules with the proposed 

changes. Such changes include, but are 

not limited to, (1) inserting, deleting, or 

changing various terms, sentences, or 

headings for clarity and consistency; (2) 

consolidating certain sections of the 

Rules for clarity; and (3) amending Rule 

1 (Definitions; Governing Law) to add 

cross-references to proposed terms that 

would be defined in Rule 4. 

II. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act 40

directs the Commission to approve a 

proposed rule change of a selfregulatory organization if it finds that 

the proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization. After 

careful review, the Commission finds 

that the Proposed Rule Change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to DTC. In 

particular, the Commission finds that 

the Proposed Rule Change is consistent 

with Section 17A(b)(3)(F) of the Act,41

Rule 17Ad–22(e)(4)(viii) under the 

Act,42 Rule 17Ad–22(e)(7)(i) under the 

Act,43 Rule 17Ad–22(e)(13) under the 

Act,44 and Rules 17Ad–22(e)(23)(i) and 

(ii) under the Act.45

A. Consistency With Section 

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

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

requires, in part, that a registered 

clearing agency have rules designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, to assure the safeguarding 

of securities and funds which are in the 

custody or control of the clearing 

agency, to remove impediments to and 

perfect the mechanism of a national 

system for the prompt and accurate 

clearance and settlement of securities 

transactions, and to protect investors 

and the public interest.46

The Commission believes that the 

proposal to clarify the application of 

Participants Fund would promote the 

prompt and accurate clearance and 

settlement of securities transactions. As 

described above, the proposal would 

clarify that if a Participant fails to satisfy 

its obligations, the Participant’s Actual 

Participants Fund Deposit would be 

used to eliminate any unpaid 

obligations of that Participant to DTC. 

Further, the proposal would modify the 

application of the Participants Fund, 

and clarify that the Participants Fund 

may be used (1) as a liquidity resource 

for DTC to fund settlement among nondefaulting Participants, and (2) to satisfy 

losses and liabilities of DTC in the loss 

allocation process. In addition, the 

proposal would add the term 

‘‘Participant Default’’ to current Section 

3 to clarify that proposed Section 3 

would apply when there is a failure of 

a Participant to satisfy any obligation to 

DTC. 

By establishing a more explicit right 

to use the Participants Fund as a 

liquidity resource under the abovedescribed circumstances, DTC would 

have clearer authority to access such 

funds during stress events, enabling 

DTC to better manage its liquidity risks 

and, thus, payment obligations to 

Participants to help ensure settlement 

finality. As such, the Commission 

believes that the proposed change to 

clarify the application of Participants 

Fund would better enable DTC to 

continue to promptly and accurately 

clear and settle securities transactions 

during the stress events. 

The Commission also believes that the 

proposal to change the loss allocation 

process is designed to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency. As described above, 

DTC proposes to make a number of 

changes to its loss allocation process. 

First, DTC would establish a mandatory 

Corporate Contribution to be applied to 

DTC’s losses and liabilities. The 

proposed Corporate Contribution would 

be defined to be an amount equal to 50 

percent of DTC’s General Business Risk 

Capital Requirement. The proposed 

changes also would clarify that the 

proposed Corporate Contribution would 

apply to both Default Loss Events and 

Declared Non-Default Loss Events. 

Moreover, the proposal specifies that if 

the Corporate Contribution is applied to 

a loss or liability relating to an Event 

Period, then for any subsequent Event 

Periods that occur during the 250 

business days thereafter, the Corporate 

Contribution would be reduced to the 

remaining, unused portion of the 

Corporate Contribution. The 

Commission believes that these changes 

set clear expectations about how and 


sradovich on DSK3GMQ082PROD with NOTICES
44962 Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 

when DTC’s Corporate Contribution 

would be applied to help address a loss, 

and allow DTC to better anticipate and 

prepare for potential risk exposures that 

may arise during an Event Period. 

Second, as described above, DTC 

proposes to introduce the concept of an 

Event Period, which would group 

Default Loss Events and Declared NonDefault Loss Events occurring within a 

period of 10 Business Days for purposes 

of allocating losses to Participants in 

one or more rounds. Under the current 

Rules, every time DTC incurs a loss or 

liability, DTC will initiate its current 

loss allocation process by applying its 

retained earnings and allocating losses. 

However, the current Rules do not 

contemplate a situation where loss 

events occur in quick succession. 

Accordingly, even if multiple losses 

occur within a short period, the current 

Rules dictate that DTC start the loss 

allocation process separately for each 

loss event. Having multiple loss 

allocation calculations and notices from 

DTC and Termination Notices from 

Participants after multiple sequential 

loss events could heighten operational 

complexity and, therefore, risk for DTC, 

since DTC would have to process and 

track multiple notices while performing 

its other critical operations during a 

time of significant stress. 

Therefore, the Commission believes 

that the proposed change to introduce 

an Event Period would provide a more 

defined and transparent structure, 

compared to the current loss allocation 

process described immediately above, 

helping to reduce complexity in and the 

resources needed to effectuate the 

process, thus mitigating operational 

risk. Overall, such an improved 

structure should enable both DTC and 

each Participant to more effectively 

manage the risks and potential financial 

obligations presented by sequential 

Default Loss Events and/or Declared 

Non-Default Loss Events that are likely 

to arise in quick succession, and could 

be closely linked to an initial event and/ 

or market dislocation episode. In other 

words, the proposed Event Period 

structure should help clarify and define 

for both DTC and Participants how DTC 

would initiate a single defined loss 

allocation process to cover all loss 

events within 10 Business Days. As a 

result, all loss allocation calculation and 

notices from DTC and potential 

Termination Notices from Participants 

would be tied back to one Event Period 

instead of each individual loss event. 

Third, as described above, the 

proposal would improve upon the 

current loss allocation approach laid out 

in DTC’s Rules by providing for a loss 

allocation round, a Loss Allocation 

Notice process, a Termination Notice 

process, and a Loss Allocation Cap. A 

loss allocation round would be a series 

of loss allocations relating to an Event 

Period, the aggregate amount of which 

would be limited by the round cap. 

When the losses allocated in a round 

equals the round cap, any additional 

losses relating to the Event Period 

would be allocated in subsequent 

rounds until all losses from the Event 

Period are allocated among Participants. 

Each loss allocation would be 

communicated to Participants by the 

issuance of a Loss Allocation Notice. 

Each Participant in a loss allocation 

round would have five Business Days 

from the issuance of such first Loss 

Allocation Notice for the round to notify 

DTC of its election to terminate its 

business with DTC, and thereby benefit 

from its Loss Allocation Cap. The Loss 

Allocation Cap of a Participant would 

be the amount of its Aggregate Required 

Deposit and Investment, as fixed on the 

first day of the Event Period, plus 100 

percent of the amount thereof. 

Participants would have two Business 

Days after DTC issues a first round Loss 

Allocation Notice to pay the amount 

specified in the notice. 

The Commission believes that the 

changes to (1) establish a specific Event 

Period, (2) continue the loss allocation 

process in successive rounds, (3) clearly 

communicate with its Participants 

regarding their loss allocation 

obligations, and (4) effectively identify 

continuing Participants for the purpose 

of calculating loss allocation obligations 

in successive rounds, are designed to 

make DTC’s loss allocation process 

more certain. In addition, the changes 

are designed to provide Participants 

with a clear set of procedures that 

operate within the proposed loss 

allocation structure, and provide 

increased predictability and certainty 

regarding Participants’ exposures and 

obligations. Furthermore, by grouping 

all loss events within 10 Business Days, 

the loss allocation process relating to 

multiple loss events can be streamlined. 

With enhanced certainty, predictability, 

and efficiency, DTC would then be able 

to better manage its risks from loss 

events occurring in quick succession, 

and Participants would be able to better 

manage their risks by deciding whether 

and when to withdraw from 

membership and limit their exposures 

to DTC. Furthermore, the proposed 

changes are designed to reduce liquidity 

risk to Participants by providing a twoday window to arrange funding to pay 

for loss allocation, while still allowing 

DTC to address losses in a timely 

manner. 

Fourth, as described above, DTC 

proposes to clarify the governance 

around Declared Non-Default Loss 

Events by providing 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 its services in 

an orderly manner. DTC also proposes 

to provide that DTC would then be 

required to promptly notify Participants 

of this determination and start the loss 

allocation process concerning the loss 

stemming from a Declared Non-Default 

Loss Event. The Commission believes 

that these changes should provide an 

orderly and transparent procedure to 

allocate a non-default loss by requiring 

the Board of Directors to make a 

definitive decision to announce an 

occurrence of a Declared Non-Default 

Loss Event, and requiring DTC to 

provide a notice to Participants of the 

decision. The Commission further 

believes that an orderly and transparent 

procedure should result in a risk 

management process at DTC that is 

more robust as a result of enhanced 

governance around DTC’s response to 

non-default losses. 

Collectively, the Commission believes 

that the proposed changes to DTC’s loss 

allocation process would provide 

greater transparency, certainty, and 

efficiency to DTC regarding the amount 

of resources and the instances in which 

DTC would apply the resources to 

address risks arising from Default Loss 

Events and Declared Non-Default Loss 

Events, which could occur in quick 

succession. The Commission believes 

that the transparency, certainty, and 

efficiency would afford DTC better 

predictability regarding its risk 

exposure, and in turn, would allow a 

risk management process at DTC that is 

more effectively responsive to such 

events and would improve DTC’s ability 

to continue to operate in a safe and 

sound manner during such events. 

Therefore, the Commission believes that 

these proposed changes would better 

equip DTC to assure the safeguarding of 

securities and funds which are in the 

custody or control of DTC. 

The Commission believes that the 

proposed rule changes to (1) provide 

additional transparency to Participants 

with respect to voluntary retirement, 

and (2) align DTC’s loss allocation rules 

with the loss allocation rules of the 

other DTCC Clearing Agencies, to the 

extent practicable and appropriate, are 

designed to remove impediments to and 

perfect the mechanism of a national 

system for the prompt and accurate 

clearance and settlement of securities 

transactions. As described above, the 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 44963 

47 15 U.S.C. 78q–1(b)(3)(F). 

48A ‘‘covered clearing agency’’ means, among 

other things, a clearing agency registered with the 

Commission under Section 17A of the Exchange 

Act (15 U.S.C. 78q–1 et seq.) that is designated 

systemically important by the Financial Stability 

Oversight Counsel (‘‘FSOC’’) pursuant to the 

Clearing Supervision Act (12 U.S.C. 5461 et seq.). 

See 17 CFR 240.17Ad–22(a)(5) and (6). On July 18, 

2012, FSOC designated DTC as systemically 

important. U.S. Department of the Treasury, ‘‘FSOC 

Makes First Designations in Effort to Protect Against 

Future Financial Crises,’’ available at https://

www.treasury.gov/press-center/press-releases/ 

Pages/tg1645.aspx. Therefore, DTC is a covered 

clearing agency. 

49 17 CFR 240.17Ad–22(e)(4)(viii). 

50 Id. 

51 240.17Ad–22(e)(7)(i). 

52 Id. 

proposal provides that if a Participant 

submits a Voluntary Retirement Notice 

and subsequently receives a Settlement 

Charge Notice of 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. This 

proposed change helps to eliminate 

uncertainty as to the obligations of a 

Participant that submits a termination 

notice to DTC pursuant to the current 

Rules, and later receives a Settlement 

Charge Notice or a Loss Allocation 

Notice pursuant to the proposed Rules. 

In addition, the alignment of DTC’s loss 

allocation rules with the other DTCC 

Clearing Agencies is designed to help 

provide consistent treatment for firms 

that are participants of multiple DTCC 

Clearing Agencies. The Commission 

believes that providing consistent 

treatment through consistent procedures 

among the DTCC Clearing Agencies 

would help firms that participate in 

multiple DTCC Clearing Agencies from 

encountering unnecessary complexities 

and confusion stemming from 

differences in procedures regarding loss 

allocation processes, particularly at 

times of significant stress. Accordingly, 

by (1) eliminating uncertainty as to the 

obligations of retiring Participants to 

DTC, and (2) removing potential 

unnecessary complexities and confusion 

due to different loss allocation rules of 

the DTCC Clearing Agencies, the 

Commission believes that the proposal 

is designed to remove impediments to 

and perfect the mechanism of a national 

system for the prompt and accurate 

clearance and settlement of securities 

transactions. 

The Commission believes that the 

proposed rule changes to (1) reduce the 

time within which DTC is required to 

return the Actual Participants Fund 

Deposit of a former Participant from 

four years to two years, and (2) make 

conforming and technical changes 

necessary to harmonize the current 

Rules with the proposed changes are 

designed to protect investors and the 

public interest. First, the Commission 

believes that the reduction in time to 

return the deposits would enable firms 

that have exited DTC to have access to 

their funds sooner than under the 

current Rules. While acknowledging 

that the reduction in time could lesson 

DTC’s flexibility in liquidity 

management for the period between two 

years and four years, the Commission 

believes that DTC’s procedures would 

continue to protect DTC and its 

clearance and settlement services 

because the rule would maintain the 

provisions that DTC (1) 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, and (2) could retain 

the funds for up to two years. Therefore, 

DTC could maintain a necessary level of 

coverage for possible claims arising in 

connection with the DTC activities of a 

former Participant. Second, the 

conforming and technical changes are 

designed to provide clear and coherent 

Rules concerning loss allocation process 

to DTC and its Participants. The 

Commission believes that clear and 

coherent Rules should help enhance the 

ability of DTC and Participants to more 

effectively plan for, manage, and 

address the risks and financial 

obligations that loss events present to 

DTC and its Participants. Accordingly, 

the Commission believes that these two 

changes are designed to protect 

investors and public interest by (1) 

reducing financial risks for DTC’s 

former Participants, and (2) providing 

clear and coherent Rules to DTC and 

Participants. 

For the reasons above, the 

Commission believes that the Proposed 

Rule Change is consistent with Section 

17A(b)(3)(F) of the Act.47

B. Consistency With Rule 17Ad– 

22(e)(4)(viii) 

Rule 17Ad–22(e)(4)(viii) under the 

Act requires, in part, that a covered 

clearing agency 48 establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

effectively identify, measure, monitor, 

and manage its credit exposures to 

participants and those arising from its 

payment, clearing, and settlement 

processes, including by addressing 

allocation of credit losses the covered 

clearing agency may face if its collateral 

and other resources are insufficient to 

fully cover its credit exposures.49

As described above, the proposal 

would revise the loss allocation process 

to address how DTC would manage loss 

events, including Defaulting Loss 

Events. Under the proposal, if losses 

arise out of or relate to a Defaulting Loss 

Event, DTC would first apply its 

Corporate Contribution. If those funds 

prove insufficient, the proposal 

provides for allocating the remaining 

losses to the remaining Participants 

through the proposed process. 

Accordingly, the Commission believes 

that the proposal is reasonably designed 

to manage DTC’s credit exposures to its 

Participants, by addressing allocation of 

credit losses. 

Therefore, the Commission believes 

that DTC’s proposal is consistent with 

Rule 17Ad–22(e)(4)(viii) under the 

Act.50

C. Consistency With Rule 17Ad– 

22(e)(7)(i) 

Rule 17Ad–22(e)(7)(i) under the Act 

requires, in part, that a covered clearing 

agency 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 the covered clearing 

agency, 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.51

As described above, the proposal 

would clarify that the Participants Fund 

may be used as a liquidity resource 

which may be applied by DTC to fund 

settlement among non-defaulting 

Participants. In addition, the proposal 

would provide a separate procedure to 

charge the Participants Fund to use it as 

a liquidity resource. The proposed 

change is designed to help DTC manage 

its settlement and funding flows on a 

more timely basis and better effect same 

day settlement of payment obligations 

in certain foreseeable stress scenarios. 

Therefore, the Commission believes 

that the proposal is reasonably designed 

to help DTC effectively manage liquidity 

risk in a timely manner to complete 

settlement, and accordingly is 

consistent with Rule 17Ad–22(e)(7)(i).52

D. Consistency With Rule 17Ad– 

22(e)(13) 

Rule 17Ad–22(e)(13) under the Act 

requires, in part, that a covered clearing 

agency establish, implement, maintain 

and enforce written policies and 


sradovich on DSK3GMQ082PROD with NOTICES
44964 Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices 

53 17 CFR 240.17Ad–22(e)(13). 

54 Id. 

55 17 CFR 240.17Ad–22(e)(23)(i). 

56 17 CFR 240.17Ad–22(e)(23)(ii). 

57 17 CFR 240.17Ad–22(e)(23)(i) and (ii). 

58 15 U.S.C. 78q–1. 

59 15 U.S.C. 78s(b)(2). 

60 In approving the Proposed Rule Change, the 

Commission has considered the Proposed Rule 

Change’s impact on efficiency, competition, and 

capital formation. See 15 U.S.C. 78c(f). 

61 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On December 18, 2017, DTC filed the proposed 

rule change as advance notice SR–DTC–2017–803 

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 (‘‘Advance Notice’’). 12 U.S.C. 

5465(e)(1) and 17 CFR 240.19b–4(n)(1)(i), 

respectively. The Advance Notice was published for 

comment in the Federal Register on January 30, 

2018. In that publication, the Commission also 

extended the review period of the Advance Notice 

for an additional 60 days, pursuant to Section 

806(e)(1)(H) of the Clearing Supervision Act. 12 

U.S.C. 5465(e)(1)(H); Securities Exchange Act 

Release No. 82579 (January 24, 2018), 83 FR 4310 

(January 30, 2018) (SR–DTC–2017–803). On April 

10, 2018, the Commission required additional 

information from DTC pursuant to Section 

806(e)(1)(D) of the Clearing Supervision Act, which 

tolled the Commission’s period of review of the 

Advance Notice until 60 days from the date the 

information required by the Commission was 

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

5465(e)(1)(D); see 12 U.S.C. 5465(e)(1)(E)(ii) and 

(G)(ii); 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 amend and replace in its entirety the 

Advance Notice as originally filed on December 18, 

2017. Securities Exchange Act Release No. 83743 

(July 31, 2018), 83 FR 38344 (August 6, 2018) (SR– 

DTC–2017–803). DTC submitted a courtesy copy of 

Amendment No. 1 to the Advance Notice through 

the Commission’s electronic public comment letter 

mechanism. Accordingly, Amendment No. 1 to the 

Advance Notice has been publicly available on the 

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

sro/dtc-an.shtml since June 29, 2018. On July 6, 

2018, the Commission received a response to its 

request for additional information in consideration 

of the Advance Notice, which, in turn, added a 

further 60-days to the review period pursuant to 

Section 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 

procedures reasonably designed to 

ensure the covered clearing agency has 

the authority to take timely action to 

contain losses and liquidity demands 

and continue to meet its obligations.53

As described above, the proposal 

would establish a more detailed and 

structured loss allocation process by (1) 

applying a defined and mandatory 

Corporate Contribution to a loss; (2) 

introducing an Event Period; (3) 

introducing a loss allocation round and 

notice process; (4) modifying the 

termination process and the cap of 

terminating Participant’s loss allocation 

exposure; and (5) providing the 

governance around a non-default loss. 

The Commission believes that each of 

these proposed changes helps establish 

a more transparent and clear loss 

allocation process and authority of DTC 

to take certain actions, such as 

announcing a Declared Non-Default 

Loss Event, within the loss allocation 

process. Further, having a more 

transparent and clear loss allocation 

process as proposed would provide 

clear authority to DTC to allocate losses 

from Default Loss Events and Declared 

Non-Default Loss Events and take timely 

actions to contain losses, and continue 

to meet its clearance and settlement 

obligations. 

Therefore, the Commission believes 

that DTC’s proposal is consistent with 

Rule 17Ad–22(e)(13) under the Act.54

E. Consistency With Rule 17Ad– 

22(e)(23)(i) and (ii) 

Rule 17Ad–22(e)(23)(i) under the Act 

requires that a covered clearing agency 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to publicly disclose 

all relevant rules and material 

procedures, including key aspects of its 

default rules and procedures.55 Rule 

17Ad–22(e)(23)(ii) under the Act 

requires that a covered clearing agency 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide 

sufficient information to enable 

participants to identify and evaluate the 

risks, fees, and other material costs they 

incur by participating in the covered 

clearing agency.56

As described above, the proposal 

would publicly disclose how DTC’s 

Corporate Contribution would be 

calculated and applied. In addition, the 

proposal would establish and publicly 

disclose a detailed procedure in the 

Rules for loss allocation. More 

specifically, the proposed changes 

would establish an Event Period, loss 

allocation rounds, a termination process 

followed by a settlement charge process 

or loss allocation process, and a Loss 

Allocation Cap that would apply to 

Participants after termination. 

Additionally, the proposal would align 

the loss allocation rules across the 

DTCC Clearing Agencies, to help 

provide consistent treatment, and clarify 

that non-default losses would trigger 

loss allocation to Participants. The 

proposal would also provide for and 

make known to members the procedures 

to trigger a loss allocation procedure, 

contribute DTC’s Corporate 

Contribution, allocate losses, and 

withdraw and limit Participant’s loss 

exposure. Accordingly, the Commission 

believes that the proposal is reasonably 

designed to (1) publicly disclose all 

relevant rules and material procedures 

concerning key aspects of DTC’s default 

rules and procedures, and (2) provide 

sufficient information to enable 

Participants to identify and evaluate the 

risks by participating in DTC. 

Therefore, the Commission believes 

that DTC’s proposal is consistent with 

Rules 17Ad–22(e)(23)(i) and (ii) under 

the Act.57

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the 

Act 58 and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,59 that 

proposed rule change SR–DTC–2017– 

022, as modified by Amendment No. 1, 

be, and it hereby is, approved 60 as of 

the date of this order or the date of a 

notice by the Commission authorizing 

DTC to implement advance notice SR– 

DTC–2017–804, as modified by 

Amendment No. 1, whichever is later. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.61

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19061 Filed 8–31–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83972; File No. SR–DTC– 

2017–021] 

Self-Regulatory Organizations; The 

Depository Trust Company; Order 

Approving a Proposed Rule Change, 

as Modified by Amendment No. 1, To 

Adopt a Recovery & Wind-Down Plan 

and Related Rules 

August 28, 2018. 

On December 18, 2017, The 

Depository Trust Company (‘‘DTC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–DTC–2017–021 

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

Securities Exchange Act of 1934 

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

adopt a recovery and wind-down plan 

and related rules.3 The proposed rule 


sradovich on DSK3GMQ082PROD with NOTICES