[Federal Register Volume 89, Number 188 (Friday, September 27, 2024)]
[Notices]
[Pages 79320-79322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22128]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101132; File No. SR-DTC-2024-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Decommission the ID Net 
Service

September 23, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 12, 2024, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change is to (1) amend the DTC Settlement Service 
Guide (``Settlement Guide) \3\ to retire the ID Net Service (``ID 
Net''), a joint service offering of DTC and National Securities 
Clearing Corporation (``NSCC''), a DTC affiliate,\4\ and, consequently, 
(2) remove from the Guide to the DTC Fee Schedule (``Fee Guide'') \5\ 
the related fee (``ID Net Fee'') associated with ID Net, as described 
in greater detail below.\6\
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    \3\ Available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf. The Settlement Guide is a Procedure 
of DTC. Pursuant to the DTC Rules, the term ``Procedures'' means the 
Procedures, service guides, and regulations of DTC adopted pursuant 
to DTC Rule 27, as amended from time to time. See DTC Rule 1, 
Section 1, infra note 6. They are binding on DTC and each 
Participant in the same manner that they are bound by the DTC Rules.
    \4\ NSCC also filed a proposed rule change with the Commission 
in connection with the retirement of ID Net. See NSCC filing SR-
NSCC-2024-008.
    \5\ Available at www.dtcc.com/~/media/Files/Downloads/legal/fee-
guides/DTC-Fee-Schedule.pdf.
    \6\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at www.dtcc.com/legal/rules-and-procedures.
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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 IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to (1) amend the 
Settlement Guide to retire the ID Net, a joint service offering of DTC 
and NSCC and, consequently, (2) remove from the Fee Guide the ID Net 
Fee associated with ID Net.
Background
    DTC may accept affirmed institutional transactions (``Affirmed 
Transactions'') \7\ from a matching utility (``Matching Utility'').\8\ 
An Affirmed Transaction submitted to DTC is processed on a trade-for-
trade basis at DTC, unless it is designated for ID Net processing by 
the Matching Utility and meets certain eligibility requirements, as 
described below.
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    \7\ An institutional transaction is one between a broker/dealer 
and its institutional customer. Such institutional customers are not 
Participants. Therefore, the counterparties on an Affirmed 
Transaction submitted by a Matching Utility to DTC are a (i) DTC 
Participant, acting as clearing broker to the Affirmed Transaction 
and (ii) DTC Participant bank, acting as the custodian for an 
institutional customer.
    \8\ The Matching Utility must be (i) a clearing agency 
registered with the Commission (ii) an entity that has obtained an 
exemption from such registration from the Commission, or (iii) a 
``qualified vendor'' for trade confirmation/affirmation services as 
defined by the rules of a self-regulatory organization. See 
Settlement Guide, supra note 3 at 38. DTCC ITP Matching (US) LLC 
(``ITP''), a DTC affiliate, is currently the only Matching Utility 
that submits Affirmed Transactions to DTC.
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    In order for an Affirmed Transaction to be eligible for processing 
in ID Net, (i) both counterparties to the Affirmed Transaction must be 
a Member of NSCC and a Participant of DTC, or a bank that is a 
Participant of DTC, that has subscribed to ID Net; and (ii) the 
transaction must be (a) in a security eligible for processing through 
NSCC's Continuous Net Settlement (``CNS'')

[[Page 79321]]

system \9\ and (b) affirmed within established timeframes set forth in 
the Settlement Guide.\10\
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    \9\ CNS is NSCC's system for accounting and settling CNS-
eligible securities. See NSCC Rule 11 (describing the CNS System) 
and Procedure VII (describing the CNS Accounting Operation), 
available at www.dtcc.com/-/media/Files/Downloads/legal/rules/nscc_rules.pdf. To be CNS-eligible, a security must be eligible for 
book-entry transfer on the books of DTC and must be capable of being 
processed in the CNS system. All eligible compared and recorded 
transactions for a particular settlement date are netted by issue 
into one net long (buy), net short (sell) or flat position for each 
NSCC Member. As a continuous net system, those positions are further 
netted with positions of the same issue that remain open after their 
originally scheduled settlement date. NSCC becomes the contra-party 
for settlement purposes, assuming the obligation of its Members that 
are receiving securities to receive and pay for those securities, 
and the obligation of Members that are delivering securities to make 
the delivery. CNS netting thus reduces the costs associated with 
securities transfers by reducing the number of securities movements 
required to settle transactions.
    \10\ See Settlement Guide, supra note 3 at 40-41.
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    If an Affirmed Transaction is designated for ID Net by the Matching 
Utility and meets the eligibility criteria described above, then DTC 
will direct the transaction to ID Net, which facilitates the netting of 
a broker/dealer's side of an Affirmed Transaction with that broker/
dealer's CNS activity via omnibus accounts that are maintained by NSCC 
at DTC and designated for ID Net activity. If a bank is a counterparty 
to the ID Net-eligible Affirmed Transaction, then it will either 
receive or deliver the subject shares versus payment, on a trade-for-
trade basis, via the ID Net omnibus accounts.
    While ID Net was designed to allow broker/dealers to realize the 
benefit of netting for Affirmed Transactions by allowing the broker/
dealer to net its ID Net-eligible Affirmed Transactions with its 
transactions in CNS, banks using ID Net settle ID Net transactions on a 
trade-for-trade basis as they would for other Affirmed Transactions, as 
described above. In this regard, ID Net's main benefit is to streamline 
clearance and settlement of ID Net-eligible Affirmed Transactions for 
broker/dealers.
Proposed Changes
    NSCC and DTC continually evaluate the efficiency and effectiveness 
of the services they each provide. As part of these evaluations, and in 
furtherance of their ongoing modernization efforts, both DTC and NSCC 
are seeking to streamline and simplify their services and processes, 
including through the elimination of underutilized services. DTC and 
NSCC have identified ID Net as an underused service that may be 
eliminated as part of their modernization efforts. They each propose to 
retire ID Net due to (i) limited uptake and usage of the service since 
its adoption \11\ and (ii) complexity of the processing logic required 
to maintain the service,\12\ especially given its limited usage.
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    \11\ ID Net-related transactions currently comprise less than 1 
percent of all activity processed by CNS. DTC believes that ID Net 
usage has been limited since its implementation in 2008 because, in 
part, the service needs both parties to an ID Net transaction to be 
subscribers of ID Net, as described above, which is not always the 
case.
    \12\ This complexity includes (i) special eligibility checks 
versus the ID Net eligibility criteria described above, and (ii) 
leveraging of the above-mentioned omnibus accounts to simultaneously 
allow (a) a bank to process ID Net-eligible transactions on a trade-
for-trade basis and (b) the broker/dealer side of an ID Net-eligible 
transaction to settle via CNS.
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    DTC believes that the retirement of ID Net would have minimal 
impact on its Participants because (1) only 13 broker/dealers and 20 
banks subscribe to ID Net, with not all of them even using the service, 
and (2) Affirmed Transactions can simply settle trade-for-trade, 
directly between the counterparties, if not eligible for ID Net, like 
they do today.
    To implement the proposed change, DTC would remove all provisions 
relating to ID Net from the Settlement Guide, including (i) the entire 
text of the section titled ``ID Net,'' which contains the DTC 
Procedures for processing of ID Net transactions,\13\ and (ii) a 
reference to ID Net relating to messaging in the section titled 
``Affirmed Transactions.'' \14\
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    \13\ See Settlement Guide, supra note 3 at 40-46.
    \14\ Id. at 38.
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    DTC has performed direct outreach to Participants that use ID Net 
and has also announced its plans to decommission ID Net through 
Important Notice. There have been no material objections or concerns 
raised by Participants.
    In addition, DTC would delete the associated ID Net Fee of 2 cents 
per transaction from the Fee Guide \15\ because the fee would be 
obsolete. Instead, such transactions would, by default, be charged the 
standard fee charged for Affirmed Transactions of 4 cents per 
transaction.\16\
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    \15\ See Fee Guide, supra note 5 at 18.
    \16\ Id.
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Implementation Timeframe
    Subject to approval by the Commission, DTC and NSCC would implement 
the proposed rule change using a phased approach. First, DTC 
Participants and NSCC Members have been informed that they may be 
unsubscribed from ID Net voluntarily at any time prior to termination 
of the service on November 15, 2024. Second, upon approval of the 
proposed rule change by the Commission prior to November 15, 2024, any 
DTC Participants and NSCC Members that have been inactive in the 
service for at least the last twelve (12) months will be offboarded 
from the service. Finally, NSCC and DTC will continue to fully support 
ID Net processing for any remaining active users until November 15, 
2024, at which time the service will be fully retired. NSCC and DTC 
will work with their respective Members and Participants to support all 
required offboarding activities.
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. Section 17A(b)(3)(F) of the 
Act \17\ requires that the rules of a clearing agency be designed to, 
among other things, promote the prompt and accurate clearance and 
settlement of securities transactions. DTC believes the proposed rule 
change is consistent with the requirements of Section 17A(b)(3)(F) of 
the Act for the reasons stated below.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change would amend the Settlement Guide to 
decommission ID Net, and remove the ID Net Fee from the Fee Guide, 
because the service is hardly used yet challenging to maintain. As 
discussed above, DTC believes that the retirement of ID Net would have 
minimal impact on its Participants given the limited usage of the 
service. Furthermore, Affirmed Transactions that would have otherwise 
been directed to ID Net can simply settle trade-for-trade, directly 
between the counterparties, like most other Affirmed Transactions do 
today. As a result, these Affirmed Transactions would continue to 
settle promptly and accurately, as other Affirmed Transactions do, 
outside of ID Net. For these reasons, DTC believes its Rules would 
continue to promote the prompt and accurate clearance and settlement of 
securities transactions in accordance with Section 17A(b)(3)(F) of the 
Act.\18\
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    \18\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \19\ requires that the rules of the 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the Act.
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    \19\ 15 U.S.C. 78q-1(b)(3)(I).
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    DTC does not believe the proposed rule change to decommission ID 
Net would present a burden on competition. While the few broker/dealer 
Participants

[[Page 79322]]

using the service may see a reduced netting benefit, since Affirmed 
Transactions will no longer be processed through NSCC's CNS, DTC does 
not believe such reduction would rise to the level of a burden given 
the limited usage of the service. Meanwhile, banks using ID Net would 
continue to process affected Affirmed Transactions trade-for-trade, 
albeit directly with their counterparties rather than the ID Net 
omnibus accounts, described above.
    Furthermore, DTC does not believe the removal of the ID Net Fee, 
which would become obsolete with the decommissioning ID Net, would 
impose a burden on competition. Upon the decommissioning of ID Net, 
Affirmed Transactions that were previously processed via ID Net will 
now be subject to the existing standard charge for Affirmed 
Transactions of 4 cents \20\ per transaction instead of the ID Net Fee 
of 2 cents.\21\ Notwithstanding the increased fee, DTC does believe the 
application of the standard fee applied to Affirmed Transactions will 
be significant or burdensome for Participants because of the limited 
amount of activity that was processed through ID Net.
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    \20\ See Fee Guide, supra note 5 at 18.
    \21\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not received or solicited any written comments relating to 
this proposal. If any written comments are received by DTC, they will 
be publicly filed as an Exhibit 2 to this filing, as required by Form 
19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at <a href="/cdn-cgi/l/email-protection#88fcfae9ece1e6efe9e6ece5e9fae3edfcfbc8fbedeba6efe7fe"><span class="__cf_email__" data-cfemail="f084829194999e97919e949d91829b958483b0839593de979f86">[email protected]</span></a> or 202-551-5777.
    DTC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2"><span class="__cf_email__" data-cfemail="9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed">[email protected]</span></a>. Please include 
file number SR-DTC-2024-010 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.

All submissions should refer to file number SR-DTC-2024-010. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of DTC and on DTCC's 
website (www.dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-DTC-2024-010 and should be submitted on or 
before October 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22128 Filed 9-26-24; 8:45 am]
BILLING CODE 8011-01-P


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