5188 Federal Register / Vol. 80, No. 20 / Friday, January 30, 2015 / Notices 

21 17 CFR 200.30–3(a)(12). 1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3NSCC and DTC filed Amendment Nos. 1 to 

provide additional description of the changes 

proposed in advance notices SR–NSCC–2014–811 

and SR–DTC–2014–812, respectively. 

4FICC withdrew Amendment No. 1 to advance 

notice SR–FICC–2014–810 due to an error in filing 

the amendment. FICC filed Amendment No. 2 to 

advance notice SR–FICC–2014–810 in order to 

provide additional description of the changes 

proposed in the advance notice. 

5Release No. 34–73755 (Dec. 5, 2014), 79 FR 

73665 (Dec. 11, 2014). 

6Release No. 34–73975 (Dec. 31, 2014), 80 FR 918 

(Jan. 7, 2015). 

7When the changes proposed in the Advance 

Notices become effective, the title of the Existing 

Shareholders Agreement will become the ‘‘Fourth 

Amended and Restated Shareholders Agreement.’’ 

8Pursuant to the Existing Shareholders 

Agreement and the rules of each of the Clearing 

Agencies, some Members, generally full-service 

Members, are required to own Common Shares (i.e., 

Mandatory Shareholders) while other Members, 

generally limited-service Members, are permitted 

but not required to own such shares (‘‘Voluntary 

Shareholders’’). Further, certain Members are not 

permitted to purchase and own Common Shares or 

become parties to the Existing Shareholders 

Agreement. 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

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 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2015–005 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2015–005. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–CBOE– 

2015–005 and should be submitted on 

or before February 20, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–01753 Filed 1–29–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74142; File Nos. SR–FICC– 

2014–810; SR–NSCC–2014–811; SR–DTC– 

2014–812] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; National 

Securities Clearing Corporation; the 

Depository Trust Company; Notice of 

No Objection to Advance Notices, as 

Amended, To Amend and Restate the 

Third Amended and Restated 

Shareholders Agreement, Dated as of 

December 7, 2005 

January 27, 2015. 

On November 5, 2014, Fixed Income 

Clearing Corporation (‘‘FICC’’), National 

Securities Clearing Corporation 

(‘‘NSCC’’), and The Depository Trust 

Company (‘‘DTC,’’ together with FICC 

and NSCC, ‘‘Clearing Agencies’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notices SR–FICC–2014–810, SR–NSCC– 

2014–811 and SR–DTC–2014–812 

(‘‘Advance Notices’’), pursuant to 

Section 806(e)(1) of the Payment, 

Clearing, and Settlement Supervision 

Act of 2010 (‘‘Clearing Supervision 

Act’’) 1 and Rule 19b–4(n)(1)(i) under 

the Securities Exchange Act of 1934.2

On November 17, 2014, the Clearing 

Agencies each filed Amendments No. 1 

to the Advance Notices.3 On November 

17, 2014 FICC withdrew Amendment 

No. 1 and filed Amendment No. 2 to 

advance notice SR–FICC–2014–810.4

The Advance Notices, as amended, were 

published for comment in the Federal 

Register on December 11, 2014.5 On 

December 31, 2014, the Commission 

published notice of its extension of the 

review period for the Advance Notices.6

The Commission did not receive any 

comments on the Advance Notices. This 

publication serves as notice of no 

objection to the Advance Notices, as 

amended. 

I. Description of the Advance Notices 

The Advance Notices are a proposal 

by the Clearing Agencies, which are 

wholly owned subsidiaries of the 

Depository Trust and Clearing 

Corporation (‘‘DTCC’’), to amend and 

restate their Third Amended and 

Restated Shareholders Agreement, dated 

as of December 7, 2005 (‘‘Existing 

Shareholders Agreement’’) 7 — a single 

agreement covering all of the Clearing 

Agencies and their respective members 

and participants (‘‘Members’’). The 

Clearing Agencies state that the 

proposed revisions to the Existing 

Shareholders Agreement (‘‘Revised 

Shareholders Agreement’’) are the 

product of a comprehensive review by 

DTCC of its ownership, governance, and 

capital structure, undertaken for the 

purposes of increasing the financial 

resources available to support the 

conduct of the businesses of the 

Clearing Agencies and enhancing 

regulatory risk management. 

With the Advance Notices of the 

Revised Shareholders Agreement, the 

Clearing Agencies propose: (1) To issue 

new common stock of DTCC (‘‘Common 

Shares’’), which mandatory common 

shareholders (‘‘Mandatory 

Shareholders’’) 8 will be required to 

purchase, upon approval by the DTCC 

Board of Directors (‘‘Board’’) and twothirds of Mandatory Shareholders; (2) to 

buyback such newly issued Common 

Shares From Mandatory Shareholders, 

at the Board’s discretion and approval; 

(3) to modify the formula for allocating 

Common Shares among shareholders 

(‘‘Common Shareholders’’); (4) to 

modify the formula for pricing the 

Common Shares; (5) to remove 

restrictions on the frequency with 

which DTCC can reallocate Common 

Shares; and (6) make other conforming 

and technical changes. Details of these 

proposed changes are summarized 

below. 


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Federal Register / Vol. 80, No. 20 / Friday, January 30, 2015 / Notices 5189 

9The directors of the boards of FICC, NSCC, and 

DTC are the same as the Board’s directors. 

10See Release No. 34–73755 (Dec. 5, 2014), 79 FR 

73665, 73667 (Dec. 11, 2014). 

11See id. 

12 Intangible items of book value used in this 

calculation are shown on DTCC’s Consolidated 

Statement of Financial Condition. DTCC Financial 

Statements, available at http://dtcc.com/legal/

financial-statements.aspx. 

13This is an operational change in order to align 

Common Share settlement times with the routine 

times of end of day settlement for each of the 

Clearing Agencies. 

14MBSD Rules & Procedures, available at http:// 

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

rules/ficc_mbsd_rules.pdf. As a result of FICC 

becoming a central counterparty for transactions 

processed and cleared at MBSD, Release No. 34– 

66550 (Mar. 9, 2012), 77 FR 15155 (Mar. 14, 2012), 

the general rule that full-service Members, 

including users of guaranteed services, of one of the 

Clearing Agencies are Mandatory Purchaser 

Participants applies to Members of MBSD. 

A. Capital Raise Through the Sale of 

Newly Issued Common Shares to 

Mandatory Shareholders 

Historically, the Clearing Agencies 

have operated on an at-cost or near-cost 

basis and rebated excess revenues to 

Members. Recently, however, the 

Clearing Agencies have experienced a 

greater need to increase capital to meet 

higher operating costs and, as 

systemically important financial market 

utilities (‘‘SIFMUs’’), to satisfy 

heightened risk-management 

requirements. 

In order to raise capital for business 

purposes, the Revised Shareholders 

Agreement will enable DTCC to sell 

newly issued Common Shares to 

Mandatory Shareholders, who will be 

required to purchase such shares. The 

exercise of this new authority will 

require approval by the Board and twothirds of the Mandatory Shareholders. 

The proceeds of the sale of the new 

issuance will be provided by DTCC to 

the Clearing Agencies as working 

capital. Voluntary Shareholders will not 

be required or permitted to purchase 

newly issued Common Shares. 

DTCC states that it has performed 

extensive analyses to determine these 

needs and has considered alternative 

means to address them. DTCC deemed 

an increase in fees impractical because 

it would not necessarily generate 

sufficient resources in a reasonable 

period and fees depend on transactional 

volumes, which may be volatile. DTCC 

also was concerned with the financial 

burden that significant fee increases 

could place on Members over an 

extended period. 

B. Mandatory Repurchase of Newly 

Issued Common Shares from Mandatory 

Shareholders 

To allow flexibility to return capital to 

Mandatory Shareholders if the Clearing 

Agencies have excess, the Revised 

Shareholders Agreement will provide a 

mechanism under which DTCC may 

repurchase Common Shares from 

Mandatory Shareholders, on a 

mandatory basis, in an aggregate amount 

up to the aggregate amount of all newly 

issued Common Shares. Exercise of this 

new authority will be at the discretion 

of the Board.9

C. Updates to the Common Share 

Allocation Formula 

The formula used to periodically 

reallocate entitlements to purchase 

Common Shares (‘‘Allocation Formula’’) 

is based on the historic development of 

DTCC.10 The Allocation Formula 

provides that (i) 80% of the entitlement 

to purchase Common Shares is based on 

the amount of fees paid by a Member to 

the Clearing Agencies, and (ii) the 

remaining 20% of the entitlement is 

based on the average market value of all 

securities credited to the DTC account 

of that Member (‘‘Long Positions’’). 

Today, all users of the Clearing 

Agencies pay fees to one or more of the 

Clearing Agencies based on usage of the 

services and facilities of the Clearing 

Agencies, including fees for Long 

Positions. Accordingly, DTCC has 

determined that it is no longer 

appropriate for the Allocation Formula 

to include both the market value of Long 

Positions and fees paid to DTC for such 

Long Positions. As such, the Revised 

Shareholders Agreement will update the 

Allocation Formula to eliminate the 

market value of Long Positions, so that 

the formula will be based solely on fees 

paid to the Clearing Agencies. 

D. Amendments to the Common Share 

Price Formula 

The price of Common Shares is used 

in connection with the purchase and 

sale of such shares among Common 

Shareholders in the periodic 

reallocation of Common Shares, as well 

as in connection with the transfer of the 

Common Shares of retiring or 

disqualified Common Shareholders. 

Under the Existing Shareholders 

Agreement, the price of Common Shares 

is determined by a formula (‘‘Pricing 

Formula’’) that excludes a portion of the 

retained earnings of the Clearing 

Agencies from DTCC’s book value, 

which DTCC argues is a vestige of the 

historical development of DTCC.11

Additionally, the basis of the Pricing 

Formula is the full book value of DTCC, 

which includes intangibles such as 

goodwill.12

To make the price of the Common 

Shares more closely reflect the 

liquidation value of DTCC, the Revised 

Shareholders Agreement will make two 

amendments to the Pricing Formula. 

First, the formula will be updated to no 

longer exclude a portion of the retained 

earnings of the Clearing Agencies from 

DTCC’s book value. Second, the formula 

will be updated to reflect the tangible 

book value of DTCC and the liquidation 

preference of the preferred stock of 

DTCC. 

E. Amendments to the Frequency of 

Reallocating Common Shares 

The reallocation of Common Shares 

among Common Shareholders is a 

means of aligning the entitlement to 

own such shares with the use of the 

Clearing Agencies by the Common 

Shareholders. The Existing 

Shareholders Agreement limits 

reallocations to no more than once a 

year, but no less than every three years. 

To allow more frequent reallocations, 

the Revised Shareholders Agreement 

will permit reallocations to occur more 

than once a year, as determined by the 

Board, but still no less than once every 

three years. 

F. Other Conforming and Technical 

Amendments to the Existing 

Shareholders Agreement 

The Revised Shareholders Agreement 

will also include certain other technical 

amendments, including conforming and 

clarifying changes. For example, the 

Revised Shareholders Agreement will: 

(i) Amend the definition of ‘‘Common 

Share Amount’’ to clarify that the 

calculation does not include any fees 

that are pass-through fees (i.e., amounts 

collected by one of the Clearing 

Agencies for the account of a third party 

and paid by that Clearing Agency to a 

third party); (ii) amend the definition of 

‘‘Settlement’’ to move the time at which 

settlement is effected from 5:00 p.m. 

New York City Time on the Settlement 

Date, as such terms are defined in the 

Existing Shareholders Agreement, to 

4:00 p.m. New York City Time on the 

Settlement Date; 13 (iii) update the 

definition of ‘‘Deliver’’ to include more 

convenient and contemporary methods 

of delivering notices, (e.g., by electronic 

mail), as appropriate; and (iv) include 

Members of FICC’s Mortgage-Backed 

Security Division (‘‘MBSD’’), other than 

Cash-Settling Bank Members (as such 

term is defined in the rules of MBSD),14

within the definition of ‘‘Mandatory 

Purchaser Participants.’’ 

The Revised Shareholders Agreement 

also will amend the definition of 

‘‘Qualified Person,’’ which sets forth the 

types of entities that may hold Common 

Shares, to exclude: (i) Federal Reserve 


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15See 12 U.S.C. 5461(b). 

16 Id. 

17 12 U.S.C. 5464(a)(2). 

18 12 U.S.C. 5464(b). 

19 12 U.S.C. 5464(a)(2). 

20Rule 17Ad–22, 17 CFR 240.17Ad–22. Release 

No. 34–68080 (Oct. 22, 2012), 77 FR 66220 (Nov. 

2, 2012). 

21 12 U.S.C. 5464(b). 22 12 U.S.C. 5465(e)(1)(I). 

Banks because DTCC never intended 

that such governmental authorities 

should be required to own shares in 

DTCC, notwithstanding that they may 

use certain services of the Clearing 

Agencies; (ii) central counterparties or 

central securities depositories because 

these link arrangements are for the 

purpose of extending clearing agency 

services across borders, or among 

closely related activities and products, 

but not for ownership purposes; and (iii) 

any other financial market infrastructure 

or utility that the Board determines 

shall not be a Qualified Person. 

Finally, the Revised Shareholders 

Agreement will provide that the pro-rata 

re-distribution of the Common Shares of 

a Common Shareholder that is no longer 

a Qualified Person to all other Common 

Shareholders takes place at the 

beginning of the following calendar 

year, rather than contemporaneously 

with such Common Shareholder ceasing 

to be a Qualified Person. This change 

reflects current practice and is more 

administratively practical. 

II. Discussion and Commission 

Findings 

Although the Clearing Supervision 

Act does not specify a standard of 

review for an advance notice, the 

Commission believes that the stated 

purpose of the Clearing Supervision Act 

is instructive.15 The stated purpose of 

the Clearing Supervision Act is to 

mitigate systemic risk in the financial 

system and promote financial stability 

by, among other things, promoting 

uniform risk management standards for 

SIFMUs and strengthening the liquidity 

of SIFMUs.16

Section 805(a)(2) of the Clearing 

Supervision Act 17 authorizes the 

Commission to prescribe risk 

management standards for the payment, 

clearing, and settlement activities of 

designated clearing entities and 

financial institutions engaged in 

designated activities for which it is the 

supervisory agency or the appropriate 

financial regulator. Section 805(b) of the 

Clearing Supervision Act 18 states that 

the objectives and principles for the risk 

management standards prescribed under 

Section 805(a) shall be to: 

• Promote robust risk management; 

• promote safety and soundness; 

• reduce systemic risks; and 

• support the stability of the broader 

financial system. 

The Commission has adopted risk 

management standards under Section 

805(a)(2) of the Clearing Supervision 

Act 19 (‘‘Clearing Agency Standards’’).20

The Clearing Agency Standards became 

effective on January 2, 2013, and require 

registered clearing agencies to establish, 

implement, maintain, and enforce 

written policies and procedures that are 

reasonably designed to meet certain 

minimum requirements for their 

operations and risk management 

practices on an ongoing basis. As such, 

it is appropriate for the Commission to 

review advance notices against these 

Clearing Agency Standards and the 

objectives and principles of these risk 

management standards as described in 

Section 805(b) of the Clearing 

Supervision Act.21 The Commission 

believes that the proposed changes to 

the Existing Shareholders Agreement 

promote robust risk management, 

promote safety and soundness, reduce 

systemic risks, and support the stability 

of the broader financial system, and, 

thus, align with the stated purpose of 

the Clearing Supervision Act. 

First, allowing DTCC to issue new 

Common Shares to Mandatory 

Shareholders for the purpose of infusing 

the Clearing Agencies with additional 

working capital will enable the Clearing 

Agencies, which are designated 

SIFMUs, to maintain operations for a 

longer period during times of financial 

stress. As such, the proposed change 

promotes the safety and soundness of 

the Clearing Agencies, reduces systemic 

risks presented by the Clearing 

Agencies, and supports the stability of 

the broader financial system. 

Second, allowing DTCC to buy back 

newly issued Common Shares from 

Mandatory Shareholders will enable 

DTCC to return capital to those 

Members, most of which play 

substantial roles in the financial system, 

when the Clearing Agencies have excess 

capital. Therefore, the proposed change 

further supports the stability of the 

broader financial system by enabling 

capital to move from the Clearing 

Agencies back to Members when 

appropriate. 

Third, the proposal to update the 

Allocation Formula to no longer account 

for securities held at DTC will more 

closely align the allocation of Common 

Shares with Common Shareholders’ use 

of the Clearing Agencies. Therefore, 

ownership of the Clearing Agencies will 

more accurately reflect usage of the 

Clearing Agencies, which should further 

align risks and promote robust 

management at the Clearing Agencies. 

Fourth, the proposal to update the 

Pricing Formula to (i) no longer exclude 

a portion of the retained earnings of the 

Clearing Agencies, and (ii) change the 

basis of the formula from DTCC’s book 

value to its tangible book value will 

more accurately reflect the actual 

liquidation value of DTCC. By more 

accurately reflecting the liquidation 

value of DTCC, shareholders can more 

accurately account for the value of their 

shares and payments that they may 

make or receive in a future reallocation 

of Common Shares. Thus, the 

Mandatory and Voluntary Shareholders 

can better assess their financial position, 

promoting stability of the broader 

financial system. 

Fifth, the proposal to allow for more 

than one reallocation of Common Shares 

among Common Shareholders per year 

will enable DTCC to contemporaneously 

align ownership of Common Shares 

with Common Shareholders’ usage of 

the Clearing Agencies as needed. 

Similar to the proposed change to the 

Allocation Formula, discussed above, 

the ability to allocate Common Shares 

more often helps ensure that ownership 

of the Clearing Agencies more 

accurately reflects use of the Clearing 

Agencies, which should further promote 

robust risk management at the Clearing 

Agencies. 

Sixth, the technical and conforming 

changes to the Shareholders Agreement 

will make the Shareholders Agreement 

more consistent, current, and clear, 

which promotes a more safe and sound 

execution of the agreement by DTCC 

and its applicable Members. 

Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(I) of the Clearing 

Supervision Act,22 that the Commission 

does not object to advance notices SR– 

FICC–2014–810, SR–NSCC–2014–811, 

and SR–DTC–2014–812, as amended, 

and that FICC, NSCC, and DTC be and 

hereby are authorized to implement the 

changes contained in their respective 

advance notices as of the date of this 

notice. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–01791 Filed 1–29–15; 8:45 am] 

BILLING CODE 8011–01–P 


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