Federal Register / Vol. 83, No. 5 / Monday, January 8, 2018 / Notices 927 

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

2 17 CFR 240.19b–4. 

3Available at http://www.dtcc.com/∼/media/ 

Files/Downloads/legal/service-guides/DistributionsService-Guide-FINAL-January-2017.pdf. 

4Each capitalized term not otherwise defined 

herein has its respective meaning as set forth in the 

Rules, By-Laws and Organization Certificate of The 

Depository Trust Company, available at http://

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

rules/dtc_rules.pdf; and in the Guide, supra note 3. 

5A request for a Credit PPA will only be 

processed by DTC on receipt of associated funds. 

6Securities Exchange Act Release No. 67599 

(August 6, 2012), 77 FR 47898 (August 10, 2012) 

(SR–DTC–2012–03). The implementation was 

staggered over the course of 2014. The Ninety-Day 

Cutoff was effective as of January 1, 2015. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82433; File No. SR–DTC– 

2017–023] 

Self-Regulatory Organizations; The 

Depository Trust Company; Notice of 

Filing of a Proposed Rule Change To 

Restore the Timeframe for Processing 

Credit Post-Payable Adjustments 

January 2, 2018. 

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 December 

21, 2017, 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. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change by DTC 

would amend the Distributions Service 

Guide (‘‘Guide’’) 3 to (i) restore a 

practice of DTC relating to the 

timeframe for accepting a request from 

an issuer or its agent (‘‘Paying Agent’’) 

for a post-payable adjustment (‘‘PPA’’) 

of principal and income payments 

(‘‘P&I’’) that results in the allocation of 

additional credits to Accounts of 

affected Participants (‘‘Credit PPA’’), 

and (ii) make technical changes to the 

Guide, as more fully described below.4

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 proposed rule change by DTC 

would amend the Guide to (i) restore a 

practice of DTC relating to the 

timeframe for accepting a request from 

a Paying Agent for a Credit PPA, and (ii) 

make technical changes to the Guide, as 

more fully described below. 

(i) Background 

One of the core asset services 

provided by DTC is the daily collection 

and allocation of funds distributions on 

Securities held by DTC. Commonly 

referred to as P&I, these funds include 

dividend, interest, periodic principal, 

redemption, and maturity payments 

arising from the servicing of Securities 

held by DTC. DTC provides centralized 

processing to facilitate this service, and, 

on each Business Day, communicates 

with Paying Agents regarding the P&I 

due that day, collects payments, and 

allocates entitlements to Participants. 

Occasionally, a Paying Agent may 

request a PPA at DTC due to an error on 

the part of the Paying Agent, trustee, 

issuer, or a change in the principle 

factor or rate. A PPA can result in debits 

(‘‘Debit PPA’’) and/or credits to 

Settlement Accounts of the affected 

Participants. 

When DTC receives a request for a 

PPA from a Paying Agent,5 DTC 

processes the debit and/or credit 

adjustments for the misapplied 

principal or income to the Settlement 

Accounts of affected Participants. 

Accordingly, affected Participants will 

need to process adjustments to their 

customers’ accounts for any misapplied 

principal or income and any associated 

interest. In addition, affected 

Participants may need to process 

adjustments against any customer that 

traded the security after the initial 

payment had occurred. 

Debit PPAs carry particular risks. 

When DTC processes a Debit PPA, it 

will automatically debit the Settlement 

Accounts of the affected Participants, 

which in turn must seek to collect the 

funds from their customers, which in 

turn may need to recover from end 

investors. This recovery process gets 

more difficult as time passes and creates 

significant credit exposure, as customers 

and the end investors may no longer 

have the funds to debit, or may have 

closed or moved their accounts. 

Historically, DTC accommodated 

Paying Agent adjustment requests by 

processing PPAs (whether a Debit PPA, 

a Credit PPA, or both) up to one year 

after the initial payment was made 

(‘‘One Year Cutoff’’). In 2012, the 

Commission approved a DTC rule filing 

that implemented a practice whereby 

DTC would not accept a request for a 

PPA from a Paying Agent beyond ninety 

calendar days after the initial payment 

date (‘‘Ninety-Day Cutoff’’).6 The 

purpose of shortening the timeframe 

was to mitigate the risks associated with 

PPAs, in particular Debit PPAs, by 

reducing the volume of PPAs and to 

allocate the accountability to the Paying 

Agents responsible for the PPAs. 

Under the current practice, if a Paying 

Agent wants to effectuate a PPA beyond 

the Ninety-Day Cutoff, it cannot be 

processed through DTC. The Paying 

Agent must request from DTC an 

allocation register listing all affected 

Participants and positions. Using the 

allocation register, the Paying Agent 

must then attempt to contact each 

affected Participant to make direct 

adjustments and/or payment 

arrangements outside of DTC. 

(ii) Proposal To Restore the One Year 

Cutoff for Credit PPAs 

After the Ninety-Day Cutoff became 

effective on January 1, 2015, a postpayable adjustment task force (‘‘Task 

Force’’), formed by DTC and comprised 

of Paying Agents and representative 

members of the Association of Global 

Custodians (‘‘AGC’’), the American 

Bankers Association, and the Corporate 

Actions division of the Securities 

Industry and Financial Market 

Association (‘‘SIFMA’’), monitored the 

PPA landscape. From that review, the 

Task Force determined that all parties— 

Paying Agents, issuers, Participants, 

investors—would benefit from restoring 

the timeframe for the processing of 

Credit PPAs (but not Debit PPAs) from 

the Ninety-Day Cutoff back to the 

original One Year Cutoff. The 

restoration of the PPA timeframe back to 

a One Year Cutoff for Credit PPAs 

would allow Paying Agents more time 

to make correct allocations to 

Participants efficiently through DTC, 

rather than requiring the Paying Agent 

to make the adjustments bilaterally with 

each Participant, outside of DTC. This 

efficiency would allow Participants, 

their customers, and end investors to 

receive their funds more quickly. 

DTC and the Task Force determined 

to preserve the Ninety-Day Cutoff for 


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928 Federal Register / Vol. 83, No. 5 / Monday, January 8, 2018 / Notices 

7Under the proposed rule change, if DTC receives 

a PPA that would result in both credits to and 

debits from affected Participant accounts after the 

Ninety-Day Cutoff but before the One Year Cutoff 

for Credit PPAs, DTC would only process the 

credits (assuming associated funds were also 

received), and the Paying Agent would have to 

collect the debits outside of DTC. 

8No other DTC practices with regard to PPAs 

would change, including without limitation, DTC’s 

practice of servicing all court-directed adjustments 

(with appropriate supporting documentation), 

regardless of age. 

9There can be a change in the principal factor or 

rate on any security, not just a CMO/ABS security. 

10 15 U.S.C. 78q–1(b)(3)(F). 

11 Id. 

Debit PPAs.7 As described above, Debit 

PPAs create significant credit risk 

exposure for Participants, customers, 

and investors as more time passes, 

because it becomes more difficult for 

Participants to recover debited funds 

from their customers that may no longer 

have an account, may not have available 

funds, or may no longer service the end 

investor. By retaining the Ninety-Day 

Cutoff for Debit PPAs, DTC would be (i) 

maintaining the appropriate allocation 

of risk among Participants, their clients, 

investors, issuers and Paying Agents, (ii) 

creating proactive incentives for Paying 

Agents and issuers to reduce the 

number of Debit PPAs, and (iii) 

promoting payment finality. 

For the reasons set forth above, DTC 

proposes to restore the timeframe for the 

processing of Credit PPAs from the 

Ninety-Day Cutoff back to a One Year 

Cutoff.8 In addition, DTC proposes to 

modify the language of the Guide to (i) 

reflect a One Year Cutoff for Credit 

PPAs and a Ninety-Day Cutoff for Debit 

PPAs, and (ii) remove outdated language 

about the date of effectiveness of the 

Ninety-Day Cutoff. 

(iii) Technical Changes to the Guide 

DTC is also proposing to modify 

language in the Guide to (i) remove the 

statement that PPA adjustments will 

appear on Participant Statements, as 

adjustments can only be viewed using 

CA Web, ISO 20022 messages and CCF 

Files, (ii) for consistency with the term 

‘‘P&I’’, add the word ‘‘principal’’ to the 

list of payments that may be subject to 

a PPA, and (iii) remove an incorrect 

reference to CMO/ABS securities.9

Outreach 

DTC discussed the Task Force’s 

recommendation to restore the 

timeframe for the processing of Credit 

PPAs to a One Year Cutoff with the 

SIFMA Corporate Action Section and 

AGC, which have agreed with the 

recommendation. 

Implementation Date 

DTC will implement the proposed 

rule change upon approval of this filing 

by the Commission. 

2. Statutory Basis 

DTC believes that the proposed rule 

change is consistent with the 

requirements of Section 17A(b)(3)(F) of 

the Act.10

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

requires that the rules of the clearing 

agency be designed, inter alia, to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions.11 By restoring the 

timeframe back to a One Year Cutoff for 

the processing of Credit PPAs through 

DTC, DTC is providing centralized 

processing for Credit PPAs for a longer 

period of time, whereas Paying Agents 

would otherwise have to process the 

Credit PPAs outside of DTC after ninety 

days. In addition, the proposed rule 

change would make technical changes 

to the Guide, as described above, which 

would help ensure that the procedures 

relating to PPAs are accurate and 

consistent. Therefore, DTC believes that 

the proposed rule change would 

facilitate a more efficient process for 

Paying Agents to allocate funds, and for 

Participants to receive funds owed to 

them, as well as allow Participants to 

have a clearer understanding of the 

related procedures, thereby removing 

impediments to and perfecting the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions, 

consistent with the requirements of the 

Act, in particular Section 17A(b)(3)(F), 

cited above. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

DTC does not believe that the 

proposed rule change with respect to 

the Ninety-Day Cutoff for Credit PPAs 

would have any impact on competition 

because it would apply to all Paying 

Agents and would allow all Participants 

to receive their correct P&I credit 

allocations in a more efficient manner, 

and therefore would not 

disproportionately impact any Paying 

Agent or Participant. 

DTC does not believe that the 

proposed rule change with respect to 

technical changes to the Guide would 

have any impact on competition 

because it would merely update the 

Guide to make changes for accuracy and 

consistency and therefore would not 

affect the rights and obligations of any 

Participant or other interested party. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. DTC will notify 

the Commission of any written 

comments received by DTC. 

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 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

DTC–2017–023 on the subject line. 

Paper Comments 

• 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–2017–023. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 5 / Monday, January 8, 2018 / Notices 929 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Commission originally approved BZX Rule 

14.11(i) in Securities Exchange Act Release No. 

65225 (August 30, 2011), 76 FR 55148 (September 

6, 2011) (SR–BATS–2011–018) and subsequently 

approved generic listing standards for Managed 

Fund Shares under Rule 14.11(i) in Securities 

Exchange Act Release No. 78396 (July 22, 2016), 81 

FR 49698 (July 28, 2016) (SR–BATS–2015–100). 

4See Registration Statement on Form N–1A for 

the Trust, dated December 11, 2017 (File Nos. 333– 

184918 and 811–22767). The descriptions of the 

Funds and the Shares contained herein are based, 

in part, on information in the Registration 

Statement. The Commission has issued an order, 

upon which the Trust may rely, granting certain 

exemptive relief under the Investment Company 

Act of 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) (the 

‘‘Exemptive Order’’). See Investment Company Act 

Release No. 30029, April 10, 2012 (File No. 812– 

13795). In addition, on December 6, 2012, the staff 

of the Commission’s Division of Investment 

Management (‘‘Division’’) issued a no-action letter 

(‘‘No-Action Letter’’) relating to the use of 

derivatives by actively-managed exchange-traded 

funds (‘‘ETFs’’). See No-Action Letter dated 

December 6, 2012 from Elizabeth G. Osterman, 

Associate Director, Office of Exemptive 

Applications, Division of Investment Management. 

The No-Action Letter stated that the Division would 

not recommend enforcement action to the 

Commission under applicable provisions of and 

rules under the 1940 Act if ETFs operating in 

reliance on specified orders (which include the 

Exemptive Order) invest in options contracts, 

futures contracts, or swap agreements provided that 

they comply with certain representations stated in 

the No-Action Letter. 

5An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940, as amended (the ‘‘Advisers 

Act’’). As a result, the Adviser and its related 

personnel are subject to the provisions of Rule 

204A–1 under the Advisers Act relating to codes of 

ethics. This Rule requires investment advisers to 

adopt a code of ethics that reflects the fiduciary 

nature of the relationship to clients as well as 

compliance with other applicable securities laws. 

Accordingly, procedures designed to prevent the 

communication and misuse of non-public 

information by an investment adviser must be 

consistent with Rule 204A–1 under the Advisers 

Act. In addition, Rule 206(4)–7 under the Advisers 

Act makes it unlawful for an investment adviser to 

provide investment advice to clients unless such 

investment adviser has (i) adopted and 

implemented written policies and procedures 

reasonably designed to prevent violation, by the 

Continued 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of DTC and on DTCC’s website 

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

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–DTC– 

2017–023 and should be submitted on 

or before January 29, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00081 Filed 1–5–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82429; File No. SR– 

CboeBZX–2017–021] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the First Trust Bitcoin 

Strategy ETF and the First Trust 

Inverse Bitcoin Strategy ETF, Each a 

Series of the First Trust ExchangeTraded Fund VII, Under Rule 14.11(i), 

Managed Fund Shares 

January 2, 2018. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on December 

19, 2017, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to list 

and trade shares of the First Trust 

Bitcoin Strategy ETF and the First Trust 

Inverse Bitcoin Strategy ETF (each a 

‘‘Fund’’ and, collectively, the ‘‘Funds’’), 

each a series of the First Trust 

Exchange-Traded Fund VII (the 

‘‘Trust’’), under Rule 14.11(i) (‘‘Managed 

Fund Shares’’). The shares of the Funds 

are referred to herein as the ‘‘Shares.’’ 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.markets.cboe.com, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade shares of the First Trust Bitcoin 

Strategy ETF (the ‘‘Long Bitcoin Fund’’) 

and the First Trust Inverse Bitcoin 

Strategy ETF (the ‘‘Inverse Bitcoin 

Fund’’) under Rule 14.11(i), which 

governs the listing and trading of 

Managed Fund Shares on the 

Exchange.3

The Shares will be offered by the 

Trust, which was organized as a 

Massachusetts business trust on 

November 6, 2012. The Trust is 

registered with the Commission as an 

open-end investment company and has 

filed a registration statement on behalf 

of the Funds on Form N–1A 

(‘‘Registration Statement’’) with the 

Commission.4 The Adviser, as defined 

below, is also registered as a Commodity 

Pool Operator. 

First Trust Advisors L.P. is the 

investment adviser (the ‘‘Adviser’’) to 

the Funds and a commodity pool 

operator (‘‘CPO’’). The Funds will be 

operated in accordance with applicable 

Commodity Futures Trading 

Commission (‘‘CFTC’’) rules, as well as 

the regulatory scheme applicable to 

registered investment companies. 

Registration as a CPO imposes 

additional compliance obligations on 

the Adviser and the Funds related to 

additional laws, regulations, and 

enforcement policies. 

Rule 14.11(i)(7) provides that, if the 

investment adviser to the investment 

company issuing Managed Fund Shares 

is affiliated with a broker-dealer, such 

investment adviser shall erect a ‘‘fire 

wall’’ between the investment adviser 

and the broker-dealer with respect to 

access to information concerning the 

composition and/or changes to such 

investment company portfolio.5 In 


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