```

[Federal Register Volume 90, Number 24 (Thursday, February 6, 2025)]
[Notices]
[Pages 9094-9098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02288]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102318; File No. SR-DTC-2023-801]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of No Objection to Advance Notice, as Modified by Amendment No. 
1, To Raise Prefunded Liquidity Resources Through the Periodic Issuance 
and Private Placement of Senior Notes

January 31, 2025.
    On August 15, 2023, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') advance 
notice SR-DTC-2023-801 (``Advance Notice'')

[[Page 9095]]

pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled Payment, Clearing 
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'') 
\1\ and Rule 19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 
1934 (``Exchange Act'') \3\ in connection with a proposal to raise 
prefunded liquidity resources through the periodic issuance and private 
placement of senior notes (``Debt Issuance''). The Advance Notice was 
published for public comment in the Federal Register on August 31, 
2023,\4\ and the Commission has received comment regarding the changes 
proposed in the Advance Notice.\5\ On September 26, 2023, the 
Commission requested additional information for consideration of the 
Advance Notice from DTC, pursuant to Section 806(e)(1)(D) of the 
Clearing Supervision Act,\6\ which tolled the Commission's period of 
review of the Advance Notice until 60 days from the date the Commission 
received the requested information.\7\ On December 3, 2024, DTC filed 
Amendment No 1. to the Advance Notice, and the Commission received 
DTC's response to the Commission's request for additional 
information.\8\ Notice of Amendment No. 1 to the Advance Notice was 
published in the Federal Register on December 18, 2024.\9\ This 
publication serves as notice of no objection to the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 34-98227 (Aug. 25, 
2023), 88 FR 60251 (Aug. 31, 2023) (File No. SR-DTC-2023-801) 
(``Notice of Filing'').
    \5\ Comments on the Advance Notice are available at https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801.htm.
    \6\ 12 U.S.C. 5465(e)(1)(D).
    \7\ 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum from the 
Office of Clearance and Settlement, Division of Trading and Markets, 
titled ``Commission's Request for Additional Information,'' 
available at https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801-264099-633643.pdf.
    \8\ 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); Memorandum from the 
Office of Clearance and Settlement, Division of Trading and Markets, 
titled ``Response to the Commission's Request for Additional 
Information,'' available at https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801-547195-1568142.pdf.
    \9\ Securities Exchange Act Release No. 34-101890 (Dec. 12. 
2024), 89 FR 102985 (Dec. 18, 2024) (File No. SR-DTC-2023-801) 
(``Notice of Amendment No. 1'').
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I. The Advance Notice

    DTC is proposing to raise prefunded liquidity through the periodic 
issuance and private placement of senior notes to qualified 
institutional investors \10\ in an aggregate amount not to exceed $3 
billion. Under the proposal, DTC would use the proceeds of the proposed 
Debt Issuance as an additional source of default liquidity.
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    \10\ As noted below, although DTC would not limit the potential 
qualified institutional investors that could purchase senior notes, 
DTC believes the investors would include entities that typically 
invest in senior notes, such as insurance companies, asset managers, 
and pension funds.
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    The proceeds of the Debt Issuance would supplement DTC's qualifying 
liquidity resources.\11\ Such resources currently include cash deposits 
to DTC's Participants Fund \12\ and cash that would be obtained by 
drawing upon DTC's committed 364-day credit facility with a consortium 
of banks (``Line of Credit'').\13\ Having an additional source of 
default liquidity should diversify DTC's sources of default liquidity 
and help to mitigate risk that DTC is unable to secure default 
liquidity resources in an amount necessary to meet its liquidity 
needs.\14\ This could occur, for example, if DTC is unable to renew its 
Line of Credit at the targeted amount.\15\
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    \11\ DTC identifies and describes its liquidity resources in the 
Clearing Agency Liquidity Risk Management Framework (``Framework''). 
See Securities Exchange Act Release Nos. 82377 (Dec. 21, 2017), 82 
FR 61617 (Dec. 28, 2017) (SR-DTC-2017-004; SR-FICC-2017-008; SR-
NSCC-2017-005). DTC, along with its affiliates, National Securities 
Clearing Corporation (``NSCC'') and Fixed Income Clearing 
Corporation (``FICC,'' and, together with NSCC and DTC, the 
``Clearing Agencies''), maintain the Framework which sets forth the 
manner in which each clearing agency measures, monitors and manages 
the liquidity risks that arise in or are borne by it. Each of the 
Clearing Agencies is a wholly-owned subsidiary of The Depository 
Trust & Clearing Corporation, which operates on a shared service 
model with respect to the 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 relevant services to the Clearing Agencies.
    \12\ DTC's Participants Fund is a cash fund consisting of 
deposits made by Participants, which DTC can use to complete system-
wide settlement and resolve losses in the event of a Participant's 
default. See DTC Rule 4; Securities Exchange Act Release No. 90368 
(Nov. 6, 2020), 85 FR 71973 (Nov. 12, 2020) (File No. SR-DTC-2020-
801) (Notice of No Objection To Advance Notice To Amend Rule 4).
    \13\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (``Rules''), 
available at www.dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.pdf. See also Securities Exchange Act Release No. 80605 
(May 5, 2017), 82 FR 21850 (May 10, 2017) (SR-DTC-2017-802; SR-NSCC-
2017-802).
    \14\ Notice of Amendment No. 1, 89 FR 102986.
    \15\ Id. In addition to default liquidity, DTC may use the 
proceeds of a Debt Issuance to prepay a prior Debt Issuance before 
maturity but could not use the proceeds for any other purpose.
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A. DTC's Liquidity Risk Management

    DTC needs liquidity for settlement to protect DTC against the 
possibility that a Participant may fail to pay its settlement 
obligations on a business day.\16\ DTC's liquidity risk management 
strategy is to maintain sufficient liquid resources to complete system-
wide settlement on each business day, with a high degree of confidence 
and notwithstanding the failure to settle of the Participant, or 
affiliated family of Participants, with the largest settlement 
obligation.\17\ Similarly, DTC's liquidity risk management strategy 
seeks to ensure that DTC meets its requirement to hold qualifying 
liquid resources, as such term is defined in Rule 17Ad-22(a)(14) under 
the Exchange Act,\18\ sufficient to meet its minimum liquidity resource 
requirement in each relevant currency for which it has payment 
obligations owed to its Participants.\19\
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    \16\ Notice of Amendment No. 1, 89 FR 102987.
    \17\ Notice of Amendment No. 1, 89 FR 102986.
    \18\ 17 CFR 240.17Ad-22(a)(14).
    \19\ Notice of Amendment No. 1, 89 FR 102987.
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    DTC considers each of its existing default liquidity resources to 
be qualifying liquid resources.\20\ As mentioned above, these resources 
currently include cash deposits to DTC's Participants Fund and cash 
that would be obtained by drawing upon DTC's Line of Credit.\21\ DTC 
would consider the proceeds from the Debt Issuance to be a qualifying 
liquid resource.\22\ The proceeds from the Debt Issuance would 
supplement these existing default liquidity resources and would not be 
used for any other purpose (that is, DTC has represented that it would 
only utilize these resources to help complete settlement in the event 
of a default and not for some other purpose).\23\
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    \20\ Id.
    \21\ Notice of Amendment No. 1, 89 FR 102986.
    \22\ Notice of Amendment No. 1, 89 FR 102987. DTC represents 
that following the completion of the initial issuance and private 
placement of senior notes, the Clearing Agencies would file a 
proposed rule change to amend the Framework to include the proceeds 
of the Debt Issuance as an additional qualifying liquidity resource 
of DTC. See Notice of Filing, 88 FR 60251-60252, n.4; Notice of 
Amendment No. 1, 89 FR 102985, n.8.
    \23\ Notice of Amendment No. 1, 89 FR 102985.
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    While DTC believes its current available liquidity resources are 
sufficient to satisfy the single-largest family default under stressed 
but plausible conditions,\24\ the Debt Issuance would allow DTC to 
diversify its sources of default liquidity and mitigate risks that it 
is unable to secure

[[Page 9096]]

default liquidity resources in an amount necessary to meet its 
liquidity needs.\25\ More specifically, the proposal would provide DTC 
with the flexibility to reduce its reliance on the Line of Credit, 
which is renewed annually and dependent on continued lender interest, 
and meet any increased liquidity needs it may face in the future.\26\
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    \24\ Generally, DTC manages liquidity risks by maintaining 
sufficient liquid resources to settle its payment obligations under 
a wide range of foreseeable stress scenarios, including the default 
of the participant family that would generate the largest aggregate 
payment obligation for DTC in extreme but plausible market 
conditions. See Securities Exchange Act Release No. 99456 (Feb. 1, 
2024), 89 FR 8466 (Feb. 7, 2024) (File No. SR-DTC-2023-013) (Order 
Approving of Proposed Rule Change to Modify the DTC Settlement 
Service Guide).
    \25\ Notice of Amendment No. 1, 89 FR 102987.
    \26\ Notice of Amendment No. 1, 89 FR 102987.
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    The Debt Issuance could also diversify DTC's sources of qualifying 
liquid resources.\27\ Although DTC would not limit the potential 
qualified institutional investors that purchase senior notes, meaning 
it would not specify that only certain entities could purchase senior 
notes, DTC believes the investors would include, for example, insurance 
companies, asset managers, and pension funds.\28\ Thus, while DTC is 
not able to ensure that the Debt Issuance would reduce concentration 
risk, given that the types of entities who typically invest in senior 
notes are generally not Participants of DTC or lenders under the Line 
of Credit, the proposed Debt Issuance could reduce the concentration 
risk related to DTC's liquidity providers.\29\
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    \27\ Id.
    \28\ Id.
    \29\ Id.
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B. General Terms of the Debt Issuance

    DTC is proposing to issue up to an aggregate amount of $3 billion 
in senior notes, as DTC deems reasonable, or as necessitated by 
liquidity needs.\30\ While currently DTC would not need to issue up to 
the aggregate amount of $3 billion, DTC believes that it is advisable 
to authorize up to this aggregate amount.\31\ Doing so would help DTC 
to satisfy future liquidity needs if those needs increase and help 
manage the risk that DTC is unable to obtain requisite amounts from its 
other sources of default liquidity.\32\
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    \30\ Notice of Amendment No. 1, 89 FR 102986.
    \31\ Id.
    \32\ Notice of Amendment No. 1, 89 FR 102986.
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    While the anticipated material terms and conditions of a future 
Debt Issuance are summarized below, the actual terms of a future Debt 
Issuance would depend on a number of factors, including DTC's liquidity 
needs and the debt market conditions at the time of issuance.\33\ 
Therefore, the anticipated terms summarized below are reasonable 
estimates and may not reflect the actual terms of a future Debt 
Issuance.\34\
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    \33\ Id.
    \34\ Id.
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    The senior notes would be represented by unsecured, unsubordinated, 
and non-convertible medium-term and long-term global notes held in the 
name of DTC (as the central securities depository) or its nominee, Cede 
& Co.\35\ DTC would issue and transfer the notes only through its book-
entry system.\36\ The senior notes would bear interest at either fixed 
or floating rates that are set at market rates customary for such type 
of debt and reflective of the creditworthiness of DTC.\37\
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    \35\ Id.
    \36\ Id.
    \37\ Id.
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    DTC expects that the average maturity of the senior notes issued 
under the Debt Issuance would be no shorter than approximately two 
years and no longer than approximately ten years, because these are the 
typical lengths of medium-term and long-term debt.\38\ DTC does not 
believe maturities over ten years would be suitable as debt with longer 
maturities are generally more expensive to issue and may present higher 
risks related to interest rates.\39\ DTC would time each debt issuance 
and stagger maturity dates of each issuance in order to ladder the 
maturities.\40\ DTC would have the option to prepay any amount of 
principal owed on the issued senior notes before such payment is 
due.\41\
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    \38\ Id.
    \39\ Notice of Amendment No. 1, 89 FR 102986.
    \40\ Id.
    \41\ Id.
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    DTC would hold the proceeds from the Debt Issuance in either its 
cash deposit account at the Federal Reserve Bank of New York 
(``FRBNY'') or in accounts at other creditworthy financial institutions 
in accordance with the Clearing Agency Investment Policy.\42\ These 
amounts would be available to draw to complete settlement as 
needed.\43\
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    \42\ Notice of Amendment No. 1, 89 FR 102987. See Securities 
Exchange Act Release Nos. 79528 (Dec. 12, 2016), 81 FR 91232 (Dec. 
16, 2016) (SR-DTC-2016-007, SR-FICC-2016-005, SR-NSCC-2016-003); 
84949 (Dec. 21, 2018), 83 FR 67779 (Dec. 31, 2018) (SR-DTC-2018-012, 
SR-FICC-2018-014, SR-NSCC-2018-013). DTC represents that following 
the issuance of a Notice of No Objection by the Commission of this 
proposal, the Clearing Agencies would file a proposed rule change to 
amend the Clearing Agency Investment Policy to include the proceeds 
as default liquidity funds, within the definition of ``Investable 
Funds,'' as such term is defined therein, and provide that such 
amounts would be held in bank deposits at eligible commercial banks 
or at DTC's cash deposit account at the FRBNY. See Notice of Filing, 
88 FR 60253, n.13; Notice of Amendment No. 1, 89 FR 102987, n.16.
    \43\ Notice of Amendment No. 1, 89 FR 102987.
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II. Discussion and Commission Findings

    Although the Clearing Supervision Act does not specify a standard 
of review for an advance notice, the stated purpose of the Clearing 
Supervision Act is instructive: to mitigate systemic risk in the 
financial system and promote financial stability by, among other 
things, promoting uniform risk management standards for systemically 
important financial market utilities (SIFMUs) and strengthening the 
liquidity of SIFMUs.\44\
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    \44\ See 12 U.S.C. 5461(b).
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    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe regulations containing risk management 
standards for the payment, clearing, and settlement activities of 
designated clearing entities engaged in designated activities for which 
the Commission is the supervisory agency.\45\ Section 805(b) of the 
Clearing Supervision Act provides the following objectives and 
principles for the Commission's risk management standards prescribed 
under Section 805(a): \46\
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    \45\ 12 U.S.C. 5464(a)(2).
    \46\ 12 U.S.C. 5464(b).
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     to promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk 
management standards may address such areas as risk management and 
default policies and procedures, among other areas.\47\
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    \47\ 12 U.S.C. 5464(c).
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    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act and Section 17A of the 
Exchange Act (the ``Clearing Agency Rules'').\48\ The Clearing Agency 
Rules require, among other things, each covered clearing agency to 
establish, implement, maintain, and enforce written policies and 
procedures that are reasonably designed to meet certain minimum 
requirements for its operations and risk management practices on an 
ongoing basis.\49\ As such, it is appropriate for the Commission to 
review advance notices against the Clearing Agency Rules and the 
objectives and principles of these risk management standards as 
described in Section 805(b) of the Clearing Supervision Act. As 
discussed below, the proposal in the Advance Notice is

[[Page 9097]]

consistent with the objectives and principles described in Section 
805(b) of the Clearing Supervision Act,\50\ and in the Clearing Agency 
Rules, in particular Rule 17Ad-22(e)(7).\51\
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    \48\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No. 
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11). 
See also Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing 
Agency Standards''). The Commission established an effective date of 
December 12, 2016, and a compliance date of April 11, 2017 for the 
Covered Clearing Agency Standards. DTC is a ``covered clearing 
agency'' as defined in Rule 17Ad-22(a)(5).
    \49\ Id.
    \50\ 12 U.S.C. 5464(b).
    \51\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 805(b) of the Clearing Supervision Act

    For the reasons discussed immediately below, the proposal described 
in the Advance Notice is consistent with the stated objectives and 
principles of Section 805(b) of the Clearing Supervision Act.\52\ 
Specifically, as discussed below, the Advance Notice is consistent with 
promoting robust risk management, promoting safety and soundness, 
reducing systemic risks, and supporting the stability of the broader 
financial system.
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    \52\ 12 U.S.C. 5464(b).
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    The proposal described in the Advance Notice is consistent with 
promoting robust risk management because the Debt Issuance would 
provide DTC with an additional liquid resource that DTC could access in 
the event of a Participant default. The Debt Issuance would supplement 
DTC's existing default liquidity resources and diversify the type and 
source of such resources. The proposal to issue debt up to an aggregate 
amount of $3 billion, and use the proceeds as a default liquidity 
resource, is designed to promote robust liquidity risk management at 
DTC by diversifying the set of liquid resources available to DTC in the 
event of a Participant default. Doing so would, in turn, allow DTC to 
maintain sufficient liquid resources to complete system-wide settlement 
on each business day, with a high degree of confidence and 
notwithstanding the failure to settle of the Participant, or affiliated 
family of Participants, with the largest settlement obligation. While 
the Debt Issuance could bring certain financial risks,\53\ in the event 
such risks were to materialize, the ability of DTC to use other 
liquidity tools \54\ helps promote DTC's ability to manage liquidity 
risk through an overall diversified range of risk management tools.
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    \53\ For example, DTC may be exposed to interest rate risk, 
which is the risk that a change in interest rates could cause an 
increase to the net cost of carry of the Debt Issuance. DTC would 
mitigate this risk by issuing senior notes at different maturities 
and at both fixed interest rates and floating interest rates. DTC 
could also face a related financial risk that the expense of a Debt 
Issuance exceeds DTC's income and may have a negative impact on 
DTC's financial health or its creditworthiness. DTC would mitigate 
this risk by evaluating the expected net cost of carry (discussed 
above) of a Debt Issuance prior to issuing any debt, and if the 
financing costs for the issuance of senior notes increase, such that 
it is not financially advisable to issue additional senior notes, 
then DTC may determine to use its alternative liquidity resources to 
meet its liquidity needs during those market conditions. See Notice 
of Filing, 88 FR 60254; Notice of Amendment No. 1, 89 FR 102988.
    \54\ DTC's other liquidity tools include the Net Debit Cap and 
the Collateral Monitor. These two controls work together to protect 
the DTC settlement system in the event of a Participant default. The 
Collateral Monitor requires net debit settlement obligations, as 
they accrue intraday, to be fully collateralized and the Net Debit 
Cap limits the amount of any Participant's net debit settlement 
obligation to an amount that can be satisfied with DTC's default 
liquidity resources. A description of the calculation of each 
Participant's Net Debit Cap and Collateral Monitor is available in 
the Settlement Service Guide. See DTC Settlement Service Guide, 
available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf. See also Notice of Filing, 88 FR 60252; 
Notice of Amendment No. 1, 89 FR 102986, n.13.
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    The Debt Issuance would promote safety and soundness by enabling 
DTC to obtain additional and diversified liquid resources to cover a 
liquidity gap that could arise in the event of a Participant default. 
By covering such a gap, the proposal complements DTC's ability to meet 
its settlement obligations in the event of a Participant default, 
thereby reducing the risk of loss contagion (i.e., the risk of losses 
arising at other Participants if DTC is unable to complete system-wide 
settlement). Reducing the risk of loss contagion during a Participant 
default, in turn, reduces the possibility that losses will compromise 
the ability of DTC and its Participants to continue operations. This 
enhances the ability of DTC and its Participants to continue to provide 
stability and safety to the financial markets they serve. Therefore, by 
enhancing DTC's ability to address losses and liquidity pressures that 
otherwise might cause financial distress to DTC or its Participants, 
the proposal described in the Advance Notice promotes safety and 
soundness.
    One commenter stated that the changes were ridiculous, and that DTC 
could not mitigate risk via debt.\55\ The Debt Issuance would diversify 
DTC's sources of liquidity and provide DTC additional resources to be 
used to complete system-wide settlement if a Participant defaults. 
Although the Debt Issuance would not eliminate all risks faced by DTC, 
providing an additional source of liquidity reduces potential 
concentration risk that could arise from DTC using one source of, or 
similarly situated sources of, liquidity. Moreover, the Debt Issuance 
would provide DTC additional resources, thereby improving its ability 
to complete system-wide settlement if a Participant defaults. While the 
Debt Issuance would not eliminate these potential risks, it should 
reduce DTC's exposure to such risks.
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    \55\ See comment from Reflex Entertainment (Aug. 15, 2023), 
available at https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801-542582.htm. Although this comment overall opposed the 
proposed changes, the comment also expressed concerns unrelated to 
the substance of the filing. The Commission received an additional 
comment, that, although submitted to the file for this Advance 
Notice (DTC-2023-801), did not relate to the substance of the 
Advance Notice. Comments on the Advance Notice are available at 
https://www.sec.gov/comments/sr-dtc-2023-801/srdtc2023801.htm.
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    At the same time, as noted above, the Debt Issuance could bring 
certain financial risks, such as interest rate risk and the financial 
risk that the expense of a Debt Issuance exceeds DTC's income and 
affects DTC's financial health or its creditworthiness. Taking on 
additional indebtedness presents additional risks to DTC and while DTC 
may have additional cash resources, it also will have corresponding 
obligations to repay the principal plus interest. DTC would mitigate 
this risk by evaluating the expected net cost of carry of a Debt 
Issuance prior to issuing any debt. If the financing costs for the 
issuance of senior notes increase prior to an issuance, DTC may 
determine not to issue any debt. Moreover, DTC would have the option to 
prepay any amount of principal owed on the issued senior notes before 
such payment is due, should DTC determine that doing so is necessary to 
reduce costs and/or financial risks. Thus, DTC recognizes the potential 
financial risks associated with the Debt Issuance and would take steps 
to mitigate and reduce such risks. Given that, and the benefits to the 
debt issuance discussed above, the Debt Issuance would still promote 
robust risk management and safety and soundness.
    The commenter also stated that, as an alternative, DTC ``liquidate 
and sell the bad assets like any other functioning business'' and 
questioned why DTC finds itself undercapitalized. On the first point, 
to the extent the comment is referring to the potential need for DTC to 
complete system-wide settlement if a Participant defaults, the Debt 
Issuance would help achieve this purpose. The proceeds from the Debt 
Issuance would provide DTC with additional, prefunded, and readily 
available qualifying liquid resources to be used to complete system-
wide settlement if a Participant defaults. The proposal described in 
the Advance Notice does not include any provision related to the 
liquidation and sale of bad assets, and accordingly, the Commission is 
not addressing any changes related to those approaches. On the second 
point, DTC would use the proceeds from the Debt Issuance as additional, 
prefunded, and readily available qualifying liquid

[[Page 9098]]

resources to be used to complete system-wide settlement if a 
Participant defaults. The proposal does not indicate that DTC is 
undercapitalized; the proposed Debt Issuance is not designed to fill 
any sort of capital gap, but is instead designed, as discussed here, to 
diversify DTC's liquidity resources.
    The proposal described in the Advance Notice is consistent with 
promoting safety and soundness, reducing systemic risks, and supporting 
the stability of the broader financial system. Reducing the risk of 
loss contagion would attenuate the transmission of financial shocks 
from defaulting Participants to non-defaulting Participants. 
Accordingly, the proposal would support the stability of the broader 
financial system. Thus, the proposal described in the Advance Notice is 
consistent with the stated objectives and principles of Section 805(b) 
of the Clearing Supervision Act.\56\
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    \56\ 12 U.S.C. 5464(b).
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B. Consistency With Rule 17Ad-22(e)(7)

    The proposal described in the Advance Notice is consistent with the 
requirements of Rule 17Ad-22(e)(7) under the Exchange Act.\57\ Rule 
17Ad-22(e)(7) requires DTC to establish, implement, maintain, and 
enforce written policies and procedures reasonably designed to 
effectively measure, monitor, and manage liquidity risk that arises in 
or is borne by DTC, including measuring, monitoring, and managing its 
settlement and funding flows on an ongoing and timely basis, and its 
use of intraday liquidity, as specified in the rule.\58\
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    \57\ 17 CFR 240.17Ad-22(e)(7).
    \58\ 17 CFR 240.17Ad-22(e)(7).
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1. Consistency With Rule 17Ad-22(e)(7)(i)
    In particular, Rule 17Ad-22(e)(7)(i) under the Exchange Act 
requires that DTC establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to ``effectively measure, 
monitor, and manage the liquidity risk that arises in or is borne by 
[it], including measuring, monitoring, and managing its settlement and 
funding flows on an ongoing and timely basis, and its use of intraday 
liquidity by . . . [m]aintaining sufficient liquid resources at the 
minimum in all relevant currencies to effect same-day . . . settlement 
of payment obligations with a high degree of confidence under a wide 
range of foreseeable stress scenarios that includes, but is not limited 
to, the default of the participant family that would generate the 
largest aggregate payment of obligation for the covered clearing agency 
in extreme but plausible conditions.'' \59\
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    \59\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the Debt Issuance would increase the liquidity 
resources available to DTC to continue to meet its liquidity 
obligations in a timely fashion in the event of a Participant's 
default. These funds should help DTC to maintain sufficient liquidity 
resources to effect same-day settlement of payment obligations with a 
high degree of confidence under a wide range of foreseeable stress 
scenarios. Additionally, the Debt Issuance is designed to help ensure 
that DTC has sufficient, readily available qualifying liquid resources 
to complete system-wide settlement on each business day, with a high 
degree of confidence and notwithstanding the failure to settle of the 
Participant, or affiliated family of Participants, with the largest 
settlement obligation. Therefore, the Commission finds that the 
proposal is consistent with Rule 17Ad-22(e)(7)(i).\60\
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    \60\ 17 CFR 240.17Ad-22(e)(7)(i).
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2. Consistency With Rule 17Ad-22(e)(7)(ii)
    Rule 17Ad-22(e)(7)(ii) under the Exchange Act requires each covered 
clearing agency to 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 
[it], including measuring, monitoring, and managing its settlement and 
funding flows on an ongoing and timely basis, and its use of intraday 
liquidity by . . . holding qualifying liquid resources sufficient'' to 
satisfy payment obligations owed to clearing members.\61\ Rule 17Ad-
22(a)(14) under the Exchange Act defines ``qualifying liquid 
resources'' to include, among other things, cash held either at the 
central bank of issue or at creditworthy commercial banks.\62\
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    \61\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \62\ 17 CFR 240.17Ad-22(a)(14).
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    As described above, the Debt Issuance would enable DTC to hold 
additional cash proceeds from the issuance of the debt in a cash 
deposit account at the FRBNY or in accounts at other creditworthy 
financial institutions in accordance with the Clearing Agency 
Investment Policy. Because the funds would be held at the FRBNY or a 
creditworthy commercial bank, they would be a qualifying liquid 
resource, as that term is defined in Rule 17Ad-22(a)(14).\63\ 
Therefore, the proposal is consistent with Rule 17Ad-22(e)(7)(ii).\64\
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    \63\ 17 CFR 240.17Ad-22(a)(14) (``Qualifying liquid resources 
means, for any covered clearing agency, . . . (i) cash held either 
at the central bank of issue or at creditworthy commercial banks . . 
.'').
    \64\ 17 CFR 240.17Ad-22(e)(7)(ii).
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III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act, that the Commission does not object to 
Advance Notice (SR-DTC-2023-801), as modified by Amendment No. 1, and 
that DTC is authorized to implement the proposed change as of the date 
of this notice.

    By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02288 Filed 2-5-25; 8:45 am]
BILLING CODE 8011-01-P
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