Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 73665 

164See 15 U.S.C. 78c(f). 

165 15 U.S.C. 78s(b)(2). 

166 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. 

will enhance investor confidence and 

protection. 

In approving the proposed rule 

change, the Commission has considered 

the proposed rule change’s impact on 

efficiency, competition, and capital 

formation.164 The Commission believes 

that the proposed rule change includes 

accommodations that help promote 

efficiency because the proposed rule 

change is designed to allow flexibility 

for each dealer to adapt its policies and 

procedures to be reasonably related to 

the nature of its business, including its 

level of sales and trading activity and 

the type of customer transactions at 

issue. The Commission also believes 

that the reasonable diligence standard 

and the SMMP customer affirmation are 

sufficiently flexible to be met by a 

diverse population of dealers and allows 

a dealer to evidence compliance in a 

manner that may be different from that 

used by another dealer. The 

Commission does not believe that the 

proposed rule change would impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act since it would apply 

to all dealers who engage in municipal 

securities transactions. The Commission 

also believes that the proposed rule 

change takes into account competitive 

concerns that could arise from the 

diversity of dealer characteristics 

because proposed Rule G–18 embodies 

a broad and flexible principles-based 

standard. The Commission has reviewed 

the record for the proposed rule change 

and notes that the record does not 

contain any information to indicate that 

the proposed rule change would have a 

negative effect on capital formation. 

As noted above, the Commission 

received six comment letters on the 

filing. The Commission believes that the 

MSRB considered carefully and 

responded adequately to comments and 

concerns regarding the proposed rule 

change. While commenters suggested 

changes to the filing or opposed certain 

aspects of the proposed rule change, the 

Commission notes that no commenters 

argued that the proposed rule change 

was inconsistent with the applicable 

provisions of the Act. 

For the reasons noted above, 

including those discussed in the MSRB 

Response Letter, the Commission 

believes that the proposed rule change 

is consistent with the Act. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,165 that the 

proposed rule change (SR–MSRB–2014– 

07) be, and hereby is, approved. 

For the Commission, pursuant to delegated 

authority.166

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–29023 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73755; 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 

Filing of Advance Notices, as 

Amended, To Amend and Restate the 

Third Amended and Restated 

Shareholders Agreement, Dated as of 

December 7, 2005 

December 5, 2014. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 1

(‘‘Clearing Supervision Act’’) and Rule 

19b–4(n)(1)(i) 2 under the Securities 

Exchange Act of 1934, notice is hereby 

given that 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, ‘‘Operating Subsidiaries’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

advance notices SR–FICC–2014–810, 

SR–NSCC–2014–811 and SR–DTC– 

2014–812 (‘‘Advance Notices’’), 

respectively, as described in Items I and 

II below, which Items have been 

prepared primarily by the Operating 

Subsidiaries. On November 17, 2014, 

the Operating Subsidiaries 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 Commission 

is publishing this notice to solicit 

comments on the Advance Notices, as 

amended, from interested persons. 

I. Clearing Agencies’ Statement of the 

Terms of Substance of the Advance 

Notices 

The Advance Notices, as amended, 

were filed by the Operating Subsidiaries 

in connection with the amendment and 

restatement of the Third Amended and 

Restated Shareholders Agreement, dated 

as of December 7, 2005 (‘‘Existing 

Shareholders Agreement’’), by and 

among The Depository Trust & Clearing 

Corporation (‘‘DTCC’’), Operating 

Subsidiaries, and the other parties 

thereto (such Existing Shareholders 

Agreement as so proposed to be 

amended and restated, ‘‘Revised 

Shareholders Agreement’’), as more 

fully described below. 

II. Clearing Agencies’ Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notices 

In their filings with the Commission, 

the Operating Subsidiaries included 

statements concerning the purpose of 

and basis for the Advance Notices, as 

amended, and discussed any comments 

received on the Advance Notices, as 

amended. The text of these statements 

may be examined at the places specified 

in Item IV below. The Operating 

Subsidiaries have prepared summaries, 

set forth in sections (A) and (B) below, 

of the most significant aspects of these 

statements. 

(A) Clearing Agencies’ Statement on 

Comments on the Advance Notices 

Received From Members, Participants, 

or Others 

Beginning in June 2014, DTCC has 

conducted outreach to users of the 

services and facilities of the Operating 

Subsidiaries in order to provide them 

with advance notice of the proposed 

changes and the impact on a firm-byfirm basis. The outreach efforts have 

included providing individual 

shareholder firms with statements of 

their projected potential impact. As of 

the date of this filing, no written 

comments relating to the proposed 

changes have been received in response 

to this outreach. The Commission will 

be notified of any written comments 

received. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing 

and Settlement Supervision Act 

Description of Change 

The Existing Shareholders Agreement 

is proposed to be amended to: (1) 

Update and simplify the formulas used 

to allocate shares of the common stock 

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73666 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

5Commission notes that Exhibit 3 to the Advance 

Notices was filed confidentially by the Operating 

Subsidiaries and is not attached to this notice. 

6On July 18, 2012, the Financial Stability 

Oversight Council (‘‘FSOC’’) designated each of the 

Operating Subsidiaries a systemically important 

financial market utility under Title VIII of the 

Clearing Supervision Act. See FSOC 2012 Annual 

Report, Appendix A, available at http://

www.treasury.gov/initiatives/fsoc/Documents/

2012%20Annual%20Report.pdf. Therefore, each of 

the Operating Subsidiaries is required to comply 

with the enhanced regulatory supervision and riskmanagement requirements under the Clearing 

Supervision Act. 

7See DTC Rule 31 (DTCC Shareholders 

Agreement); NSCC Rule 64 (DTCC Shareholders 

Agreement); Mortgage-Backed Securities Division of 

FICC (‘‘MBSD’’) Rule 39 (DTCC Shareholders 

Agreement); and Government Securities Division of 

FICC (‘‘GSD’’) Rule 49 (DTCC Shareholders 

Agreement), available at http://dtcc.com/legal/

rules-and-procedures.aspx. 

8Additionally, and separately from the periodic 

reallocation, Common Shares are redistributed from 

time to time to Common Share Holders pursuant to 

Section 2.02 of the Existing Shareholders 

Agreement as a result of member retirements. 

of DTCC (‘‘Common Shares’’) among 

users of the Operating Subsidiaries, 

which are DTCC’s registered clearing 

agency subsidiaries, and to determine 

the purchase price of Common Shares 

for purposes of such allocations and 

other transfers of Common Shares; (2) 

provide for the requirement to purchase 

newly-issued Common Shares by 

holders of Common Shares (‘‘Common 

Share Holders’’) that are required to 

purchase and own Common Shares 

(‘‘Mandatory Share Holders’’), subject to 

the approval of Mandatory Share 

Holders holding two-thirds of all 

Common Shares held by Mandatory 

Share Holders; (3) provide for the 

repurchase of Common Shares from 

Mandatory Share Holders by DTCC, in 

an aggregate amount up to the aggregate 

amount of all newly-issued Common 

Shares purchased by Mandatory Share 

Holders; (4) provide for the reallocation 

of entitlements to own Common Shares 

at least once every three calendar years, 

but not otherwise limiting the frequency 

of such reallocation; and (5) make other 

conforming and technical changes as 

described below and as shown on 

Exhibit 3 to this filing.5 Common Share 

Holders which are permitted but not 

required to purchase and own Common 

Shares (‘‘Voluntary Share Holders’’) 

would not be required to purchase any 

newly-issued Common Shares or to sell 

any Common Shares to DTCC in 

connection with such a repurchase. 

The proposed changes to the Existing 

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 Operating Subsidiaries 

and enhancing regulatory risk 

management.6 The proposed 

amendments are subject to the nonobjection of the Commission to the 

Advance Notices as well as the consent 

of the Common Share Holders. 

Existing Shareholders Agreement. 

Pursuant to the Existing Shareholders 

Agreement and the rules of each of the 

Operating Subsidiaries,7 certain 

members and participants are required 

to be Mandatory Share Holders and 

parties to the Existing Shareholders 

Agreement; certain members and 

participants are permitted, but not 

required, to be Voluntary Share Holders 

and parties to the Existing Shareholders 

Agreement; and certain members and 

participants are not permitted to 

purchase and own Common Shares or 

become parties to the Existing 

Shareholders Agreement. 

Section 2.01 of the Existing 

Shareholders Agreement provides for 

the periodic reallocation of Common 

Shares in order to accommodate 

changes in the users of the Operating 

Subsidiaries and changes in the users’ 

use of the services and facilities of the 

Operating Subsidiaries. Entitlements to 

purchase and own Common Shares are 

reallocated no more frequently than 

once a year and no less frequently than 

once every three years. Such a 

reallocation is, in every case, based on 

relative use of the services and facilities 

of the Operating Subsidiaries over the 

period since the last reallocation.8 In 

each reallocation, users (whether or not 

they are already Common Share 

Holders) that are permitted but not 

required to purchase and own Common 

Shares (‘‘Voluntary Purchaser 

Participants’’) may purchase Common 

Shares in amounts commensurate with 

their use of the services and facilities of 

the Operating Subsidiaries. Users 

(whether or not they are already 

Common Share Holders) that are 

required to purchase and own Common 

Shares (‘‘Mandatory Purchaser 

Participants’’) must purchase and own 

Common Shares in amounts (i) 

commensurate with their use of the 

services and facilities of the Operating 

Subsidiaries plus (ii) a pro-rata amount 

of any Common Shares that Voluntary 

Purchaser Participants have a right to 

purchase but do not elect to purchase. 

In each reallocation, each Common 

Share Holder (whether a Voluntary 

Purchaser Participant or a Mandatory 

Purchaser Participant) that owns more 

Common Shares than its share 

entitlement has the obligation to sell its 

excess Common Shares so that such 

Common Shares may be reallocated to 

Voluntary Purchaser Participants that 

elect to purchase Common Shares and 

Mandatory Purchaser Participants that 

are required to purchase Common 

Shares, in accordance with their 

entitlements. 

Under the Existing Shareholders 

Agreement, the formula used to 

calculate entitlements for this periodic 

reallocation of Common Shares takes 

into account fees paid to the Operating 

Subsidiaries, as well as the average 

market value of securities held in 

custody at DTC (referred to as ‘‘DTC 

long positions’’) by the applicable user, 

in each case, over the relevant 

reallocation period. Additionally, the 

purchase price of each Common Share, 

which is calculated annually, is 

determined by a formula based on the 

book value of DTCC less a portion of the 

retained earnings of the Operating 

Subsidiaries. 

The Existing Shareholders Agreement 

further provides that Common Share 

Holders have the right to elect all of the 

directors of DTCC (other than two 

directors elected by the holders of the 

shares of existing preferred stock of 

DTCC), and to vote on all other matters 

on which shareholders are entitled to 

vote. The Existing Shareholders 

Agreement further provides that a 

person elected as a director of DTCC 

also serves as a director of each of the 

Operating Subsidiaries, coordinating 

governance of DTC, NSCC, and FICC 

with their parent company, DTCC. 

Proposed Amendments to the Existing 

Shareholders Agreement. The Revised 

Shareholders Agreement would: (1) 

Remove the DTC long positions from the 

formula used to determine the 

allocation of entitlements to purchase 

Common Shares; (2) revise the formula 

for determining the purchase price of 

Common Shares to reflect the tangible 

book value of DTCC and eliminate any 

deduction of the retained earnings of the 

Operating Subsidiaries; (3) provide for 

the purchase of newly-issued Common 

Shares by Mandatory Share Holders, 

subject to the approval of Mandatory 

Share Holders holding two-thirds of all 

outstanding Common Shares held by 

Mandatory Share Holders; (4) provide 

for the repurchase of Common Shares 

from Mandatory Share Holders by 

DTCC, in an aggregate amount up to the 

aggregate amount of all newly-issued 

Common Shares purchased by 

Mandatory Share Holders; (5) provide 

for the reallocation of entitlements to 

own Common Shares at least once every 

three calendar years, but not otherwise 

limiting the frequency of such 

reallocation; and (6) make other 

conforming and technical changes as 

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Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 73667 

9 Intangible items of book value used in this 

calculation, i.e., goodwill and intangible assets, are 

shown on DTCC’s Consolidated Statement of 

Financial Condition, which is available on the 

DTCC Web site at http://dtcc.com/legal/financialstatements.aspx. 

described below and as shown on 

Exhibit 3 to this filing. 

(1) Update Common Share Allocation 

Formula 

The formula used to periodically 

reallocate entitlements to purchase 

Common Shares, defined in Section 

1.01 of the Existing Shareholders 

Agreement as the ‘‘Common Share 

Amount,’’ is historical and, in the view 

of DTCC, no longer an appropriate 

measure of use of the Operating 

Subsidiaries. 

The Common Share Amount 

calculation was based on the 

Shareholders Agreement of DTC, which 

was in effect before DTC became a 

subsidiary of DTCC in 1999. It was 

adopted to balance the interests of 

custodian banks with other types of 

users of DTC, including broker-dealers, 

that did not hold securities inventory at 

DTC but paid transactional fees for 

services. The current formula provides 

that (i) 80% of the entitlement to 

purchase Common Shares is based on 

the amount of fees paid by a user to the 

Operating Subsidiaries during the 

period starting on the first day of the 

calendar year in which the previous 

allocation was made and ending on the 

last day of the calendar year preceding 

the calendar year in which the 

allocation is to be made (‘‘Allocation 

Period’’), 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 user, i.e., its 

DTC long positions, as of the end of the 

last business day of each month during 

the Allocation Period. 

Today, all users of the three Operating 

Subsidiaries pay fees to one or more of 

the Operating Subsidiaries based on 

usage of the services and facilities of the 

Operating Subsidiaries, including fees 

for DTC long positions. Accordingly, 

DTCC has determined that it is no 

longer appropriate to factor into the 

calculation of share entitlements both 

the market value of DTC long positions 

and fees paid to DTC in respect of such 

DTC long positions. The Revised 

Shareholders Agreement would update 

the formula used to periodically 

reallocate entitlements to purchase 

Common Shares, defined in Section 

1.01 of the Revised Shareholders 

Agreement as the ‘‘Common Share 

Allocation Amount,’’ to eliminate the 

market value of DTC long positions, so 

that the formula would be based solely 

on fees paid to the Operating 

Subsidiaries. 

Both the composition of users of the 

Operating Subsidiaries as well as the 

users’ use of the services and facilities 

of the Operating Subsidiaries have 

changed over time, and today the 

consistent metric for measuring such 

use across the Operating Subsidiaries is 

fees paid. Therefore, and in order to 

ensure that the allocations of 

entitlements to purchase Common 

Shares continue to be proportionate to 

the use of the Operating Subsidiaries, 

DTCC is proposing to update the 

formula by removing the market value 

of DTC long positions, and basing the 

allocations entirely on fees paid to the 

Operating Subsidiaries. While custodian 

banks with securities holdings at DTC 

may be entitled (and required) to 

purchase fewer Common Shares as a 

result of this proposal, those Common 

Shares would be re-allocated to other 

Common Share Holders proportionally. 

The proposal would adjust the overall 

shareholding of Common Shares so that 

it is based on a uniform metric across 

the Operating Subsidiaries that is 

representative of the current use of the 

Operating Subsidiaries. 

(2) Amendment of Common Share Price 

Formula 

As described below, two amendments 

are proposed to the formula for the 

purchase price of Common Shares. First, 

the deduction of a portion of retained 

earnings, a vestige of the historical 

development of DTCC, would be 

eliminated. Second, instead of full book 

value, the basis of the revised formula 

would be the tangible book value of 

DTCC. With these changes, the value of 

Common Shares for purchases, sales, 

and transfers should more closely reflect 

the liquidation value of the enterprise. 

Under Section 1.01 of the Existing 

Shareholders Agreement, the price of 

Common Shares, the ‘‘Common Share 

Price,’’ is defined by a formula that 

excludes a portion of the retained 

earnings of the Operating Subsidiaries 

from DTCC’s book value. The Common 

Share Price is the price used (i) in 

connection with purchases and sales of 

Common Shares among Voluntary 

Purchaser Participants and Mandatory 

Purchaser Participants in the periodic 

reallocation of Common Shares and (ii) 

in connection with the transfer of the 

Common Shares of retiring or 

disqualified Common Share Holders. 

The Revised Shareholders Agreement 

would replace the formula contained in 

the Existing Shareholders Agreement 

with a formula designed to reflect the 

tangible book value of DTCC, i.e., the 

full book value of DTCC less intangible 

items of book value (goodwill and 

intangible assets) and the liquidation 

preference of the preferred stock of 

DTCC.9

When DTC and NSCC became 

subsidiaries of DTCC, the DTC 

shareholders who were DTC 

participants exchanged their DTC shares 

for DTCC Common Shares and became 

Common Share Holders. At that time, 

no members of NSCC (‘‘NSCC 

Members’’) were NSCC shareholders, so 

no NSCC Members became Common 

Share Holders. NSCC Members were 

first given the opportunity to purchase 

Common Shares in the year 2000 share 

reallocation. It was considered unfair 

double-counting for NSCC Members to 

purchase DTCC Common Shares in that 

share reallocation at a price augmented 

by the retained earnings of NSCC. For 

this reason, the retained earnings of 

NSCC were deducted from DTCC’s book 

value in determining the price of 

Common Shares. When Government 

Securities Clearing Corporation and 

MBS Clearing Corporation (later merged 

to become FICC) became subsidiaries of 

DTCC in 2002, this construct was 

continued. Under the Existing 

Shareholders Agreement, the price of 

Common Shares is determined by 

deducting the aggregate amount of the 

retained earnings of each of the 

Operating Subsidiaries (although the 

deduction of DTC retained earnings is 

limited to $24,007,000, an amount 

representing the retained earnings of 

DTC as of December 31, 2001) from the 

book value of the Common Shares as of 

December 31 of the preceding calendar 

year. 

As stated, the deduction of the 

retained earnings of the Operating 

Subsidiaries in this formula was 

intended to be a one-time adjustment to 

address unfairness to the participants of 

the Operating Subsidiaries that was tied 

to the corporate transactions through 

which each Operating Subsidiary was 

integrated into the DTCC family. 

Therefore, with the passage of time and 

the turnover in participants, the 

deduction no longer serves this 

historical purpose, or any purpose, in 

the reallocations of entitlements to 

purchase Common Shares that occurred 

after the integration of the Operating 

Subsidiaries. The proposed change is a 

part of the effort to update the Existing 

Shareholders Agreement. 

In the Revised Shareholders 

Agreement, the formula for the purchase 

price of Common Shares would be 

based on the tangible book value of 

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73668 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

DTCC, a price that would more 

accurately represent the liquidation 

value of DTCC, and keep the price more 

stable and predictable over time. While 

the proposal may cause the purchase 

price of Common Shares to increase 

somewhat, it should not materially 

impair the ability of the members and 

participants of the Operating 

Subsidiaries to acquire Common Shares. 

(3) Raise Capital Through the Issue and 

Sale of Newly-Issued Common Shares to 

Mandatory Share Holders 

In order to raise capital for business 

purposes, the Revised Shareholders 

Agreement would provide that DTCC 

may sell newly-issued Common Shares 

to Mandatory Share Holders on a 

mandatory basis. Proceeds of the sale of 

these newly-issued Common Shares 

would be contributed by DTCC to the 

Operating Subsidiaries as capital as 

needed so that the Operating 

Subsidiaries may continue to provide 

efficiently for the prompt and accurate 

clearance and settlement of securities 

transactions in U.S. securities markets. 

Each issuance and required purchase of 

Common Shares for this purpose would 

be subject to the approval of the 

Mandatory Share Holders holding twothirds of all Common Shares held by 

Mandatory Share Holders. Voluntary 

Share Holders would not be required or 

permitted to purchase these newlyissued Common Shares. 

The Operating Subsidiaries require 

additional capital to support their 

business operations. Historically, they 

have operated on an at-cost or near-cost 

basis and rebated any excess revenues to 

users of their services. Recently, 

however, the Operating Subsidiaries 

have experienced a greater need to 

increase capital to meet higher operating 

costs and, as systemically important 

financial market utilities, to satisfy 

heightened risk management 

requirements. DTCC has performed 

extensive analyses to determine these 

needs, and has considered alternative 

means to address them. A principal 

objective is maintenance of sufficient, 

readily available, liquid net assets to 

allow the Operating Subsidiaries to 

meet current and projected operating 

requirements under a range of scenarios, 

including adverse market conditions. 

An increase in fees was deemed 

impractical because it would not 

necessarily generate sufficient resources 

in a reasonable time frame and depends 

on transactional volumes, which may be 

volatile. DTCC was also concerned with 

the financial burden that significant fee 

increases could place on users over an 

extended period. 

As a user-owned and governed 

organization, DTCC does not have 

access to public markets to raise 

common equity. Accordingly, the 

Revised Shareholders Agreement would 

contain a mechanism to provide DTCC 

with the ability to raise capital by 

selling newly-issued Common Shares to 

Mandatory Share Holders on a 

mandatory basis, pro rata in accordance 

with their shareholdings at the time of 

such sale. As the principal users of the 

services and facilities of the Operating 

Subsidiaries, Mandatory Share Holders 

benefit directly from the critical 

clearance and settlement services 

provided by the Operating Subsidiaries. 

Importantly, the mechanism would only 

be exercised with the approval of 

Mandatory Share Holders holding twothirds of all Common Shares held by 

Mandatory Share Holders. Therefore, 

the implementation of this mechanism 

for any particular amount of capital or 

number of Common Shares, at any time, 

would require a vote of the Mandatory 

Share Holders. 

(4) Mandatory Repurchase of Common 

Shares 

The Revised Shareholders Agreement 

would also provide a mechanism under 

which DTCC may repurchase Common 

Shares from Mandatory Share Holders 

on a mandatory basis in an aggregate 

amount up to the aggregate amount of 

all newly-issued Common Shares 

purchased by Mandatory Share Holders. 

This would be at the discretion of the 

DTCC Board of Directors (which 

includes all the same directors as the 

Boards of DTC, NSCC, and FICC), to 

allow flexibility to return funds to 

Mandatory Share Holders if the 

Operating Subsidiaries have capital in 

excess of their capital needs. 

(5) Frequency of Reallocation of 

Already-Issued Common Shares 

The Revised Shareholders Agreement 

would provide that the reallocation of 

entitlements to own already issued 

Common Shares may take place when 

determined by the DTCC Board of 

Directors, but no less frequently than 

once every three calendar years. While 

the Existing Shareholders Agreement 

restricts DTCC from performing this 

reallocation more frequently than once 

a year, the proposed change would 

remove this restriction in order to allow 

more frequent reallocations, when 

appropriate. Each reallocation aligns a 

Common Share Holder’s entitlements to 

own already issued Common Shares 

with that firm’s use of the Operating 

Subsidiaries. This update will permit 

these alignments to take place more 

frequently and ownership of Common 

Shares can be a more contemporaneous 

reflection usage. 

(6) Other Conforming and Technical 

Amendments to the Existing 

Shareholders Agreement 

The Revised Shareholders Agreement 

would also include certain other 

technical amendments, including 

conforming and clarifying changes, as 

reflected on Exhibit 3 to this filing. 

Among those changes is an amendment 

to the definition of ‘‘Common Share 

Amount’’ in Section 1.01 of the Existing 

Shareholders Agreement (called the 

‘‘Common Share Allocation Amount’’ in 

the Revised Shareholders Agreement), 

to clarify that the calculation does not 

include any fees that are pass-through 

fees, i.e., amounts collected by an 

Operating Subsidiary for the account of 

a third party and paid by that Operating 

Subsidiary to a third party. 

The definition of ‘‘Settlement’’ in 

Section 1.01 of the Existing 

Shareholders Agreement will also be 

amended 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. This 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 

Operating Subsidiaries. 

A further clarifying amendment 

would include members of MBSD, other 

than Cash-Settling Bank Members (as 

such term is defined in the Rules of 

MBSD), within the definition of 

‘‘Mandatory Purchaser Participants.’’ As 

a result of the Commission’s approval in 

2012 of FICC becoming a central 

counterparty for transactions processed 

and cleared at its mortgage-backed 

securities division, the change would 

apply to the users of MBSD the general 

rule that full service members, 

including users of guaranteed services, 

of an Operating Subsidiary are 

Mandatory Purchaser Participants. 

The Revised Shareholders Agreement 

would also amend the definition of 

‘‘Qualified Person,’’ which sets forth the 

types of entities that may hold Common 

Shares, to exclude: (1) Federal Reserve 

Banks, because it was never intended 

that such governmental authorities 

should be required to own shares in 

DTCC, notwithstanding that they may 

use certain services of the Operating 

Subsidiaries; (2) 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 

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Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 73669 

10 12 U.S.C. 5461(a), (b). 

but not for ownership purposes; and (3) 

any other financial market infrastructure 

or utility that the DTCC Board of 

Directors determines shall not be a 

‘‘Qualified Person.’’ The Revised 

Shareholders Agreement would also 

update the definition of ‘‘Deliver’’ to 

include more convenient and 

contemporary methods of delivering 

notices, for example, by electronic mail 

where appropriate. Finally, Section 2.02 

is proposed to be updated regarding the 

transfer of Common Shares in the event 

that a Common Share Holder is no 

longer a Qualified Person, to provide 

that the pro-rata re-distribution of those 

Common Shares to all other Common 

Share Holders take place at the 

beginning of the following calendar year 

rather than contemporaneously with 

such Common Share Holder ceasing to 

be a Qualified Person, as provided in 

the Existing Shareholders Agreement. 

This change reflects current practice 

and is more practical, administratively. 

Anticipated Effect on and Management 

of Risk 

The DTCC Board of Directors 

unanimously approved the proposed 

amendments described in this filing. In 

evaluating these proposals, the Board 

carefully considered the expectations 

and obligations that are imposed on the 

Operating Subsidiaries as systemically 

important financial market utilities in 

the national system for clearance and 

settlement of securities transactions. 

The proposed changes would reduce the 

risks presented by the Operating 

Subsidiaries. The proposed change to 

the formula used to reallocate 

entitlements to purchase Common 

Shares would bring this methodology 

up to date so that the allocation 

accurately reflects the use of the 

services and facilities of the Operating 

Subsidiaries. The proposal to update the 

formula used to determine the price of 

Common Shares would provide an 

updated pricing approach, eliminating 

historical adjustments that are no longer 

relevant and providing a price based on 

tangible book value. The proposal to 

provide for the issuance of additional 

Common Shares by DTCC, subject to 

shareholder approval, for required 

purchase by Mandatory Share Holders, 

would provide a necessary source of 

capital for the protection of the 

Operating Subsidiaries, their members, 

and the financial markets in which they 

operate. The proposal also includes a 

mechanism under which DTCC may 

repurchase Common Shares from 

Mandatory Share Holders on a 

mandatory basis, at the discretion of the 

DTCC Board of Directors, so that funds 

may be returned to Mandatory Share 

Holders that furnished additional 

capital through this mechanism, for 

example, if, and when, there is excess 

capital. 

Section 805(b) of the Clearing 

Supervision Act 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.10 The proposal 

represents a fair and appropriate 

apportionment of the business risks of 

the Operating Subsidiaries among their 

users, and would allow DTCC to raise 

capital for the Operating Subsidiaries in 

order to continue to carry on their 

businesses in an efficient and effective 

manner, thereby promoting safety and 

soundness of the operations of the 

Operating Subsidiaries, reducing their 

general business risks as well as 

systemic risk, and supporting stability 

in the U.S. securities markets and the 

broader financial system. Additionally, 

the provision for DTCC, subject to 

Mandatory Share Holder approval, to 

sell newly-issued Common Shares to 

Mandatory Share Holders is critical to 

the capitalization of the Operating 

Subsidiaries. Maintenance of adequate 

financial resources is a key element in 

reducing systemic risk, and serves to 

limit the contagion that could flow from 

an isolated disruption to the wider 

financial markets. In this way, the 

proposal to raise capital would also 

reduce systemic risk and serves to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions and the protection of 

investors, particularly in times of 

market stress or crisis. The proposed 

provision that would allow for the 

repurchase of Common Shares from 

Mandatory Share Holders at the 

discretion of the DTCC Board of 

Directors protects Mandatory Share 

Holders by returning funds to those 

firms, for example, if, and when, there 

is excess capital. 

Finally, the proposal to allow DTCC 

to reallocate entitlements to own 

Common Shares more frequently than 

once every year allows DTCC to align 

ownership of Common Shares with 

Common Share Holders’ usage of the 

Operating Subsidiaries on a more 

contemporaneous basis, when 

appropriate. This proposed change 

reduces the risk that Common Share 

Holders own Common Shares that are 

no longer proportionate to their current 

use of the Operating Subsidiaries. 

Implementation Timeframe. The 

Revised Shareholders Agreement would 

become effective (1) upon the approval 

of the Common Share Holders; and (2) 

if the Commission does not object to the 

Advance Notices within 60 days of the 

later of (i) the date the Commission 

receives the Advance Notices, or (ii) the 

date the Commission receives any 

further information it requests for 

consideration of the Advance Notices. 

III. Date of Effectiveness of the Advance 

Notices, and Timing for Commission 

Action 

The proposed change may be 

implemented if the Commission does 

not object to the proposed change 

within 60 days of the later of (i) the date 

that the proposed change was filed with 

the Commission or (ii) the date that any 

additional information requested by the 

Commission is received. The Operating 

Subsidiaries shall not implement the 

proposed change if the Commission has 

any objection to the proposed change. 

The Commission may extend the 

period for review by an additional 60 

days if the proposed change raises novel 

or complex issues, subject to the 

Commission providing the Operating 

Subsidiaries with prompt written notice 

of the extension. A proposed change 

may be implemented in less than 60 

days from the date the Advance Notices 

were filed, or the date further 

information requested by the 

Commission is received, if the 

Commission notifies the Operating 

Subsidiaries in writing that it does not 

object to the proposed change and 

authorizes the Operating Subsidiaries to 

implement the proposed change on an 

earlier date, subject to any conditions 

imposed by the Commission. 

The Operating Subsidiaries shall post 

notice on DTCC’s Web site of proposed 

changes that are implemented. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the Advance Notices 

are consistent with the Clearing 

Supervision 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– 

FICC–2014–810, SR–NSCC–2014–811 or 

SR–DTC–2014–812 on the subject line. 

mstockstill on DSK4VPTVN1PROD with NOTICES

73670 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

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

2 17 CFR 240.19b–4. 

3Rule 6710 generally defines a ‘‘TRACE-Eligible 

Security’’ as: (1) A debt security that is U.S. dollardenominated and issued by a U.S. or foreign private 

issuer (and, if a ‘‘restricted security’’ as defined in 

Securities Act Rule 144(a)(3), sold pursuant to 

Securities Act Rule 144A); or (2) a debt security that 

is U.S. dollar-denominated and issued or 

guaranteed by an ‘‘Agency’’ as defined in Rule 

6710(k) or a ‘‘Government-Sponsored Enterprise’’ as 

defined in Rule 6710(n). 

4FINRA Rule 6730(c)(6) provides that each 

TRACE trade report shall contain the contra-party’s 

identifier. 

5The proposed rule change would add a new 

definition to Rule 6710 to define ‘‘non-member 

affiliate’’ as a non-member entity that controls, is 

controlled by or is under common control with a 

member. For the purposes of this definition, 

‘‘control,’’ along with any derivative thereof, means 

legal, beneficial, or equitable ownership, directly or 

indirectly, of 25 percent or more of the capital stock 

(or other ownership interest, if not a corporation) 

of any entity ordinarily having voting rights. The 

term ‘‘common control’’ means the same natural 

person or entity controls two or more entities. 

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–FICC–2014–810, SR– 

NSCC–2014–811 or SR–DTC–2014–812. 

One of these file numbers 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 Advance Notices that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notices 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 Operating Subsidiaries and 

on DTCC’s Web site at http://dtcc.com/ 

legal/sec-rule-filings.aspx. 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–FICC–2014–810, SR– 

NSCC–2014–811 or SR–DTC–2014–812 

and should be submitted on or before 

January 2, 2015. 

By the Commission. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29005 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73762; File No. SR–FINRA– 

2014–050] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

TRACE Rules To Require Members To 

Identify Transactions With NonMember Affiliates and To Change How 

FINRA Disseminates a Subset of Such 

Transactions 

December 5, 2014. 

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 November 

21, 2014, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. 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 

FINRA is proposing to amend the 

FINRA Rule 6700 Series (Trade 

Reporting and Compliance Engine 

(TRACE)) to require members to identify 

transactions with non-member affiliates, 

and to change how FINRA disseminates 

a specific subset of these transactions. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA 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. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA is amending the TRACE rules: 

(1) To add a new contra-party type to be 

used in TRACE reports to identify 

transactions with non-member affiliates, 

and (2) to require firms to identify when 

transactions with non-member affiliates 

meet specified conditions, so that 

FINRA can suppress dissemination of 

those trades. 

FINRA Rule 6730 (Transaction 

Reporting) sets forth the requirements 

applicable to members for reporting 

transactions in TRACE-Eligible 

Securities.3 Rule 6730(c) (Transaction 

Information To Be Reported) describes 

the items of information that must be 

included in a TRACE trade report. 

Among other things, members must 

identify the other side (i.e., contra-party 

or counterparty) for each transaction.4

Where the contra-party is a FINRA 

member, the reporting member must 

provide the contra-party’s designated 

Market Participant ID (‘‘MPID’’) in the 

trade report. All other contra-parties 

(including non-member affiliates) can 

only be identified as a ‘‘customer’’ when 

reporting the transaction to TRACE. 

FINRA is proposing to amend Rule 

6730 to introduce a new contra-party 

type to identify non-member affiliates of 

the member reporting the trade, and to 

disseminate publicly this contra-party 

identifier.5 Currently, as noted above, 

when a member engages in a transaction 

with a non-member affiliate, that 

transaction is reported by the member as 

a trade with a customer. Thus, the 

proposal would provide FINRA and 

market participants with additional 

identifying information regarding the 

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