Document ID: SEC-2008-0601-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2008-04-22T04:00Z

[Federal Register: April 22, 2008 (Volume 73, Number 78)]
[Notices]               
[Page 21673-21675]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap08-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57665; File No. SR-DTC-2007-05]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change to Restructure Its Rules 
Relating to Fines and To Harmonize Them With Similar Rules of Its 
Affiliates

April 15, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 21674]]

(``Act''),\1\ notice is hereby given that on May 15, 2007, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') and on December 10, 2007, amended 
the proposed rule change as described in Items I, II, and III below, 
which items have been prepared primarily by DTC. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change seeks to amend DTC's fine structure 
relating to participants not providing financial information and notice 
of significant corporate changes to DTC in a timely manner and to 
harmonize DTC's rules with similar rules of DTC's affiliates, the 
National Securities Clearing Corporation (``NSCC'') and the Fixed 
Income Clearing Corporation (``FICC''). NSCC and FICC have filed 
similar proposed rule changes.\2\ DTC's proposed fine schedule is set 
forth in Exhibit 5 to its proposed rule change.
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    \2\ Securities Exchange Act Release No. 57667 (April 15, 2008) 
[SR-NSCC-2007-07]. Securities Exchange Act Release No. 57666 (April 
15, 2008) [SR-FICC-2007-05].
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DTC included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Fines Scheduled for Failure to Submit Financial and Other 
Information
    DTC's rules (a) require participants to submit certain financial, 
regulatory, and other information within certain time frames and (b) 
enable DTC to levy fines against participants for violations of its 
rules. However, DTC's rules do not explicitly set forth the amount of 
the fine with respect to failure to submit such information. As part of 
the ongoing effort to harmonize its rules with those of its clearing 
agency affiliates, DTC is proposing to adopt FICC's fine schedule for 
such violations.\4\ Pursuant to its filing, participants would be fined 
$300, $600, and $1,500 for their first, second, and third occasion of 
failing to timely provide financial and other related information. The 
determination of the fine amount for the fourth and any subsequent 
occurrence of a late submission offense within a twelve-month rolling 
period would be made by management of DTC with the concurrence of the 
Board of Directors or a committee appointed by the Board.
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    \4\ NSCC has also proposed to adopt FICC's schedule. See File 
No. NSCC-2007-07.
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    Often a member that is fined is a common member of DTC and FICC, 
DTC and NSCC, or DTC, FICC, and NSCC (collectively the ``Clearing 
Agencies''), which would cause the member to incur multiple penalties 
for the same offense. DTC is proposing that when a common member of the 
Clearing Agencies is late in providing the same information to more 
than one Clearing Agency, the fine amount will be divided equally among 
the Clearing Agencies.\5\
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    \5\ For example, if a firm that is a member of DTC and FICC did 
not submit its annual audited financial statements within the 
required time frame, and this was the firm's first failure to meet 
the deadline, the $200 fine will be split equally between DTC and 
FICC.
    Where the member is a participant of DTC and also a member of 
one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
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(2) General Continuance Standards
    DTC Rule 2 sets forth the basic standards for the admission of DTC 
participants. The rule states that the admission of a participant is 
subject to an applicant's demonstration that it meets reasonable 
standards of financial responsibility, operational capability, and 
character. Rule 2 also requires DTC participants to demonstrate that 
these standards are met on an ongoing basis. Each applicant, upon 
approval of its application for DTC participation, signs a letter of 
representation that outlines the nature of the applicant's business, 
its DTC settlement projections, and its financial condition at the time 
of the approval and that requires the applicant to affirm that such 
representations are accurate. Moreover, the participant acknowledges 
its obligation to promptly notify DTC whenever there is any anticipated 
change in the representations given.
    Under Rule 10, if a participant fails to continue to adhere to 
these standards, then DTC, based on its judgment, may at any time cease 
to act for the participant with respect to a particular transaction, 
particular transactions, transactions generally, or a program and may 
terminate a participant's right to act as a Settling Bank. Both Rule 2 
and Rule 10 give DTC the discretion to admit participants or to 
continue to act for them on a temporary or other conditional basis.
    In the interest of harmonizing this provision with a similar FICC 
provision, DTC is proposing to: (a) Require a member to notify DTC of a 
member's non-compliance with general member continuance standards 
within two business days; (b) require the member to notify DTC within 
the two-day time frame if it becomes subject to a statutory 
disqualification; and (c) subject the member to a $1,000 fine for 
failure to timely notify DTC.
    In addition, DTC proposes to add a provision to its fine schedule 
that would impose a fine in the amount of $5,000 if a participant fails 
to notify DTC of a ``material change'' to its business. A ``material 
change'' would include events such as a merger or acquisition involving 
the participant, a change in corporate form, a name change, a material 
change in ownership, control or management, and participation as a 
defendant in litigation which could reasonably be anticipated to have a 
direct negative impact on the participant's financial condition or 
ability to conduct its business. The proposed provision would provide 
that the notification must be provided 90 calendar days prior to the 
effective date of such event unless the participant demonstrates that 
it could not have reasonably have given notice within that time frame.
    With respect to both fines, DTC is proposing that when a common 
member's failure to timely notify relates to the same information to 
more than one Clearing Agency, the fine amount will be divided equally 
among the Clearing Agencies.\6\
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    \6\ Where the member is a participant of DTC and also a member 
of one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
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    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder. The proposed rules and fine provisions are 
intended to protect DTC and its participants from undue risk.

[[Page 21675]]

DTC further states that the proposed changes will assist DTC and its 
participants in interpreting and understanding its fines. As a result, 
DTC will be better able to assure the safeguarding of securities in 
DTC's possession or control or for which it is responsible.
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    \7\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    DTC has not solicited or received written comments relating to the 
proposed rule change.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date 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 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 e-mail to rule-comments@sec.gov. Please include 
File No. DTC-2007-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-DTC-2007-05. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at DTC's principal office and on DTC's Web site 
at http://www.dtcc.com/downloads/legal/rule_filings/2007/dtc/2007-
05.pdf and http://www.dtcc.com/downloads/legal/rule_filings/2007/dtc/
2007-05-amendment.pdf. 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 No. SR-
DTC-2007-05 and should be submitted on or before May 13, 2008.

    For the Commission by the Division of Trading and Markets 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-8598 Filed 4-21-08; 8:45 am]

BILLING CODE 8010-01-P