Document ID: SEC-2018-1333-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Company
Posted Date: 2018-08-23T04:00Z

[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)]
[Notices]
[Pages 42743-42749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18159]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83871; File No. SR-DTC-2018-007]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Process of the Reduction of Dividend or Interest Payments to 
a Participant on Treasury Shares or Repurchased Debt Securities

August 17, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 9, 2018, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II and III below, which Items have 
been prepared by the clearing agency. DTC filed the proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) \4\ thereunder. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change of DTC would amend the Operational 
Arrangements and the Distributions Guide`` \5\ to streamline the 
process for reducing payment to a Participant of a dividend or interest 
payment with respect to an equity or debt security, when such 
Participant held, on the record date for the distribution: (i) Shares 
of the security that had been repurchased by the issuer of the security 
(``Treasury Shares'') or (ii) debt that had been repurchased by the 
issuer of the debt (``Repurchased Debt Securities''). Specifically, DTC 
proposes to provide functionality to Participants so that a Participant 
that held Treasury Shares or Repurchased Debt Securities on the record 
date would use the Corporate Actions Web (``CA Web'') to reduce its 
entitlement to the distribution by the amount attributable to the 
Treasury Shares or Repurchased Debt Securities. The proposed rule 
change would also amend the Fee Guide to modify and clarify the fees 
associated with Treasury Shares or Repurchased Debt Securities 
adjustments.\6\ In addition, DTC would make ministerial and clarifying 
changes to the Operational Arrangements and the Fee Guide, as discussed 
below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx; the DTC Operational 
Arrangements (Necessary for Securities to Become and Remain Eligible 
for DTC Services) (``Operational Arrangements''), available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/issue-eligibility/
eligibility/operational-arrangements.pdf; the Distributions Service 
Guide (the ``Distributions Guide''), available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Service%20Guide%20Distributions.pdf; and the Guide to the 2018 DTC 
Fee Schedule (``Fee Guide''), available at http://www.dtcc.com/~/
media/Files/Downloads/legal/fee-guides/dtcfeeguide.pdf.
    \6\ The proposed rule changes with respect to the Fee Guide 
would apply to Treasury Shares or Repurchased Debt Securities 
position adjustments in connection with distributions with a record 
date as well as to distributions with an effective date (i.e., 
mandatory corporate actions). For information on the process for 
reducing payment on Treasury Shares or Repurchased Debt Securities 
in connection with an effective date distribution, see Operational 
Arrangements, supra note 5, at 42-43.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend the Operational Arrangements 
and the Distributions Guide to streamline the process for reducing 
payment to a Participant of a dividend or interest payment with respect 
to an equity or debt security, when such Participant held, on the 
record date for the distribution, Treasury Shares or Repurchased Debt 
Securities. Specifically, DTC proposes to provide functionality to 
Participants so that a Participant that held Treasury Shares or 
Repurchased Debt Securities on the record date would use the CA Web to 
reduce its entitlement to the distribution by the amount attributable 
to the Treasury Shares or Repurchased Debt Securities. The proposed 
rule change would also amend the Fee Guide to modify and clarify the 
fees associated with Treasury Shares or Repurchased Debt Securities 
adjustments. In addition, DTC would make ministerial and clarifying 
changes to the Operational Arrangements and the Fee Guide, as discussed 
below.
(i) Background
A. Dividend and Interest Payments
    DTC receives information on dividend and interest payment 
distributions (each, an ``announcement'') from the issuer, the transfer 
agent or paying agent of the issuer (each, an ``Agent''), exchanges, 
trustees, and various other industry sources.\7\ An announcement of a 
distribution typically includes, among other things, a security 
description and CUSIP, record date, payable date, and either the rate 
per share for a dividend or the interest rate per $1,000 principal 
amount. DTC uses the information to

[[Page 42744]]

publish a notice of the distribution to its Participants.\8\
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    \7\ DTC also maintains internal records for scheduled fixed rate 
interest and principal payments.
    \8\ DTC typically publishes announcements via CA Web and 
International Organization for Standardization (``ISO'') 20022 
messaging. For information about CA Web and ISO 20022, see 
Securities Exchange Act Release No. 79746 (January 5, 2017), 82 FR 
3372 (January 11, 2017) (SR-DTC-2016-014).
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    With respect to a distribution with a record date (a ``Record Date 
Distribution''), DTC systemically captures the position in the subject 
security for each Participant as of the record date (``Record Date 
Position''). DTC calculates the distribution entitlement of each 
Participant based on its Record Date Position, the rate information in 
the announcement, and any elections of the Participant with respect to 
options offered by distribution event, if applicable.\9\ Each 
Participant may view its projected entitlements as calculated by 
DTC.\10\ Based on the aggregate entitlements of all Participants that 
had position in the CUSIP on the record date, DTC calculates the amount 
of funds (for an interest payment or cash dividend) and/or shares of 
stock (for a stock dividend) it expects to receive from the Agent on 
the payable date (``DTC Expected Payment'').
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    \9\ Examples of option types include elections for cash, 
securities, or a combination of both.
    \10\ A Participant can obtain information about its Record Date 
Positions and entitlements from DTC through DTC's Computer-to-
Computer Facility (``CCF'') files, CA Web and ISO 20022. For 
information about CCF files, see Securities Exchange Act Release No. 
79746 (January 5, 2017), 82 FR 3372 (January 11, 2017) (SR-DTC-2016-
014). It is the Participant's responsibility to verify the accuracy 
of information against its own records, and to report any 
discrepancy to DTC. See Distributions Guide, supra note 5, at 24.
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    Typically, on the Business Day prior to the payable date, DTC will 
confirm the DTC Expected Payment with the Agent. On the payable date, 
DTC receives the payment of funds and/or shares of stock from the 
Agent. After DTC validates that it has received the full amount of the 
DTC Expected Payment, DTC will allocate the distribution to 
Participants in accordance with the entitlement of each Participant.
B. Current Process for the Reduction of Payment on Treasury Shares or 
Repurchased Debt Securities (for Cash Dividend, Stock Dividend, or 
Interest Payments)
    An issuer may engage in a stock or debt buyback program, which may 
include repurchasing its securities through a broker dealer or market 
maker that is a Participant or a direct or indirect customer of a 
Participant. If the repurchased securities are neither cancelled by the 
issuer nor withdrawn from DTC by the Participant before the record date 
for a distribution, then the Participant would be holding Treasury 
Shares or Repurchased Debt Securities on the record date.
    A Participant that is holding Treasury Shares or Repurchased Debt 
Securities on the record date (which, by definition, the Participant 
holds directly or indirectly for the benefit of the issuer), should not 
receive a distribution payment with respect to such shares because, 
generally, an issuer does not make a distribution to itself. As such, 
an Agent should not include Treasury Shares or Repurchased Debt 
Securities when it calculates the total amount of a Record Date 
Distribution it will pay DTC on the payable date.
    However, DTC does not have independent knowledge of whether a 
Participant is holding Treasury Shares or Repurchased Debt Securities. 
If DTC is not aware that the Record Date Position of a Participant 
includes Treasury Shares or Repurchased Debt Securities, DTC would 
calculate its DTC Expected Payment based on the total of Record Date 
Positions of its Participants, including any Treasury Shares or 
Repurchased Debt Securities. The imbalance may not be discovered until 
DTC confirms the DTC Expected Payment with the Agent on the Business 
Day prior to the payable date, or even on the payable date, when DTC 
may receive a distribution from the Agent that is less than the DTC 
Expected Payment (because the Agent did not include the funds and/or 
shares of stock otherwise attributable to the Treasury Shares or 
Repurchased Debt Securities).
    DTC needs to be informed of the amount of any Treasury Shares or 
Repurchased Debt Securities that were held by any Participant on the 
record date, so DTC can reduce the captured Record Date Position of the 
relevant Participant, recalculate the expected entitlement of such 
Participant and adjust the DTC Expected Payment accordingly. For 
example, if ten shares of CUSIP X were credited to the account of a 
Participant on the record date for a dividend distribution for CUSIP X, 
the captured Record Date Position of the Participant would be ten 
shares of CUSIP X. Ordinarily, DTC would calculate the amount of the 
entitlement of the Participant to the dividend by applying the 
announced rate for the distribution to the Record Date Position of ten 
shares. However, assume that four of the ten shares of CUSIP X of the 
Participant's Record Date Position were Treasury Shares. The 
Participant would not be entitled to receive a dividend for its entire 
Record Date Position of ten shares of CUSIP X. Once informed that the 
Participant was holding four shares of CUSIP X that were Treasury 
Shares on the record date, DTC would need to reduce the Record Date 
Position of the Participant by four shares. DTC would then need to 
recalculate the entitlement of the Participant by applying the 
announced rate to the adjusted Record Date Position of six shares of 
CUSIP X.
    As currently provided in the Operational Arrangements, an issuer or 
Agent must notify DTC in writing that one or more Participants held 
Treasury Shares or Repurchased Debt Securities on the record date, and 
that the DTC Expected Payment will be reduced by the amount 
attributable to the Treasury Shares or Repurchased Debt Securities held 
by the Participant(s). The issuer or Agent letter must include 
identification of the security, record date, payable date, the total 
number of Treasury Shares or Repurchased Debt Securities held at DTC on 
the record date, Participant name and number, and number of shares/
principal value per Participant subject to the reduction.\11\ DTC must 
also receive a signed letter from each Participant that was holding the 
Treasury Shares or Repurchased Debt Securities that includes, among 
other things, a Participant officer-level authorization of the 
reduction, and an indemnification statement.\12\
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    \11\ Since 2002, the issuer or Agent has been responsible for 
notifying DTC of a payment reduction due to Treasury Shares or 
Repurchased Debt Securities. See Securities Exchange Release No. 
45994 (May 29, 2002), 67 FR 39452 (June 7, 2002) (SR-DTC-2002-02).
    \12\ In 2011, DTC modified the process to require that the 
issuer or Agent also provide DTC with Participant(s) confirmation 
letters of the Treasury Shares or Repurchased Debt Securities that 
they held on the record date. Securities Exchange Act No. 65901 
(December 6, 2011), 76 FR 77281, 77282 (December 12, 2011) (SR-DTC-
2011-10).
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    The letters from the issuer or Agent and Participant(s) must be 
emailed to the designated DTC mailbox no later than three Business Days 
prior to the payable date. Once DTC receives the letters, DTC manually 
verifies the information in the letters against the applicable 
distribution announcement for CUSIP, record date, payable date, and 
rate, and validates the Record Date Position of the applicable 
Participant(s). DTC staff then use the Position Adjustment Tool 
(``PAT''), an existing internal function of its Participant Browser 
System (``PBS''), to reduce the Record Date Position of the 
Participant(s) by the amount of the Treasury Shares or Repurchased Debt 
Securities that were held by the Participant(s) on the record date.\13\ 
The

[[Page 42745]]

projected entitlement of the Participant(s) to the distribution is then 
recalculated by applying the announced rate to the adjusted Record Date 
Position(s). The manual reduction must be completed on or before two 
Business Days prior to the payable date, because PAT requires overnight 
processing. On the Business Day prior to the payable date, DTC reviews 
and adjusts, as necessary, any of the elections the Participant(s) made 
prior to the position reduction (e.g., tax elections or dividend 
reinvestment) that may have been affected by the adjustment.\14\
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    \13\ This adjustment only affects the captured Record Date 
Position for purposes of the distribution. There is no change to the 
actual position held by the Participant.
    \14\ The DTC Expected Amount would be recalculated accordingly.
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C. Current Fees
    Currently, each Participant is charged fifty dollars ($50) per 
position adjustment,\15\ provided that the adjustment is made no later 
than two Business Days prior to the payable date (a ``timely'' position 
adjustment).\16\
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    \15\ Position adjustment fees are charged per adjustment 
irrespective of security-type or value of the distribution. These 
fees also apply to position adjustments with respect to 
distributions with an effective date. Position adjustments in 
connection with a distribution with an effective date are infrequent 
and may occur approximately once a year.
    \16\ See Fee Guide, supra note 5, at 8. The fee was established 
in 2011 at forty dollars ($40) to recover costs. See Securities 
Exchange Act Release No. 63659 (January 6, 2011), 76 FR 2430 
(January 13, 2011) (SR-DTC-2010-17). The fee was increased in 2013 
to fifty dollars ($50). See Securities Exchange Act Release No. 
65597 (May 16, 2013), 78 FR 30382 (May 22, 2013) (SR-DTC-2013-06).
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    If a Participant submits a position adjustment request less than 
two Business Days prior to the payable date (a ``late'' position 
adjustment), it is charged a fee of three hundred and fifty dollars 
($350) reflecting (i) DTC costs associated with the adjustment, and 
(ii) a disincentive charge, in order to discourage late position 
adjustments, which require exception processing.\17\
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    \17\ See Fee Guide, supra note 5, at 8. The fee was established 
in 2011 at three hundred dollars ($300) to recover the increased 
costs of late adjustments as well as to discourage behavior that was 
keeping the industry from achieving peak efficiency (i.e., exception 
processing due to late submissions). See Securities Exchange Act 
Release No. 63659 (January 6, 2011), 76 FR 2430 (January 13, 2011) 
(SR-DTC-2010-17). When DTC makes a position adjustment with less 
than two Business Days prior to the payable date, (i) it requires 
additional analysis, (ii) the payable date activities and 
calculations for the distribution are disrupted, and (iii) resources 
need to be diverted to perform research, resolve any imbalance with 
the Agent, and coordinate the return of any overpayment. The fee was 
increased in 2013 to three hundred and fifty dollars ($350) to 
further discourage exception processing and to more closely align to 
the amount of risk presented, as well as to the costs of additional 
research and analysis by DTC to ascertain exact event details, 
Participant entitlements and payment calculations. See Securities 
Exchange Act Release No. 65597 (May 16, 2013), 78 FR 30382 (May 22, 
2013) (SR-DTC-2013-06). Approximately two hundred and fifty dollars 
($250) of the fee was attributable to cost recovery, the balance of 
approximately one hundred dollars ($100) was a charge to discourage 
exception processing. Since then, approximately 10% of all Record 
Date Position adjustments have been late.
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(ii) Proposal
A. Position Adjustment Tool
    DTC is in the process of migrating PAT from PBS to CA Web, and, 
pursuant to the proposed rule change, would make this functionality 
available to Participants for this purpose. The proposed rule change 
would provide that a Participant that held Treasury Shares or 
Repurchased Debt Securities on the record date must use the PAT 
functionality on the CA Web to reduce its Record Date Position by the 
amount of the Treasury Shares or Repurchased Debt Securities it held on 
the record date.\18\ By allowing Participants to use this 
functionality, and by removing direct DTC intervention, the proposed 
rule change would help automate and streamline the position adjustment 
process, reducing the risk of errors and delays associated with the 
manual submission and processing of Record Date Position 
adjustments.\19\ In addition, for timely position adjustments, an 
issuer or Agent would no longer be required to initiate the position 
adjustment.\20\
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    \18\ The requirement to use the CA Web PAT functionality would 
only apply to Record Date Distributions. DTC will continue to use 
the existing manual process and forms with respect to distributions 
with an effective date. See Operational Arrangements, supra note 5, 
at 42-43.
    \19\ Such errors may include, but are not limited to, data input 
errors, event misidentification, and entitlement calculation errors. 
Such errors could result in incorrect allocations which would need 
to be reversed and reallocated, thereby affecting payment finality. 
Even pre-allocation, such errors could lead to an imbalance with the 
Agent. If DTC cannot balance with the Agent, the allocation of the 
distribution could be delayed while DTC researches and resolves the 
issue and rebalances with the Agent. Reversed or delayed allocations 
could also impact Participants that had relied on the allocation to 
effect other securities transactions and would therefore impact the 
prompt and accurate clearance and settlement of securities 
transactions.
    \20\ Since the requirement for Participant confirmation letters 
was added in 2011, DTC has increasingly relied on the Participant 
confirmation letters and DTC's reconciliation with the issuer or 
Agent before the payable date. As such, DTC believes that the 
initial issuer or Agent letter would not be necessary in connection 
with a Participant's position adjustment through the CA Web, because 
the entitlements would systemically be updated and would be more 
easily reconciled with the issuer or Agent.
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    DTC believes that the process for a Participant to adjust its 
Record Date Position for a distribution using PAT functionality on CA 
Web would be straightforward. Currently, a Participant can view its 
Record Date Position and its entitlement with respect to a specific 
distribution event on the ``Entitlements'' tab on CA Web. Pursuant to 
the proposed rule change, the PAT functionality for a Record Date 
Distribution would be available on the Entitlements tab for any 
Participant that held a position on the record date. Using PAT, the 
Participant would reduce its Record Date Position in the subject CUSIP 
by the amount of Treasury Shares or Repurchased Debt Securities it held 
on the record date. The DTC system would then systemically recalculate 
the entitlement of the Participant based on the adjusted Record Date 
Position.
    The proposed rule change would not affect the existing deadline for 
submitting a timely Record Date Position adjustment.\21\ Therefore, a 
Participant would have to make its position adjustment through the CA 
Web no later than two Business Days prior to the payable date. If a 
Participant wants to adjust its entitlement less than two Business Days 
prior to the payable date, it would have to follow the existing manual 
process described above.
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    \21\ PAT would continue to require overnight processing.

B. Fee Change
    Pursuant to the proposed rule change, DTC would amend the Fee Guide 
to modify the fees associated with position adjustments with respect to 
Treasury Shares or Repurchased Debt Securities, in order to (i) align 
the fees with the operational costs of processing a Record Date 
Position adjustment and (ii) encourage Participants to process their 
own Record Date Position adjustments with the PAT functionality through 
CA Web, rather than relying on the manual and exception processing that 
is required for a late position adjustment.
    Under the proposed rule change, a Participant that adjusts its 
position no later than two Business Days prior to the payable date 
would be charged twenty-five dollars ($25) per adjustment, a decrease 
from the current fee of fifty dollars ($50).\22\ DTC believes that the 
lower fee would be appropriate because DTC would have reduced costs due 
to the decrease in DTC's manual processing.
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    \22\ See supra note 16.
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    In addition, DTC would increase the fee charged to the Participant 
for a position adjustment performed less than two Business Days prior 
to the payable date. The fee would be increased from three hundred and 
fifty dollars ($350) to five hundred dollars ($500) per adjustment. The 
purpose of the proposed increase is to encourage

[[Page 42746]]

Participants to use the PAT functionality to perform Record Date 
Position adjustments by discouraging the late submissions of position 
adjustments, which would continue to require manual and exception 
processing.\23\
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    \23\ See supra note 17. Approximately two hundred and fifty 
dollars ($250) of the proposed fee would be attributable to cost, 
and the balance of approximately two hundred and fifty dollars 
($250) would be a disincentive charge.
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(iii) Proposed Rule Changes
A. Operational Arrangements
    Section IV.C.2.
    Pursuant to the proposed rule change, the Operational Arrangements 
would be amended to add a paragraph under the current heading 
``Reduction of Payment on Treasury or Repurchased Securities (for Cash 
Dividend or Interest Payment),'' which would be retitled ``Reduction of 
Payment on Treasury Shares or Repurchased Debt Securities (for Cash 
Dividend or Interest Payment)'' to clarify that the process applies to 
both debt and equity securities. The proposed paragraph would state 
that ``[a] Participant that holds treasury shares or repurchased debt 
securities (i.e., issuer buy-back) at DTC on the record date for a cash 
dividend or interest payment shall submit an instruction through the 
Corporate Actions Web (``CA Web'') to reduce its entitlement to the 
payment by the amount attributable to such treasury shares or 
repurchased securities. Such instruction must be submitted by the 
Participant no later than two business days prior to payable date; 
otherwise, an instruction will need to be manually submitted to DTC in 
accordance with the below process.''
    The proposed rule change would not substantively change the 
existing paragraph that describes the manual process that would be 
required of the issuer or Agent if a Participant does not submit an 
instruction through CA Web no less than two Business Days prior to the 
payable date. However, pursuant to the proposed rule change, the 
paragraph would be amended to clarify language. Specifically, the 
paragraph would reflect that the manual process would apply if the 
Participant does not submit an instruction through CA Web, and language 
about a deadline that is no longer applicable would be removed.
    Section IV.D.3.
    Pursuant to the proposed rule change, the Operational Arrangements 
would be amended to add a paragraph under the current heading 
``Reduction of Payment on Treasury or Repurchased Securities (for Stock 
Dividend Payments),'' which would be retitled ``Reduction of Payment on 
Treasury Shares (for Stock Dividend Payments)'' to clarify that the 
process applies to equity securities. The proposed paragraph would 
state that ``[a] Participant that holds treasury shares at DTC on the 
record date for a stock dividend payment shall submit an instruction 
through the CA Web to reduce its entitlement to the distribution by the 
amount attributable to such treasury shares. Such instruction must be 
submitted by the Participant no later than two business days prior to 
payable date; otherwise, an instruction will need to be manually 
submitted to DTC in accordance with the below process.''
    The proposed rule change would not substantively change the 
existing paragraph that describes the manual process that would be 
required of the issuer or Agent if a Participant misses the cut-off for 
adjusting its Record Date Position with PAT. However, pursuant to the 
proposed rule change, the paragraph would be amended to streamline 
language. Specifically, the paragraph would reflect that it would apply 
if the Participant does not submit an instruction through CA Web no 
less than two Business Days prior to the payable date, and language 
about a deadline that is no longer applicable would be removed.
    Section VI.B.1.
    In addition, for consistency, DTC proposes to replace the current 
heading with ``Reduction of Payment on Treasury Shares or Repurchased 
Debt Securities.''
B. Distributions Guide
    As discussed above, pursuant to the proposed rule change, an issuer 
or Agent would no longer be required to initiate a Record Date Position 
adjustment with respect to Treasury Shares or Repurchased Debt 
Securities.\24\ Rather, a Participant that held Treasury Shares or 
Repurchased Debt Securities on the record date for a distribution would 
be able to directly adjust its own Record Date Position. As such, DTC 
is proposing to amend the Distributions Guide to add a section titled 
``Position Adjustment for Reduction of Payment on Treasury Shares or 
Repurchased Debt Securities (for Record Date Distributions).'' The 
section would provide that ``[t]o the extent that a participant is 
holding treasury shares or repurchased debt securities (i.e., issuer 
buyback) on the record date for a cash or stock dividend or interest 
payment, the participant may not be entitled to the distribution. The 
participant must utilize the position adjustment tool in CA Web to 
reduce its record date position of the subject CUSIP by the amount of 
the treasury or repurchased securities, so that it will not be funded 
on payable date for such securities. Position adjustments through CA 
Web must be made no later than two business days prior to payable date. 
On or after the business day prior to payable date, the adjustment will 
need to be manually processed, as further described in the Operational 
Arrangements, and the participant will be subject to an additional 
fee.''
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    \24\ See supra note 20.

C. Fee Guide
    Pursuant to the proposed rule change, the Fee Guide would be 
amended to reflect that the fee charged to a Participant that adjusts 
its position with respect to Treasury Shares or Repurchased Debt 
Securities on or before two Business Days prior to the payable date 
would be twenty-five dollars ($25), a decrease from the current fee of 
fifty dollars ($50). The Fee Guide would also be amended to reflect 
that the fee charged to a Participant for a position adjustment 
performed less than two Business Days prior to the payable date would 
be increased from three hundred and fifty dollars ($350) to five 
hundred dollars ($500).
    For enhanced clarity, DTC is proposing to change the relevant 
heading in the Fee Guide from ``Treasury Shares'' to ``Treasury Shares 
or Repurchased Debt Securities Adjustments'' to reflect that the 
process and fees apply to both equity and debt securities. For 
consistency, DTC would also modify the fee names under this heading 
from ``Treasury Shares Adjustments'' to ``Treasury Shares or 
Repurchased Debt Securities Adjustments'' and from ``Late Treasury 
Shares Adjustments'' to ``Late Treasury Shares or Repurchased Debt 
Securities Adjustments.''
    Pursuant to the proposed rule change, DTC would modify the 
conditions listed in the Fee Guide to clarify the time at which an 
adjustment is late, in order to conform to current practice. For 
``Treasury Shares or Repurchased Debt Securities Adjustments,'' the 
condition would be modified to state: ``Per adjustment made on or 
before 2 business days prior to payable date.'' For ``Late Treasury 
Shares or Repurchased Debt Securities Adjustments,'' the condition 
would be modified to state: ``Per adjustment made less than 2 business 
days prior to payable date.''
D. Implementation Timeframe
    DTC expects to implement the proposed changes no earlier than 
thirty

[[Page 42747]]

(30) days after the date of filing, or such shorter time as the 
Commission may designate, and no later than October 1, 2018. DTC would 
announce the implementation date of the proposed change by Important 
Notice, posted to its website.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Specifically, DTC believes 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act \25\ and Section 17A(b)(3)(D) of the Act \26\ for the 
reasons described below.
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    \25\ 15 U.S.C. 78q-1(b)(3)(F).
    \26\ 15 U.S.C. 78q-1(b)(3)(D).
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    Section 17A(b)(3)(F) of the Act requires, inter alia, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\27\ By automating the Record 
Date Position adjustment process for Treasury Shares and Repurchased 
Debt Securities, thereby reducing the manual intervention by DTC, the 
proposed rule change would (i) increase the efficiency of the DTC 
centralized processing of dividend and interest payments by 
streamlining the Record Date Position adjustment process, and (ii) 
reduce the risk of errors and delays associated with manual 
processing,\28\ which DTC believes would promote the prompt and 
accurate clearance of securities transactions by DTC. In addition, the 
proposed rule change would make clarifying and ministerial changes to 
the Operational Arrangements and Fee Guide. Making clarifying and 
ministerial changes to help ensure that the procedures relating to 
position adjustments in connection with Treasury Shares or Repurchased 
Debt Securities are accurate and clear would facilitate Participants' 
understanding of their rights and obligations with respect thereto. 
When Participants better understand their rights and obligations 
regarding DTC's services, they can act in accordance with the Rules, 
which DTC believes would promote the prompt and accurate clearance and 
settlement of securities transactions by DTC. Therefore, DTC believes 
that these proposed rule changes would promote the prompt and accurate 
clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act, cited above.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1(b)(3)(F).
    \28\ See supra note 19.
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    Section 17A(b)(3)(D) of the Act requires, inter alia, that the 
Rules provide for the equitable allocation of reasonable fees among 
Participants.\29\ DTC believes that the proposed rule change to the fee 
with respect to a timely position adjustment would provide for the 
equitable allocation of reasonable fees. DTC's manual intervention in 
the Record Date Position adjustment process would be reduced because 
Participants would be able to use the PAT functionality to make their 
Record Date Position adjustments, and therefore DTC's costs with 
respect to processing timely Record Date Position adjustments would 
decrease. Pursuant to the proposed rule change, the fee would be 
reduced to align with the anticipated decrease in operational costs for 
DTC, and therefore would be reasonable. In addition, the fee would 
continue to be charged on a per adjustment basis and would therefore be 
equitably allocated because all Participants that perform timely 
position adjustments would be treated equally under the proposal.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    DTC believes that the proposed rule changes to the fee with respect 
to a late position adjustment would provide for the equitable 
allocation of reasonable fees. Currently, the fee is designed (i) to 
align with DTC's operational cost (approximately 71% of the fee), and 
(ii) to have a deterrent effect on late adjustments (approximately 29% 
of the fee). DTC's operational costs for late position adjustments 
would not change pursuant to the proposed rule change. However, as 
noted above, under the current fee approximately 10% of Record Date 
Position adjustments continue to be late, which suggests that the 
disincentive portion of the current fee does not have a sufficient 
deterrent effect. Further, pursuant to the proposed rule change, the 
risks associated with the manual processing of late position 
adjustments--the risk of error and the associated risks of delayed 
allocation or re-allocation of the distribution--would be 
disproportionately greater than any risks associated with timely 
position adjustments. Currently, both timely and late Record Date 
Position adjustments carry the risks associated with manual processing. 
However, pursuant to the proposed rule change, only late Record Date 
Position adjustments would be subject to the risks of manual processing 
because timely Record Date Position adjustments would be performed 
through the CA Web. Given the insufficient deterrent effect of the 
current fee and the disproportionate risks of late position 
adjustments, DTC believes that discouraging late Record Date Position 
adjustments would be more crucial than before. As such, DTC believes 
that the proposed increase of the fee is reasonable because the 
increase from three hundred and fifty dollars ($350) to five hundred 
dollars ($500) is a modest amount designed to provide a stronger 
disincentive to Participants from submitting late position adjustments. 
DTC believes that this stronger disincentive could reduce the number of 
late position adjustments and encourage Participants to use the PAT 
functionality through CA Web, thereby promoting an efficient process 
and avoiding the risks of manual processing, which could result in 
delayed allocations or otherwise affect payment finality. In addition, 
DTC believes that the proposed rule change provides for the equitable 
allocation of fees because all Participants that submit a late position 
adjustment would be equally subject to the fee, which would continue to 
be charged on a per adjustment basis irrespective of security-type or 
value of the distribution. Therefore, DTC believes that the proposed 
rule change would provide for the equitable allocation of reasonable 
fees among Participants, consistent with Section 17A(b)(3)(D) of the 
Act.
    In addition, the proposed rule change is designed to be consistent 
with Rule 17Ad-22(e)(21) promulgated under the Act.\30\ Rule 17Ad-
22(e)(21) requires DTC, inter alia, to establish, implement, maintain 
and enforce written policies and procedures reasonably designed to be 
efficient and effective in meeting the requirements of its participants 
and the markets it serves. The proposed rule change, as described 
above, would modify the Operational Arrangements and the Distributions 
Guide to streamline the position adjustment process for Participants 
that held Treasury Shares or Repurchased Debt Securities on the record 
date for a dividend or interest payment, which would enhance (i) 
efficiency in making such adjustments by reducing DTC's manual 
intervention in the process, and (ii) effectiveness in making such 
adjustments by providing PAT functionality to Participants to make 
their own Record Date Position adjustments and discouraging manual 
processing. Therefore, by establishing a more efficient and effective 
process for Participants to reduce their entitlements to Record Date 
Distributions in respect of Treasury Shares or Repurchased Debt 
Securities, and consequently, for DTC to allocate Record Date 
Distributions, DTC

[[Page 42748]]

believes that the proposed change is consistent with the requirements 
of Rule 17Ad-22(e)(21), promulgated under the Act, cited above.
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    \30\ 17 CFR 240.17Ad-22(e)(21).
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(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change with respect to 
streamlining the process for reducing payment to a Participant of a 
dividend or interest payment, when such Participant held Treasury 
Shares or Repurchased Debt Securities on the record date for the 
distribution, would not have an impact on competition.\31\ Although the 
proposed rule change requires Participants to use the CA Web to make 
Record Date Position adjustments, the requirement to use the CA Web, 
which would facilitate the position adjustment process for all 
Participants, would not impose a burden on competition. The CA Web is 
an existing DTC platform that all Participants are required to use to 
access other types of services, and is already used by Participants to 
view their Record Date Positions and related entitlements. In addition, 
the requirement would apply equally to all Participants that held 
Treasury Shares or Repurchased Debt Securities on the record date for a 
dividend or interest payment. Therefore, DTC believes that the proposed 
rule change with respect to streamlining the process of Record Date 
Position adjustments would not impose a burden on competition.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    DTC believes that the proposed rule change to decrease the fee for 
a timely position adjustment may impact competition, but would not 
create a burden on competition.\32\ The decreased fee could promote 
competition by positively impacting Participants' operating costs. 
Based on the foregoing, DTC believes that the proposed rule change 
would not impose a burden on competition, but may promote competition.
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    \32\ Id.
---------------------------------------------------------------------------

    DTC believes that the proposed rule change to increase the fee for 
a late position adjustment could have an impact on competition because 
it could create a burden on competition by increasing Participants' 
fees and thereby negatively affect such Participants' operating costs. 
However, DTC believes that any burden on competition would not be 
significant and would be necessary and appropriate in furtherance of 
the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\33\ DTC believes any burden on competition would not be 
significant because (i) ideally, the fee would apply no one, as 
Participants would be discouraged from submitting late position 
adjustments, (ii) the fee would only apply when a Participant holds 
Treasury Shares or Repurchased Debt Securities on the record date of a 
dividend or interest distribution, and a Participant could only be 
charged once per distribution event, (iii) the fee would be charged on 
a per-adjustment basis, irrespective of security-type or value of the 
distribution, and would apply equally to any Participant that submits a 
late position adjustment, (iv) Participants can manage their late fees 
by making timely position adjustments, and (v) the amount of the 
increase, one hundred and fifty dollars ($150), is a modest amount that 
could be managed by Participants by making timely position adjustments. 
Therefore, DTC believes that the proposed rule change to the fee for 
late position adjustments would not impose a significant burden on 
competition.\34\
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    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

    DTC believes that any burden on competition that may be created by 
the proposed rule change to increase the fee for late position 
adjustments would be necessary and appropriate in furtherance of the 
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\35\ DTC believes that the proposed rule change to increase the fee 
for late position adjustments, in order to encourage streamlined 
processing of position adjustments and discourage manual and exception 
processing of position adjustments, would be necessary in furtherance 
of the purposes of the Act because the Rules must be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions.\36\ As discussed above, under the current fee 
approximately 10% of Record Date Position adjustments continue to be 
late, which suggests that the disincentive portion of the current fee 
does not have a sufficient deterrent effect. Further, pursuant to the 
proposed rule change, the risks associated with the manual processing 
of late position adjustments--the risk of error and the associated 
risks of delayed allocation or re-allocation of the distribution--would 
be disproportionately greater than any risks associated with timely 
position adjustments. Currently, both timely and late Record Date 
Position adjustments carry the risks associated with manual processing, 
but pursuant to the proposed rule change, only late Record Date 
Position adjustments would be subject to the risks of manual processing 
because timely Record Date Position adjustments would be performed 
through the CA Web. In light of the insufficient deterrent effect of 
the current fee and the disproportionate risks of late position 
adjustments, DTC believes that increasing the fee for late position 
adjustments is necessary in order to discourage late Record Date 
Position adjustments, which may lead to errors that could result in an 
imbalance with the Agent and delayed allocation or incorrect 
allocations which would need to be reversed and reallocated, thereby 
affecting payment finality. In addition, reversed or delayed 
allocations could also impact Participants that had relied on the 
allocation to effect other securities transactions. Thus, DTC believes 
that the proposed rule change to increase the fee for late position 
adjustments is designed to promote the prompt and accurate clearance 
and settlement of securities transactions and would therefore be 
necessary in furtherance of the purposes of the Act, as permitted by 
Section 17A(b)(3)(I) of the Act.
---------------------------------------------------------------------------

    \35\ Id.
    \36\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    DTC believes that the proposed rule change to increase the fee for 
late position adjustments, in order to encourage streamlined processing 
of position adjustments and to discourage manual and exception 
processing of position adjustments, would be appropriate in furtherance 
of the purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\37\ As discussed above, DTC believes that the current fee does not 
have a sufficient deterrent effect on late position adjustments. 
Therefore, DTC believes that it would be appropriate to increase the 
disincentive portion of the fee by one hundred and fifty dollars ($150) 
in order to strengthen the deterrent effect of the fee on late position 
adjustments. In addition, DTC believes that the proposed rule change 
provides for the equitable allocation of fees because all Participants 
that submit a late position adjustment would be equally subject to the 
fee, which would continue to be charged on a per adjustment basis 
irrespective of security-type or value of the distribution. Therefore, 
DTC believes that the proposed rule change to increase the late fee for 
late position adjustments would be appropriate in furtherance of the 
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\38\
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    \37\ 15 U.S.C. 78q-1(b)(3)(I).
    \38\ Id.
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change with respect to 
the clarifying and ministerial changes to

[[Page 42749]]

the Operational Arrangements and the Fee Guide would have any impact on 
competition \39\ because it would merely update the Operational 
Arrangements and the Fee Guide to make changes for accuracy and 
clarity, and therefore would not affect the rights and obligations of 
any Participant or other interested party.
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to this proposed rule change have not 
been solicited or received. DTC will notify the Commission of any 
written comments received by DTC.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 
19b-4(f)(6) thereunder.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-DTC-2018-007 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2018-007. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2018-007 and should be submitted on 
or before September 13, 2018.
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    \40\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18159 Filed 8-22-18; 8:45 am]
 BILLING CODE 8011-01-P