Document ID: SEC-2014-0882-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2014-05-29T04:00Z

[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30920-30921]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12420]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72224; File No. SR-DTC-2014-04]

Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change to Effect Changes to the DTC 
Settlement Service Guide Relating to the Automated Customer Account 
Transfer Service of National Securities Clearing Corporation

May 22, 2014.

I. Introduction

    On March 27, 2014, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-DTC-2014-04 
(``Proposed Rule Change'') \3\ to implement changes to the DTC 
Settlement Service Guide (``Guide'') that conform with proposed changes 
to the Automated Customer Account Transfer Service (``ACATS'') of 
National Securities Clearing Corporation (``NSCC''),\4\ a DTC 
affiliate. The Proposed Rule Change was published for comment in the 
Federal Register on April 11, 2014.\5\ The Commission did not receive 
comments to the Proposed Rule Change. This order approves the Proposed 
Rule Change.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ DTC will announce the implementation of this Proposed Rule 
Change via an Important Notice to DTC participants 
(``Participants'').
    \4\ NSCC filed a corresponding proposed rule change with the 
Commission. See Release No. 34-71887 (Mar. 27, 2014), 79 FR 20290 
(Apr. 11, 2014) (SR-NSCC-2014-04) (``NSCC Proposal'').
    \5\ Release No. 34-71886 (Mar. 27, 2014), 79 FR 20260 (Apr. 11, 
2014) (SR-DTC-2014-04).
    \6\ Terms not defined herein have the meaning set forth in DTC's 
Rules, By-Laws, and Organization Certificate (``Rules''), available 
at http://dtcc.com/~/media/Files/Downloads/legal/rules/dtc--
rules.ashx.
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II. Description

A. Current ACATS Process

    ACATS is an NSCC service that interfaces with DTC for the delivery 
of customer \7\ securities from the account of one Participant (that is 
also an NSCC member (``Member'')) to another Participant (that is also 
a Member). Under the NSCC Proposal, customer account transfers with 
respect to two types of DTC-eligible securities will be processed 
through a new NSCC accounting operation (``ACATS Settlement Accounting 
Operation'') on an ACATS settlement date. Because of the NSCC Proposal, 
conforming changes are required to the Guide.
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    \7\ For purposes of the Proposed Rule Change, ``customer'' 
refers to an accountholder of a Participant whose account is 
transferred to another Participant by an ACATS transaction.
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    The key provision of the NSCC Proposal impacting DTC is that ACATS 
transactions will no longer have an associated incentive charge applied 
to them by NSCC as the transactions are processed.\8\ As such, an ACATS 
transfer will no longer present a funds settlement risk to NSCC or DTC; 
thus, ACATS transfers will be processed by DTC free of payment. 
Accordingly, DTC proposes to change the applicable procedures in the 
Guide, as described below. Additionally, the Proposed Rule Change 
includes clarifications in the Guide with respect to the protection of 
customer securities processed through ACATS.
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    \8\ See NSCC Proposal, 79 FR 20290.
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B. Proposed DTC Rule Changes

Elimination of Short Cover Charge
    An ``ACATS short cover charge'' is a dollar amount guaranteed by 
NSCC to DTC for the value of securities delivered from a Participant's 
DTC account to NSCC for processing by NSCC through its Continuous Net 
Settlement system (``CNS''). Because ACATS transfers will be entirely 
free of payment under the NSCC proposal as described above, a provision 
in the Guide relating to the processing of ``ACATS short cover 
charges'' will be deleted, with related adjustments to references to 
the DTC Collateral Monitor.\9\
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    \9\ These adjustments reduce a Participant's Collateral Monitor 
with respect to its net ACATS short positions at the start of ACATS 
settlement date. The Participant then receives credit in its 
Collateral Monitor for ACATS deliveries as they occur throughout the 
day.
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Elimination of Long Allocation Reversals
    At NSCC, under current rules, long allocations of securities made 
via CNS may be reversed if the NSCC Member receiving the securities 
fails to meet its NSCC money settlement obligation. Because ACATS 
transactions will not generate any funds settlement obligations, this 
reversal is eliminated. The provision in the Guide describing the NSCC 
reversal will be deleted.
Memo Seg Optionality
    Memo Seg is a systemic mechanism that allows Participants to 
prevent inventory that is not subject to a lien or claim of DTC 
(``Minimum Amount'' or ``MA'') from falling below a certain number of 
units.\10\ In order to extend the Memo Seg option to securities 
received via ACATS transfers, the Guide will be revised to provide that 
a Participant may increase its number of units designated for 
protection under Memo Seg to reflect ACATS receipts.
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    \10\ Memo Seg is offered by DTC to its Participants to support 
their control of fully-paid customer securities, although its 
effectiveness for that purpose depends entirely on the Participant's 
management of its accounts.
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Clarification with Respect to MA Securities
    ACATS transfers are not subject to any lien or claims by DTC 
because they are transferred free of payment. Upon receipt into a 
Participant account, the securities constitute MA securities pursuant 
to the Rules.\11\ The Guide currently uses the term ``Deemed MA'' to 
reflect this condition. This terminology is no longer necessary 
because, under the NSCC Proposal, a funds obligation no longer attaches 
to ACATS transactions. Accordingly, the term ``Deemed MA'' will be 
deleted from the Guide, and a new section of the Guide will confirm 
that ACATS securities received by a Participant will, by virtue of the 
ACATS transfer, be credited to the Participant's receiving account as 
MA.\12\
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    \11\ Securities received through the ACATS Settlement Accounting 
Operation are not counted as part of the Participant's Collateral 
Monitor, unless and until the receiving Participant, in accordance 
with the Rules, designates those securities as Net Additions 
(``NA'').
    \12\ In this regard, a Participant accepting an ACATS free 
delivery automatically designates the subject securities as MA 
securities. Therefore, such securities are not counted in the 
Collateral Monitor of the Participant. It should be noted that the 
Participant may re-designate the securities as NA or deliver them 
versus payment in which case these securities will be counted in the 
Participant's Collateral Monitor.

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[[Page 30921]]

Other Clarifications
    The Guide will be revised to clarify the descriptions of CNS Short 
Covers and Long Allocations and their effect on Participant collateral 
and the Collateral Monitor.

III. Discussion and Commission Finding

    Section 19(b)(2)(C) of the Act \13\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. Section 17A(b)(3)(F) of the Act requires that the 
rules of a clearing agency be designed to, among other things, 
``promote the prompt and accurate clearance and settlement of 
securities transactions and . . . to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.'' \14\ Further, 
Commission Rule 17Ad-22(d)(12) requires that registered clearing 
agencies ``establish, implement, maintain and enforce written policies 
and procedures reasonable designed to, as applicable . . . [e]sure that 
final settlement occurs no later than the end of the settlement day; 
and require that intraday or real-time finality be provided where 
necessary to reduce risks.'' \15\
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    \13\ 15 U.S.C. 78s(b)(2)(C).
    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(d)(12).
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    The Commission finds that the Proposed Rule Change is consistent 
with those requirements because the changes, which will conform to the 
changes proposed by NSCC in establishing a new ACATS processing 
system,\16\ will enable DTC to complete ACATS transfers free of 
payment, thus streamlining DTC's related processes, as described above. 
Therefore, the Proposed Rule Change will promote the prompt and 
accurate clearance and settlement of ACATS transfers, while supporting 
finality of such transfers at DTC on settlement day.
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    \16\ See NSCC Proposal, 79 FR 20290.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \17\ and the 
rules and regulations thereunder.
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    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-DTC-2014-04 be, and it hereby is, 
approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12420 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P