Document ID: SEC-2014-0609-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2014-04-11T04:00Z

[Federal Register Volume 79, Number 70 (Friday, April 11, 2014)]
[Notices]
[Pages 20260-20262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08121]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71886; File No. SR-DTC-2014-04]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of 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

April 7, 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 March 28, 2014, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change 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 from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of conforming changes to the DTC 
Settlement Service Guide (the ``Guide'') \3\ with respect to proposed 
changes in the Automated Customer Account Transfer Service (``ACATS'') 
of its affiliate, National Securities Clearing Corporation 
(``NSCC'').\4\
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    \3\ The Guide is available at http://www.dtcc.com/~/media/Files/
Downloads/legal/service-guides/Settlement.ashx.
    \4\ Terms not defined herein have the meaning set forth in DTC's 
Rules & Procedures (the ``Rules'') available at http://www.dtcc.com/en/legal/rules-and-procedures.aspx.

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[[Page 20261]]

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, 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. DTC 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
i. Background
    ACATS is an NSCC service that interfaces with DTC for the delivery 
of customer \5\ securities from the account of one DTC Participant 
(that is also an NSCC Member) to another DTC Participant (that is also 
an NSCC Member). NSCC has proposed a redesign of ACATS (under NSCC rule 
filing SR-NSCC-2014-04, the ``NSCC Proposal'') which, if approved, will 
require conforming changes to DTC's Procedures. 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 (to be known as the ``ACATS Settlement Accounting 
Operation'') on an ACATS Settlement Date (as defined therein).
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    \5\ For purposes of this rule filing, ``customer'' refers to an 
accountholder of a DTC Participant whose account is transferred to 
another DTC 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 in 
NSCC's system so that such an ACATS transfer will have no related funds 
settlement risk to either NSCC or DTC. In this regard, ACATS transfers 
will be entirely free of payment on the books of DTC. Accordingly, DTC 
proposes to change its procedures set forth in the Guide as described 
below. The proposal also includes clarifications in the Guide with 
respect to the protection of customer securities processed through 
ACATS.
ii. 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.\6\
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    \6\ These adjustments reduce a Participant's Collateral Monitor 
with respect to its net ACATS short positions on 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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Long Allocations
    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.\7\ In order to extend the Memo Seg option to securities received 
in ACATS transfers, the Guide would be revised to provide that a 
Participant may increase its number of units designated for protection 
under Memo Seg to reflect ACATS receipts.\8\
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    \7\ 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.
    \8\ Please see the Guide for additional information regarding 
Memo Seg under the ``Memo Segregation'' section available at 
www.dtcc.com.
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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 on the books of DTC. Upon 
receipt into a Participant account, the securities constitute MA 
securities pursuant to the Rules.\9\ The Guide uses the term ``Deemed 
MA'' to reflect this condition. This terminology is no longer necessary 
because, under the NSCC Proposal, no funds obligations attach to the 
ACATS transaction. Accordingly, the term ``Deemed MA'' will be deleted 
from the Guide; a new section of the Guide will confirm that ACATS 
securities received by a Participant will, by virtue of this transfer, 
be credited to the receiving account as MA.\10\
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    \9\ 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).
    \10\ In this regard, a Participant accepting an ACATS free 
delivery automatically designates the subject securities as MA 
securities, not subject to any lien or claim of DTC. 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 would be counted in the Collateral 
Monitor.
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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. Implementation Timeframe
    The effective date of the proposed Rule change will be announced 
via a DTC Important Notice and will be implemented concurrently with 
the implementation by NSCC of the ACATS enhancements, if approved.
2. Statutory Basis
    The proposed rule change provides for enhancements relating to the 
processing of customer securities which would support finality of 
transfers of customer securities. Therefore, DTC believes the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to DTC, in particular 
Section 17A(b)(3)(F) \11\ of the Act which requires that the Rules be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and, in general, to protect investors and the 
public interest.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC believes that the proposed rule change would not impose any 
burden on competition as it applies to all Participants that utilize 
the ACATS service and the new process has been developed in close 
coordination with the industry.

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

    Written comments relating to the proposed rule change have not yet 
been solicited or received with respect to this filing.

[[Page 20262]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File No. SR-DTC-2014-04 on the subject line.

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 No. SR-DTC-2014-04. 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 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 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 such filings also will be available 
for inspection and copying at the principal office of DTC and on DTC'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 No. SR-DTC-2014-04 and should be 
submitted on or before May 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08121 Filed 4-10-14; 8:45 am]
BILLING CODE 8011-01-P