Document ID: SEC-2009-0144-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2009-01-30T05:00Z

[Federal Register: January 30, 2009 (Volume 74, Number 19)]
[Notices]               
[Page 5692-5694]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja09-102]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59298; File No. SR-DTC-2008-15]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change To Provide The Options Clearing Corporation With Settlement 
Services for Stock Loan Transactions Entered Into Under the Market Loan 
Program

January 26, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 23, 2008, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which items have been prepared 
primarily by DTC. The Commission is publishing this notice and order to 
solicit comments on the proposed rule change and to grant accelerated 
approval of the proposal.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    DTC is seeking to provide settlement services for stock loan 
transactions entered into under The Options Clearing Corporation's 
(``OCC'') proposed Market Loan Program.\2\
---------------------------------------------------------------------------

    \2\ OCC filed a proposed rule change (File No. SR-OCC-2008-20) 
with the Commission that is being approved simultaneously with this 
proposed rule change to describe proposed changes in its rules for 
purposes of establishing the Market Loan Program.
---------------------------------------------------------------------------

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 these 
statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by DTC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    OCC has approached DTC seeking DTC's settlement services for its 
proposed Market Loan Program in which OCC will act as a central 
counterparty for stock loan transactions. Under the proposal, OCC will 
submit stock loan deliver orders to DTC on a locked-in basis on behalf 
of the parties to the transactions. OCC will open a new account at DTC 
for this service.
    Under OCC's proposed Market Loan Program, a stock loan is initiated 
when a lender is matched with a borrower through an electronic platform 
that supports securities lending and borrowing transactions by matching 
lenders and borrowers based on loan terms that each party is willing to 
accept. Once matched, the electronic platform will send details of the 
matched stock loan transaction to OCC. If the matched transaction 
passes OCC's validation process, OCC will create and send to DTC a pair 
of delivery orders, one message instructing DTC to transfer a specified 
number of shares of a specified eligible stock from the lending 
Participant to OCC's account and the

[[Page 5693]]

other message instructing DTC to transfer the same number of shares of 
the same stock with the same dollar value from OCC's account to the 
borrowing Participant's account. Each participant that elects to use 
the proposed Market Loan Program will authorize DTC by written 
agreement to accept instructions on its behalf from OCC, requesting 
that DTC debit or credit the Participant's DTC account with regard to 
said stock loan transactions.\4\
---------------------------------------------------------------------------

    \4\ The debit or credit will depend on whether the Participant 
is the borrower or the lender in the stock loan transaction. DTC 
Participants that wish to use this service will also be required to 
acknowledge that reclaims to OCC under $15 million will not override 
OCC's net debit cap and will recycle until OCC submits a redelivery 
to the lender or until the reclaim drops at the recycle cutoff.
---------------------------------------------------------------------------

    Since OCC's Market Loan Program is intended to be primarily an 
anonymous market, OCC will establish a new account at DTC for this 
activity.\5\ The transfer of securities for value between the lender 
and the borrower will pass through the new OCC account in order to 
enable the stock loan transaction to be settled in a manner that 
provides anonymity to both the lender and borrower. In an effort to 
ensure that OCC's stock loan transactions complete, DTC is proposing to 
bypass the collateral monitor in OCC account.\6\ This will advance 
transactions from the collateral recycle queue to the net debit cap 
recycle queue and will allow look-ahead to capture the transactions. 
DTC will also set the net debit cap \7\ on OCC's account to zero so 
that all receives into the account recycle for net debit cap. A zero 
net debit cap will ensure that no receives are completed to OCC account 
unless an offsetting delivery is also completed.
---------------------------------------------------------------------------

    \5\ A new Participant-level master file indicator will be used 
to signify that both Participants, the borrower and lender, have 
agreed to use the service.
    \6\ DTC's Account Transaction Processor (``ATP'') is the core 
processing system for all transaction activity affecting security 
positions held at DTC. It checks receiver's collateral before it 
checks for debit cap. If DTC did not bypass the collateral monitor 
then the deliveries into OCC account would pend for collateral first 
and would not be processed by look-ahead.
    \7\ Before completing a transaction in which a Participant is 
the receiver, DTC calculates the resulting effect the transaction 
would have on such Participant's account, and determines whether the 
resulting net balance would exceed the Participant's net debit cap. 
Any transaction that would cause the net settlement debit to exceed 
the net debit cap is placed on a pending (recycling) queue until 
another transaction creates credits in such Participant's account.
---------------------------------------------------------------------------

    In order to reduce the possibility of mismatched stock loans, DTC 
is proposing to amend its current look-ahead process for OCC stock loan 
transactions so that look-ahead matches on number of shares and dollar 
amount in addition to CUSIP. The existing Look-Ahead process finds 
delivery transactions that are pending because the receiving 
Participant has reached its net debit cap. It then looks to see whether 
the receiving Participant has a pending delivery for the same security 
to another Participant. In such a situation, DTC's Account Transaction 
Processor (``ATP'') will calculate the net effect to the collateral and 
net debit cap controls for all three Participants involved. If the net 
effect will not result in a deficit in the collateral or net debit cap 
controls for any of the three Participants, ATP processes the 
transactions simultaneously.
    Additionally, DTC is proposing to block matched reclaims into OCC's 
account. Participants will be permitted to reclaim \8\ to OCC's 
account, but reclaims under $15 million will not override OCC's debit 
cap and will recycle until OCC submits a redelivery back to the lender 
or until the reclaim drops at the recycle cutoff.\9\ Under DTC's 
existing procedures, if the borrowing Participant reclaimed to OCC and 
the reclaim was less than $15 million, the reclaim would override the 
DTC Risk Management controls for OCC's account creating a debit in 
OCC's account. The debit would be eliminated if OCC entered a reclaim 
to the lending Participant.
---------------------------------------------------------------------------

    \8\ A ``reclaim'' is an instruction to DTC to undo a delivery 
and is typically invoked in the event of an error where a 
Participant does not recognize the delivery.
    \9\ If OCC does not submit a redelivery to the lender, then the 
borrower's reclaim to OCC will drop at the recycle cutoff (i.e., the 
borrower will retain the securities and the debit for the stock loan 
delivery it received from OCC). This is how DTC currently treats 
reclaims that are over $15 million.
---------------------------------------------------------------------------

    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \10\ and the rules and 
regulations thereunder applicable to DTC because it should promote the 
prompt and accurate clearance and settlement of stock loan transactions 
which would settle through the Look-Ahead process and achieve a more 
efficient level of straight-through processing.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would 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

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission if it receives 
additional comments.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Section 
17A(b)(3)(F).\11\ Section 17A(b)(3)(F) requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, in general, to 
protect investors and the public interest. The Commission finds that 
the approval of DTC's rule change is consistent with this section 
because it will allow DTC to provide to OCC settlement of stock loan 
transactions which will settle through the Look-Ahead process and will 
achieve a more efficient level of straight-through processing.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    DTC has requested that the Commission approve the proposed rule 
change prior to the thirtieth day after publication of the notice of 
the filing. The Commission finds good cause for approving the proposed 
rule change prior to the thirtieth day after the publication of notice 
because such approval will allow DTC to implement the proposed rule 
change by the end of January 2009 when OCC plans to commence its 
proposed Market Loan Program in which OCC will act as a central 
counterparty for stock loan transactions.

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 Number SR-DTC-2008-15 on the subject line.

[[Page 5694]]

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-DTC-2008-15. 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 Section, 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 the principal office of DTC and on DTC's Web 
site at http://www.dtcc.com/downloads/legal/rule_filings/2008/dtc/
2008-15.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 Number SR-DTC-
2008-15 and should be submitted on or before February 20, 2009.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-DTC-2008-15) be and 
hereby is approved.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).
    \13\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-1983 Filed 1-29-09; 8:45 am]

BILLING CODE 8011-01-P