Document ID: SEC-2006-1589-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Depository Trust Co.
Posted Date: 2006-12-08T05:00Z

[Federal Register: December 8, 2006 (Volume 71, Number 236)]
[Notices]               
[Page 71206-71208]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de06-142]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54855; File No. SR-DTC-2006-15]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change Relating to the Canadian 
Link Service

December 1, 2006.
    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 October 10, 2006, 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 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 would amend DTC's Rule 30, Canadian-Link 
Service, to allow certain Canadian-Link transactions to settle in U.S. 
dollars.

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

    DTC's Canadian-Link Service currently allows participants of DTC 
(``DTC Participants'') to clear and settle two categories of securities 
transactions in Canadian dollars: (1) Transactions with participants of 
The Canadian Depository for Securities Limited (``CDS Participants'') 
and (2) transactions with other DTC Participants. The Canadian-Link 
Service also allows DTC Participants to transfer Canadian dollar funds 
to CDS Participants through the

[[Page 71207]]

facilities of CDS and to other DTC Participants through Canadian 
settlement banks acting for DTC and such DTC Participants. The proposed 
rule change would add an additional functionality to the Canadian-Link 
Service to allow DTC Participants to settle certain securities 
transactions with CDS Participants in U.S. dollars (``cross-border U.S. 
dollar securities transactions''). Set forth below is a description of 
the current Canadian-Link Service and a description of the proposed 
change.
Current Functionality of the Canadian-Link Service
    The Canadian-Link Service allows DTC Participants to clear and 
settle valued securities transactions in Canadian dollars with CDS 
Participants through the link between DTC and CDS. The securities that 
may be the subject of these transactions are securities that are 
eligible for book-entry transfer through the facilities of CDS and DTC 
(``Full-Service Canadian-Link Securities'') and securities that are 
eligible for book-entry transfer through the facilities of CDS but not 
through DTC (``Limited Service Canadian-Link Securities''). The 
securities are delivered to and from CDS Participants through the 
facilities of CDS. Money settlement between DTC and CDS is included in 
Canadian dollar money settlement at CDS. Money settlement between DTC 
and DTC Participants takes place between Canadian settlement banks 
acting for DTC and such DTC Participants.
    The Canadian-Link Service allows DTC Participants to clear and 
settle valued transactions in Canadian dollars with other DTC 
Participants through the facilities of DTC. The securities that may be 
the subject of these transactions are Full-Service Canadian-Link 
Securities. The securities are delivered to and from DTC Participants 
through the facilities of DTC. Money settlement between DTC and DTC 
Participants takes place through Canadian settlement banks acting for 
DTC and such DTC Participants.
    The Canadian-Link Service allows DTC Participants to transfer 
Canadian dollar funds without any corresponding delivery or receipt of 
securities to CDS Participants or other DTC Participants. Transactions 
between DTC Participants and CDS Participants are processed through the 
facilities of CDS. Transactions between DTC Participants and other DTC 
Participants are processed through Canadian settlement banks acting for 
such DTC Participants.
    The proposed rule change would not change any of the existing 
components of the Canadian-Link Service and except for cross-border 
U.S. dollar securities transactions, as set forth below, would not 
change how securities transactions are currently processed through the 
Canadian-Link Service.
Proposed Enhancement of the Canadian-Link Service
    The proposed rule change would enhance the Canadian-Link Service to 
allow DTC Participants to clear and settle certain valued securities 
transactions in U.S. dollars with CDS Participants through the link 
between DTC and CDS.\3\ The securities that would be the subject of the 
enhancement are Limited-Service Canadian-Link Securities, i.e., 
securities that are eligible for book-entry transfer through the 
facilities of CDS but not DTC. The securities would be delivered to and 
from CDS Participants through the facilities of CDS. Money settlement 
between DTC and CDS would be included in U.S. dollar money settlement 
at DTC. Money settlement between DTC and DTC Participants would also be 
included in U.S. dollar money settlement at DTC together with the 
settlement of DTC Participants' other transactions at DTC. As the 
foregoing indicates, these cross-border U.S. dollar securities 
transactions would be processed in substantially the same way that 
transactions are now processed except that these transactions would 
settle in U.S. dollars rather than in Canadian dollars and the place of 
money settlement will be at DTC rather than at CDS or through Canadian 
settlement banks.
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    \3\ DTC has represented to the Commission that some transactions 
executed in Canadian markets, either on a stock exchange or over-
the-counter, are settled in U.S. dollars. Transactions that settle 
in U.S. dollars would be reported to DTC in U.S. dollar amounts. DTC 
would not convert settlement amounts from Canadian to U.S. dollars.
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    The proposed rule change would also add new definitions to DTC Rule 
30 to distinguish between transactions between DTC Participants and CDS 
Participants (``Cross-Border Securities Transactions'') and 
transactions between only DTC Participants (``Intra-DTC Securities 
Transactions''). The proposed rule change would also add new 
definitions to distinguish between transactions that settle in U.S. 
dollars and transactions that settle in Canadian dollars (for example, 
``Cross-Border CAD Securities Transactions'' and ``Intra-DTC USD 
Securities Transactions'').
Risk Management Controls
    Set forth below is a description of DTC's risk management controls 
with respect to the Canadian-Link Service and how these risk management 
controls would be affected as a result of the proposed rule change.
    1. Canadian-Link Required Participants Fund Deposit. A DTC 
Participant that uses the Canadian-Link Service is currently required 
to make an additional required deposit to the DTC participants fund 
that is determined in accordance with a formula that takes into account 
the volume of cross-border Canadian dollar securities transactions 
processed by DTC for such DTC Participant. Under the proposed rule 
change, such formula would also take into account the volume of cross-
border U.S. dollar securities transactions processed by DTC for such 
DTC Participant.
    2. Security for Canadian-Link Transactions. A DTC Participant that 
uses the Canadian-Link Service is currently required to pledge to DTC 
its interest in the securities subject to cross-border Canadian dollar 
securities transactions that are held by DTC for such DTC Participant 
at CDS. Under the proposed rule change, such DTC Participant will also 
be required to pledge to DTC its interest in the securities subject to 
cross-border U.S. dollar securities transactions that are held by DTC 
for such DTC Participant at CDS.
    3. Canadian-Link Service Net Debit Caps. A DTC Participant that 
uses the Canadian-Link Service is currently subject to a net debit cap 
on the negative Canadian dollar balance that may, from time to time, be 
incurred by such DTC Participant with respect to its use of the 
Canadian-Link Service. Under the proposed rule change, a DTC 
Participant would also be subject to a net debit cap on the negative 
U.S. dollar balance that may from time to time be incurred by such DTC 
Participant with respect to its cross-border U.S. dollar securities 
transactions. The proposed rule change would add new definitions to DTC 
Rule 30 to take into account that there would be separate Net Debit 
Caps for U.S. and for Canadian dollar transactions.
    4. Collateral Monitor of Canadian-Link Participants. A DTC 
Participant that uses the Canadian-Link Service is currently subject to 
the DTC collateral monitor with respect to its use of the Canadian-Link 
Service. Under the proposed rule change, a DTC Participant would also 
be subject to the DTC collateral monitor with respect to its cross-
border U.S. dollar securities transactions.
    As the foregoing indicates, cross-border U.S. dollar securities 
transactions will be subject to essentially the same robust risk 
management controls that are already

[[Page 71208]]

applicable to the other securities transactions currently processed 
through the Canadian-Link Service.
Statutory Basis for the Proposed Rule Change
    Section 17A(a)(3)(F) of the Act requires that the rules of a 
registered clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and to 
assure the safeguarding of securities and funds which are in its 
possession or control or for which it is responsible. The proposed 
enhancement to the Canadian-Link Service should promote the prompt and 
accurate clearance and settlement of cross-border securities 
transactions between DTC Participants and CDS Participants and between 
DTC Participants and other DTC Participants in a secure, efficient, and 
regulated environment.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    No written comments relating to the proposed rule change have been 
solicited or received by DTC from members, participants, or other 
persons. DTC will notify the Commission of any written comments it 
receives.

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 the 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 Number SR-DTC-2006-15 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 Number SR-DTC-2006-15. 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 Room. Copies of the filing 
also will be available for inspection and copying at the principal 
office of DTC. 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-
2006-15 and should be submitted on or before December 29, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-20868 Filed 12-7-06; 8:45 am]

BILLING CODE 8011-01-P