Document ID: SEC-2012-1418-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2012-08-28T04:00Z

[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52080-52081]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21105]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67705; File No. SR-DTC-2012-07]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Update Existing Procedures as They Relate to Processing Mandatory 
Corporate Actions

August 22, 2012.
    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 14, 2012, 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 primarily by DTC. DTC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(i) 
\4\ thereunder so that the proposal was effective upon filing with the 
Commission. 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)(4)(i).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    As discussed below, this rule change will mitigate risk associated 
with corporate action processing by eliminating erroneous short 
positions caused by failure of Participants to move their shares from 
their segregation account to their general free account. The change 
will also bring operational efficiencies to DTC by reducing the number 
of manual adjustments related to correcting Participant short positions 
and reversing the 130% short position charge.

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,

[[Page 52081]]

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 processes mandatory corporate actions through its Reorg, 
Dividends, Proxy (``RDP'') system. Currently, when processing a 
mandatory corporate action in which securities are exchanged, the RDP 
system will automatically debit the position from the Participant's 
general free account. However, in certain instances, a Participant may 
have, prior to the split, moved the position from its general free 
account to its segregation account.\5\ This causes a short position in 
the Participant's general free account and the automatic assessment of 
a short position fee of 130% of market value for the Participant. 
Additionally, when the Participant is given a position in the new 
CUSIP, the position is posted to the Participant's free account instead 
of the Participant's segregation account.
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    \5\ The Sub-Accounting Service allows Participants to protect 
securities on deposit at DTC by moving them from their general free 
account to their segregated account. The securities remain 
segregated and unavailable for any transactions until the 
Participant authorizes DTC to release them and return them to their 
general free account.
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    In an effort to mitigate risk associated with mandatory corporate 
action processing, DTC is updating its systems so that it will debit a 
Participant's position in either its segregation account or free 
account, as appropriate, and allocate the appropriate proportion of the 
position in the new CUSIP to the Participant's segregation account and 
free account, as appropriate. This change will mitigate risk associated 
with corporate action processing by eliminating erroneous short 
positions caused by failure of Participants to move their shares from 
their segregation account to their general free account. The change 
will also bring operational efficiencies to DTC by reducing the number 
of manual adjustments related to correcting Participant short positions 
and reversing the 130% short position charge.
    DTC expects to implement these changes in the first quarter of 
2013. DTC will announce the implementation date by Important Notice.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder applicable to DTC in that it will facilitate the prompt and 
accurate clearance and settlement of securities transactions by 
streamlining processes associated with corporate action events and 
mitigating risk associated with such processing.\6\
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    \6\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will 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 yet 
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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(4)(i) \8\ 
thereunder because it effects a change in an existing service of DTC 
that does not significantly affect the safeguarding of securities or 
funds in the custody or control of DTC or for which it is responsible 
and does not significantly affect the respective rights or obligations 
of DTC or persons using this service. 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(4)(i).
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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 Number SR-DTC-2012-07 on the subject line.

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-2012-07. 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 DTC's principal office and on DTC's Web 
site at http://www.dtcc.com/legal/rule_filings/dtc/2012.php. 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-2012-07 and should be 
submitted on or before September 18, 2012.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21105 Filed 8-27-12; 8:45 am]
BILLING CODE 8011-01-P