Document ID: SEC-2018-0493-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2018-03-26T04:00Z

[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12999-13001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06018]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82912; File No. SR-DTC-2017-021]

Self-Regulatory Organizations; The Depository Trust Company; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Adopt a Recovery & Wind-Down Plan 
and Related Rules

March 20, 2018.

I. Introduction

    On December 18, 2017, 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-2017-021 
to adopt a recovery and wind-down plan and related rules (``Proposed 
Rule Change'').\3\ The Proposed Rule Change was published for comment 
in the Federal Register on January 8, 2018.\4\ The Commission did not 
receive any comments on the Proposed Rule Change. On February 8, 2018, 
pursuant to Section 19(b)(2)(A)(ii)(I) of the Act,\5\ the Commission 
designated a longer period within which to approve, disapprove, or 
institute proceedings to determine whether to approve or disapprove the 
Proposed Rule Change.\6\ This order institutes proceedings, pursuant to 
Section 19(b)(2)(B) of the Act,\7\ to determine whether to approve or 
disapprove the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On December 18, 2017, DTC filed this proposal as an advance 
notice (SR-DTC-2017-803) with the Commission pursuant to Section 
806(e)(1) of the Payment, Clearing, and Settlement Supervision Act 
of 2010 (``Clearing Supervision Act'') and Rule 19b-4(n)(1)(i) of 
the Act (``Advance Notice''). On January 24, 2018, the Commission 
extended the review period of the Advance Notice for an additional 
60 days pursuant to Section 806(e)(1)(H) of the Clearing Supervision 
Act. See 12 U.S.C. 5465(e)(1); 17 CFR 240.19b-4(n)(1)(i); 12 U.S.C. 
5465(e)(1)(H); and Securities Exchange Act Release No. 82579 
(January 24, 2018), 83 FR 4310 (January 30, 2018) (SR-DTC-2017-803).
    \4\ Securities Exchange Act Release No. 82432 (January 2, 2018), 
83 FR 884 (January 8, 2018) (SR-DTC-2017-021) (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2)(A)(ii)(I).
    \6\ Securities Exchange Act Release No. 82669 (February 8, 
2018), 83 FR 6653 (February 14, 2018) (SR-DTC-2017-021; SR-FICC-
2017-021; SR-NSCC-2017-017).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

    As described in the Notice,\8\ DTC proposes to adopt a Recovery & 
Wind-down Plan (``R&W Plan'') and two proposed rules that would 
facilitate the implementation of the R&W Plan: (i) Proposed Rule 32(A) 
(Wind-down of the Corporation) (``Wind-down Rule''), and (ii) proposed 
Rule 38 (Market Disruption and Force Majeure) (``Force Majeure Rule'').
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    \8\ The description of the Proposed Rule Change is based on the 
statements prepared by DTC in the Notice. See Notice, supra note 4. 
Capitalized terms used herein and not otherwise defined herein are 
defined in the Rules, By-Laws and Organization Certificate of DTC, 
available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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    DTC states that the R&W Plan is intended to be used by DTC's Board 
of Directors and management in the event that DTC encounters scenarios 
that could potentially prevent it from being able to provide its 
critical services as a going concern.\9\ The R&W Plan would be 
structured to provide a roadmap, define the strategy, and identify the 
tools available to DTC to either (i) recover, in the event it 
experiences losses that exceed its resources or (ii) wind-down its 
business in a manner designed to permit its critical services to 
continue in the event that such recovery efforts are not 
successful.\10\ The R&W Plan would include tools that are provided for 
in DTC's existing rules, policies, procedures, and contractual 
arrangements,\11\ as well as the proposed Wind-down Rule and the 
proposed Force Majeure Rule.\12\
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    \9\ See Notice, supra note 4, at 885.
    \10\ Id. at 886.
    \11\ Contractual arrangements include, for example, DTC's 
existing committed or pre-arranged liquidity arrangements.
    \12\ See Notice, supra note 4, at 885.
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    DTC states that the proposed Wind-down Rule and the proposed Force 
Majeure Rule are designed to (i) facilitate the implementation of the 
R&W Plan when necessary; (ii) provide Participants with transparency 
around critical provisions of the R&W Plan that relate to their rights, 
responsibilities, and obligations; and (iii) provide DTC

[[Page 13000]]

with the legal basis to implement the provisions of the R&W Plan that 
concern the proposed Wind-down Rule and the proposed Force Majeure 
Rule, when necessary.\13\
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    \13\ Id.
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    As an overview, the R&W Plan would provide, among other matters, 
(i) an overview of the business of DTC and its parent, The Depository 
Trust & Clearing Corporation (``DTCC''); (ii) an analysis of DTC's 
intercompany arrangements and critical links to other financial market 
infrastructures; (iii) a description of DTC's services, and the 
criteria used to determine which services are considered critical; (iv) 
a description of the DTC and DTCC governance structure; (v) a 
description of the governance around the overall recovery and wind-down 
program; (vi) a discussion of tools available to DTC to mitigate 
credit/market \14\ and liquidity risks, including recovery indicators 
and triggers, and the governance around management of a stress event 
along a ``Crisis Continuum'' timeline; (vii) a discussion of potential 
non-default losses and the resources available to DTC to address such 
losses, including recovery triggers and tools to mitigate such losses; 
\15\ (viii) an analysis of the recovery tools' characteristics, 
including how they are comprehensive, effective, and transparent, how 
the tools provide appropriate incentives to Participants to, among 
other things, control and monitor the risks they may present to DTC, 
and how DTC seeks to minimize the negative consequences of executing 
its recovery tools; and (ix) the framework and approach for the orderly 
wind-down and transfer of DTC's business,\16\ including an estimate of 
the time and costs to effect a recovery or orderly wind-down of 
DTC.\17\
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    \14\ DTC states that for DTC, credit risk and market risk are 
closely related because DTC monitors credit exposures from 
Participants through risk management controls that are part of its 
market risk management strategy. Id. at 888 n.22.
    \15\ As described in more detail in the Notice, this section of 
the R&W Plan would describe the proposed Force Majeure Rule, which 
would govern how DTC would address extraordinary events that may 
occur outside its control. See Notice, supra note 4, at 894. The 
proposed Force Majeure Rule would identify the events or 
circumstances that would be considered a ``Market Disruption 
Event,'' including, for example, events that lead to the suspension 
or limitation of trading or banking in the markets in which DTC 
operates, or the unavailability or failure of any material payment, 
bank transfer, wire or securities settlement systems. Id. Under the 
proposed Force Majeure Rule, during the pendency of a Market 
Disruption Event, DTC would be entitled to (i) suspend the provision 
of any or all services, and (ii) take, or refrain from taking, or 
require its Participants and Pledgees to take, or refrain from 
taking, any actions it considers appropriate to address, alleviate, 
or mitigate the event and facilitate the continuation of DTC's 
services as may be practicable. Id.
    \16\ This section of the R&W Plan would refer to the proposed 
Wind-down Rule.
    \17\ See Notice, supra note 4, at 885.
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    The framework and approach for orderly wind-down would provide (i) 
for the transfer of DTC's business, assets, securities inventory, and 
membership to another legal entity; (ii) that DTC would effectuate the 
transfer in connection with proceedings under Chapter 11 of the U.S. 
Bankruptcy Code; \18\ and (iii) that after effectuating this transfer, 
DTC would liquidate any remaining assets in an orderly manner in 
bankruptcy proceedings.\19\ DTC states that it believes that the 
proposed transfer approach to a wind-down would meet its objectives of 
(i) assuring that DTC's critical services will be available to the 
market as long as there are Participants in good standing, and (ii) 
minimizing disruption to the operations of Participants and financial 
markets generally that might be caused by DTC's failure.\20\
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    \18\ 11 U.S.C. 101 et seq.
    \19\ See Notice, supra note 4, at 890.
    \20\ Id. at 890-91.
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III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \21\ to determine whether the Proposed Rule 
Change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the Proposed Rule Change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
and provide the Commission with arguments to support the Commission's 
analysis as to whether to approve or disapprove the Proposed Rule 
Change.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\22\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the Proposed 
Rule Change's consistency with Section 17A of the Act,\23\ and the 
rules thereunder, including the following provisions:
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    \22\ Id.
    \23\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Act,\24\ which requires, among 
other things, that the rules of a clearing agency, such as DTC, must be 
designed 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 and to protect investors and the public interest; and
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    \24\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(3)(ii) under the Act,\25\ which requires a 
covered clearing agency,\26\ such as DTC, to, among other things, 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, maintain a sound risk 
management framework for comprehensively managing legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks that arise in or are borne by DTC, which includes plans for 
the recovery and orderly wind-down of DTC necessitated by credit 
losses, liquidity shortfalls, losses from general business risk, or any 
other losses.
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    \25\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \26\ See 17 CFR 240.17Ad-22(a)(5) for the definition of a 
covered clearing agency.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act,\27\ 
Rule 17Ad-22(e)(3)(ii) under the Act,\28\ or any other provision of the 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4(g) under the 
Act,\29\ any request for an opportunity to make an oral 
presentation.\30\
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    \27\ 15 U.S.C. 78q-1(b)(3)(F).
    \28\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \29\ 17 CFR 240.19b-4(g).
    \30\ Section 19(b)(2) of the Act grants to the Commission 
flexibility to determine what type of proceeding--either oral or 
notice and opportunity for written comments--is appropriate for 
consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by April 16,

[[Page 13001]]

2018. Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by April 30, 2018.
    The Commission asks that commenters address the sufficiency of 
DTC's statements in support of the Proposed Rule Change, which are set 
forth in the Notice,\31\ in addition to any other comments they may 
wish to submit about the Proposed Rule Change.
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    \31\ See Notice, supra note 4.
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    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 [email protected]. Please include 
File Number SR-DTC-2017-021 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 Number SR-DTC-2017-021. 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 website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2017-021 and should be submitted on 
or before April 16, 2018. Rebuttal comments should be submitted by 
April 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06018 Filed 3-23-18; 8:45 am]
 BILLING CODE 8011-01-P