Document ID: SEC-2021-0587-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2021-04-28T04:00Z

[Federal Register Volume 86, Number 80 (Wednesday, April 28, 2021)]
[Notices]
[Pages 22479-22481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08862]

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SECURITIES AND EXCHANGE COMMISSION

[[Release No. 34-91635; File No. SR-DTC-2021-006]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Remove the Security Holder Tracking Service

April 22, 2021.
    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 April 16, 2021, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'')

[[Page 22480]]

the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the clearing agency. DTC filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(4) thereunder.\4\ 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).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ consists of modifications to the 
Procedures \6\ of DTC to remove a service that allows issuers of 
Securities, either themselves or through an issuer-designated 
administrator, to track and limit the number of beneficial owners for 
an individual Security (``Security Holder Tracking Service''), as 
described in greater detail below.
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    \5\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (``Rules''), 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf.
    \6\ Pursuant to the Rules, the term ``Procedures'' means the 
Procedures, service guides, and regulations of DTC adopted pursuant 
to Rule 27, as amended from time to time. See Rule 1, Section 1, id. 
DTC's Procedures are filed with the Commission, and are binding on 
DTC and each Participant in the same manner as they are bound by the 
Rules. See Rule 27, id.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change consists of modifications to the 
Procedures of DTC to remove the Security Holder Tracking Service, as 
described in greater detail below.
Background
    In 2008, DTC established the Security Holder Tracking Service to 
allow issuers, either themselves or through an issuer-designated 
administrator, to track and limit the number of beneficial owners for 
an individual Security.\7\ Related fees were also added to the Guide to 
the 2021 DTC Fee Schedule (``Fee Guide'').\8\
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    \7\ See Securities Exchange Act Release No. 59102 (December 15, 
2008), 73 FR 78411 (December 22, 2008) (SR-DTC-2008-11).
    \8\ Available at https://www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/dtcfeeguide.pdf.
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    DTC developed the Security Holder Tracking Service after it was 
approached by a group of Participants who were interested in providing 
greater liquidity and access to capital for closely held issuers in the 
private equities market for Securities that are transferable pursuant 
to Rule 144A under the Securities Act of 1933.\9\ The proposal 
contemplated the development of a system that would allow the 
Securities to be made eligible for DTC services while allowing the 
issuer of the Securities, typically through an agent, to control the 
number and character of the beneficial owners of its Securities. The 
need to control the number of beneficial owners was so that the issuer 
did not trigger certain regulatory reporting requirements.
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    \9\ Rule 144A is a safe harbor exemption from the registration 
requirements of Section 5 of the Securities Act of 1933, 15 U.S.C. 
77e, for certain offers and sales of qualifying securities by 
certain persons other than the issuer of the securities. See 17 CFR 
230.144A.
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    In order to facilitate the settlement and asset servicing of these 
securities within DTC without exceeding the issuer's limit of 
beneficial owners, DTC was asked to build a mechanism that would allow 
issuers to track and limit the number of beneficial owners of its 
Securities (``Tracked Securities'').
    The eligibility process for a Tracked Security to be made and 
remain DTC-eligible is the same as other Securities,\10\ except, in 
addition to the traditional process, DTC must be instructed in writing 
to set up a specific CUSIP for tracking.\11\ At the same time, the 
issuer must instruct DTC as to whom will perform the function of the 
administrator for the CUSIP within the Security Holder Tracking 
Service.\12\
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    \10\ See Rule 5, supra note 5, and the DTC Operational 
Arrangements (Necessary for Securities to Become and Remain Eligible 
for DTC Services), available at https://www.dtcc.com/~/media/Files/
Downloads/legal/issue-eligibility/eligibility/operational-
arrangements.pdf.
    \11\ This instruction would be provided to DTC by the 
underwriter of the Security at the time of the initial distribution 
at DTC.
    \12\ It was anticipated that the administrator would typically 
be the transfer agent for the issue.
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    Pursuant to the Procedures, as set forth in the Settlement Service 
Guide \13\ and the Underwriting Service Guide,\14\ once the Security 
becomes eligible for DTC services, DTC will activate the tracking 
indicator on its security master file. Additionally, once it is made 
eligible, DTC will perform asset servicing for the issue.
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    \13\ See Settlement Service Guide, available at https://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf, at 69-71.
    \14\ See Underwriting Service Guide, available at https://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Underwriting-Service-Guide.pdf, at 18-20.
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    The administrator appointed by the issuer (the ``Administrator'') 
will control movements of the issues for which it has been appointed. 
Once the tracking indicator has been activated in the DTC system and 
the Administrator has been appointed, no transfer of a Tracked Security 
may take place without the approval of the Administrator through DTC's 
Inventory Management System (``IMS''). The Administrator, based on 
requirements of the issuer, shall be solely responsible for determining 
whether a transaction should be effected in DTC. Once approved by the 
Administrator, DTC may perform centralized book-entry settlement.
    IMS only allows an Administrator access to view and approve 
transactions for Securities for which they have been appointed 
Administrator as reflected in DTC's records.
    As DTC is relying solely on the instructions of the Administrator 
in order to effect settlement in Tracked Securities and has no 
knowledge of the number or character of the underlying beneficial 
owners, use of the Security Holder Tracking Service by any party 
constitutes an agreement that DTC shall not be liable for any loss or 
damages related to the use of the Security Holder Tracking Service. Any 
user of the Security Holder Tracking Service agrees to indemnify and 
hold harmless DTC and its affiliates from and against any and all 
losses, damages, liabilities, costs, judgments, charges, and expenses 
arising out of or relating to the use of the Security Holder Tracking 
Service.
    The following fees relating to the service are included in the Fee 
Guide:
 $25,000 per CUSIP for Security Holder Tracking Services \15\
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    \15\ See Fee Guide, supra note 8, at 25.
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 $5 per delivery and receive for Tracked Securities \16\
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    \16\ Id. at 19.
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 $5 per receive and delivery for reclaims of Tracked Securities 
\17\
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    \17\ Id.
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    The Security Holder Tracking Service was never used by any party, 
and no fees have been charged for the service. There has never been and 
there are currently no Securities signed up for this service, and DTC 
does not believe that any party will ever use the service.

[[Page 22481]]

As a result, DTC would like to remove the Security Holder Tracking 
Service from the Procedures and the related fees from the Fee Guide.
Proposed Rule Change
    In order to implement the proposal above, DTC would delete the 
provisions describing the Security Holder Tracking Service from the 
applicable Procedures, specifically the provisions relating to the 
Security Holder Tracking Service contained in the Settlement Service 
Guide \18\ and the Underwriting Service Guide,\19\ respectively. DTC 
would also remove the above-described fees from the Fee Guide.\20\
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    \18\ See supra note 13.
    \19\ See supra note 14.
    \20\ See supra notes 15-17.
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2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\21\ DTC believes that the proposed rule 
change is consistent with this provision because it would provide 
enhanced clarity and transparency for participants with respect to 
services offered by DTC by updating the Procedures to remove the 
ability to access a service that Participants and issuers did not 
utilize and are unlikely to utilize in the future.
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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    Therefore, by providing enhanced clarity and transparency in the 
Rules regarding the services provided by DTC, DTC believes the proposed 
rule change would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with the requirements 
of the Act, in particular Section 17A(b)(3)(F), cited above.

(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would have any 
impact on competition. Participants and issuers have not used the 
Security Holder Tracking Service and are unlikely to use the service in 
the future. Therefore, DTC believes the proposed rule change would have 
no effect on Participants or issuers, other than to remove the 
unutilized Security Holder Tracking Service from the Procedures.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not received or solicited any written comments relating to 
this proposal. 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 pursuant to Section 
19(b)(3)(A) \22\ of the Act and paragraph (f) \23\ of Rule 19b-4 
thereunder. 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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    \22\ 15 U.S.C 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f).
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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-2021-006 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-2021-006. 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-2021-006 and 
should be submitted on or before May 19, 2021.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08862 Filed 4-27-21; 8:45 am]
BILLING CODE 8011-01-P