Document ID: SEC-2013-1764-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62827-62828]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24667]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70675; File No. SR-DTC-2013-10]

Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Terminate the Sealed Envelope 
Service, Which Is Part of The Depository Trust Company's Custody 
Service

October 11, 2013.

I. Introduction

    On August 22, 2013, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2013-10 (``Proposed Rule Change'') pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder.\2\ The Proposed Rule Change was published in 
the Federal Register on September 5, 2013.\3\ The Commission received 
one comment to the Proposed Rule Change.\4\ This order approves the 
Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Release No. 34-70291 (Aug. 30, 2013), 78 FR 54696 (Sept. 5, 
2013).
    \4\ See Comment from Sheila Waddell dated September 2, 2013 
(``Waddell Comment''), http://www.sec.gov/comments/sr-dtc-2013-10/dtc201310-1.htm.
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II. Description

    DTC filed the Proposed Rule Change to terminate its Sealed Envelope 
Service (``Service''), which is part of its Custody Service, as 
described below.

A. Sealed Envelope Service

    In 2002, DTC launched the Service as an addition to its Custody 
Service in response to requests from DTC participants 
(``Participants'') to assist in fully outsourcing their vaults to DTC. 
The Service is designed to provide physical custody to Participants for 
documents or instruments that are not securities, such as loan 
agreements, wills, deeds, mortgages, contracts, and option 
agreements.\5\
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    \5\ The deposit of securities certificates, as well as tangible 
assets such as currency, gold coins, or jewelry, is strictly 
prohibited by DTC.
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    DTC allows for the sealed envelopes containing instruments or 
documents that are not securities to be held in custody in one of DTC's 
vaults. DTC assigns each sealed envelope a user-CUSIP number for 
tracking and record keeping purposes. Participants balance their sealed 
envelopes daily with DTC in the same manner as for securities held in 
the Custody Service. The depositing Participant is required to list the 
contents of the envelope on the outside of the envelope, as DTC does 
not open any sealed envelopes or verify the contents therein other than 
an examination for dangerous contents.
Proposed Rule Change
    DTC has determined to discontinue the Service for multiple reasons. 
First, the Service is not widely used, as only 15 Participants 
currently use the Service and one of those Participants represents 
approximately 85% of the total volume. Second, since DTC does not 
verify the content of the envelope submitted by a Participant under the 
Service, it cannot confirm that a sealed envelope contains instruments 
and document qualifying for the Service.
    DTC has stated that all 15 Participants of the Service were 
notified of DTC's intention to discontinue the Service and none of the 
Participants objected. DTC will work with those Participants to develop 
a timeline to return sealed envelopes that it currently has in custody.

III. Comments Received

    The Commission received one comment on the Proposed Rule Change.\6\ 
The commenter supports the Proposed Rule Change and notes that 
terminating the Service would mitigate risk, promote transparency and 
integrity in the markets, provide seamless clearing and settlement 
services, mitigate existing conflicts of interest, and enhance know 
your customer and

[[Page 62828]]

customer identification programs.\7\ Furthermore, the commenter states 
that the Service places an undue burden and risk on DTC because it has 
no way of verifying the contents of a sealed envelope.\8\
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    \6\ Waddell Comment, supra note 4.
    \7\ See id.
    \8\ See id.
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IV. Discussion

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\9\ Section 17A(b)(3)(F) of the Act requires that, among 
other things, ``[t]he rules of the clearing agency are 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 the custody or control of the clearing agency or for 
which it is responsible.'' \10\
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    \9\ 15 U.S.C. 78(s)(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    Here, as described above, DTC's proposed rule change to terminate 
the Service should help further safeguard the securities and settlement 
process as a whole, as required by Section 17A(b)(3)(F) of the Act,\11\ 
by eliminating the risk presented by the fact that DTC does not verify 
the contents of sealed envelopes placed in its custody. Moreover, 
terminating the Service will allow DTC to reallocate resources towards 
promoting other clearing and settlement processes.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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V. Conclusion

    On the basis of the foregoing, the Commission finds the Proposed 
Rule Change is consistent with the requirements of the Act, 
particularly with the requirements of Section 17A of the Act,\12\ and 
the rules and regulations thereunder.
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    \12\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change SR-DTC-2013-10 be, and hereby 
is, APPROVED.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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).
    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24667 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P