Document ID: SEC-2010-1291-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2010-08-23T04:00Z

[Federal Register: August 23, 2010 (Volume 75, Number 162)]
[Notices]               
[Page 51866-51867]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23au10-135]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62727; File No. SR-DTC-2010-09]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Revise its Procedures Regarding 
Securities Delivered to or From Participant Accounts Through the 
Automated Customer Account Transfer Service of National Securities 
Clearing Corporation

August 16, 2010.

I. Introduction

    On June 4, 2010, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2010-09 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'').\1\ The proposed rule change was 
published for comment in the Federal Register on July 2, 2010.\2\ No 
comment letters were received on the proposal. This order approves the 
proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 62384 (June 25, 2010), 
75 FR 38581 (July 2, 2010).
---------------------------------------------------------------------------

II. Description

    DTC is modifying certain provisions of its Settlement Services 
Guide (``Guide'') in connection with concurrent rule changes being made 
by the National Securities Clearing Corporation (``NSCC'') concerning 
Automated Customer Account Transfer Service (``ACATS'') transfers 
processed through the Continuous Net Settlement (``CNS'') system.\3\
---------------------------------------------------------------------------

    \3\ SR-NSCC-2010-05. Securities Exchange Act Release Nos. 62385 
(June 25, 2010), 75 FR 38579 (July 2, 2010) and 62384 (June 25, 
2010), 75 FR 38581 (July 2, 2010).
---------------------------------------------------------------------------

    NSCC's ACATS system enables members to effect automated transfers 
of customer accounts among themselves.\4\ For ACATS transfers processed 
through NSCC's CNS system,\5\ long and short positions are passed 
against Members' positions at DTC. Available securities are delivered 
from short Members' DTC accounts and allocated to long Members' DTC 
accounts by book-entry transfer.
---------------------------------------------------------------------------

    \4\ ACATS complements a Financial Industry Regulatory Authority 
(``FINRA'') rule requiring FINRA members to use automated clearing 
agency customer account transfer services and to effect customer 
account transfers within specified time frames.
    \5\ CNS is an ongoing accounting system which nets today's 
Settling Trades with yesterday's Closing Positions to produce a net 
short or long position for a particular security for a particular 
Member. NSCC is the contra party for all positions. The positions 
are then passed against the Member's Designated Depository positions 
and available securities are allocated by book-entry transfer. This 
allocation of securities is accomplished through an evening cycle 
followed by a day cycle. Positions which remain open after the 
evening cycle may be changed as a result of trades accepted for 
settlement that day. CNS allocates deliveries in both the night and 
day cycles using an algorithm based on priority groups in descending 
order, age of position within a priority group, and random numbers 
within age groups.
---------------------------------------------------------------------------

    An NSCC Member to which a customer's securities account is to be 
transferred through ACATS (``Receiving Member'') initiates the transfer 
process by submitting a request to NSCC. For the transfer to be 
processed, the request must be accepted by the NSCC Member from which 
the customer's securities are being transferred (``Delivering 
Member''). After a Delivering Member accepts a customer account 
transfer request and all other preconditions of NSCC's rules for 
processing ACATS transfer are met, all CNS-eligible securities in the 
customer's account, except securities that the Receiving Member 
notifies NSCC should not be transferred, are entered into NSCC's CNS 
accounting

[[Page 51867]]

operation on the day before settlement date.\6\
---------------------------------------------------------------------------

    \6\ NSCC Rule 50 (Automated Customer Account Transfer Service).
---------------------------------------------------------------------------

    DTC is modifying its Guide in several ways to clarify that 
securities moving through NSCC's ACATS system are not subject to a lien 
by DTC when they are debited from a delivering Participant's DTC 
account or when they are credited to a receiving Participant's DTC 
account.\7\ DTC believes its clarifications will help NSCC Members and 
DTC Participants meet their legal obligations to maintain possession or 
control of certain customer securities and will concurrently protect 
the interests of NSCC and DTC.\8\
---------------------------------------------------------------------------

    \7\ As part of NSCC's companion rule filing, NSCC will amend its 
Rules to provide that any deliveries and receives in a particular 
security processed through CNS will be designated by NSCC to satisfy 
a Member's ACATS receive or deliver obligation prior to satisfaction 
of other CNS-related obligations in the same security for that 
Member. This will allow NSCC to track the completion status of CNS 
ACATS deliveries and facilitate NSCC's ability to notify DTC of 
which CNS deliveries are ACATS transfers.
    \8\ Commission Rule 15c3-3 provides that a broker-dealer shall 
promptly obtain and shall thereafter maintain the physical 
possession or control of all fully-paid securities and excess margin 
securities, in each case, carried by a broker-dealer for the account 
of customers.
---------------------------------------------------------------------------

    DTC is modifying the CNS section of the Guide to clarify that when 
a Participant holds securities in its account in a no-lien location \9\ 
and those securities are part of an ACATS transfer through CNS, DTC 
does not have any lien on such securities to satisfy the Participant's 
CNS ACATS delivery obligation. DTC is also clarifying within the Guide 
that ACATS deliveries from CNS are deemed to be designated by the 
receiving Participant as ``Minimum Amount Securities'', and therefore 
not subject to any lien by DTC, when they are credited to the receiving 
Participant's account.\10\ Additional clarification will be made to 
explain that an ACATS transfer is deemed null and void and the 
underlying securities may be used to satisfy settlement obligations to 
NSCC if NSCC determines that a Delivering Member and a Receiving Member 
defaulted on their settlement obligations to NSCC and the Delivering 
Member also failed to meet its ACATS delivery obligation.
---------------------------------------------------------------------------

    \9\ For example, when the securities are designated as ``Minimum 
Amount Securities'' and not as ``Net Additions''.
    \10\ DTC Rules 1 and Rule 4(A) respectively define ``Minimum 
Amount Securities'' and explain the implications of this designation 
in protecting such securities from any lien or other claim of DTC.
    Because Minimum Amount Securities are not subject to any lien or 
other claim by DTC, such securities are not counted as part of the 
Participant's Collateral Monitor. A receiving Participant can 
designate such securities as ``Net Additions''.
---------------------------------------------------------------------------

    DTC intends to implement these changes during the third quarter of 
2010 and will advise Participants of the specific implementation date 
through DTC Important Notices.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act \11\ and the rules and regulations 
thereunder applicable to DTC. In particular, the Commission believes 
that the amendments DTC is making to its Guide regarding securities 
delivered to or from Participant accounts through ACATS are consistent 
with DTC's obligations under Section 17A(b)(3)(F),\12\ which requires, 
among other things, that the rules of a clearing agency are designed to 
remove impediments to and help perfect the mechanism of a national 
system for the prompt and accurate clearance and settlement of 
securities transactions.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \13\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-DTC-2010-09) be, 
and hereby is, approved.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 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).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20816 Filed 8-20-10; 8:45 am]
BILLING CODE 8010-01-P