Document ID: SEC-2023-1066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2023-09-28T04:00Z

[Federal Register Volume 88, Number 187 (Thursday, September 28, 2023)]
[Notices]
[Pages 66921-66923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21137]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98490; File No. SR-DTC-2023-009]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule To Amend 
the DTC Operational Arrangements (Necessary for Securities To Become 
and Remain Eligible for DTC Services)

September 22, 2023.
    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 September 14, 2023, 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 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)(6) 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)(6).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the DTC 
Operational Arrangements (Necessary for Securities to Become and Remain 
Eligible for DTC Services) (the ``OA'') \5\ to (i) allow DTC to delete 
the Participant positions and dispose of the underlying certificates, 
if any, for a warrant \6\ or right \7\ that is past its expiration date 
as reflected on DTC books and records (``Expiration Date''), provided 
that DTC did not receive a notice of extension of the Expiration Date 
from the Agent or Issuer within the applicable timeframe (``Notice 
Period'') set forth in the OA; and (ii) make technical and clarifying 
changes relating to expired warrants/rights, as described in greater 
detail below.
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    \5\ Available at www.dtcc.com/~/media/Files/Downloads/legal/
issue-eligibility/eligibility/operational-arrangements.pdf. Each 
term not otherwise defined herein has its respective meaning as set 
forth in the OA and in the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ A warrant generally represents the right of the holder to 
acquire common stock of an issuer at some future date at a specified 
price. Warrants, by their terms, have an expiration date, i.e., the 
date after which a holder can no longer exercise its rights under 
the warrant, thereby rendering the warrant worthless.
    \7\ A right generally represents an opportunity for stockholders 
to buy new securities issued by a corporation in proportion to the 
number of shares they own before the new shares are offered to the 
public. Rights, by their terms, have an expiration date, i.e., the 
date on which the subscription period under the rights offering 
expires, thereby rendering the right worthless.
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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
    On November 21, 1990, DTC filed a rule change providing for the 
deletion and disposal of a warrant/right whose Expiration Date had 
passed (``Expired Warrant/Right'').\8\ The rule change provided that 
DTC be permitted to delete and dispose of an Expired Warrant/Right 
after DTC (i) obtains written confirmation from the Issuer or Agent 
that the Expired Warrant/Right has expired and is null, void, and 
worthless (the ``Confirmation''), and (ii) provides Participants with 
thirty days' notice of the proposed deletion and disposal of the 
Expired Warrant/Right. After thirty days, DTC is permitted to delete 
the positions in the Expired Warrant/Right from Participants' accounts 
and to dispose of the underlying certificates.
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    \8\ Securities Exchange Act Release No. 28642 (Nov. 21, 1990), 
55 FR 49725 (Nov. 30, 1990) (SR-DTC-90-11).
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    Over the years, DTC has encountered difficulties in contacting the 
Issuers or Agents of Expired Warrants/Rights and/or obtaining the 
Confirmation from the Issuers or Agents. In addition to the 
administrative burden on DTC to follow-up with Issuers and Agents, if 
DTC does not receive the Confirmation from the Issuer or Agent of an 
Expired Warrant/Right (i) the DTC books and records continue to reflect 
the expired security, and (ii) the underlying certificates, if any,\9\ 
continue to be

[[Page 66922]]

maintained in the DTC vault. This exposes DTC to the unnecessary risks 
and costs associated with the ongoing monitoring of positions and the 
custody of certificates for worthless securities. In addition, the 
positions in the Expired Warrant/Right remain credited to Participant 
accounts and the Participants continue to be charged for their 
positions in the Expired Warrant/Right.
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    \9\ Currently, warrants/rights are required to be part of the 
FAST program (Fast Automated Securities Transfer) program. This 
means that the Agent for a warrant/right, and not DTC, is 
responsible for maintaining the physical certificates representing 
the warrant/right. See OA, supra note 1, at 65.
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    At the time of this filing, DTC maintains approximately 16,700 
certificates in the vault and the associated Participant positions 
representing approximately 890 CUSIPs of Expired Warrants/Rights for 
which DTC did not obtain a Confirmation. DTC is also maintaining 
Participant positions in certain Expired Warrants/Rights in the FAST 
program for which DTC did not obtain a Confirmation.
(i) Proposed Rule Change
    In order to reduce the burden, costs, and risks presented to DTC, 
Participants, Agents and Issuers by requiring DTC to obtain a 
Confirmation from the Issuer or Agent of an Expired Warrant/Right prior 
to deletion and disposal, DTC is proposing to amend the OA to make the 
following changes:
    Notice of Extension of Expiration Date of Warrants/Rights: DTC is 
proposing to amend the OA to revise the Notice Period from 15 (fifteen) 
business days after the Expiration Date to ten (10) business days after 
the Expiration Date for a warrant, and two (2) business days after the 
Expiration Date for rights.\10\
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    \10\ The fifteen (15) business day timeframe was established on 
or around 2002, when notices of extension were required to be 
physically mailed or telecopied to DTC. Given the technological 
advances in the intervening years, and the current requirement that 
an Issuer or Agent email a notice of extension to DTC, DTC believes 
that a shorter Notice Period for warrants is appropriate. DTC 
believes that a two (2) business day Notice Period for rights is 
appropriate because the payment and allocation on exercised rights 
typically occurs two business days after expiration date, after 
which the rights offer can no longer be amended or extended.
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    Further, pursuant to the proposed rule change, DTC would change the 
email address to which such notice is required to be sent from 
[email protected] to 
[email protected].
    Deletion and Disposal of Expired Warrants/Rights: DTC is proposing 
to amend the OA to advise Issuers and Agents that if DTC has not 
received a notice of extension for an Expired Warrant/Right within ten 
(10) business days after the Expiration Date for a warrant or within 
two (2) business days after the Expiration Date for rights, DTC may 
delete all Participant positions and dispose of any underlying 
certificates for the Expired Warrant/Right, without further instruction 
or notice. In addition, DTC is proposing to insert an asterisked 
footnote stating that with respect to expired warrants/rights with an 
expiration date prior to August 1, 2023 (``aged expired warrants/
rights''), DTC will issue an Important Notice at least thirty (30) days 
prior to deleting and disposing of an aged Expired Warrant/Right, and 
the footnote will be automatically be deleted after DTC issues such 
Important Notice(s) for all of the aged expired warrants/rights. 
Finally, DTC is proposing to remove the language referencing the 
requirement for the Issuer or Agent to provide a null, void, and 
worthless declaration for Expired Warrants/Rights.
    Reactivation of Expired Warrants/Rights: DTC is proposing to amend 
the OA to replace and revise the language relating to reactivation of 
Expired Warrants/Rights to (i) enhance the readability of the 
requirements and (ii) change the email address to which a notice of 
reactivation is required to be sent from 
[email protected] to 
[email protected].
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.\11\ DTC believes that by amending the OA to 
(i) permit DTC to delete the Participant positions and dispose of the 
underlying certificates, if any, for an Expired Warrant/Right, provided 
that DTC did not receive a notice of extension within the ten (10) 
business days' Notice Period for a warrant or the two (2) business 
days' Notice Period for rights, as applicable; and (ii) make technical 
and clarifying changes to the OA with respect to Expired Warrants/
Rights, the proposed rule change would facilitate the ability of 
Issuers, Agents, and Participants to understand their rights and 
obligations relating to Expired Warrants/Rights and activity relating 
thereto. Therefore, DTC believes that the proposed rule change is 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, consistent with section 17A(b)(3)(F) of the 
Act, cited above.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(11) under the Act \12\ requires, in part, that DTC 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to maintain securities in an immobilized 
or dematerialized form for their transfer by book entry, ensure the 
integrity of securities issues, and minimize and manage the risks 
associated with the safekeeping and transfer of securities. DTC 
believes that by amending the OA to permit DTC to delete all 
Participant positions and dispose of any underlying certificates for an 
Expired Warrant/Right, without further instruction or notice, provided 
that DTC has not received a notice of extension for the Expired 
Warrant/Right from the Issuer or Agent within the applicable Notice 
Period, the proposed rule change would reduce the burden, costs, and 
risks associated with the administration of the Confirmation process, 
the recordkeeping of Participant positions in Expired Warrants/Rights, 
and the custody of the physical certificates for Expired Warrants/
Rights. Based on the foregoing, DTC believes that the proposed rule 
change is designed to enhance DTC's maintenance of Participants' book-
entry positions in warrants and rights, and its management and 
reduction of the risks associated with the safekeeping of its physical 
securities inventory, consistent with Rule 17Ad-22(e)(11) under the 
Act, cited above.
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    \12\ 17 CFR 240.17Ad-22(e)(11).
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(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change to amend the OA to (i) 
permit DTC to delete the Participant positions and dispose of the 
underlying certificates, if any, for an Expired Warrant/Right, provided 
that DTC did not receive a notice of extension within the ten (10) 
business days' Notice Period for a warrant or the two (2) business 
days' Notice Period for rights, as applicable; and (ii) make technical 
and clarifying changes to the OA with respect to Expired Warrants/
Rights procedures, would not have any impact on competition.\13\ The 
proposed rule change would merely streamline the processing of Expired 
Warrants/Rights and would apply to all Issuers and Agents of Expired 
Warrants/Rights and to all holders of Expired Warrants/Rights. In light 
of the foregoing, DTC does not believe that the proposed rule change 
would impose a burden on competition.\14\
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    \13\ 15 U.S.C. 78q-1(b)(3)(I).
    \14\ Id.

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[[Page 66923]]

(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. If any written comments are received, they would be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at [email protected] or 202-551-5777.
    DTC reserves the right to not respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \15\ and 
Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-DTC-2023-009 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to file number SR-DTC-2023-009. 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 (https://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 
a.m. and 3 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). Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-DTC-2023-009 and should be submitted on 
or before October 19, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21137 Filed 9-27-23; 8:45 am]
BILLING CODE 8011-01-P