Document ID: SEC-2021-0833-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2021-06-14T04:00Z

[Federal Register Volume 86, Number 112 (Monday, June 14, 2021)]
[Notices]
[Pages 31543-31547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12338]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92125; File No. SR-DTC-2021-008]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Distributions Guide To Accommodate Participants' Tax 
Reporting and Withholding Obligations

June 8, 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 June 1, 2021, The Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
primarily 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 \5\ would amend the Procedures \6\ set 
forth in the Distributions Guide to accommodate Participants' tax 
reporting and withholding obligations under Section 1.1446(f)-4 (``IRS 
Regulation'') \7\ of the final regulations of the Internal Revenue 
Service (``IRS''), by setting forth DTC's proposed Procedure relating 
to distribution of certain Participant tax forms and related 
information to DTC's Participants, in accordance with the IRS

[[Page 31544]]

Regulation, as described in greater detail below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company (the ``DTC 
Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx, and the DTC Corporate Actions Distributions Service 
Guide (``Distributions Guide''), available at http://www.dtcc.com/~/
media/Files/Downloads/legal/service-guides/
Service%20Guide%20Distributions.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, 
supra note 5. DTC's Procedures are filed with the Commission. They 
are binding on DTC and each Participant in the same manner as they 
are bound by the Rules. See Rule 27, supra note 5.
    \7\ See 26 CFR 1.1446(f)-4, available at https://www.law.cornell.edu/cfr/text/26/1.1446(f)-4.
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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 would amend the Procedures set forth in 
the Distributions Guide to accommodate Participants' tax reporting and 
withholding obligations under the IRS Regulation. In this regard, the 
proposed rule change would set forth DTC's Procedure relating to 
distribution of certain Participant tax forms and related information 
to DTC's Participants, in accordance with the IRS Regulation, as 
discussed below.
(a) Distributions Service
    The Distributions Service includes the announcement, collection, 
allocation and reporting by DTC, on behalf of its Participants, of 
dividend, interest and principal payments for Eligible Securities held 
by Participants at DTC. This centralized processing provides efficiency 
for Participants for their receipt of (i) payment information and (ii) 
payments on distributions covered by Announcements (``Distribution 
Event''),\8\ from multiple issuers and agents.\9\
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    \8\ Distribution Events covered by Announcements include cash 
dividends, interest, principal, capital gains, sale of rights on 
American depositary receipts, return of capital, dividend with 
option, stock splits, stock dividends, automatic dividend 
reinvestments, spinoffs, rights distributions, pay in kind, and 
liquidation. See Distributions Guide, supra note 5 at 12.
    \9\ See Distributions Guide, supra note 5 at 9.
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    Also as part of the Distributions Service, DTC also provides tax 
services (``Tax Services'') to facilitate Participant compliance with 
tax obligations, including international tax regulations, tax treaty 
provisions and withholding tax reporting requirements, including Tax 
Event Announcements, U.S. Tax Withholding, Tax Relief and Tax Info 
Services relating to distributions processed by DTC.\10\ Procedures 
relating to Tax Services are set forth in the Distributions Guide.\11\
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    \10\ See DTC Disclosure Framework for Covered Clearing Agencies 
and Financial Market Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/DTC_Disclosure_Framework.pdf at 9.
    \11\ See Distributions Guide, supra note 5.
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Tax Forms
    In connection with its use of the DTC's services, each Participant 
must submit to DTC the applicable IRS tax form (``Tax Form'').\12\ The 
information in these forms, which includes the Participant's name, 
federal tax identification number and certain certifications by the 
Participant facilitates DTC's ability to provide Tax Services related 
to tax reporting and withholding by facilitating DTC's ability to 
determine the status of each Participant (``Tax Status'') with respect 
to the type of reporting, and any rate of withholding, that may be 
required under federal tax regulations with respect to distributions.
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    \12\ See Distributions Guide, supra note 5 at 25.
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    In this regard, Participants that are U.S. persons provide DTC with 
a valid IRS Form W-9 (``Form W-9'').\13\ Each non-U.S. Participant 
submits a valid IRS Form W-8,\14\ as applicable (``Form W-8'').\15\ The 
form must be (1) valid for the type of entity; (2) filled out 
completely; and (3) signed by an authorized signatory of the 
entity.\16\ U.S. branches of foreign banks must also submit the 
appropriate W-8 Form.\17\
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    \13\ See IRS Form W-9, available at https://www.irs.gov/pub/irs-pdf/fw9.pdf.
    \14\ See IRS. ``About Instructions for the Requester of Forms W-
8 BEN, W-8 BEN-E, W-8 ECI, W-8 EXP, and W-8 IMY'', available at 
https://www.irs.gov/forms-pubs/about-form-w-8.
    \15\ See Distributions Guide, supra note 5 at 25.
    \16\ Id.
    \17\ Id.
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IRS Regulation
    The IRS Regulation sets forth requirements relating to tax 
withholding and information reporting obligations on Participants with 
respect to the transfer of a publicly traded partnership interests.\18\ 
In addition, Section 1.1446(f)-4(a)(5) \19\ of the IRS Regulation 
provides that, when such withholding requirement is applicable, the 
U.S. clearing organization (e.g., DTC) may act as an agent for the 
selling Participant for purposes of furnishing the selling 
Participant's Tax Form to the buying Participant, provided the clearing 
organization notifies the selling Participant and such Participant has 
the ability to opt-out. DTC understands that Section 1.1446(f)-4(a)(5) 
\20\ of the IRS Regulation is intended to address concerns about the 
difficulty of Participants obtaining documentation to determine whether 
tax withholding or reporting applies on certain transaction to other 
Participants processed through DTC's systems. In this regard, the IRS 
has issued guidance on use of the Tax Forms for determining a payee's 
tax status such that a payor would be able to properly report of 
affected payments and apply the correct withholding rate.\21\ In 
accordance with the IRS Regulation, DTC proposes to implement a method 
to share Tax Forms and related information among Participants.
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    \18\ See 26 CFR 1.1446(f)-4, supra note 7.
    \19\ Id.
    \20\ Id.
    \21\ See IRS 2021 Publication 515, available at https://www.irs.gov/pub/irs-pdf/p515.pdf at 46-47.
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Proposal
    Pursuant to the proposed rule change, DTC would make each 
Participant's Tax Forms available to all Participants in accordance 
with the IRS Regulation. DTC would make the Tax Forms available for 
download by Participant on the DTC system to facilitate tax withholding 
and reporting obligations related to dispositions of partnership 
interests. Also, in accordance with the IRS Regulation, Participants 
would be able to opt-out of having their Tax Form(s) made available for 
other Participants to download, as described below.
    In this regard, beginning on or about August 31, 2021, 
Participants' Tax Forms would be made available for download in DTC's 
Corporate Actions Web browser (``CA Web''). Tax Forms would be 
available through the ``Instructions'' tab on CA Web, under ``TaxInfo, 
Country of Investment: United States.'' To find, view, and download 
another Participants' tax form, a Participant would access CA Web as 
described above, and scroll to the relevant Participant Tax Form to 
download.
    As an interim step, to facilitate Participants' ability to develop 
their internal procedures and processes to comply with their tax 
reporting and withholding requirements under the IRS Regulation, 
beginning on June 15, 2021, DTC would make available on CA Web tax 
status information (``Tax Status Information''). The Tax Status 
Information for each Participant would indicate (i) the type of Tax 
Form provided by the Participant to DTC (i.e., either Form W-9 or the 
type of Form W-8 provided (e.g., Form W-8 IMY, W-8BEN-E or W-8ECI)), 
and (ii) for Participants that provided Form W-8 IMY, whether the 
Participant indicated

[[Page 31545]]

on the Form W-8 IMY that it is (a) Qualified Intermediary, (b) non-
Qualified Intermediary, (c) U.S. Branch--Treated as a U.S. Person or 
(d) U.S. Branch--not-treated as a U.S. Person.
    The Tax Status Information would be made available in the same 
location on CA Web as the Tax Forms would be located, as described 
above.
    Pursuant to the proposed rule change, Participants would be able to 
elect to opt-out of having their Tax Forms and Tax Status Information 
posted to CA Web for other Participants to download. Participants would 
use an opt-out form (``Opt-Out Form'') and submit their elections 
(``Opt-Out Election'') to opt-out electronically to DTCC's Account 
Administration department using a mechanism provided at a link to be 
set forth in the Distributions Guide. Each Opt-Out Election would 
remain in place indefinitely until DTC is in receipt of a duly 
authorized written notice from the Participant rescinding this Opt-Out 
Election.
Text of Proposed Rule Change
    In this regard, DTC would add the following text to the 
Distributions Guide in the ``Other Services'' section, just after the 
subsection titled ``Undistributed Long-Term Capital Gains'' and before 
the subsection titled ``Claims''.
    ``Tax Form Repository
    Beginning on June 15, 2021, to facilitate Participants' ability to 
comply with tax withholding and reporting regulations relating to the 
disposition of partnership interests, and in furtherance of DTC's role 
as a ``clearing organization'' in accordance with Section 1.1446(f)-
4(a)(5) of the final regulations of the Internal Revenue Service, 
Participant tax status information (``Tax Status Information'') from 
the Tax Forms of Participants shall be made available to Participants 
in the ``Instructions'' tab of CA Web, within ``TaxInfo, Country of 
Investment: United States.'' Tax Status Information will no longer be 
available once Tax Forms become available for download from CA Web, as 
described below.
    Beginning on or about August 31, 2021, to facilitate Participants' 
ability to comply with tax withholding and reporting regulations 
relating to the disposition of partnership interests, and in accordance 
with Section 1.1446(f)-4(a)(5) of the final regulations of the Internal 
Revenue Service, Participant tax forms (i.e., IRS Forms W-9 and W-8) 
(``Tax Forms'') shall be available for Participants to view and 
download. Tax Forms shall be available in the ``Instructions'' tab of 
CA Web, within ``TaxInfo, Country of Investment: United States.
Opt-Out
    Effective immediately, a Participant may submit an election (``Opt-
Out Election'') to DTC to opt-out of having its Tax Form and Tax Status 
Information posted to CA Web, by electronically submitting a form 
(``Opt-Out Form'') made available by DTC for this purpose. The Opt-out 
Form, as well as the mechanism for completing, electronically signing 
and submitting the form, is available at https://na2.docusign.net/
Member/PowerFormSigning.aspx?PowerFormId=854f0396-16aa-4fbb-bf67-
c694274c04cf&env=na2&acct=642629e5-740a-442a-b744-d7655d9a1f21&v=2.'' 
Any Opt-Out Election will only be considered valid if it is (i) fully 
completed and electronically signed by an authorized signer of the 
Participant using the Opt-Out Form and (ii) submitted through the 
mechanism made available through this link. An Opt-Out Election will 
become effective as of a date designated by the Participant on the Opt-
Out Form. For this purpose, a Participant may designate its account 
activation date (for new Participants of DTC), or a future date, for 
its Opt-Out Election to become effective. Each Opt-Out Election will 
remain in place indefinitely until DTC is in receipt of a duly 
authorized written notice from the Participant rescinding this Opt-Out 
Election.
    Please contact your Relationship Manager with any questions 
regarding Opt-Out Elections.''
Effective Date
    The proposed rule change would be effective upon filing with the 
Commission. The proposed rule change would not become operative for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder 
applicable to DTC, in particular Section 17A(b)(3)(F) \22\ of the Act.
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act \23\ requires, inter alia, that the 
rules of the clearing agency be designed to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions. As described above, the proposed rule change 
would amend the Distributions Guide, as described above, to accommodate 
Participants' tax reporting and withholding obligations relating to 
transactions subject to the IRS Regulation. Specifically, DTC 
understands, when a non-U.S. Participant Delivers a Security (acting on 
behalf of a seller) representing a publicly traded partnership interest 
to another Participant (acting on behalf of a buyer), the Participant 
acting on behalf of the buyer may be required to withhold tax and/or 
perform reporting to the IRS relating the proceeds realized by a 
selling non-U.S. Participant.\24\ DTC believes that the sharing of 
Participant Tax Forms and Tax Status Information would accommodate 
compliance by Participants with the IRS Regulation for such 
transactions for such transfers between them because the Tax Form and 
Tax Status Information contain information that would facilitate 
Participants' ability to determine if they have an obligation for tax 
withholding and reporting under the IRS Regulation.\25\ Therefore, 
because the proposed rule change would accommodate the exchange of Tax 
Forms and Tax Status Information between Participants, and this would 
facilitate compliance with certain tax requirements for certain 
activity they transact among themselves, as described above, DTC 
believes that the proposed rule change would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, consistent with the requirements of the Act, 
in particular Section 17A(b)(3)(F) of the Act, cited above.
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    \23\ Id.
    \24\ See supra note 7.
    \25\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change, as described above, 
could impose a burden on competition, because by requiring Participants 
to opt-out if they do not wish to have their Tax Status Information and 
Tax Status Forms shared with other Participants, a Participant would 
affirmatively need to submit an Opt-Out Form, which is an action that 
they do not need to perform today.
    To the extent the proposed rule change may impose a burden on 
competition, DTC believes it would be necessary and appropriate in 
furtherance of the purposes of the Act,\26\

[[Page 31546]]

because the proposed rule change would (i) accommodate Participants' 
tax reporting and withholding obligations under the IRS Regulation (ii) 
and facilitate Participants' ability to comply with applicable DTC 
Rules.\27\ In this regard, the proposed rule change would set forth 
DTC's Procedure relating to the distribution of certain Participant tax 
forms and related information to DTC's Participants, in accordance with 
the IRS Regulation, and DTC is not aware of an alternative method 
available to Participants to share Tax Forms and Tax Status Information 
among each other in a centralized facility as contemplated by the IRS 
Regulation.
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    \26\ 15 U.S.C. 78q-1(b)(3)(I).
    \27\ Pursuant to Rule 2, Section 8, in connection with their use 
of the Corporation's services, Participants must comply with all 
applicable laws, including but not limited, to all applicable laws 
relating to taxation. See Rule 2, supra note 5.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not solicited and does not intend to solicit written 
comments regarding the proposed rule change. DTC has not received any 
unsolicited written comments from interested parties. To the extent DTC 
receives written comments on the proposed rule change, DTC will forward 
such comments to the Commission.
    During outreach on the proposal by DTC to Participants, 
Participants have indicated to DTC that receiving Tax Forms and Tax 
Status Information through DTC would facilitate their ability to comply 
with their tax withholding obligations. DTC is not aware of any 
Participants indicating that they would prefer that these forms and 
information not be shared among Participants.

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 \28\ and Rule 19b-
4(f)(6) \29\ thereunder.
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. DTC has requested that 
the Commission waive the 30-day operative delay under Rule 19b-
4(f)(6)(iii) \32\ so that the proposed rule change may become effective 
and operative on June 15, 2021. DTC states that the proposal is 
intended to amend the Distributions Guide to allow DTC to provide tax 
information and facilitate Participants' compliance with tax reporting 
and withholding obligations relating to the disposition of partnership 
interests, in accordance with the IRS Regulation. DTC further states 
that implementation of the proposed rule change within a shorter 
timeframe would facilitate Participants' ability to make necessary 
adjustments to their internal processes and systems to timely comply 
with the IRS Regulation, and therefore facilitate their ability to 
comply with applicable U.S. tax reporting and withholding requirements 
on behalf of themselves and their customers that invest in partnership 
interests. Accordingly, DTC believes that the prompt implementation of 
these changes would be consistent with the public interest and the 
protection of investors.
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    \30\ Id.
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ Id.
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    The Commission believes that delaying the operation of the proposed 
rule change for 30 days would impede DTC's ability to begin to provide 
tax information and facilitate Participants' ability to comply with tax 
reporting and withholding obligations relating to the disposition of 
partnership interests, in accordance with the IRS Regulation which will 
become effective on January 1, 2022. Moreover, the Commission believes 
that the proposed rule change would not significantly affect the 
protection of investors or the public interest or impose a significant 
burden on competition because the changes are designed to facilitate 
compliance with the IRS regulation and do not affect the rights of 
Participants or impose any new costs on Participants. Accordingly, the 
Commission waives the operative delay and designates the proposed rule 
change as effective and operative on June 15, 2021.\33\
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    \33\ DTC satisfied the five-day pre-filing requirement. For 
purposes only of waiving the 30-day operative delay, the Commission 
has considered the proposed rule change's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-DTC-2021-008 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-2021-008. 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-

[[Page 31547]]

2021-008 and should be submitted on or before July 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12338 Filed 6-11-21; 8:45 am]
BILLING CODE 8011-01-P