Document ID: SEC-2007-0347-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Depository Trust Co.
Posted Date: 2007-03-08T05:00Z

[Federal Register: March 8, 2007 (Volume 72, Number 45)]
[Notices]               
[Page 10579-10580]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr07-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55365; File No. SR-DTC-2006-07]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change Relating to the Wind-
Down of a Participant

February 27, 2007.

I. Introduction

    On March 28, 2006, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') and on 
September 29, 2006, amended proposed rule change SR-DTC-2006-07 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on December 20, 2006.\2\ No comment letters were received. For 
the reasons discussed below, the Commission is granting approval of the 
proposed rule change as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54927 (December 13, 
2006), 71 FR 76397.
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II. Description

    The proposed rule change would add a new Rule 32, Wind-Down of a 
Participant, to DTC's Rules to address a situation where a participant 
notifies DTC that it intends to wind down its activities, and DTC 
determines in its discretion that it must take special action in order 
to protect itself and its participants.\3\
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    \3\ Similar proposed rule changes have been filed by the Fixed 
Income Clearing Corporation [File No. SR-FICC-2006-05] and the 
National Securities Clearing Corporation [File No. SR-NSCC-2006-05].
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    The proposed rule change would allow DTC to make a determination 
that a participant is a wind-down participant and would set forth the 
conditions DTC using its discretion may place on a wind-down 
participant and the actions DTC using its discretion may take with 
respect to a wind-down participant to protect itself and its 
participants. Such actions may include restricting or modifying the 
wind-down participant's use of any or all of DTC's services and 
requiring the wind-down participant to post increased participants fund 
deposits. DTC will retain all of its other rights set forth in its 
rules and participant agreements, including the right to cease to act 
for the wind-down participant.
    The rule is designed to ensure that DTC has the needed flexibility 
to appropriately manage the risks

[[Page 10580]]

presented by an entity in crisis that remains a participant of DTC. 
This is particularly important to preserve orderly settlement in the 
marketplace and to minimize the risk of loss to DTC and its 
participants. The rule sets forth in a single rule DTC's rights and the 
actions it may take in such a situation. Currently, these rights and 
actions are either permitted elsewhere in DTC's rules or are permitted 
pursuant to DTC's emergency authority. By placing DTC's rights in a 
single rule, however, the proposed rule change should provide clarity 
and a clear legal basis for DTC's rights or actions taken with respect 
to a wind-down participant. DTC also believes that the rule is designed 
to minimize the need for rule waivers.

III. Discussion

    Section 17A(b)(3)(F) of the Act provides that the rules of a 
clearing agency should be designed to safeguard securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible.\4\ The sudden or unanticipated financial or 
operational difficulties of a participant or the termination of its 
trading activities may create uncertainty among industry participants 
about DTC's ability to meet its settlement obligations on time and 
concern about the risk to the assets of the clearing agency or of its 
participants. The proposed rule change clarifies that DTC has 
discretionary power in a wind-down situation to take certain actions to 
assure the ongoing operations of itself and to protect the securities 
and funds of DTC and of its participants. By making clear in a single 
rule the authority DTC has under its rules to facilitate the orderly 
wind down of a participant's activities, the proposed rule change is 
designed to assure the safeguarding of securities or funds which are in 
DTC's control or for which it is responsible.\5\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\6\
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    \6\ 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).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2006-07), as modified by 
Amendment No. 1, be, and hereby is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4056 Filed 3-7-07; 8:45 am]

BILLING CODE 8010-01-P