Document ID: SEC-2016-1976-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2016-11-14T05:00Z

[Federal Register Volume 81, Number 219 (Monday, November 14, 2016)]
[Notices]
[Pages 79543-79546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27236]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79252; File No. SR-DTC-2016-011]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Allow DTC To Automate the Process for Participants To Submit 
Eligibility Requests for the DTC Custody Service

November 7, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4,\2\ notice is hereby given that on October 
28, 2016, 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) \3\ of the Act and Rule 19b-4(f)(4) \4\ 
thereunder. The proposed rule change was effective upon filing with the 
Commission. 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)(4).
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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 DTC Custody Service 
Guide (``Custody Guide'') \6\ to allow DTC to (i) enhance the process 
by which Participants submit requests to make Securities, and assets 
that are not Securities (``Non-Security Assets''), as applicable, 
eligible for deposit into the Custody Service (``Custody Eligibility 
Requests'') and (ii) add functionality for Participants to inquire as 
to whether a particular issue is eligible for the Custody Service. Upon 
its implementation, the proposed rule change would enhance efficiencies 
for Participants and DTC by providing a secure, centralized environment 
for the submission of Custody Eligibility Requests.
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    \5\ Capitalized terms not otherwise defined herein have the 
respective meanings set forth in the DTC Rules, By-laws and 
Organization Certificate (``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Custody.pdf.
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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
    In order for DTC to accept a Security or a Non-Security Asset, as 
applicable, for deposit into the Custody Service, DTC requires that the 
Security or Non-Security Asset be made eligible for the Custody Service 
pursuant to a Custody Eligibility Request.\7\ The proposed rule change 
would allow DTC to transfer the existing request method for Custody 
Eligibility Requests by which Participants submit requests via email, 
to an Internet-based application (``Application''), as more fully 
described below (``Enhanced Process'').\8\ Upon implementation, the 
Enhanced Process would (i) promote a more secure environment by 
providing for the submission and processing of Custody Eligibility 
Requests through the Application,\9\ and (ii) enhance efficiencies for 
DTC by reducing the manual processing of Custody Eligibility requests, 
as more fully described below.
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    \7\ Once the Security or Non-Security Asset subject of the 
Custody Eligibility Request is made eligible by DTC for deposit into 
the Custody Service, additional deposits of that Security or Non-
Security Asset by the requesting Participant or other Participants 
may be made without requiring submission of another Custody 
Eligibility Request.
    \8\ The Custody Guide provides that Custody Service functions 
may become accessible via web-based services as announced by DTC via 
Important Notice from time to time. See Custody Guide, supra note 6 
at 4. DTC would announce the proposed rule change via Important 
Notice.
    \9\ The Application has been designed to provide a secure, 
centralized online system managed by DTC, whereas Participant 
security protocols for the transmission of emails may vary.
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Background
    The Custody Service enables Participants that hold (i) Securities 
that (A) are not presently eligible for book-entry services at DTC and/
or (B) would otherwise be eligible for DTC book-entry services but are 
not registered in the name of DTC's nominee, Cede & Co., and/or (ii) 
certain Non-Security Assets, to deposit those Securities and/or Non-
Security Assets with DTC for safe-keeping, in accordance with 
requirements set forth in the Custody Guide.\10\ Securities and Non-
Security Assets deposited through the Custody Service are maintained in 
DTC's secure vault in a Participant's name or a Participant's 
customer's name (i.e., they are not transferred into DTC's nominee 
name, Cede & Co).\11\ In addition, once a Security is deposited into 
the Custody Service, DTC may perform limited depository services 
relating to the Security including physical processing for the Security 
on a Participant's behalf, such as facilitating the transfer of 
Security Certificates, and providing services available through the 
Custody Reorganization Service.\12\
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    \10\ See Custody Guide for the types of Securities and Non-
Security Assets eligible for deposit to the Custody Service 
(``Custody Eligible Security Types''), supra note 6, at 5,12.
    \11\ Cede & Co. is the holder of record of Securities eligible 
for DTC's book-entry services.
    \12\ See Custody Guide, supra note 6, 14-17 (providing 
Procedures for the Custody Reorganization Service). The limited 
depository services provided by DTC as described above relate only 
to securities processing functions and do not apply to Non-Security 
Assets.
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    The proposed rule change would amend the Custody Guide to allow DTC 
to implement the Enhanced Process by moving the processing of Custody 
Eligibility Requests to the Application and replacing certain manual 
processes, as more fully described below.
Existing Process
    In order for an issue to be made eligible for deposit to the 
Custody Service, a Participant must submit a Custody Eligibility 
Request to DTC. The Custody Eligibility Request is submitted by email 
and must include certain data elements (``Data Elements'')[hairsp]\13\ 
and a

[[Page 79544]]

copy of the Security Certificate to be deposited or, if the asset to be 
deposited is a Non-Security Asset, other asset-related documentation 
evidencing the asset to be deposited. Upon receipt of a Custody 
Eligibility Request, DTC reviews the Data Elements and the Security 
Certificate or other asset-related documentation, as applicable, to 
determine whether the Security or Non-Security Asset is a Custody 
Eligible Security Type.\14\ If the Security or Non-Security, as 
applicable, is a Custody Eligible Security Type and otherwise complies 
with DTC's Rules on eligibility,\15\ DTC will make it eligible for 
Custody services by adding it to the DTC Custody security master file 
(``Custody Master File''). For those eligible Securities or Non-
Security Assets without an assigned CUSIP, DTC establishes the CUSIP 
for the Security, or other Non-Security Asset, as applicable, in DTC's 
system. The validation, CUSIP assignment and communication with the 
Participant are all manually processed by DTC. Once a Security or Non-
Security Asset is made eligible for deposit into the Custody Service, 
the Participant may deliver the physical Security Certificate or other 
asset-related documentation, as applicable, either by hand, or via 
overnight mail, for deposit into DTC's secure vault.\16\
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    \13\ Data Elements include DTC Participant Number (to identify 
the Participant making the Custody Eligibility Request), CUSIP (if 
available); Sub-Issue Type (required); description of the Security 
or Non-Security Asset (``Security Description'') (required); U.S/Non 
U.S. (This field is required for corporate debt and equity issues. 
All certificates of deposit and collateralized mortgage obligations 
must be U.S. issues. For municipal securities, this field is set to 
U.S. and is not updateable); Issuer Country of Origin (required for 
corporate debt and equity issue types); State of Incorporation 
(required for all U.S. issues); Dated Date (required for corporate 
debt and municipal security types); Accrual Date (required for 
corporate debt and municipal security types); Certificate Type 
(required and defaulted to R for Registered, can be updated to 
Bearer or Interchangeable, as applicable); Maturity Date (required 
for corporate debt, municipal securities and warrants); Interest 
Rate (required for corporate debt and municipal security types); 
Name of Paying Agent (required for corporate debt and municipal 
security types); and Exercise Price (required for warrants).
    \14\ See Custody Guide, supra note 10.
    \15\ See Rule 5, supra note 5.
    \16\ See Custody Guide, supra note 6 at 10-14 (setting forth 
Procedures for the deposit of Securities and Non-Security Assets to 
the Custody Service).
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Enhanced Process
    Pursuant to the proposed rule change, Custody Eligibility Requests 
would be submitted by Participants to DTC using the Enhanced Process 
through the Application. DTC would eliminate the ability to submit 
Custody Eligibility Requests by email. Participants would continue to 
provide the same information through the Application that they 
currently provide through email, including the Data Elements and a copy 
of the Security Certificate or other asset-related documentation they 
are seeking to make eligible.\17\ In addition, the Application would 
offer Participants seeking to make multiple Custody Eligibility 
Requests the option to submit a spreadsheet containing the Data 
Elements for all the Securities and Non-Security Assets for which 
eligibility is being requested as one submission.\18\
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    \17\ If the request does not contain the required Data Elements, 
and the Security Certificate or other asset-related documentation, 
as applicable, then the Application would prompt the Participant to 
resubmit the inquiry with all required Data Elements, and the 
Security Certificate or other asset-related documentation, as 
applicable. Today, the Participant is notified in this regard only 
after DTC has reviewed the email request.
    \18\ Currently, each Custody Eligibility Request must be 
submitted individually. This feature would assist Participants 
performing large conversions, including those moving Custody 
functions from their own facility to DTC's Custody Service.
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    Once the Custody Eligibility Request is submitted, DTC would 
validate the Data Elements to determine whether the Security or Non-
Security Asset, as applicable, is a Custody Eligible Security Type, as 
DTC does today. DTC would send an automated email to notify the 
Participant if a Custody Eligibility Request requires further review by 
DTC prior to adding the Security or Non-Security Asset, as applicable, 
to the Custody system as eligible for deposit. DTC may require other 
information it deems necessary to complete its processing of a Custody 
Eligibility Request. If DTC requires additional information to complete 
its review of a Custody Eligibility Request, or otherwise identifies an 
issue that may affect processing of the Custody Eligibility Request 
(e.g., incorrect Sub-Issue type, an issue regarding compliance with 
sanctions administered and enforced by the Office of Foreign Assets 
Control of the U.S. Department of the Treasury (``OFAC''), the listing 
of a Security on the issuer list maintained by OFAC,\19\ etc.), DTC 
staff would contact the Participant in this regard directly by phone 
and/or in writing.\20\
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    \19\ See Rule 2, Section 8, and Rule 5, Section 1, supra note 5.
    \20\ The Custody Guide would state that Participants with 
questions regarding this process should call the DTC Underwriting 
Hotline phone number.
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    If a Security or Non-Security Asset subject of the Custody 
Eligibility Request is eligible for deposit in the Custody Service but 
has not been assigned a CUSIP prior to submission of the Custody 
Eligibility Request to the Application, DTC would assign a CUSIP as it 
does today.\21\ DTC would then notify the Participant through an 
automated email message that the Security or Non-Security Asset is 
eligible for the Custody Service, and add the Security or Non-Security 
Asset to the Custody Master File. The Participant may then deliver the 
physical Security Certificate or, for a Non-Security Asset, other 
asset-related documentation, as applicable, to DTC for deposit into 
DTC's secure vault in the same manner that it would today.
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    \21\ CUSIPS [sic] assigned by DTC would be viewable on the 
Application screen.
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    Implementation of the Enhanced Process would provide enhanced 
efficiency and a more secure system for submission and review of 
Custody Eligibility Requests to Participants and DTC in relation to the 
current email-based method. First, as described above, the Application 
would enhance security in transmission of Custody Eligibility Requests 
by using a secure online system instead of the current email method. 
Second, use of the Application for this purpose would enhance 
transparency for Participants with respect to the status of their 
individual Custody Eligibility Requests.\22\ Third, the migration of 
the submission of Custody Eligibility Requests from an email-based 
method to using the Application would enhance processing efficiencies 
at DTC by providing an automated and centralized means for DTC to 
receive and manage Eligibility Request Documents.
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    \22\ The Application would provide Participants with the ability 
to view the status of their Custody Eligibility Requests online.
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Eligibility Inquiry Capability
    The Application would also offer a new inquiry capability 
(``Custody Eligibility Inquiry Function'') for Participants' use that 
would allow them to directly view whether a Security or Non-Security 
Asset is already eligible for deposit into the Custody Service. The 
Participant would make the inquiry by entering certain search criteria 
(``Search Criteria''). The Custody Eligibility Inquiry Function, in 
addition to providing Participants the ability to search by CUSIP and 
Security Description or Non-Security Asset, would also provide the 
capability to use other Search Criteria to narrow the search.\23\ If 
the applicable Security or Non-Security Asset is eligible for the 
Custody Service, the Participant would know that it can proceed with 
its deposit without first requesting eligibility. This feature would 
provide a Participant that needs to verify eligibility of a Security or 
Non-Security Asset before depositing it a real-time view into whether 
the Security is already on the Custody Master File

[[Page 79545]]

without having to inquire with DTC by phone or email.
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    \23\ The Search Criteria include CUSIP or partial CUSIP (at 
least 6 characters), and Security Description (at least 3 
characters). Additional Search Criteria would allow the Participant 
to narrow the results including the Security Interest Rate range, 
Maturity Date range, Dated Date range and Sub-Issue Type.
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Proposed Rule Changes
    The Custody Guide does not currently contain a section describing 
Custody Eligibility Requests and the process for submitting them. 
Pursuant to the proposed rule change, DTC would amend the text of the 
Custody Guide to add a section in this regard, and:
    (i) Provide the Procedures for the Enhanced Process as described 
above;
    (ii) provide that (a) if a Participant seeking to make a Security 
or other asset eligible for the Custody Service does not know whether 
the Security or asset is currently eligible for deposit in DTC's 
Custody Service, the Participant should verify the eligibility status 
using the online Custody Eligibility Inquiry Function through the 
Application, as defined below and (b) if the Security or asset is not 
eligible then the Participant must, prior to depositing it at DTC, 
submit a request to DTC to make the Security or asset eligible for the 
Custody Service using the Custody Eligibility Application. [sic]
    (iii) provide the Procedures for the Custody Eligibility Inquiry 
Function as described above; and
    (iv) state that Participants must have access to DTC's online web-
based portal (``Portal'') and the Application in order to submit 
Custody Eligibility Requests and make Custody Eligibility 
Inquiries.\24\
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    \24\ The Custody Guide would provide that Participants that 
require assistance in accessing the Portal and/or Application should 
contact their DTC Relationship Manager.
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Implementation
    The proposed rule change would be implemented in phases whereby 
Participants using the Custody Service would be migrated to use the 
Application to submit Custody Eligibility Requests over a period of 
approximately two months beginning on October 31, 2016 (``Effective 
Date''). Migration to the Application for all Participants that use the 
Custody Service would be expected to be completed by the end of 
December 2016. However, email submission of Custody Eligibility 
Requests would remain available to Participants as a valid method to 
submit Custody Eligibility Requests until the later of (i) January 31, 
2017 and (ii) 30 calendar days following the date all Participants 
using the Custody Service have migrated to be able to submit Custody 
Eligibility Requests using the Custody Eligibility Application (``Final 
Effective Date'').\25\ On and after the Final Effective Date, DTC would 
not accept such email requests and Custody Eligibility Requests would 
be required to be submitted through the Custody Eligibility Application 
only. The Custody Guide text as proposed would contain a footnote 
reflecting the above regarding the Final Effective Date and state that 
the footnote would be deleted as of the Final Effective Date.
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    \25\ The Final Effective Date would be announced via a DTC 
Important Notice.
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2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \26\ requires that the rules of the 
clearing agency be designed, inter alia, in general, to protect 
investors and the public interest. DTC believes the proposed rule 
change is consistent with this provision because (i) having Custody 
Eligibility Requests submitted through the Application would promote 
efficient and secure delivery and processing of such requests in order 
to facilitate making Securities and Non-Security Assets, as applicable, 
eligible for deposit into the Custody Service by Participants on behalf 
of themselves and their customers, and (ii) the proposed online 
functionality would facilitate enhanced transparency for Participants 
in their use of the Custody Service on behalf of themselves and their 
customers. Thus, by (i) facilitating efficient and secure submission of 
Custody Eligibility Requests, which in turn would facilitate the 
ability of Participants to deposit customer assets in DTC's secure 
vault, and (ii) providing for enhanced transparency to Participants in 
this regard, the proposed rule change would protect investors and the 
public interest.
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    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(d)(6) promulgated under the Act \27\ requires that 
each registered clearing agency shall establish, implement, maintain 
and enforce written policies and procedures reasonably designed to, as 
applicable, be cost-effective in meeting the requirements of 
participants while maintaining safe and secure operations. DTC believes 
that the proposed rule change is consistent with Rule 17Ad-22(d)(6) 
because (i) by enhancing the efficiency of the processing of Custody 
Eligibility Requests without increasing costs to Participants to access 
the service,\28\ the proposed rule change would be cost-effective in 
meeting requirements of Participants, and (ii) by processing Custody 
Eligibility Requests through the Application, a centralized and secure 
online application, DTC would maintain safe and secure operations with 
respect to transmission and processing of such requests.
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    \27\ 17 CFR 240.17Ad-22(d)(6).
    \28\ DTC would not charge Participants a fee for access to the 
Application.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would have any 
adverse impact, or impose any burden, on competition because DTC would 
not charge a fee for access to the Application and therefore the 
proposal would not impose additional costs on Participants in this 
regard. In addition, the process for Participants to register for the 
Application is identical to that used by Participants to register for 
DTC web-based services generally.\29\ DTC has discussed the proposal 
with Participants using the Custody Service and is conducting user 
testing on the Application prior to implementation on a Participant-by-
Participant basis.
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    \29\ Participants using DTC web-based services, such as the 
Application, make use of super access coordinators who are persons 
at the Participant firm authorized to grant other individuals at the 
Participant firm to access DTC web-based services on behalf of the 
Participant. All Participants using the Custody Service currently 
have appointed super access coordinators.
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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, 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. DTC has conducted industry outreach 
with respect to the proposal including discussions with the Securities 
Processing Advisory Board (SPAB), whose members account for over 70 
percent of the overall Custody Service activity at DTC.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \30\ of the Act and paragraph (f) of Rule 19b-4 \31\ 
thereunder. 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,

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or otherwise in furtherance of the purposes of the Act.
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 17 CFR 240.19b-4(f).
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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-2016-011 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-2016-011. 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 Web site (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 Web site 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 
Web site (http://dtcc.com/legal/sec-rule-filings.aspx). All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-DTC-2016-011 and should be 
submitted on or before December 5, 2016.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27236 Filed 11-10-16; 8:45 am]
 BILLING CODE 8011-01-P