Document ID: SEC-2011-0806-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2011-06-10T04:00Z

[Federal Register Volume 76, Number 112 (Friday, June 10, 2011)]
[Notices]
[Pages 34118-34119]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14389]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64605; File No. SR-DTC-2011-05]

Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change To Amend Rules 
Relating to the Memo Segregation Function

 June 6, 2011.

I. Introduction

    On April 15, 2011, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2011-05 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 May 4, 2011.\2\ The Commission 
received no comment letters. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 64360 (April 28, 2011), 
76 FR 25389 (May 4, 2011).
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II. Description

    DTC's Memo Segregation Service (``MSEG'') is an optional service 
which offers a mechanism for broker-dealer participants to protect 
fully-paid or excess margin securities by allowing the participant to 
shield from unintended delivery a designated quantity of securities 
that are in the participant's DTC free account or that may be received 
during the daily processing cycle. Currently, a participant may set a 
``counter'' for a specified minimum quantity of each security to be 
held in its account as a threshold to any intraday redelivery. When the 
counter for a security is greater than the inventory of the 
participant, MSEG will prevent the delivery of any quantity of the 
security out of the participant's account unless: (1) The delivery is a 
permitted delivery (e.g., a free of value ACATS delivery or a 
``turnaround'' as described below) or (2) the participant provides DTC 
with new instructions to reduce the MSEG counter.
    The MSEG procedures currently support two optional ``turnaround'' 
MSEG indicators which enable participants to make deliveries for 
certain transaction types (including, but not limited to, stock loans 
and stock loan returns) from certain positions received intraday 
regardless of any MSEG-related deficit. Recently, DTC was advised by 
the Regulatory and Clearance Committee of the Securities

[[Page 34119]]

Operations Section of SIFMA that several broker-dealer participants had 
expressed concern that their practices for turnaround of stock loans 
and stock loan returns (i.e., MSEG overrides) may be deemed by FINRA to 
be contrary to the Commission's Rule 15c3-3 (``Customer Protection 
Rule'').\3\ DTC also communicated directly with participants affected 
through their use of this functionality, and they expressed similar 
concerns. In order to accommodate its participants in this regard, DTC 
is revising its procedures so that MSEG will no longer permit stock 
loan or stock loan return-related turnaround deliveries for a security 
when there is an MSEG deficit in the account.
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    \3\ 17 CFR 204.15c3-3.
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    In order to effect the rule change described above, DTC is amending 
its Settlement Service Guide (``Service Guide''), which is incorporated 
into DTC's procedures, to make existing indicators that allow for the 
turnaround of stock loans and stock loan returns more restrictive. As a 
result, the procedures will no longer permit deliveries for stock 
loans, stock loan returns, The Options Clearing Corporation (``OCC'') 
stock loans, OCC stock loan returns, American Depository Receipt 
(``ADR'') stock loans, and ADR stock loan returns to be completed from 
turnaround shares when an MSEG deficit exists.\4\
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    \4\ The proposed change will also eliminate references in the 
Settlement Service Guide that MSEG-related functions are processed 
through the Participant Terminal System (PTS), as participants may 
currently use various platforms to communicate with DTC.
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 III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\5\ The Commission finds 
that DTC's rule change, which should reduce the risk of unintended 
deliveries by broker-dealer participants of customer fully paid and 
excess margin securities in violation of the Customer Protection Rule, 
is consistent with this obligation under the Exchange Act because it 
should help DTC participants to better protect and have possession of 
customer fully-paid and excess margin securities that are held at DTC 
and in general, because it helps protect investors and the public 
interest.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    Accordingly, for the reasons stated above the Commission believes 
that the proposed rule change is consistent with DTC's obligation under 
Section 17A of the Exchange Act, as amended, and the rules and 
regulations thereunder.\6\
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    \6\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(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, 
particularly with the requirements of Section 17A of the Act, and the 
rules and regulations thereunder.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2011-05) be and hereby 
is approved.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14389 Filed 6-9-11; 8:45 am]
BILLING CODE 8011-01-P