Document ID: SEC-2017-0048-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2017-01-11T05:00Z

[Federal Register Volume 82, Number 7 (Wednesday, January 11, 2017)]
[Notices]
[Pages 3372-3375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00369]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79746; File No. SR-DTC-2016-014]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change, 
as Modified by Amendment No. 1, Regarding the Update of Its Corporate 
Action Service for the Processing of Redemptions Events and the 
Transition to International Organization for Standardization 20022 
Messaging for Corporate Action Announcements

January 5, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 22, 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 DTC. DTC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4) 
thereunder.\4\ On January 4, 2017, DTC filed Amendment No. 1 to the 
proposed rule change.\5\ 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, as modified by Amendment 
No. 1, 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).
    \5\ In Amendment No. 1, DTC modified the Implementation Date 
section to correctly describe the effective date of the filing as 
January 1, 2017. DTC did not propose any other changes to the filing 
in Amendment No. 1.

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[[Page 3373]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by DTC would revise its Procedures \6\ set 
forth in the Guide to: (1) Update its corporate action service by 
transitioning corporate action \7\ functions on its Participant 
Terminal System (``PTS'') and its Participant Browser Service (``PBS'') 
systems \8\ for the processing of Redemptions to its Corporate Action 
Web (``CA Web'') system; (2) reflect the transition from DTC's 
proprietary Computer-to-Computer Facility (``CCF'') \9\ files to 
International Organization for Standardization (``ISO'') 20022 
messaging to communicate corporate action announcements 
(``Announcements''); (3) establish the start date (``Fee Start Date'') 
for the fee associated with CCF Reorganization Announcement files and 
the dates for the retirement of all CCF Announcement files; and (4) 
make other ministerial changes as more fully described below.
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    \6\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of DTC (``DTC Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx in the Redemptions 
Service Guide (``Guide''), available at http://www.dtcc.com/~/media/
Files/Downloads/legal/service-guides/Redemptions.pdf?la=en; and in 
the Guide to the 2016 DTC Fee Schedule (``Fee Schedule''), available 
at http://www.dtcc.com/~/media/Files/Downloads/legal/fee-guides/
dtcfeeguide.pdf?la=en.
    \7\ DTC offers an array of services for processing corporate 
action events. The services fall into three categories of corporate 
action events: (i) Distributions, such as cash and stock dividends, 
principal and interest, and capital gain distributions 
(collectively, ``Distributions''); (ii) redemptions such as full and 
partial calls, final paydowns, and maturities (collectively, 
``Redemptions''); and (iii) reorganizations, which include both 
mandatory and voluntary reorganizations such as exchange offers, 
conversions, Dutch auctions, mergers, puts, reverse stock splits, 
tender offers, and warrant exercises (collectively, 
``Reorganizations'').
    \8\ PTS and PBS are user interfaces for DTC's Settlement and 
Asset Services functions. PTS is mainframe-based and PBS is web-
based with a mainframe back-end. Participants may use either PTS or 
PBS, as they are functionally equivalent. References to a particular 
PTS function in this rule filing include the corresponding PBS 
function.
    \9\ CCF is a transmission system for input and output based on 
various protocols between the mainframe computer facility of a user 
of DTC's services and DTC's mainframe computer facility.
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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, DTC 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. DTC 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 by DTC would revise its Procedures set 
forth in the Guide to: (1) Update its corporate action service by 
transitioning corporate action functions on its PTS and PBS systems for 
the processing of Redemptions events to CA Web; (2) reflect the 
transition from DTC's proprietary CCF files to ISO 20022 messaging to 
communicate Announcements; (3) establish the Fee Start Date associated 
with CCF Reorganizations Announcement files, and the dates for the 
retirement of CCF files for all Announcements; and (4) make other 
ministerial changes as more fully described below.
(i) Background
    Beginning in 2011, DTC has filed a series of rule changes to update 
its corporate action services by migrating the corporate action 
functions for Distributions from PTS/PBS to CA Web, a then new browser 
user interface,\10\ and to implement ISO 20022 messaging to replace 
DTC's CCF Announcement files.\11\ After a Participant testing phase, 
PTS/PBS functions for Distributions were retired in 2015, and the use 
of CA Web for processing Distributions became mandatory for all 
Participants.\12\
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    \10\ See Securities Exchange Act Release No. 68114 (October 26, 
2012); 77 FR 66497 (November 5, 2012) (SR-DTC-2012-08).
    \11\ See Securities Exchange Act Release No. 63886 (February 10, 
2011), 76 FR 9070 (February 16, 2011) (SR-DTC-2011-02); Securities 
Exchange Act Release No. 68114 (October 26, 2012), 77 FR 66497 
(November 5, 2011) (SR-DTC-2012-08).
    \12\ See Securities Exchange Act Release No. 73864 (December 17, 
2014); 79 FR 77063 (December 23, 2014) (SR-DTC-2014-12).
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(ii) Transition to CA Web for Redemptions
    With this proposed rule change, DTC would transition PTS/PBS 
functions for Redemptions to CA Web,\13\ and update the Guide to add 
the appropriate references. The proposed rule change would establish a 
parallel testing period for CA Web Redemptions functions beginning in 
Q4 of 2016 which would conclude in Q1 of 2017, at which time 
Redemptions activity within the following PTS and corresponding PBS 
functions would be retired and transitioned to CA Web: ADJI (Adjustment 
Inquiries), RIPS (Reorganization Inquiry for Participants), and SDAR 
Dept. R (Same Day Allocation Reporting).\14\ DTC has been communicating 
this change to Participants through weekly CA Web review sessions, 
Important Notices, and industry outreach.\15\
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    \13\ In PTS/PBS, corporate actions are announced using DTC 
proprietary codes to signify event types. CA Web replaces DTC's 
proprietary codes with market standard language. For example, a cash 
dividend payment that PTS/PBS identifies as a ``08'' function code 
is identified in CA Web as a ``Cash Dividend'' event. Additionally, 
CA Web incorporates the entire lifecycle of an event into one 
platform with a unique corporate action identifier that follows the 
event through its lifecycle. CA Web gives Participants the ability 
to customize screen displays and offers flexible methods for event 
search, neither of which is available in the PTS/PBS systems.
    \14\ See PTS/PBS Function Guides, available at http://www.dtcc.com/matching-settlement-and-asset-services/edl-ptspbs-function-guides.
    \15\ See Important Notice B 3253-16 (April 25, 2016); SIFMA 
Corporate Actions Section Newsletter (June 2015), available at 
http://www.sifma.org/uploadedfiles/societies/sifma_corporate_actions_section/cas-newsletter-june2015.pdf?n=65777.
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(iii) CCF Files and ISO 20022
    Since 2011, DTC has been encouraging Participants to migrate from 
CCF Announcement files to ISO 20022 messaging \16\ by providing 
parallel production testing access, an online learning center, hosting 
ISO specific monthly calls and offering a dedicated mailbox for client 
inquiries. Certain Participants nonetheless had asked whether DTC could 
continue supporting CCF Files while they migrated to ISO 20022 
messaging, and indicated that they were willing to pay for the 
continued use of the CCF Files.
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    \16\ ISO 20022 is a business-model-based standard for the 
development of messages for the international financial services 
industry and can support different messaging syntaxes. It provides 
the financial industry with a common language to capture business 
transactions and associated message flows. The use of ISO 20022 
messaging improves transparency and adds efficiency in Announcements 
and the processing of corporate actions. In contrast, CCF files use 
DTC proprietary functions and activity codes that differ from the 
market standard. With ISO 20022 messaging, Announcements are event 
based and identified by a unique corporate action ID. ISO 20022 
messages provide more data elements than the CCF files and they are 
available in near real time throughout the day.
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    In response to these Participant requests, on December 24, 2015, 
DTC filed a rule change postponing the date for the retirement of CCF 
Announcement files for Distributions, Redemptions, and Reorganizations, 
and, in order to encourage the transition to ISO 20022, implementing, 
in phases, a fee (``CCF File Fee'') for Participants that have not 
migrated to ISO 20022 messaging and continue to receive the

[[Page 3374]]

CCF Announcement files.\17\ The CCF File Fee is $50,000 per event 
group, per twelve month period. Pursuant to that rule change, the CCF 
File Fee for Distributions Announcements became effective on January 1, 
2016, and the CCF File Fee for Redemptions Announcements became 
effective on July 1, 2016. The rule change did not provide a CCF Fee 
Start Date for Reorganizations Announcements.
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    \17\ See Securities Exchange Act Release No. 76811 (December 31, 
2015), 81 FR 826 (January 7, 2016) (SR-DTC-2015-013).
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    This proposed rule change would amend the Fee Schedule to reflect a 
Fee Start Date of January 1, 2018 for Reorganizations Announcements. In 
addition, the proposed rule change would provide for the retirement of 
all corporate action CCF files for Announcements in accordance with the 
schedule below. DTC has communicated with its Participants about the 
retirement of CCF Announcement files for corporate action events 
through several DTC Important Notices, industry conferences and monthly 
industry calls.\18\
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    \18\ See Important Notice B3089-16 (April 1, 2016), available at 
http://www.dtcc.com/~/media/Files/pdf/2016/4/1/3089-16.pdf.
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    The retirement of CCF Announcement files would be implemented in 
the following phases:

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        Announcements CCF files                    Fee start date                  CCF file retirement date
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Distributions.........................  January 1, 2016....................  January 1, 2017.
Redemptions...........................  July 1, 2016.......................  July 1, 2017.
Reorganizations.......................  January 1, 2018....................  December 31, 2018.
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    Finally, in order to align the Guide to Participants' use of ISO 
20022 messaging for Redemptions Announcements, the Guide would be 
updated to add the appropriate references to ISO 20022.
(iv) Ministerial Changes
    The proposed rule change would update the Guide to make ministerial 
updates to reflect current terminology and practice, and to remove 
references to outdated functions which had been replaced, as set forth 
below. The Guide would be updated to:
    (1) Remove references to the functions of PTS that had been 
replaced by other functions over the past several years: Completion 
Flash (RIPS provides the same functionality), SDAL (replaced by SDAR), 
ACLP (replaced by RIPS), PTSI (replaced by dtcc.com and REOG 
(Reorganization Selection Menu)), and the PTS Network (replaced by 
RIPS).
    (2) Remove references to the use of PTS Printers, PTS tickets, and 
PTS Flash. Similar functionality is available electronically on PTS/
PBS, and would be available on CA Web.\19\
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    \19\ See Important Notice B5007-09 (April 27, 2009), available 
at http://www.dtcc.com/~/media/Files/pdf/2009/4/27/5007-09.pdf; see 
Important Notice B7046-10 (August 6, 2010), available at http://
www.dtcc.com/~/media/Files/pdf/2010/8/2/7046-10.pdf.
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    (3) Remove references to the PTS Manual, which has been 
superseded.\20\
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    \20\ See Securities Exchange Act Release No. 44719 (August 17, 
2001), 66 FR 44656 (August 24, 2001) (SR-DTC-2001-01).
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    (4) Remove reference to hard copy monthly bills. Hardcopy bills for 
corporate actions services were discontinued several years ago. Bills 
are sent via email and are available on iBill on the DTCC Portal.\21\
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    \21\ See Important Notice B7586-10 (November 8, 2010), available 
at www.dtcc.com/~/media/Files/pdf/2010/11/8/7586-10.pdf.
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    (5) Remove the provision that states that the Guide does not cover 
procedures relating to maturities and redemptions of commercial paper 
(``CP'') as it is no longer accurate. Currently, DTC does announce CP 
maturities, and therefore the Guide is applicable.
    (6) Remove references to Next Day Funds Settlement (``NDFS'') 
service and related processes, which were superseded by DTC's Same Day 
Funds Settlement (``SDFS'') Service.\22\ NDFS and SDFS ran concurrently 
until 1996.
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    \22\ See Securities Exchange Act Release Nos. 24689 (July 9, 
1987), 52 FR 26613 (SR-DTC-87-04) (order granting temporary approval 
to DTC's SDFS settlement service); 26051 (August 31, 1988), 53 FR 
34853 (SR-DTC-88-06) (order granting permanent approval of DTC's 
SDFS settlement service).
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    (7) Replace references to Reorganization Notice (REORGN) CCF File, 
which had been replaced with the REOGN2 CCF File.
    (8) In the section under the heading About Charge-Backs and 
Adjustments, replace the statement ``After crediting you with a 
redemption payment, DTC occasionally determines that this credit was 
improper due to an issuer's default on the payment, an error on the 
part of DTC, or some other reason'' with ``DTC does not credit proceeds 
to Participants until it is funded by the issuer/agent. Occasionally, 
it is determined that the proceeds credited were incorrect.'' to 
reflect the fact that DTC does not credit redemption proceeds to 
Participants until DTC is funded by the issuer/agent.
    (9) In the section under the heading Reorg Deposit Service, correct 
the statement that DTC's Reorg Deposits Service allows Participants to 
deposit Eligible Securities ``that are undergoing or have undergone 
within the last two years, redemptions, maturity or mandatory 
reorganization maturity processing'' to (a) reflect that the Reorg 
Deposits Service accepts deposits of Eligible Securities that have 
undergone such processing at any point in time, and (b) remove the 
reference to ``mandatory reorganization maturity processing'' as it is 
duplicative of ``maturity''.
    (10) Move screenshots of the ``Impartial Lottery Method for 
Allocating Called Securities'' and related images to Appendix A.
    (11) Remove duplicative text.
    (12) Update the text to reflect book-entry and FAST inventory, in 
addition to physical certificates.
    (13) Clarify and streamline the text to improve readability.
    (14) Add the title of the Guide and update the `Important Legal 
Information' to align with other DTC service guides.
    (15) Add background information on Redemptions services.
    (16) Correct spelling, grammatical and typographical errors 
throughout.
    (17) Update other text, including address, phone numbers, Web site 
information, and methods of delivering information.
Implementation Date
    The proposed rule change would take effect on January 1, 2017.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\23\
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    \23\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires, inter alia, that the DTC 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\24\ DTC believes that the 
proposed rule change would (a) promote efficiencies with a newer and

[[Page 3375]]

more flexible interface for Participants to access Redemptions 
services, process their Redemptions allocations, and view event 
information, replacing the less efficient PTS/PBS interface for 
Redemptions with CA Web, and (b) provide clarity to Participants by 
updating and streamlining the Guide to better reflect DTC's Redemptions 
services and practices, including the migration to ISO 20022 messaging 
and the transition to CA Web, and by making ministerial updates and 
corrections. Therefore, by promoting efficiencies for Participants' 
processing of Redemptions at DTC, and updating the Guide to reflect the 
current state of DTC's services in this regard, the proposed rule 
change promotes the prompt and accurate clearance and settlement of 
securities transactions consistent with the requirements of the Act, in 
particular Section 17A(b)(3)(F), cited above.
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    \24\ Id.
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    In addition, by establishing the Fee Start Date for the 
Reorganizations CCF File Fee and the retirement dates for CCF files for 
Distributions, Redemptions, and Reorganizations Announcements, the 
proposed rule change would require Participants to complete their 
transition to ISO 20022 messaging by a date certain. ISO 20022 
messaging provides Participants with (a) more data fields than are in 
CCF files, increasing transparency about the events being announced, 
and (b) near real-time industry standard messaging, which is not 
available for CCF files, providing consistency for Participants and 
accelerating the flow of information, therefore increasing efficiency. 
Ultimately, DTC expects that Participants would better process their 
announcements, instructions, entitlements and allocations, promoting 
the prompt and accurate clearance and settlement of securities 
transactions consistent with the requirements of the Act, in particular 
Section 17A(b)(3)(F), cited above.

(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would have any 
impact on competition, because the transition from PTS/PBS functions 
for the processing of Redemptions to CA Web would only enhance and 
simplify a current service and process, and the retirement of the CCF 
Announcement files would remove an outdated process and replace it with 
an improved standard of messaging. Both the CA Web and ISO 20022 
messaging would be available to Participants without additional costs. 
In addition, since Participants have been aware of these forthcoming 
changes, and any related operational impact on their systems, for 
several years, DTC believes that, they have had sufficient time to 
mitigate any implementation costs.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission of any written 
comments received by 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) \25\ of the Act and subparagraph (f)(4) of Rule 19b-4 \26\ 
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, or 
otherwise in furtherance of the purposes of the Act.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(4).
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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, as modified by Amendment No. 1, 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-2016-2016-014 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2016-014. 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-2016-014 and should be 
submitted on or before February 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00369 Filed 1-10-17; 8:45 am]
 BILLING CODE 8011-01-P