Document ID: SEC-2018-0633-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2018-04-23T04:00Z

[Federal Register Volume 83, Number 78 (Monday, April 23, 2018)]
[Notices]
[Pages 17691-17694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08355]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83058; File No. SR-DTC-2018-003]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the DTC Redemptions Service Guide and the DTC Reorganizations 
Service Guide To Add Clarifying Text Relating to the Processing of MMI 
Securities

April 17, 2018.
    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 April 16, 2018, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \3\ consists of proposed modifications to 
the DTC Reorganizations Service Guide (``Reorganizations Guide'') \4\ 
and the DTC Redemptions Service Guide (``Redemptions Guide'') \5\ to 
make clarifying changes and provide enhanced transparency within DTC's 
Procedures \6\ relating to the processing of transactions in money 
market instruments (``Money Market Securities'') in DTC's MMI 
Program,\7\ as described below.
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    \3\ 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 
(``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx and the DTC Settlement Service Guide (``Settlement 
Guide''), available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Settlement.pdf.
    \4\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Reorganization-Service-Guide.pdf.
    \5\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Redemptions.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 3, at 13.
    \7\ Pursuant to the Rules, the term MMI Program means the 
Program for transactions in MMI Securities, as provided in Rule 9(C) 
and as specified in the Procedures. See Rule 1, Section 1, supra 
note 3, at 10. Eligibility for inclusion in the MMI Program covers 
MMI Securities, which are short-term debt Securities that generally 
mature 1 to 270 days from their original issuance date. MMI 
Securities include, but are not limited to, commercial paper, 
banker's acceptances and short-term bank notes and are issued by 
financial institutions, large corporations, or state and local 
governments. Most MMI Securities trade in large denominations 
(typically, $250,000 to $50 million) and are purchased by 
institutional investors. Eligibility for inclusion in the MMI 
Program also covers medium term notes that mature over a longer 
term.

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[[Page 17692]]

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 consists of proposed modifications to the 
DTC Reorganizations Guide and the DTC Redemptions Guide to make 
clarifying changes and provide enhanced transparency within DTC's 
Procedures relating to the processing of transactions in MMI Securities 
in DTC's MMI Program, as discussed below.

Background

    When an issuer of MMI Securities (``Issuer'') issues MMI Securities 
at DTC, the Issuing and Paying Agent (``IPA'') for that Issuer sends 
issuance instructions to DTC electronically, which results in crediting 
the applicable MMI Securities to the DTC Account of the IPA. These MMI 
Securities are then Delivered to the Accounts of applicable 
Participants that are purchasing the issuance of MMI Securities in 
accordance with their purchase amounts. These purchasing Participants 
typically include broker/dealers or banks, acting as custodians for 
institutional investors. The IPA Delivery instructions may be free of 
payment or, most often, Delivery Versus Payment. Deliveries of MMI 
Securities are processed pursuant to the same Rules and the applicable 
Procedures set forth in the Settlement Guide, as are Deliveries 
generally, whether free or versus payment. Delivery Versus Payment 
transactions are subject to risk management controls of the IPA and 
Receiving Participants for Net Debit Cap and Collateral Monitor 
sufficiency,\8\ and payment for Delivery Versus Payment transactions is 
due from the receiving Participants through DTC's net settlement 
process. To the extent, if any, that the Participant has a Net Debit 
Balance in its Settlement Account at end-of-day, payment of that amount 
is due to DTC.
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    \8\ Delivery Versus Payment transfers at DTC are structured so 
that the completion of Delivery of Securities to a Participant in 
end-of-day settlement is contingent on the receiving Participant 
satisfying its end-of-day net settlement obligation, if any. The 
risk of Participant failure to settle is managed through risk 
management controls, structured so that DTC may complete settlement 
despite the failure to settle of the Participant, or Affiliated 
Family of Participants, with the largest net settlement obligation. 
The two principal controls are the Net Debit Cap and Collateral 
Monitor. The largest net settlement obligation of a Participant or 
Affiliated Family of Participants cannot exceed DTC liquidity 
resources, based on the Net Debit Cap, and must be fully 
collateralized, based on the Collateral Monitor. This structure is 
designed so that DTC may pledge or liquidate Collateral of the 
defaulting Participant in order to fund settlement among non-
defaulting Participants. Liquidity resources, including the 
Participants Fund and a committed line of credit with a consortium 
of lenders, are available to complete settlement among non-
defaulting Participants.
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    In 2017, DTC implemented rule changes (``2017 Changes'') relating 
to the processing of MMI Securities to improve the efficiency and 
reduce risks associated with the processing of transactions in MMI 
Securities, as described in the rule filing pursuant to which the 2017 
Changes were implemented.\9\ The 2017 Changes included amendments to 
the Rules, Settlement Guide \10\ and DTC Distributions Service Guide 
(``Distributions Guide'') \11\ in this regard.
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    \9\ Securities Exchange Act Release No. 34-79764 (January 9, 
2017), 82 FR 4434 (January 13, 2018) (SR-DTC-2016-008).
    \10\ Supra note 3.
    \11\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Service%20Guide%20Distributions.pdf.
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    While the Rules and Procedures governing the processing of 
transactions in MMI Securities are primarily contained in the Rules 
\12\ and the Settlement Guide,\13\ the Distributions Guide was amended 
pursuant to the 2017 Changes to make clarifying changes to text 
relating to the processing of Income Presentments,\14\ so that it is 
consistent with the Settlement Guide in that regard.
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    \12\ See Rule 9(A), Rule 9(B) and Rule 9(C), supra note 3.
    \13\ See supra note 3 at 45-47.
    \14\ Pursuant to the Rules, the term ``Income Presentment'' 
means an instruction initiated by DTC to credit the Account of DTC 
with an amount of interest or dividend income payable to DTC by an 
issuer in respect of MMI Securities (other than an amount of 
interest or dividend income or other distribution of cash or 
property payable to DTC by the issuer in connection with a Maturity 
Presentment or a Reorganization Presentment) and to debit the 
designated Paying Agent Account for that issue with the same amount, 
as provided in Rule 9(C) and as specified in the Procedures. See 
Rule 1, Section 1, supra note 1, at 7.
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    The proposed rule change would make clarifying changes to the 
Reorganizations Guide and Redemptions Guide to add text similar to that 
included in the Distributions Guide \15\ pursuant to the 2017 Changes 
and clarify certain aspects of processing relating more specifically to 
Reorganization Presentments and Maturity Presentments, as described 
below.
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    \15\ See supra note 11 at 28.
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Proposed Changes to the Redemptions Guide

    As mentioned above, provisions governing the processing of 
transactions in MMI Securities are primarily contained in the Rules and 
Settlement Guide. The Redemptions Guide currently contains provisions 
relating to the processing of maturity events for non-MMI Securities 
and does not contain text relating to the processing of maturities of 
MMI Securities. In order to provide (i) enhanced clarity for 
Participants, and (ii) a point of reference within the Redemptions 
Guide, with respect to processing of transactions in maturing MMI 
Securities, the proposed rule change would amend the Redemptions Guide 
to (a) add a brief description of Maturity Presentments and the 
processing of transactions relating to them, (b) add a brief 
description of the ``Settlement User Interface,'' which is used by 
Participants to submit input and inquiries relating to the processing 
of transactions in MMI Securities in accordance with the Settlement 
Guide,\16\ and (c) provide a cross-reference to the Settlement Guide 
for Procedures relating to processing of transactions in MMI 
Securities.
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    \16\ See supra note 3 at 5.
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    In this regard, the following text would be added to a new section 
of the Redemptions Guide that would be titled ``Maturity Presentments 
for MMI Issues,'' as follows:
    A ``Maturity Presentment'' is a Delivery Versus Payment (as defined 
in Rule 1) of matured money market instruments (MMI Securities) from 
the account of a presenting Participant to a designated paying agent 
account for that issue and is subject to, and is processed in 
accordance with, Rule 9(A), Rule 9(B), Rule 9(C) of DTC and the 
Procedures set forth in the DTC Settlement Service Guide. Maturity

[[Page 17693]]

Presentments are not attempted for processing until the issuer's 
issuing and paying agent (IPA) makes a funding decision in the form of 
an ``MMI Funding Acknowledgment.'' Once a funding decision is made 
items will be processed subject to risk controls and the sufficient 
inventory of the relevant Participants. IPAs and other Participants may 
submit input and inquiries relating to MMI Securities processing 
through the Settlement User Interface. See the DTC Settlement Service 
Guide, available at http://www.dtcc.com/~/media/Files/Downloads/legal/
service-guides/Settlement.pdf, for the DTC Procedures relating to the 
processing of transactions in MMI Securities.

Proposed Changes to the Reorganizations Guide

    As mentioned above, provisions governing the processing of 
transactions in MMI Securities are primarily contained in the Rules 
\17\ and Settlement Guide.\18\ The Reorganizations Guide currently 
contains provisions relating to the processing of reorganizations for 
non-MMI Securities and does not contain text relating to the processing 
of Reorganization Presentments. In order to provide (i) enhanced 
clarity and transparency for Participants, and (ii) a point of 
reference within the Reorganizations Guide, with respect to processing 
of Reorganization Presentments, the proposed rule change would amend 
the Reorganizations Guide to (a) add a brief description of 
Reorganization Presentments and the processing of transactions relating 
to them, (b) add a brief description of the ``Settlement User 
Interface,'' which is used by Participants to submit input and 
inquiries relating to processing of transactions in MMI Securities in 
accordance with the Settlement Guide,\19\ and (c) provide a cross-
reference to the Settlement Guide for Procedures relating to the 
processing of transactions in MMI Securities.
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    \17\ See supra note 12.
    \18\ See supra note 13.
    \19\ See supra note 16.
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    In this regard, the following text would be added to a new section 
of the Reorganizations Guide that would be titled ``Reorganization 
Presentments for MMI Issues,'' as follows:
    A ``Reorganization Presentment'' is a Delivery Versus Payment (as 
defined in Rule 1) of money market instruments (MMI Securities) in 
response to a reorganization action from the account of a presenting 
Participant to a designated paying agent account for that issue, and is 
subject to, and is processed in accordance with Rule 9(A), Rule 9(B), 
Rule 9(C) of DTC and the Procedures set forth in the Settlement Service 
Guide. Reorganization Presentments are not attempted for processing 
until the issuer's issuing and paying agent (IPA) makes a funding 
decision in the form of an ``MMI Funding Acknowledgment.'' Once a 
funding decision is made items will be processed subject to risk 
controls and the sufficient inventory of the relevant Participants. 
IPAs and other Participants may submit input and inquiries relating to 
processing of transactions in MMI Securities through the Settlement 
User Interface. See the DTC Settlement Service Guide, available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf, for the DTC Procedures relating to the processing of 
transactions in MMI Securities.

Effective Date

    The proposed rule change would become effective upon filing with 
the Commission.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \20\ requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. DTC 
believes that the proposed rule change is consistent with this 
provision of the Act because by adding text within the Procedures set 
forth in the Redemptions Guide and Reorganizations Guide regarding the 
processing of MMI Securities, the proposed rule change would provide 
enhanced clarity and transparency for Participants with respect to the 
Rules and Procedures relating to the processing of Maturity 
Presentments and Reorganization Presentments, as described above. 
Therefore, by providing Participants with enhanced clarity and 
transparency with regard to the Procedures relating to the processing 
of Maturity Presentments and Reorganizations Presentments, DTC believes 
that the proposed rule change would promote the prompt and accurate 
clearance and settlement of securities transactions consistent with the 
Act.
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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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 
impact, or impose any burden, on competition. The proposed rule change 
would merely clarify and provide enhanced transparency with respect to 
the processing of transactions in MMI Securities by adding text to the 
Redemptions Service Guide and the Reorganizations Service Guide that is 
consistent with existing provisions set forth in the Rules and the 
Settlement Guide, as described above.

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

    Written comments relating to this 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) of the Act \21\ and paragraph (f) of Rule 19b-4 
thereunder.\22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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 [email protected]. Please include 
File Number SR-DTC-2018-003 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-2018-003. 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

[[Page 17694]]

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-2018-003 
and should be submitted on or before May 14, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08355 Filed 4-20-18; 8:45 am]
 BILLING CODE 8011-01-P