Document ID: SEC-2020-0024-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2020-01-07T05:00Z

[Federal Register Volume 85, Number 4 (Tuesday, January 7, 2020)]
[Notices]
[Pages 751-752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00031]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87879; File No. SR-DTC-2019-009]

Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change To Amend the Redemptions Guide 
Relating to the Call Lottery Process for Partial Redemptions

January 2, 2020.

I. Introduction

    On October 31, 2019, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-DTC-2019-009. 
The proposed rule change was published for comment in the Federal 
Register on November 19, 2019.\3\ The Commission did not receive any 
comment letters on the proposed rule change. For the reasons discussed 
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 87526 (November 13, 
2019), 84 FR 63915 (November 19, 2019) (SR-DTC-2019-009) 
(``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    DTC proposes to modify its Procedures \4\ set forth in the DTC 
Corporate Actions Redemptions Service Guide (``Redemptions Guide'') \5\ 
in order to amend its call lottery process relating to the processing 
of partial redemptions (``Partial Calls'') with respect to allocations 
made for odd lot positions in a called Security held by a Participant.
---------------------------------------------------------------------------

    \4\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (the ``Rules''), 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf.
    \5\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Redemptions.pdf.

---------------------------------------------------------------------------

[[Page 752]]

A. Background

Partial Calls and the Call Lottery
    An issuer of a Security may be allowed under the terms of the issue 
to call a portion of the par value of the issue outstanding for 
redemption at certain times during the life of the issue, i.e., a 
Partial Call.\6\ In such case, some investors may have all or a portion 
of their position redeemed by the issuer, while others may not have any 
portion of their position redeemed.
---------------------------------------------------------------------------

    \6\ See id. at 19.
---------------------------------------------------------------------------

    When an issuer initiates a Partial Call, DTC's Procedures require 
the trustee for the issue to publish notice of such event or mail 
notice of the event, including the specific amount to be redeemed, to 
the registered holders.\7\ After DTC receives or collects notice of the 
Partial Call, DTC creates an announcement through its redemptions 
service,\8\ and preliminary call notice information is made available 
to Participants.\9\
---------------------------------------------------------------------------

    \7\ See id.
    \8\ DTC's redemptions service includes announcing, collecting, 
allocating, and reporting redemption and maturity payments on behalf 
of its Participants holding Eligible Securities. See id. at 7.
    \9\ See id. at 19.
---------------------------------------------------------------------------

    Under DTC's Procedures set forth in the Redemptions Guide relating 
to a Partial Call, DTC allocates the called Securities among 
Participants that hold the applicable Security by means of an impartial 
lottery, based upon Participants' net long positions as of the close of 
business on the day prior to the publication of the call notice.\10\ 
Upon performing the call lottery, DTC reports the results to 
Participants.\11\
---------------------------------------------------------------------------

    \10\ See id.
    \11\ See id. at 21.
---------------------------------------------------------------------------

Odd Lots
    An odd lot occurs when a Participant holds a position in a Security 
that is not within the stated increments of the Security, i.e., the par 
value at which, pursuant to the terms of the issue, the Security can be 
purchased and traded. For example, a bond contract for a Security may 
provide that all purchases must be made in authorized denominations 
equal to a multiple of $5,000, the minimum incremental value. 
Therefore, any amount held by a Participant that is not a multiple of 
$5,000, such as a position with a value of $5,001, would be an odd 
lot.\12\ DTC states that running the lottery with the odd lot position 
intact could result in another Participant being driven into an odd lot 
position.\13\
---------------------------------------------------------------------------

    \12\ An odd lot position may be created, for example, as a 
result of a beneficial holder's account at a Participant being split 
into two accounts as a result of divorce or the administration of 
the estate of the beneficial holder. If the division of the assets 
in the beneficial holder's account at the Participant ultimately 
results in a portion of the beneficial holder's position in the 
subject Security being transferred to another Participant, and the 
remaining balance of the Security in the beneficial holder's account 
at the Participant that held the full position prior to the split is 
not in a par value amount that is a multiple of the authorized 
denomination, then an odd lot amount could be created in the 
Participant's DTC account.
    \13\ DTC states that odd lot positions are more difficult to 
trade due to the terms of the issue requiring trades to be made only 
in multiples of the incremental value. Supra note 3, at 4.
---------------------------------------------------------------------------

B. Proposed Change

    DTC proposes to amend its Redemptions Guide to revise its call 
lottery process such that, for issues where the incremental value is 
$5,000 or less, Participants with odd lot positions would have their 
positions adjusted down to the nearest value that is divisible by the 
minimum incremental value for purposes of the lottery. However, the 
Participant would continue to hold the Securities reduced from its 
position for this purpose in its Account. Thus, the Participant with 
the initial odd lot for issues where the incremental value is $5,000 or 
less would continue to maintain an odd lot position after the lottery 
is run, and no new odd lot positions would be created.
    In addition, a copyright date in the text of the Redemptions Guide 
is currently shown as 1999-2014. DTC proposes to revise the text of the 
Redemptions Guide to reflect a copyright date of 1999-2019.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \14\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. After carefully considering the proposed rule 
change, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to DTC. In particular, the Commission 
finds that the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2)(C).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to, among other things, promote the prompt 
and accurate clearance and settlement of securities transactions and 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible.\16\
---------------------------------------------------------------------------

    \16\ Id.
---------------------------------------------------------------------------

    As described above, the proposal would prevent the creation of new 
odd lot positions during the lottery process for issues where the 
incremental value is $5,000 or less, which would facilitate the 
allocation of positions that are more amenable to trading for 
transactions that are processed and settled through DTC's system. 
Therefore, the proposal should promote the prompt and accurate 
clearance and settlement of securities transactions that are processed 
and settled through DTC's system.

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, with the requirements of Section 17A of the Act 
\17\ and the rules and regulations promulgated thereunder.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\18\ that proposed rule change SR-DTC-2019-009, be, and hereby is, 
approved.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2).
    \19\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00031 Filed 1-6-20; 8:45 am]
BILLING CODE 8011-01-P