Document ID: SEC-2021-0006-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2021-01-04T05:00Z

[Federal Register Volume 86, Number 1 (Monday, January 4, 2021)]
[Notices]
[Pages 162-163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29022]

[[Page 162]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90805; File No. SR-DTC-2020-020]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Add a Fee for the New ClaimConnect\TM\ Service

December 28, 2020.
    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 December 18, 2020, 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) of the Act \3\ and Rule 19b-
4(f)(2) thereunder.\4\ 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ consists of amendments to the Guide to 
the DTC Fee Schedule (``Fee Guide'') \6\ to add a fee for the new 
ClaimConnect service at DTC,\7\ as described in greater detail below.
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    \5\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (``Rules'') 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf, or in the ClaimConnect\TM\ Service Guide 
available at https://www.dtcc.com/-/media/Files/Downloads/legal/service-guides/ClaimConnect.pdf.
    \6\ Available at http://www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/dtcfeeguide.pdf.
    \7\ See Securities Exchange Act Release No. 90481 (November 23, 
2020), 85 FR 76640 (November 30, 2020) (SR-DTC-2020-012) (``Approval 
Order'').
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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
    The purpose of the proposed rule change is to amend the Fee Guide 
to add a fee for the new ClaimConnect service at DTC.
    ClaimConnect, an optional DTC service, enables Participants to 
bilaterally match and settle cash claim transactions at DTC.\8\ More 
specifically, ClaimConnect is a validation and matching engine that 
continually monitors claims throughout their lifecycle in order to 
settle and close claims through DTC's settlement process. Claims can be 
matched manually (i.e., Affirmed) by ClaimConnect users or 
automatically (i.e., Auto-matched) by the ClaimConnect service when it 
matches two like claims based on the alignment of certain data 
elements. Once matched, claims are settled through systematic 
Securities Payment Orders (``SPOs'') generated and submitted by 
ClaimConnect at set times intraday on a settlement date.\9\
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    \8\ With respect to ClaimConnect, a cash claim or cash claim 
transaction is a cash entitlement (i.e., a request for cash) from 
one Participant to another Participant. Typically, cash claims arise 
as a result of trading exceptions from a Corporate Action event, 
where a cash entitlement needs to be delivered from one holder to 
another. Trading exceptions include, but are not limited to, trades 
outside of the market's agreed upon settlement cycle, lack of due 
bill fail tracking, stock loan or repo transaction discrepancy, or 
tax treaty differences.
    \9\ See ClaimConnect Service Guide, supra note 5.
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    With this proposed rule change, DTC is establishing a ClaimConnect 
matching fee of a $1.75 per side, per-matched claim, whether or not the 
claim is Affirmed or Auto-matched. In other words, both parties to a 
matched claim will be charged $1.75, such that DTC would collect $3.50 
for each matched claim.\10\ No charge will be assessed for claims that 
do not match (e.g., Uncompared, DK-uncompared, or Canceled claims).\11\
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    \10\ Separate from ClaimConnect, an existing SPO fee of $.10 per 
side, per SPO will continue to be charged. Fee ID 186, Fee Guide, 
supra note 6.
    \11\ See ClaimConnect Service Guide, supra note 5, regarding 
claim states.
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    This per-side matching fee for claims processing will be new for 
Participants that use Asset Services products. In choosing this fee and 
fee structure, DTC considered various factors. First, DTC followed its 
pricing policy of setting fees at cost plus a low-margin markup. The 
``low-margin markup'' is applied to recover development costs and 
operating expenses, and to accumulate capital sufficient to meet 
regulatory and economic requirements. In consideration of that policy, 
the aggregate amount of $3.50 per-matched claim will help facilitate a 
four-year return on investment for DTC's creation of ClaimConnect and 
help cover continued operating expenses for the service. Second, the 
per-side structure was chosen to allocate the cost evenly between a 
claim's two counterparties. Third, in order to align charges for the 
ClaimConnect service with Participants' actual usage of the service, 
the fee was structured as a per-usage fee (i.e., per-matched claim) 
instead of a flat monthly or annual fixed-rate fee. Fourth, in setting 
the fee, DTC was mindful that, although there are no competing 
services, Participants could choose not to use ClaimConnect and 
continue to settle claims as they did prior to ClaimConnect (e.g., 
using internal/proprietary systems, third-party software, or some 
combination thereof). Fifth, DTC evaluated its existing Stock, Loan, 
Repo & Fail Adjustments fee that DTC charges Participants for such 
entitlement/allocation adjustment activity (``Adjustment Service 
Fee''), similar to a cash claim.\12\ There, DTC charges a $1.50 per 
adjustment, not per side. In other words, whichever party submits an 
adjustment is charged $1.50. However, because there is no validation 
and matching process for adjustments, unlike with ClaimConnect claims, 
counterparties often need to submit multiple adjustments between each 
other before reaching final agreement; thus, the total adjustment cost 
routinely exceeds $3.50.
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    \12\ Fee ID 709, Fee Guide, supra note 6.
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Changes to the Fee Guide
    To effectuate the ClaimConnect fee, the Corporate Action subsection 
of the Custody and Securities Processing section of the Fee Guide will 
be updated to include a ClaimConnect Matching Fee of $1.75, per each 
claim side after matching.
Implementation Timeframe
    The ClaimConnect fee will be added to the 2021 Fee Guide and 
charged beginning January 1, 2021.
2. Statutory Basis
    Section 17A(b)(3)(D) of the Act requires that DTC's Rules provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Participants.\13\ DTC believes that the ClaimConnect 
fee is consistent with this provision of the Act.
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    \13\ 15 U.S.C. 78q-1(b)(3)(D).
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    As described above, the ClaimConnect service is an optional service 
that was

[[Page 163]]

developed based on discussions with Participants to enable them to 
bilaterally match and settle cash claim transactions at DTC.\14\ 
Pursuant to this proposed rule change, DTC is establishing an aggregate 
fee of $3.50 per-matched claim. DTC believes the fee is equitably 
allocated because, as described above, the fee will be divided evenly 
between the two counterparties to a claim, such that each side of the 
claim will be charge $1.75 per-matched claim, which reflects the 
counterparties' shared usage of the service in settling a claim.
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    \14\ See Approval Order, supra note 7.
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    DTC believes the fee is reasonable because, as described above, (i) 
it is consistent with DTC's cost plus low-margin markup pricing policy; 
(ii) it is expected to produce a four-year return on DTC's investment 
in developing ClaimConnect, compared to a higher fee that would produce 
a quicker return, while helping cover continued operating expenses for 
the service; (iii) it is structured so that both parties to a claim pay 
the same amount; (iv) it is structured to align charges for the service 
with actual usage of the service; and (v) it was set in consideration 
of a similar, existing fee (i.e., the Adjustment Service Fee) but 
knowing that parties to a claim will not need to submit additional 
claims and pay additional ClaimConnect fees to reach agreement on a 
claim, given the service's validation and matching process.

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

    DTC does not believe that the ClaimConnect fee will have any impact 
on competition.
    As described above, DTC believes that the proposed fee is 
equitable, reasonable, and on par with fees for other DTC services 
(e.g., the Adjustment Service Fee) already used by Participants. As 
such, there is no expectation that this particular fee would cause any 
competitive advantages or disadvantages among Participants. Moreover, 
although there is no service in direct competition with ClaimConnect, 
Participants are able to settle their cash claims without using 
ClaimConnect, as they did prior to DTC establishing the service. As 
such, it will be up to Participants to decide whether settling claims 
via the ClaimConnect service is worth the cost. If a Participant 
concludes that the manner in which it was settling claims prior to 
ClaimConnect (e.g., using internal/proprietary systems, a third-party 
software, or some combination thereof) is preferable (whether due to 
cost, functionality, or some other factor), then the Participant can 
simply choose not to use ClaimConnect and continue to settle claims 
away from DTC. Given this optionality, DTC believes that the proposed 
fee should not place any Participants at a relative disadvantage 
compared to other Participants.

(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) \15\ of the Act and paragraph (f) \16\ of Rule 19b-4 
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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2020-020 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-2020-020. 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 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-2020-020 and should be submitted on 
or before January 25, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29022 Filed 12-31-20; 8:45 am]
BILLING CODE 8011-01-P