Document ID: SEC-2012-0480-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; ProposedRule Changes: Depository Trust Co.
Posted Date: 2012-03-26T04:00Z

[Federal Register Volume 77, Number 58 (Monday, March 26, 2012)]
[Notices]
[Pages 17534-17536]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-7205]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66630; File No. SR-DTC-2012-02]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Amend Rules Relating to the 
Issuance of and Maturity Presentment Processing for Money Market 
Instruments

March 20, 2012.
    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 March 8, 2012, The Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared primarily by DTC. 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. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The purpose of DTC's proposed rule change is to amend DTC's 
Settlement Service Guide to change certain deadlines associated with 
processing issuances and maturity presentments of money market 
instruments.\3\
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    \3\ The text of the proposed rule change is attached as Exhibit 
5 to DTC's filing, which is available at www.dtcc.com/downloads/legal/rule_filings/2012/dtc/2012-02.pdf.
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II. Self-Regulatory Organization'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 these 
statements.\4\
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    \4\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Maturity Presentment \5\ processing for money market 
instruments (``MMIs'') is initiated automatically by DTC each morning 
for all of the MMIs maturing that day. The automatic process 
electronically sweeps all maturing positions of MMI CUSIPs from a 
participant's accounts against credits in the amount of the payments to 
be received with respect to such presentments. The matured MMIs are 
delivered to the applicable issuing or paying agent (``IPA''),\6\ also 
a DTC

[[Page 17535]]

participant, the IPA's account is debited for the amount of the 
maturity proceeds. The debited amount will be included in the IPA's net 
settlement amount. Similarly, the credits of participants that 
presented maturing MMIs will be included in those participants' net 
settlement amount.
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    \5\ The term ``Maturity Presentment'' is defined in Rule 1 of 
DTC's Rules and Procedures as a Delivery Versus Payment of matured 
MMI securities from the account of a presenting participant to the 
designated paying agent account for that issue as provided for in 
Rule 9(C) and as specified in DTC's procedures.
    \6\ Rule 1 of DTC's Rules and Procedures defines the term ``MMI 
Issuing Agent'' generally as a participant acting as an issuing 
agent for an issuer with respect to a particular issue of MMI 
securities of that issuer and an ``MMI Paying Agent'' generally as a 
participant acting as a paying agent for an issuer with respect to a 
particular issue of MMI securities of that issuer. Since MMI Issuing 
Agents and MMI Paying Agents are often a single entity, this filing 
refers to both entities collectively as ``IPAs.''
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    MMI issuers and IPAs commonly view the primary source of funding 
for payments of MMI maturity presentments as flowing from new issuances 
of MMIs in the same program by that MMI issuer on that day. If the MMI 
issuer issues more new MMIs than the number of MMIs maturing, there 
would be no net funds payment to the IPA on that day. When an issuer 
has more maturing MMIs than new issuances, it will have an obligation 
to pay to the IPA the net amount of the MMIs maturing that day over the 
new issuance. When net maturity presentments exceed issuances on a day, 
IPAs at their discretion may provide significant intraday credit to 
issuers for the excess. However, the IPA as an agent of an issuer is 
not obligated to fund the presentments unless payment is received from 
the issuer.
    The business relationships between IPAs and their MMI issuers play 
a key role in determining if an IPA will execute a refusal to pay at 
DTC with respect to an MMI issuance. Because maturity presentments of 
an issuer's MMIs for which the IPA acts are processed automatically and 
randomly against the IPA's account, IPAs are permitted to refuse to pay 
for all of an issuer's maturities in an MMI program.\7\ An IPA that 
refuses payment on an MMI maturity must communicate its intention to 
DTC using the DTC Participant Terminal/Browser Service (PTS/PBS) MMRP 
function. This communication, referred to as an Issuer Failure/Refusal 
to Pay (``RTP''), allows the Paying Agent to enter a refusal to pay 
instruction for a particular issuer up to 3 p.m. Eastern Time (``ET'') 
on the date of the affected maturity presentment. Such an instruction 
causes DTC to reverse all transactions related to any new issuances in 
that issuer's program, including the maturity presentments. An IPA RTP 
may have a significant market impact on the issuer's reputation and 
credit standing.
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    \7\ DTC employs a four-character acronym to designate an 
issuer's MMI program. An issuer can have multiple acronyms. The IPA 
uses the acronym(s) when submitting an instruction of its refusal to 
pay for a given issuer's program(s).
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    In late 2009, DTC and the Securities Industry and Financial Markets 
Association (``SIFMA'') formed the MMI Blue-Sky Task Force (``Task 
Force'') to address systemic and unique market risks associated with 
the MMI process, including those related to DTC's maturity presentment 
processing. The Task Force, along other money market industry 
members,\8\ determined that DTC's current MMI processing schedule 
permits issuance and other transaction activity that can affect an 
issuer's net funding amount or proceeds after the 3 p.m. E.T. deadline 
for RTP instructions.\9\ Accordingly, DTC is proposing to amend certain 
provisions in its Settlement Service Guide in order to provide 
increased transparency for IPAs before the 3 p.m. RTP deadline, which 
should in turn assist IPAs in making better informed credit decisions 
when an issuer has more maturities than issuances.\10\ The proposed 
changes to DTC's Settlement Service Guide include:
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    \8\ The other MMI related industry members include the 
Commercial Paper Issuers Working Group, which is comprised of both 
bank and corporate commercial paper issuers, and the Asset Managers 
Forum, whose whole membership is buy-side investors.
    \9\ The Task Force's short-term recommendations focused on 
addressing the credit risk exposure that IPAs face because of a lack 
of transparency around the amount an issuer must fund to cover its 
maturities. The recommendations called for funding maturities by 1 
p.m. if there is a net debit and for establishing new deadlines of 
1:30 p.m. for the submission of all new valued issuance to DTC and 
of 2:15 p.m. for receivers of new valued issuance to accept 
delivery. By implementing these new deadlines, the IPA should have 
sufficient time to calculate its exposure and if a funding shortfall 
exists work with the issuer to resolve the deficiency before 3 p.m., 
which is the deadline at DTC for the IPA to fund the maturities or 
to issue an RTP. For more information, see DTCC Press Release ``DTCC 
and SIFMA Release Task Force Report Identifying Opportunities to 
Mitigate Systemic and Credit Risk in Processing of Money Market 
Instruments'' (March 31, 2011), which can be found at www.dtcc.com/news/press/releases/2011/dtcc_sifma_task_force_report.php.
    \10\ In addition to the changes described in this filing, DTC is 
also making unrelated technical changes to its Settlement Service 
Guide in order to conform its rules to current practice and to a 
prior rule filing, SR-DTC-2011-01, approved in January 2011. 
Securities Exchange Release Act No. 34-63775 (January 26, 2011), 76 
FR 5843 (February 2, 2011).
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    1. Making all MMI issuance and deliver order transactions subject 
to DTC's Receiver Authorized Delivery (``RAD'') function for approval 
regardless of transaction value.\11\
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    \11\ This change will eliminate the ability for a receiver to 
``force'' a reclaim upon an IPA close to or after the 3 p.m. RTP 
cutoff that would alter the amount of funding an issuer needs to 
provide late in the day and would also eliminate matched reclaims 
that currently override participant risk management controls.
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    2. Adjusting the MMI valued new issuance cut-off time from 3:20 
p.m. E.T. to 2 p.m. E.T.
    3. Creating a new MMI RAD approval of new valued issuance 
transactions at 2:45 p.m. E.T. instead of 3:30 p.m. E.T.\12\

    \12\ If a transaction is not approved in RAD by 2:45 p.m. E.T., 
the transaction will drop and will need to be resubmitted.
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DTC is proposing to implement the changes described above on the date 
the proposed rule change is approved.

    DTC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to DTC because the earlier cutoffs and the elimination of 
MMI matched reclaims should reduce potential late day reversals due to 
non-payment instructions from IPAs, which should in turn allow IPAs to 
determine before the 3 p.m. RTP deadline if there is a funding 
shortfall with respect to an issuer. Additionally, the changes to the 
Settlement Service Guide, as proposed, should serve to reinforce 
consistent MMI business practices by implementing earlier deadlines for 
issuances processing and receiver approvals. DTC expects these proposed 
changes to make the processing of MMI issuances and maturities more 
efficient. Finally, the proposed rule change is consistent with the 
CPSS/IOSCO Recommendations for Securities Settlement Systems applicable 
to DTC.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would impose any 
burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The proposed rule change was developed in consultation with the 
Task Force and other securities industry organizations. 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

    Within forty-five days of the date of publication of this notice in 
the Federal Register or within such longer period (i) as the Commission 
may designate up to ninety days of such date if it finds such longer 
period to be appropriate and publishes its reasons for so finding or 
(ii) as to which the self-regulatory

[[Page 17536]]

organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2012-02 on the subject line.

Paper Comments

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

All submission should refer to File Number SR-DTC-2012-02. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filings will also be 
available for inspection and copying at the principal office of DTC and 
on DTC's Web site at http://www.dtcc.com/downloads/legal/rule_filings/2012/dtc/2012-02.pdf. 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-2012-02 and should be submitted on or before April 16, 2012.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7205 Filed 3-23-12; 8:45 am]
BILLING CODE 8011-01-P