Document ID: SEC-2015-0756-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2015-05-05T04:00Z

[Federal Register Volume 80, Number 86 (Tuesday, May 5, 2015)]
[Notices]
[Pages 25727-25729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10400]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74830; File No. SR-DTC-2015-003]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Regarding the Acknowledgment 
of End-of-Day Net-Net Settlement Balances by Settling Banks

April 29, 2015.
    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 April 15, 2015, 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. 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 consists of proposed revisions to the DTC 
Settlement Service Guide (``Guide'') to provide that any Settling Bank 
that does not timely acknowledge its end-of-day

[[Page 25728]]

net-net settlement balance \3\ or notify DTC of its refusal to settle 
for one or more Participants for which it is the designated Settling 
Bank, would be deemed to have acknowledged its end-of-day net-net 
settlement balance.\4\ DTC would also make other changes to the Guide 
as set forth below.
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    \3\ The end-of-day net-net settlement balance for each Settling 
Bank reflects: (i) A net credit amount due to the Settling Bank from 
DTC, (ii) a net debit amount due from the Settling Bank to DTC, or 
(iii) a zero balance so that no payment is due to or from the 
Settling Bank. In accordance with the timeframes set forth in the 
Guide, DTC's end-of-day funds settlement process begins with the 
posting by DTC of ``final settlement figures'' at approximately 3:45 
p.m. [sic] each Business Day unless extended.
    \4\ Terms not otherwise defined herein have the meaning set 
forth in the DTC Rules (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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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 purpose of this rule filing is to propose a rule change to 
mitigate a risk to DTC in settlement relating to a Settling Bank's 
failure to take the action required to: (i) Acknowledge its end-of-day 
net-net settlement balance, or (ii) notify DTC of a refusal to settle 
for any Participant for which it is the designated Settling Bank, by 
the Acknowledgment Cutoff Time (as defined below).
Background
    The DTC end-of-day net settlement structure depends upon the use of 
Settling Banks.\5\ Each Participant must designate a Settling Bank to 
settle on its behalf. Any Participant that is a bank may settle for 
itself.\6\ A Settling Bank that settles for other Participants must 
acknowledge its end-of-day net-net settlement balance for the group of 
Participants for which it settles, or notify DTC if it refuses to 
settle for any Participant for which it is the designated Settling 
Bank, by the later of 4:15 p.m. [sic] and the time that is 30 minutes 
after Settling Bank end-of-day net-net settlement balances are first 
made available by DTC (``Acknowledgment Cutoff Time'').\7\ Therefore, 
DTC expects by the Acknowledgment Cutoff Time that each Settling Bank 
that settles for other Participants will affirmatively acknowledge its 
end-of-day net-net settlement balance, or notify DTC if it refuses to 
settle on behalf of one or more Participants for which it is the 
designated Settling Bank. If the Settling Bank notifies DTC that it 
refuses to settle for a Participant, DTC will recalculate the Settling 
Bank's net-net settlement balance by excluding the net settlement 
balance of the Participant for which the Settling Bank refused to 
settle and DTC will advise the Settling Bank accordingly.\8\ The 
Settling Bank must then immediately respond to DTC to acknowledge its 
revised net-net settlement balance (``Adjusted Balance'') and may not 
refuse to settle for any other Participant on that day. After the 
Acknowledgment Cutoff Time and any adjustments, DTC will prepare a file 
to be submitted to the Federal Reserve's National Settlement Service 
(``NSS'') reflecting the net debits or credits from and to all Settling 
Banks. DTC then utilizes NSS to transmit to the Federal Reserve Bank of 
New York the file to debit or credit the Settling Banks' Fed accounts.
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    \5\ Please see the Guide at pp. 17-18, available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf for an overview of the end-of-day net settlement 
process.
    \6\ See Rule 9(B).
    \7\ A Settling Bank that settles only for itself is not required 
to provide an acknowledgement. No Settling Bank, whether it settles 
for only itself or for others, may refuse to settle its own net 
settlement balance.
    \8\ No Participant has the right to refuse to settle its net 
settlement balance. Any Participant for which its designated 
Settling Bank has refused to settle on its behalf remains obligated 
to DTC for the payment of any net debit balance and must make 
another arrangement to timely pay that amount by Fedwire.
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    DTC needs certainty to complete settlement. If the Settling Bank 
does not respond to DTC with either an acknowledgment of its end-of-day 
net-net settlement balance or notification of a refusal to settle for a 
Participant for which it is the designated Settling Bank, this 
introduces uncertainty with respect to timely completion of settlement.
Proposal
    To promote settlement certainty, DTC is proposing to treat a 
Settling Bank that fails to timely provide its acknowledgement of its 
end-of-day net-net settlement balance or notify DTC of its refusal to 
settle for one or more Participants for which it is the designated 
Settling Bank, as having acknowledged its end-of-day net-net settlement 
balance for the purpose of settlement processing. DTC proposes to 
modify the Guide to provide that a Settling Bank that: (i) Fails to 
affirmatively acknowledge its end-of-day net-net settlement balance, or 
(ii) does not notify DTC of its refusal to settle on behalf of a 
Participant or Participants for which it is the designated Settling 
Bank, by the Acknowledgement Cutoff Time would be deemed to have 
acknowledged its end-of-day net-net settlement balance. The Settling 
Bank's balance would then in the ordinary course of settlement 
processing, be debited from or credited to its designated Fed Account 
through the NSS process. Likewise, DTC proposes that the Guide provide 
that a Settling Bank that fails to immediately upon receipt acknowledge 
its Adjusted Balance, if any, would be deemed to have acknowledged its 
Adjusted Balance and the Adjusted Balance would then in the ordinary 
course of settlement processing, be debited from or credited to its 
designated Fed Account through the NSS process.
    DTC maintains flexibility to allow for a Settling Bank to request 
extra time if the Settling Bank has a problem relating to its 
connectivity with DTC or another good faith reason that it cannot 
affirmatively acknowledge or refuse, so long as the Settling Bank 
notifies DTC accordingly at or before the Acknowledgement Cutoff Time, 
or, in the case of an Adjusted Balance, it notifies DTC immediately 
where it is unable to affirmatively acknowledge. In this regard, the 
Guide would be updated to clarify that the Settling Bank is required to 
notify DTC of its request via a dedicated DTC Settlement phone 
``hotline'' prior to the Acknowledgment Cutoff Time. As it does today, 
DTC would attempt to contact the Settling Bank if it does not receive a 
response in the form of: (i) An acknowledgment or refusal prior to the 
Acknowledgment Cutoff Time, or (ii) as applicable, an immediate 
acknowledgment of an Adjusted Balance.\9\ In addition, the Guide would 
be updated to clarify that each Settling Bank must ensure that it 
maintains accurate contact details with DTC so that DTC may contact the 
Settling Bank regarding settlement issues. Settling Banks must update 
any contact details by contacting their DTC Relationship Manager.
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    \9\ DTC uses the most recent contact information provided by the 
Settling Bank to its DTC Relationship Manager for this purpose.
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    Additionally, DTC would revise the Guide to: (i) Clarify that a 
Settling Bank that settles only for itself is not required

[[Page 25729]]

to acknowledge its net settlement balance; (ii) state that the existing 
flat fee charged for a Settling Bank's failure to timely settle its 
balance would additionally apply to a Settling Bank's failure to: (A) 
Affirmatively acknowledge its net-net settlement balance, or (B) notify 
DTC of its refusal to settle for one or more Participants for which it 
is the designated Settling Bank, by the Acknowledgment Cutoff Time; 
(iii) clarify the fees chargeable to a Participant for a failure to 
settle; (iv) delete references to a Settling Bank's failure to timely 
settle its settlement balance from being referred to as a ``failure to 
settle'' and remove references to related procedures as being 
``failure-to-settle'' procedures, as this use of the terminology could 
be confused with an individual Participant's failure to meet its 
settlement obligation; (v) clarify Settling Bank and settlement 
processing timeframes as set forth in the Guide; (vi) consolidate text, 
as applicable, for consistency and to eliminate duplication; (vii) 
apply initial capitalization as appropriate for the terms 
``Participant'' and ``Settling Bank'' where they are used as defined 
terms; and (viii) remove references to Participant Terminal System 
(PTS) functions, which are no longer used for this service.
Implementation
    The effective date of the proposed rule change would be announced 
via a DTC Important Notice.
2. Statutory Basis
    The proposed rule change would reduce delays in the settlement 
process by allowing DTC to collect net debits and release net credits 
within scheduled timeframes despite the failure of a Settling Bank to 
affirmatively acknowledge its end-of-day net-net settlement balance or 
notify DTC of its refusal to settle for a Participant for which it is 
the designated Settling Bank on a timely basis. Therefore, the proposed 
rule change is consistent with the provisions of section 17A(b)(3)(F) 
\10\ of the Act, which requires that the rules of the clearing agency 
be designed, inter alia, to promote the prompt and accurate clearance 
and settlement of securities transactions.
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    \10\ 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.

(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 yet 
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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such 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-2015-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2015-003. 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 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-2015-003 and should be 
submitted on or before May 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10400 Filed 5-4-15; 8:45 am]
 BILLING CODE 8011-01-P