Document ID: SEC-2010-0242-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2010-02-10T05:00Z

[Federal Register: February 10, 2010 (Volume 75, Number 27)]
[Notices]               
[Page 6751-6752]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe10-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61477; File No. SR-DTC-2010-01]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Expand Its Invitation To Cover Shorts Capability To Include Short 
Positions Outside DTC

February 3, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 15, 2010, 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 
primarily by DTC. DTC filed the proposal pursuant to Section 
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ thereunder so 
that the proposal was effective upon filing with the Commission. 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).
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 I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to expand the Invitation 
to Cover Shorts (``ICS'') capability to include short positions outside 
DTC.

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 such 
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.

    DTC rules require Participants to cover short positions immediately 
and provide 130% of the market value of the relevant security until the 
position is covered. DTC's ICS capability offers Participants a means 
to cover short positions by inviting tenders of securities from other 
Participants that hold long positions.\5\ Communication about these 
requests is facilitated through DTC's automated Participant Terminal 
System (``PTS'').\6\
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    \5\ Securities Exchange Act Release No. 26896 (June 5, 1989), 54 
FR 25185. DTC filed a proposed rule change with the Commission on 
April 4, 1989 to establish procedures for covering short positions 
using DTC's Participant Terminal System. The purpose of the rule 
change was to provide a means of reducing short positions at DTC. 
The ICS program is detailed in DTC's PTS Function Guide.
    \6\ If the Participant initiating the ICS request holds a 
security similar to the security in which it has a short position, 
then its invitation may include an offer to sell or swap the similar 
security.
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    Participants initiate ICS requests by broadcasting a message to 
DTC.\7\ DTC in turn automatically identifies Participants with long 
positions in the relevant security \8\ and sends those Participants an 
automated PTS message asking for a response if the Participant wants to 
tender its securities. Participants inviting the tender are informed by 
DTC of any affirmative responses and the Participant responding to the 
tender offer is asked to send DTC an e-mail or letter of authorization 
stating its willingness to sell its shares at the price agreed upon

[[Page 6752]]

with the short Participant.\9\ Once the appropriate authorizations are 
received, DTC staff inputs journal adjustments to debit the long 
Participant's account and credit the short Participant's account. A 
special payment order is then created by DTC to move the corresponding 
funds from the settlement account of the short Participant to that of 
the long Participant.
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    \7\ This message includes a quantity, price range, description, 
and CUSIP for the security. The Participant submitting the 
invitation also includes a contact name and phone number as well as 
any information about substitute securities.
    \8\ Because of its role as a securities depository, DTC is 
uniquely positioned to identify Participants with long positions in 
certain securities.
    \9\ Involvement in ICS transactions is purely discretionary by 
Participants. DTC facilitates communication and keeps Participant 
identities confidential until both parties agree to the transaction.
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    Participants recently asked DTC to expand its ICS capability to 
include short positions outside DTC.\10\ Expanding ICS in this way 
would help Participants holding short positions outside DTC to avoid 
financial risks by locating Participants with long positions in those 
securities. Participants using the ICS capability for short positions 
outside DTC would be subject to similar procedures as apply to current 
use of the ICS capability. Once Participants agree to the transaction, 
DTC would either process it through the journal entry method described 
above or ask the Participants to communicate directly with one other 
and settle the obligation through a DTC delivery order.
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    \10\ Until DTC develops an automated solution, these requests 
would be processed manually in a manner similar to the existing PTS 
application.
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    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \11\ and the rules and 
regulations thereunder applicable to DTC because the proposed rule 
change expands the existing ICS capability to increase efficiency by 
eliminating short positions of DTC Participants and will not adversely 
affect the safeguarding of securities and funds in DTC's custody or 
control.
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    \11\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

(C) Self-Regulatory Organization'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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(4) \13\ thereunder 
because the proposed rule change effects a change in an existing 
service of a registered clearing agency that: (i) Does not adversely 
affect the safeguarding of securities or funds in the custody or 
control of the clearing agency or for which it is responsible and (ii) 
does not significantly affect the respective rights or obligations of 
the clearing agency or persons using the service. At any time within 
sixty days of the filing of such rule change, the Commission may 
summarily abrogate 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(4).
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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

     Electronic comments may be submitted by using the 
Commission's Internet comment form (http://www.sec.gov/rules/
sro.shtml), or
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. SR-DTC-2009-01 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 submissions should refer to File Number SR-DTC-2010-01. This file 
number should be included on the subject line if e-mail 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, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filings also will 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/2009/dtc/
2010-01.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-
2010-01 and should be submitted on or before March 3, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2859 Filed 2-9-10; 8:45 am]
BILLING CODE 8011-01-P