Document ID: SEC-2010-0981-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2010-07-02T04:00Z

[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Notices]
[Pages 38581-38583]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16107]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62384; File No. SR-DTC-2010-09]

Self-Regulatory Organizations; the Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Revise Its Procedures 
Regarding Securities Delivered To or From Participant Accounts Through 
the Automated Customer Account Transfer Service of National Securities 
Clearing Corporation

June 25, 2010.
    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 June 4, 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 substantially 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. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The purpose of this proposed rule change is to revise DTC's 
Procedures regarding securities delivered to or from Participant 
accounts through the Automated Customer Account Transfer Service 
(``ACATS'') of National Securities Clearing Corporation (``NSCC'').

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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    DTC proposes modifying certain provisions of its Settlement 
Services Guide (``Guide'') in connection with

[[Page 38582]]

concurrent rule changes proposed by NSCC concerning ACATS transfers 
through NSCC's Continuous Net Settlement (``CNS'') system.\3\
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    \3\ NSCC is proposing these concurrent changes in filing SR-
NSCC-2010-05 with the Commission.
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    NSCC's ACATS enables members to effect automated transfers of 
customer accounts among themselves.\4\ For ACATS transfers processed 
through NSCC's Continuous Net Settlement (``CNS'') system,\5\ long and 
short positions are passed against Members' positions at The Depository 
Trust Company (``DTC''). Available securities are delivered from short 
Members' accounts at DTC and allocated to long Members' accounts by 
book-entry.
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    \4\ ACATS complements a Financial Industry Regulatory Authority 
(``FINRA'') rule requiring FINRA members to use automated clearing 
agency customer account transfer services and to effect customer 
account transfers within specified time frames.
    \5\ CNS is an ongoing accounting system which nets today's 
Settling Trades with yesterday's Closing Positions to produce a net 
short or long position for a particular security for a particular 
Member. NSCC is the contra party for all positions. The positions 
are then passed against the Member's Designated Depository positions 
and available securities are allocated by book-entry. This 
allocation of securities is accomplished through an evening cycle 
followed by a day cycle. Positions which remain open after the 
evening cycle may be changed as a result of trades accepted for 
settlement that day. CNS allocates deliveries in both the night and 
day cycles using an algorithm based on priority groups in descending 
order, age of position within a priority group, and random numbers 
within age groups.
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    An NSCC Member to which a customer's securities account is to be 
transferred through ACATS (``Receiving Member'') may initiate the 
transfer process by submitting a Transfer Initiation Request (``TIF'') 
to NSCC. For the transfer to be processed, the TIF must be accepted by 
the NSCC Member from which the customer's securities account is being 
transferred (``Delivering Member''). After a Delivering Member accepts 
a customer account transfer and all other preconditions of NSCC's rules 
for processing ACATS transfer are met, all CNS-eligible items in the 
account will be entered into NSCC's CNS accounting operation on the day 
before settlement date unless the Receiving Member notifies NSCC that 
certain items should be withheld.\6\
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    \6\ NSCC Rule 50 (Automated Customer Account Transfer Service).
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    DTC proposes modifying the Guide in several ways to clarify that 
securities moving through NSCC's ACATS system are not subject to a lien 
by DTC when they are debited from a delivering Participant's DTC 
account or when they are credited to a receiving Participant's DTC 
account.\7\ DTC believes its proposed clarifications would help NSCC 
Members and DTC Participants meet their legal obligations to maintain 
securities possession or control of certain customer securities \8\ and 
would concurrently protect the interests of NSCC and DTC.
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    \7\ As part of NSCC's companion rule filing, NSCC proposes 
amending its Rules to provide that any deliveries and receives in a 
particular security processed through CNS would be designated by 
NSCC to satisfy a Member's ACATS receive or deliver obligation prior 
to satisfaction of other CNS-related obligations for that Member in 
the same security. This would allow NSCC to track the completion 
status of CNS ACATS deliveries and would facilitate NSCC's ability 
to notify DTC of which CNS deliveries are ACATS transfers.
    \8\ Commission Rule 15c3-3 provides that a broker dealer shall 
promptly obtain and shall thereafter maintain the physical 
possession or control of all fully-paid securities and excess margin 
securities, in each case, carried by a broker or dealer for the 
account of customers.
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    DTC proposes modifying the CNS section of the Guide to clarify that 
when a Participant holds securities in its DTC account in a no-lien 
location \9\ and those securities are part of an ACATS transfer through 
CNS, then DTC would not have any lien on such securities to satisfy the 
Participant's CNS ACATS delivery obligation. DTC also proposes 
clarifying within the Guide that ACAT deliveries from CNS would be 
deemed to be designated by the receiving Participant as ``Minimum 
Amount Securities'' when they are credited to the receiving 
Participant's account.\10\ Minimum Amount Securities are not considered 
collateral under DTC's rules.\11\ Additional clarification would be 
included to explain that an ACATS transfer would be deemed null and 
void and the underlying securities could be used to satisfy settlement 
obligations to NSCC if NSCC determines that a Delivering Member and a 
Receiving Member defaulted on their settlement obligations to NSCC and 
the Delivering Member also fails to meet its ACATS delivery obligation.
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    \9\ For example, when the securities are designated as ``Minimum 
Amount Securities'' and not as Net Additions.
    \10\ As ``Minimum Amount Securities'', DTC would not have any 
lien on such securities transferred through ACATS and received from 
CNS. Such securities would not constitute collateral to which DTC 
could assert a claim, and accordingly they would not be counted as 
part of the Participant's Collateral Monitor unless the receiving 
Participant designates such securities as ``Net Additions'' in 
accordance with DTC Rules and Procedures.
    \11\ DTC Rule 1 and DTC Rule 4(A) respectively for the 
definition of Minimum Amount Securities and for the implications of 
this designation in protecting such securities from any lien or 
other claim of DTC.
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    DTC proposes implementing the proposed changes in this filing 
during the third quarter of 2010 and advising Members of the specific 
implementation date through issuance of DTC Important Notices.
    DTC believes the proposed rule changes are consistent with the 
requirements of Section 17A of the Act \12\ and the rules and 
regulations thereunder because the proposed changes would facilitate 
DTC's prompt and accurate clearance and settlement of securities 
transactions by clarifying when securities involved in ACATS transfers 
through CNS are subject to a lien by DTC.
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    \12\ 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 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

    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 thirty-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 organization consents, 
the Commission will:
    (A) By order approve 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 Commissions Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-DTC-2010-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 38583]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2010-09. 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 20549-1090, 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 the DTC 
and on DTC's Web site at http://www.dtcc.com/downloads/legal/rule_filings/2010/dtc/2010-09.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-2010-09 and should be submitted on or before July 
23, 2010.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16107 Filed 7-1-10; 8:45 am]
BILLING CODE 8010-01-P