Document ID: SEC-2017-1175-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2017-07-13T04:00Z

[Federal Register Volume 82, Number 133 (Thursday, July 13, 2017)]
[Notices]
[Pages 32406-32409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14665]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81096; File No. SR-DTC-2017-011]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Require Agents To Use the Automated Tender Offer Program To Process 
Consent Solicitations for Book-Entry Only Securities

July 7, 2017.
    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 30, 2017, 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. DTC filed the proposed rule change pursuant to Section 
19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ thereunder. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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)(6).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by DTC would amend the Reorganizations 
Service Guide (``Guide'') \5\ and the OA to establish the requirement 
that tabulation agents (``Agents'') \6\ use the DTC Automated Tender 
Offer Program (``ATOP'') to process ATOP-eligible consent solicitation 
events (``Consent Solicitations'') \7\ for book-entry-only Securities 
for which DTC holds the entire amount of the issue (``BEO Securities'') 
\8\ including those in DTC's Fast Automated Securities Transfer program 
(``FAST'').\9\ The Guide would also be amended to (i) reflect DTC's 
existing criteria for processing Consent Solicitations through ATOP, 
(ii) expand the use of ATOP to Consent Solicitations where blocking 
\10\ is not required, and (iii) make ministerial changes to the Guide, 
as further described below.
---------------------------------------------------------------------------

    \5\ Each capitalized term not otherwise defined herein has the 
meaning set forth in the Rules, By-Laws and Organization Certificate 
of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx; the Guide, available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Reorganizations.pdf; and in the DTC Operational Arrangements 
(Necessary for Securities to Become and Remain Eligible for DTC 
Services)(``OA''), available at http://www.dtcc.com/~/media/Files/
Downloads/legal/issue-eligibility/eligibility/operational-
arrangements.pdf.
    \6\ A tabulation agent is an agent designated by the soliciting 
party to coordinate the process of collecting consents.
    \7\ See discussion infra 6-7.
    \8\ There are some book-entry-only Securities for which DTC, 
through its nominee, Cede & Co. (``Cede'') is not the sole 
registered holder and holder of 100 percent of the issue, for 
example, if the Security is listed dually in the United States and 
another country. The proposed rule change does not apply to such 
Securities.
    \9\ BEO Securities are Eligible Securities for which (i) 
physical certificates are not available to investors and (ii) DTC, 
through Cede, holds the entire amount of the of the issue, either at 
DTC or through a FAST Agent in DTC's FAST program. BEO Securities 
are evidenced by one or more Global Certificates held at DTC or a 
FAST balance certificate, as applicable, representing the entire 
amount of the issue.
    \10\ To block securities, in this context, means to restrict 
transfer of Securities credited to the Account of a Participant as 
to which consent has been submitted (``Blocking'').
---------------------------------------------------------------------------

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 proposal would amend the Guide and the OA to establish the 
requirement that Agents use ATOP to process Consent Solicitations for 
BEO Securities. The Guide would also be amended to (i) reflect DTC's 
existing criteria for processing Consent Solicitations through ATOP, 
(ii) expand the use of ATOP to Consent Solicitations where Blocking is 
not required, and (iii) make ministerial changes to the Guide.
Background
A. Consent Solicitations
    A Consent Solicitation is a request made for the affirmative 
consent of holders of securities pursuant to an indenture 
(``Holders''), to change the terms of such indenture.\11\ In order to 
be processed through DTC, a consent solicitation cannot be linked to a 
security holder meeting, vote, or call for the objection of Holders 
while deeming those who do not object as consenting (a ``Negative 
Consent'').
---------------------------------------------------------------------------

    \11\ In this context, the term ``indenture'' means any mortgage, 
deed of trust, trust or other indenture, or similar instrument or 
agreement (including any supplement or amendment to any of the 
foregoing), under which securities are outstanding or are to be 
issued, whether or not any property, real or personal, is, or is to 
be, pledged, mortgaged, assigned, or conveyed thereunder. 15 U.S.C. 
77ccc (7).
---------------------------------------------------------------------------

B. Consent Solicitations Processed Outside of DTC
    If a Consent Solicitation is not processed through ATOP, but rather 
is processed outside of DTC, the Agent sends a Consent Solicitation 
memorandum outlining the terms of the offer to the registered Holders. 
Cede, as a registered Holder of the subject security, will provide the 
Agent with a listing of Participants to whose Accounts the Securities 
are credited, together with an omnibus proxy for

[[Page 32407]]

those Participants. The Agent must reach out to the Participants 
outside DTC to solicit the consents. In order to consent, a Participant 
must mail a hard-copy letter of consent directly to the Agent. These 
letters of consent then have to be manually tabulated by the Agent and 
reconciled outside of DTC. In cases of Consent Solicitations with 
payment,\12\ in addition to the consent letter, Agents also must 
receive payment instructions from each Participant that consents, and 
pay each consenting Participant the Consent Consideration, outside of 
DTC.
---------------------------------------------------------------------------

    \12\ Certain Consent Solicitations may include a payment for 
each valid consent (``Consent Consideration'').
---------------------------------------------------------------------------

C. Consent Solicitations Processed Through ATOP
    ATOP is a processing platform through which DTC processes certain 
voluntary reorganization events, including Consent Solicitations.\13\ 
In order to process a Consent Solicitation through ATOP, an Agent must 
have, or enter into, a master agreement with DTC. The master agreement 
specifies the terms and conditions for handling corporate action events 
through ATOP, including that the Agent will accept electronic messages 
from DTC. The specific terms of each Consent Solicitation are provided 
in separate addenda to the master agreement.
---------------------------------------------------------------------------

    \13\ Until 2010, ATOP could only be used to process 
reorganizations events such as voluntary corporate actions, tenders 
and exchanges, cash conversions, and mandatory event processing of 
mergers with elections. In 2010, DTC filed a rule with the 
Commission allowing ATOP to be used to facilitate the processing of 
any corporate action event-type that DTC deems appropriate. 
Securities Exchange Act Release No. 62119 (May 18, 2010), 75 FR 
29374 (May 25, 2010) (SR-DTC-2010-08). In 2013, DTC began offering 
the option to Agents to process Consent Solicitations via ATOP. 
Securities Exchange Act Release No. 69597 (May 16, 2013), 78 FR 
30382 (May 22, 2013) (SR-DTC-2013-06); DTC Important Notice B#1076-
13 (June 27, 2013). For a further description of ATOP, refer to 
Securities Exchange Act Release No. 33797 (March 22, 1994), 59 FR 
14696 (March 29, 1994) (SR-DTC-93-11) (order modifying ATOP).
---------------------------------------------------------------------------

    After a Consent Solicitation event has been approved in ATOP, any 
Participant to whose Account Securities subject to the Consent 
Solicitation are credited can enter consent instructions on behalf of 
its clients via the DTC Participant Transactions Over PTS function 
(``PTOP'') \14\ up until the expiration date of the offer.\15\ When a 
Participant submits consent instructions through PTOP, DTC will 
electronically deliver the consent instructions to the Agent. DTC will 
Block the Securities credited to the Account of a Participant as to 
which consent has been submitted by transferring the Securities to an 
account maintained by DTC for the Agent until the expiration of the 
event. Typically, within three days of the expiration of the offer, the 
Securities as to which consent had been submitted will be unblocked and 
credited back to the free Account of the Participant. If it is a 
Consent Solicitation with Consent Consideration, the Agent will fund 
DTC, which will allocate received funds to the consenting Participants.
---------------------------------------------------------------------------

    \14\ PTOP is a function that is used by Participants to submit 
instructions for Voluntary Reorganization events generally.
    \15\ DTC distributes information to Participants regarding 
Consent Solicitations. Generally, this information is distributed 
through PTOP and RIPS (Reorganization Inquiry for Participants) 
functions of PTS (Participant Terminal System).
---------------------------------------------------------------------------

    Processing Consent Solicitations through ATOP provides an 
electronic approach to the collection and transmission of consent 
instructions that: (i) Eliminates the highly manual process involved 
with collection and reconciliation of hard-copy instructions, thereby 
mitigating the risks of processing errors such as lost documents, 
misallocations to multiple payees, and the miscounting of hard-copy 
consent instructions; (ii) reduces the risk of a missed expiration by 
eliminating the delay caused by mailing hard copies; (iii) facilitates 
the allocation of Consent Consideration by allowing Agents to 
centralize payment through DTC; (iv) enhances ability for Agents to 
handle multiple elections for a single event; and (v) eliminates the 
potential for consents to exceed a Participant's total outstanding 
position.
    Despite these efficiencies, certain Agents still use the manual and 
paper-driven process of Consent Solicitations for BEO Securities 
outside of DTC.
(ii) Proposed Rule Change
A. ATOP Requirement for Consent Solicitations for BEO Securities
    Pursuant to the proposed rule change, DTC would require that when 
an Agent is soliciting consent solicitation events for BEO Securities 
in DTC's FAST Program, and where Cede is the registered holder of the 
security and holds 100% of the principal in a global note, the Agent is 
required to use the ATOP consent processing service to solicit and 
collect consents from participant holders, provided that the consent 
solicitation satisfies the criteria for ATOP processing. DTC believes 
that this requirement would centralize and streamline the Consent 
Solicitation process for Agents and Participants with respect to BEO 
Securities.
    For issues for which Cede is not the sole registered holder and 
holder of 100 percent of the issue,\16\ there would be no requirement 
to use ATOP for Consent Solicitations for that Security.
---------------------------------------------------------------------------

    \16\ See supra note 4.
---------------------------------------------------------------------------

B. Criteria for Acceptance of a Consent Solicitation for ATOP
    As discussed above, the proposed rule change would apply only to 
Consent Solicitations for BEO Securities that satisfy DTC's current 
criteria for processing a Consent Solicitation. In accordance with 
current practice, if a consent solicitation does not satisfy all of the 
below criteria, it cannot be processed through ATOP. The criteria are:
    1. The consent solicitation must be made by the issuer.\17\
---------------------------------------------------------------------------

    \17\ Third party solicitations, for example, those of activist 
bondholders, are handled by DTC's Shareholder Demand Process. See 
DTC's Proxy Services, available at http://www.dtcc.com/matching-settlement-and-asset-services/issuer-services/proxy-services.
---------------------------------------------------------------------------

    2. The consent solicitation must be for affirmative consent to 
modify the terms of the indenture.
    3. The consent solicitation is not linked to a Holder meeting, 
vote, or Negative Consent.
    4. Electronic transmission of consents does not violate the terms 
of the indenture.
    5. Hard-copy documentation is not required to support the consent 
instructions.
    6. Blocking:
    a. If Blocking is a requirement of the consent solicitation and the 
event is predicated on record date, the record date must also be equal 
to the final expiration date of the consent solicitation.
    b. If Blocking is a requirement of the consent solicitation, 
blocked positions are to be released no more than three (3) days after 
the expiration of the event and not exceeding forty-five (45) days from 
the date of the Consent Solicitation memorandum, unless there is an 
opportunity for a Participant to withdraw its consent instructions when 
the issuer extends the consent deadline beyond forty-five (45) days.
    In addition to the above, there is currently a requirement that a 
Consent Solicitation processed through ATOP must require Blocking. 
Pursuant to the proposed rule change, DTC would expand ATOP to include 
Consent Solicitations that do not require Blocking.\18\
---------------------------------------------------------------------------

    \18\ A Consent Solicitation would not require Blocking when the 
solicitation is being made to holders that had position as of a 
record date. DTC will Block positions only when Blocking is a 
requirement of the Consent Solicitation. To avoid Blocking positions 
(where there is a record date and Blocking is not a requirement of 
the Consent Solicitation), DTC will establish a position in a 
contra-CUSIP as of the record date (without affecting positions on 
the target security) for the purposes of collecting, transmitting 
and processing consents, thereby allowing the target security for 
the consent to continue to trade and settle in the marketplace.

---------------------------------------------------------------------------

[[Page 32408]]

(iii) Amendments to the Guide and OAs
    The proposed rule change would update both the Guide and the OA to 
(i) reflect DTC's existing criteria for processing Consent 
Solicitations through ATOP and (ii) expand the use of ATOP to Consent 
Solicitations where Blocking is not required. The proposed rule change 
would also make ministerial changes to the Guide, by correcting 
punctuation and capitalization, and by removing an incorrect reference 
to a hard-copy Proxy Record Date Notice, which is not supplied as part 
of Proxy Announcements and therefore should not be referenced in the 
Guide as a source of information.
Implementation Timeframe
    The proposed rule change would be implemented 30 days after the 
date of filing, or such shorter time as the Commission may designate.
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder 
applicable to DTC, in particular Section 17A(b)(3)(F) of the Act.\19\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, inter alia, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions.\20\ By requiring Agents to 
process through ATOP Consent Solicitations for BEO Securities, the 
proposed rule change would promote the use of an existing automated, 
paperless process that (i) improves the efficiency of the collection of 
consents by centralizing the process at DTC, and (ii) mitigates the 
risks of manual processing errors such as lost documents, 
misallocations to multiple payees, and the miscounting of hard-copy 
consent instructions. Further, by permitting Consent Solicitations 
without a Blocking requirement to be processed by ATOP, the proposed 
rule change would further reduce the need for Agents to use a manual 
and paper-driven process, by allowing the use of the efficient, 
streamlined process of ATOP for Consent Solicitations without Blocking. 
In addition, by amending the Guide to reflect DTC's existing procedures 
around ATOP and Consent Solicitations, and to correct ministerial 
errors, the proposed rule change would clarify the procedures around 
processing Consent Solicitations through ATOP. Therefore, by adding 
efficiencies and mitigating risk to allow Agents, with less risk, to 
more quickly and effectively process Consent Solicitations for BEO 
Securities, the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with the requirements of the Act, in particular Section 
17A(b)(3)(F), cited above.
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition
    DTC believes that the proposed rule change would not have an impact 
on competition with respect to access to ATOP. To use ATOP, an Agent 
does not have to be a Participant. A majority of existing Agents that 
handle Consent Solicitations are already electronically connected to 
ATOP.\21\ Thus, ATOP is available on a broad basis to Agents, and the 
proposed rule change does not impact competition in this respect. 
However, DTC recognizes that (i) there are existing fees associated 
with processing Consent Solicitations through ATOP, and (ii) there may 
be Agents that prefer to handle Consent Solicitations for BEO 
Securities outside of DTC and therefore may need to adjust their 
practice to comply with the proposed rule change. Therefore, to the 
extent that there may be some impact on competition from requiring the 
use of ATOP, where such use would require Agents to pay the associated 
fees \22\ or adjust certain practices, DTC believes there would be no 
significant burden on competition because the majority of Agents 
already use ATOP, and Agents would be charged fees that are not 
different from established published fees for processing Consent 
Solicitations through ATOP. DTC views any associated burden on 
competition as necessary and appropriate in furtherance of the purpose 
of the Act, because the proposed rule change would promote the 
consolidation of Consent Solicitation processing for BEO Securities 
into ATOP, adding efficiency and mitigating the risks posed by manually 
processing Consent Solicitations outside of DTC, thereby promoting the 
prompt and accurate clearance and settlement of securities 
transactions.
---------------------------------------------------------------------------

    \21\ If an Agent does not want to connect electronically to 
ATOP, it also would have the option to accept an emailed report 
generated by ATOP that provides the details on consents by 
Participants.
    \22\ See 2017 Fee Schedule, Corporate Actions, Agent Fees, 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/fee-
guides/dtcfeeguide.pdf; Important Notice B#1076-13, available at 
http://www.dtcc.com/~/media/Files/pdf/2013/6/27/1076-13.pdf.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not solicited and does not intend to solicit comments 
regarding the proposed rule change. To the extent DTC receives written 
comments on the proposed rule change; DTC will forward such comments to 
the Commission. DTC has presented this proposal to several industry 
groups and received positive feedback.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) \23\ of the Act and 
Rule 19b-4(f)(6) thereunder.\24\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.

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-2017-011 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-2017-011. This file

[[Page 32409]]

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-2017-011 and should be 
submitted on or before August 3, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-14665 Filed 7-12-17; 8:45 am]
 BILLING CODE 8011-01-P