Document ID: SEC-2011-1868-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2011-12-02T05:00Z

[Federal Register Volume 76, Number 232 (Friday, December 2, 2011)]
[Notices]
[Pages 75570-75572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30980]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65831; File No. SR-DTC-2011-08]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Enhance Risk Management 
Controls Associated With the Receiver Authorized Delivery Function

November 28, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 16, 2011, 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. 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 Substance 
of the Proposed Rule Change

    The proposed rule change would enhance the risk management controls 
associated with DTC's Receiver Authorized Delivery (``RAD'') function.

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.

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

    (1) The RAD function enables each Participant to control and review 
a Deliver Order (``DO'') \3\ or a Payment Order (``PO'') \4\ that is 
directed to its account by another Participant before its account is 
updated. The RAD function was built in 1990 to route money market 
instrument (``MMI'') transactions for receiver approval. In 1996, there 
was a conversion for all transactions to settle in same-day funds 
subject to the net debit cap control \5\ and collateral controls.\6\ 
Any DO that obligated a Participant to pay $15 million or more and any 
PO that obligated a Participant to pay $1 million or more became 
subject to RAD. In order to minimize blockage, DTC excluded from RAD 
any DO under $15 million and any PO under $1 million. Transactions in 
such lower amounts were directed to the account of the receiving 
Participant without the RAD filter. For such lower amounts, the 
receiving Participant has the ability on the same day as the original 
delivery to instruct a matched

[[Page 75571]]

reclaim \7\ transaction not subject to the original delivering 
Participant's collateral monitor and net debit cap controls.
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    \3\ A Deliver Order is the term used to define an instruction 
initiating the book-entry transfer of a security from one DTC 
Participant, as delivering Participant, to another DTC Participant, 
as receiving Participant.
    \4\ A Payment Order is the term used to define an instruction 
initiating a transaction in which a Participant charges another 
Participant for changes in value for outstanding stock loans or 
option contract premiums. Payment orders involve no securities, only 
money.
    \5\ The net debit cap control is designed so that DTC may 
complete settlement even if a Participant fails to settle. Before 
completing a transaction in which a Participant is the receiver, DTC 
calculates the effect the transaction would have on such 
Participant's account and determines whether any resulting net debit 
balance would exceed the Participant's net debit cap. Any 
transaction that would cause the net debit balance to exceed the 
Participant's net debit cap is placed on a pending (recycling) queue 
until another transaction creates sufficient credit in such 
Participant's account so that the net debit cap will not be 
exceeded.
    \6\ An example of a collateral control is the Collateral Monitor 
(``CM''). DTC tracks collateral in a Participant's account through 
the Collateral Monitor. At all times, the CM reflects the amount by 
which the collateral value in the account exceeds the net debit 
balance in the account. When processing a transaction, DTC verifies 
that the CM of neither the deliverer nor the receiver will not 
become negative when the transaction completes. If the transaction 
would cause either party to have a negative CM, the transaction will 
recycle until the deficient account has sufficient collateral to 
proceed or until the applicable cutoff occurs.
    \7\ A ``reclaim'' is a separate DO or PO that a receiving 
Participant may use to return a DO or PO (typically received in 
error).
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    With this rule filing, DTC is proposing the following revisions to 
RAD:
    (i) DTC will expand RAD to include Omgeo Institutional Delivery 
(``ID'') transactions in excess of $15 million at the receiving 
Participant's election. If no election is made, these transactions will 
be processed for receipt in the same manner as they currently are 
processed. (Currently, ID transactions are not routed to RAD and are 
not subject to matched reclaim.) The change will reduce the receiving 
Participant's risk relating to ID transactions.
    (ii) Participants will be able to elect to have all free MMI 
deliveries bypass RAD on a counterparty by counterparty basis. 
Currently, all free money market instrument (``MMI'') deliveries are 
routed to RAD for receiver approval.\8\ The change will help facilitate 
customer account transfers.
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    \8\ A receiver that authorizes a free MMI transaction is deemed 
to have made an agreement with the deliverer that it will make 
payment outside of DTC in accordance with the agreement of the 
parties outside DTC. DTC does not monitor or enforce compliance with 
such agreements. Participants must enforce these agreements 
themselves.
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    (iii) DTC will be able, in its discretion, to apply RAD to all DOs 
and POs initiated by a ``Wind-Down Participant'' \9\ regardless of 
value. A receiving Participant will have the option to raise its RAD 
limit in accordance with its own transaction management objectives (but 
not to reinstitute matched reclaims in lieu of RAD). DTC views this 
improvement as a means for Participants, bilaterally, and DTC, 
multilaterally, to manage liquidity and credit risk in a Wind-Down 
scenario and to eliminate the risk of matched reclaims to a Wind-Down 
Participant.
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    \9\ DTC Rule 32 defines a ``Wind-Down Participant'' and provides 
for actions that may be taken with respect to such a Participant.
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    (iv) DTC will exclude from RAD certain receives or deliveries 
(e.g., the OCC Market Loan program \10\ account) because these are 
effectively matched and/or approved by other mechanisms.

    \10\ For more information about the OCC's Market Loan Program, 
see Securities Exchange Release Act No. 34-59298 (January 26, 2009) 
74 FR 5692 (January 30, 2009) [SR-DTC-2008-15].
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DTC also seeks to conform the language of its existing procedures 
pertaining to processing of reclaims to its practices:

    (v) Receiving Participants may, only on the same day as the 
original delivery, instruct a matched reclaim transaction. Any such 
matched reclaim of a DO with a settlement value of less than $15 
million and a PO with a value less than $1 million may be processed 
without reference to the collateral monitor and net debit cap controls 
for the original delivering Participant.\11\
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    \11\ For more information regarding this change, see Securities 
Exchange Release Act No. 34-48121 (July 2, 2003) 68 FR 41030 (July 
2, 2003) [SR-DTC-2003-06].
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    DTC has discussed these changes with selected Participants and with 
its Settlement Advisory Board which agreed that these enhancements 
should reduce risk.
    These changes will be reflected in revisions to the existing DTC 
Settlement Services Guide, set forth in the attached Exhibit 5.\12\
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    \12\ The text of the proposed rule change is available on DTC's 
Web site at http://www.dtcc.com/legal/rule_filings/dtc/2011.php.
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    (2) The proposed rule change is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to DTC as 
well as the CPSS/IOSCO Recommendations for Securities Settlement 
Systems applicable to DTC. The proposed change is designed to 
facilitate the prompt and accurate settlement of securities 
transactions by promoting efficiencies and reducing risk in the system.

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

    Within 45 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 90 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 shall: 
(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-2011-08 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-2011-08. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at DTC's principal office and on DTC's Web site 
at http://www.dtc.org. 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-2011-08 and 
should be submitted on or before December 23, 2011.

[[Page 75572]]

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30980 Filed 12-1-11; 8:45 am]
BILLING CODE 8011-01-P