Document ID: SEC-2013-1304-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2013-07-18T04:00Z

[Federal Register Volume 78, Number 138 (Thursday, July 18, 2013)]
[Notices]
[Pages 42991-42992]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17209]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69985; File No. SR-DTC-2013-04]

Self-Regulatory Organizations; the Depository Trust Company; 
Order Approving Proposed Rule Change in Connection With the 
Modifications to Receiver Authorized Delivery and Reclaim Processing 
Value Limits by Transaction

July 12, 2013.

I. Introduction

    On May 17, 2013, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change SR-DTC-2013-04 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on June 5, 2013.\3\ The Commission did not receive 
any comments on the proposed rule change. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Release No. 34-69666 (May 30, 2013), 78 FR 33876 (June 5, 
2013).
---------------------------------------------------------------------------

II. Description

    DTC filed the proposed rule change to modify its Rules & Procedures 
(``Rules''), with respect to Receiver Authorized Delivery (``RAD'') and 
reclaim transactions, to: (i) Lower limits against which valued Deliver 
Orders (``DO'') and Payment Orders (``PO'') \4\ will be required to be 
accepted for receipt (i.e., ``matched'' for settlement); (ii) lower 
limits for same day reclaim transactions; and (iii) revise the process 
for RAD matching of stock loans and returns.
---------------------------------------------------------------------------

    \4\ A Deliver Order is a book-entry movement of a particular 
security between two DTC participants. A Payment Order is a method 
for settling funds amounts related to transactions and payments not 
associated with a Deliver Order. The defined term ``DO'' as used in 
this proposed rule change filing includes all valued Deliver Orders 
except for Deliver Orders of: (i) Money market instruments and (ii) 
institutional deliveries affirmed through Omgeo, both of which are 
not impacted by the proposed rule change.
---------------------------------------------------------------------------

    Currently DOs and POs valued in amounts above $15 million and $1 
million, respectively, are subject to the RAD process, which allows 
receivers to review and reject transactions that they do not recognize 
prior to processing for delivery. In contrast, lower value DOs and POs 
do not require the receiver's acceptance prior to processing in 
accordance with DTC's Rules; instead, such transactions may be returned 
by the receiver in a reclaim transaction, if the receiver does not 
recognize the DO or PO. While both the reclaim and RAD functionalities 
allow receiving DTC participants (``Participants'') to exercise control 
over which transactions to accept, reclaims tend to create uncertainty 
because transactions can be returned late in the day, when the original 
deliverer may have limited options to respond. Because such reclaims 
are permitted without regard to risk management controls, the 
Participant that initiated the original delivery versus payment may 
then incur a greater settlement obligation, increasing credit and 
liquidity risk to that Participant and to DTC.\5\
---------------------------------------------------------------------------

    \5\ DTC's risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in DTC Rule 1), are designed so that 
DTC can effect system-wide settlement notwithstanding the failure to 
settle of its largest Participant or affiliated family of 
Participants. Net Debit Cap limits the net debit balance a 
Participant can incur so that the unpaid settlement obligation of 
the Participant, if any, cannot exceed DTC liquidity resources. The 
Collateral Monitor tests that a receiver has adequate collateral to 
secure the amount of its net debit balance so that DTC may borrow 
funds to cover that amount for system-wide settlement if the 
Participant defaults.
---------------------------------------------------------------------------

    Under the proposal, DTC is changing RAD to require Participants to 
match all settlement-related transactions valued greater than $7.5 
million for valued DOs and $500,000 for POs, prior to processing. 
Matched transactions will be processed through DTC subject to risk 
management controls.\6\ According to DTC the rule change will reduce 
the intraday uncertainty that may arise from reclaim transactions and 
any potential credit and liquidity risk from such reclaims.
---------------------------------------------------------------------------

    \6\ Each reclaim of a matched transaction that is attempted will 
be processed as an original instruction and be subject to risk 
management controls and receiver approval (the original deliverer) 
via RAD.
---------------------------------------------------------------------------

    DTC also proposed a further revision to RAD for stock loan and 
stock loan return transactions. Currently, Participants may set 
bilateral and global limits for transactions subject to RAD which allow 
transactions with settlement values that are greater than DTC's default 
limits, but less than the Participant's defined bilateral and/or global 
limits, to be passively approved.\7\ Any established limits apply to 
all transactions with the applicable counterparties (on either a 
bilateral or global basis) for all transaction types subject to RAD. 
However, stock loan transactions (and stock loan returns) are often 
different from ordinary buys and sells, because stock loans are often 
agreed upon on a same-day basis (as opposed to T+3 settlement of 
purchases and sales). Taking this difference into account, in addition 
to the revisions described above, the rule changes will allow receiving 
Participants to establish bilateral and global RAD limits for stock 
loans and stock loan returns that are different from other transaction 
types.\8\
---------------------------------------------------------------------------

    \7\ A bilateral limit established by a Participant applies to 
transactions from a specified deliverer. A global limit established 
by a Participant is applied to all valued DOs and POs to the 
Participant not otherwise subject to a bilateral limit. Transactions 
passively approved under such limits may not be reclaimed.
    \8\ The use of a stock lending and return profile will be 
voluntary and, absent a profile, the Participant's transactions will 
be subject to RAD as applicable to ordinary DOs, including the 
established DTC limits as well as Participant established bilateral 
and global limits as described above.
---------------------------------------------------------------------------

    The DTC Settlement Services Guide will be revised to reflect the 
changes discussed above, and the effective date of the rule change will 
be announced

[[Page 42992]]

through the issuance of a DTC Important Notice.

III. Discussion

    Section 19(b)(2)(C) of the Act \9\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. Section 17A(b)(3)(F) of the Act \10\ requires, 
among other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions. The Commission finds that the rule change is consistent 
with these requirements because it will enhance settlement certainty by 
increasing the number of deliveries which will be required to be 
approved by a receiving Participant prior to DTC processing, thereby 
reducing the intraday uncertainty that may arise from reclaim 
transactions and any potential credit and liquidity risk from such 
reclaims and facilitating the prompt and accurate clearance and 
settlement of securities transactions.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \11\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-DTC-2013-04) be, 
and hereby is, approved.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).
    \13\ In approving the proposed rule change, the Commission 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-17209 Filed 7-17-13; 8:45 am]
BILLING CODE 8011-01-P