Document ID: SEC-2020-1939-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2020-12-07T05:00Z

[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78897-78904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26787]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90546; File No. SR-DTC-2020-014]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change, 
as Modified by Amendment No. 1, To Amend the Guide to the DTC Fee 
Schedule

December 1, 2020.
    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 November 16, 2020, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change. On November 30, 2020, DTC filed Amendment No. 1 to the 
proposed rule change, which revised a portion of the rule text and 
corresponding description in the notice relating to DTC's current 
policy regarding the issuance of rebates to Participants. DTC filed the 
proposed rule change, as modified by Amendment No. 1, pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ 
The proposed rule change, as modified by Amendment No. 1, is 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, as modified by Amendment No. 1, from 
interested persons.
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    \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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, as Modified by Amendment No. 1

    The proposed rule change, as modified by Amendment No. 1,\5\

[[Page 78898]]

consists of amendments to the Guide to the DTC Fee Schedule \6\ (``Fee 
Guide'') to (i) revise and/or consolidate certain Fees charged to 
Participants for certain settlement services,\7\ (ii) modify the 
existing Participants Fund Maintenance Fee (``Maintenance Fee'') and 
(iii) include a description of DTC's current policy regarding the 
issuance of rebates to Participants, as described below.
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    \5\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf.
    \7\ Pursuant to Rule 2, Section 1, each Participant shall pay to 
DTC the compensation due it for services rendered to the Participant 
based on DTC's fee schedules. See Rule 2, supra note 5.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, as Modified by Amendment No. 1

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change, as modified by Amendment No. 1, and discussed any comments it 
received on the proposed rule change, as modified by Amendment No. 1. 
The text of these statements may be examined at the places specified in 
Item IV below. The clearing agency 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, as Modified by Amendment No. 1

1. Purpose
    The proposed rule change, as modified by Amendment No. 1, would 
amend the Fee Guide to (i) revise and/or consolidate certain Fees 
charged to Participants for certain settlement services, (ii) modify 
the Maintenance Fee and (iii) include a description of DTC's policy 
regarding the issuance of rebates to Participants, as described below.
Overview
    DTC is a central securities depository, and as such, provides a 
central location in which Eligible Securities \8\ may be immobilized, 
or through which Securities may be dematerialized, and interests, in 
the form of Security Entitlements,\9\ in those Securities reflected in 
Accounts maintained for Participants.\10\ DTC also provides for end-of-
day net funds settlement relating to these Deliveries.\11\
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    \8\ Pursuant to Rule 5, Section 1, an Eligible Security shall 
only be a Security accepted by the Corporation, in its sole 
discretion, as an Eligible Security. The Corporation shall accept a 
Security as an Eligible Security only (a) upon a determination by 
the Corporation that it has the operational capability and can 
obtain information regarding the Security necessary to permit it to 
provide its services to Participants and Pledgees when such Security 
is Deposited and (b) upon such inquiry, or based upon such criteria, 
as the Corporation may, in its sole discretion, determine from time 
to time. See Rule 5, supra note 5. See also, 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.
    \9\ Pursuant to Rule 1, the term ``Security Entitlement'' has 
the meaning given to the term ``security entitlement'' in Section 8-
102 of the New York Uniform Commercial Code. The interest of a 
Participant or Pledgee in a Security credited to its Account is a 
Security Entitlement. See Rule 1, supra note 5.
    \10\ See also DTC Disclosure Framework for Covered Clearing 
Agencies and Financial Market Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/DTC_Disclosure_Framework.pdf, at 5.
    \11\ See Rule 9(A), Rule 9(B), Rule 9(C) and Rule 9(D), supra 
note 5, and Settlement Service Guide (``Settlement Guide''), 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
service-guides/Settlement.pdf, at 17-30.
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    DTC operates a ``low cost'' pricing model and has in place 
procedures to control costs and to regularly review pricing levels 
against costs of operation. It reviews pricing levels against its costs 
of operation typically during the annual budget process. The budget is 
approved annually by the Board. DTC's fees are cost-based plus a 
markup, as approved by the Board or management (pursuant to authority 
delegated by the Board), as applicable. This markup of ``low margin'' 
is applied to recover development costs and operating expenses, and to 
accumulate capital sufficient to meet regulatory and economic 
requirements.
    After evaluation of DTC's short- and long-term financial position 
in consideration of expected Participant activity, revenues, cost of 
funding, market volatility, and the financial markets more broadly, DTC 
has determined that it would be able to reduce the overall amount it 
collects from Participants through fees relating to its settlement 
services and still cover its costs and maintain the appropriate low 
margin above costs. In this regard, the proposed rule change, as 
modified by Amendment No. 1, would amend the Settlement Services 
section \12\ of the Fee Guide to reduce and/or consolidate fees, as 
described below.
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    \12\ See Fee Guide, supra note 6, at 19-21.
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    In addition, DTC proposes to (i) amend the Maintenance Fee \13\ and 
(ii) add a description of DTC's current policy regarding the issuance 
of fee rebates to Participants.
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    \13\ DTC has provided confidential info to the Commission in 
connection with this proposed rule change to support the proposed 
fee changes.
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Fee Revisions and Consolidations for Certain Settlement Services
Fee Reduction for Deliver Orders and Consolidation of Reclaim Fees With 
the Deliver Order Fees
    A Participant may submit an instruction (``Deliver Order'') to DTC 
to make a Delivery \14\ of Eligible Securities via book-entry to 
another Participant's account.\15\ DTC reduces the Deliverer's \16\ 
position and increases the Receiver's \17\ position without the need to 
move physical certificates. Deliveries can be made Delivery Versus 
Payment \18\ or as a Free Delivery,\19\ depending on the applicable 
Participant's delivery instructions provided in the Deliver Order.
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    \14\ Pursuant to Rule 1, the term Delivery, as used with respect 
to a Security held in the form of a Security Entitlement on the 
books of DTC, means debiting the Security from an Account of the 
Deliverer and crediting the Security to an Account of the Receiver. 
A Delivery may be a Delivery Versus Payment or a Free Delivery, or 
both collectively, as the context may require. See Rule 1, supra 
note 5.
    \15\ See Rule 9(B), supra note 5.
    \16\ Pursuant to Rule 1, the term ``Deliverer'', as used with 
respect to a Delivery of a Security, means the Person which Delivers 
the Security. See Rule 1, supra note 5.
    \17\ Pursuant to Rule 1, the term ``Receiver'', as used with 
respect to a Delivery of a Security, means the Person which receives 
the Security. See id.
    \18\ Pursuant to Rule 1, the term ``Delivery Versus Payment'' 
means a Delivery against a settlement debit to the Account of the 
Receiver, as provided in Rule 9(A) and Rule 9(B) and as specified in 
the Procedures. See Rule 1, supra note 5.
    \19\ Pursuant to Rule 1, the term ``Free Delivery'' means a 
Delivery free of any payment by the Receiver through the facilities 
of the Corporation, as provided in Rule 9(B) and as specified in the 
Procedures. See id.
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    A Participant is charged a fee, named in the Fee Guide as ``Day 
Deliver Order (excluding stock loans),'' (``Day Deliver Order Fee'') of 
45 cents for a Deliver Order, except the charge is 17 cents for Deliver 
Orders submitted by the Participant for processing in the night 
cycle.\20\ The latter fee, named the ``Night

[[Page 78899]]

Deliver Order'' fee \21\ (``Night Deliver Order Fee''), is lower than 
the former because it is designed to encourage earlier submission of 
transactions by Participants, which results in more efficient 
settlement processing by increasing the volume of transactions 
processed in the night-cycle, which, in turn, enhances intraday 
settlement processing.\22\
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    \20\ See Fee Guide, supra note 6, at 19. On the night before 
settlement day (``S-1'') DTC commences ``night cycle'' processing. 
During the night cycle, DTC operates a process (``Night Batch 
Process'') that utilizes a settlement processing algorithm capable 
of evaluating each Participant's transaction obligations, available 
positions, transaction priorities and risk management controls. 
Specifically, at approximately 8:30 p.m. on S-1, DTC subjects all 
transactions eligible for processing to the Night Batch Process. The 
Night Batch Process runs ``off-line'' (i.e., is not visible to 
Participants), allowing DTC to run multiple processing scenarios 
until the optimal processing scenario is identified. Once the 
optimal scenario is identified, the results are incorporated back 
into DTC's core processing environment on a transaction-by-
transaction basis prior to the start of daytime processing. 
Transactions that have satisfied DTC's risk controls will be staged 
for settlement. However, as was the case prior to this change, if a 
transaction cannot satisfy DTC's control functions initially, then 
it will recycle throughout the day, continuously attempting to 
satisfy the controls until approximately 3:10 p.m. for valued 
transactions and until 6:35 p.m. for free transactions. See 
Settlement Guide, supra note 11 at 5 and 68.
    \21\ See id.
    \22\ See Securities Exchange Act Release No. 84768 (December 10, 
2018), 83 FR 64401 (December 14, 2018) (File No. SR-DTC-2018-011).
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    The Receiver of the Delivery is charged 11 cents, regardless of 
time, per receive. This fee is named in the Fee Guide as ``Receive, 
regardless of time (excluding reclaims and stock loans and returns)'' 
\23\ (``Receive Fee''). The Participant may reclaim a Delivery that it 
receives, meaning it enters an instruction for the Delivered Security 
to be returned to the original Deliverer. The Deliverer and Receiver of 
a reclaim are each charged 26 cents, referred to in the Fee Guide under 
the name ``Reclaims'' (``Reclaim Fee'').
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    \23\ See Fee Guide, supra note 6, at 19.
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    Pursuant to the proposed rule change, as modified by Amendment No. 
1, DTC would reduce the Day Deliver Order Fee from 45 cents to 40 
cents. The proposed fee reflects an amount that would facilitate DTC's 
ability, as discussed above, to reduce the overall fees DTC collects 
from Participants relating to its settlement services and still cover 
its costs and maintain the appropriate low margin above costs.
    In addition, DTC would eliminate the Reclaim Fee and consolidate 
charges for reclaims into the Day Deliver Order Fee, Night Deliver 
Order Fee and Receive Fee, as applicable for the given reclaim 
activity. The fees as consolidated would replace the Reclaim Fee of 26 
cents that, as mentioned above, is currently charged to the Deliverer 
and Receiver of a reclaim. As such, a Participant submitting reclaim 
instructions would incur the proposed Day Deliver Order Fee of 40 
cents, except during the night cycle where it would incur the Night 
Deliver Order Fee of 17 cents. All receives relating to reclaims would 
cause the Receiver to be charged a Receive Fee of 11 cents per reclaim 
received. The proposed consolidation of the Reclaim Fee with the other 
fees relating to Deliver Orders and receives as described above, would 
promote consistency and transparency within the Fee Guide by causing 
Deliveries and receives to be charged for at one fee amount for each 
Delivery and one fee amount for each receive, regardless of whether the 
related Delivery was instructed as an original Deliver Order or as a 
reclaim.
    In light of the consolidation of the Reclaim Fee into the Day 
Deliver Order Fee, Night Deliver Order Fee and Receive Fee, as 
applicable for the given reclaim activity, the Fee Guide would be 
revised such that the three latter fees would be renamed to reflect the 
inclusion of reclaims and the Reclaim Fee would be removed.
    As a result of the above described proposed changes, the Fee Guide 
entries for the Day Deliver Order Fee, Night Deliver Order Fee and 
Receive Fee would be revised and the Reclaim Fee would be deleted, as 
follows (Bold, italicized text indicates additions, Bold, strikethrough 
text indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN07DE20.025

[[Page 78900]]

    For clarity regarding the changes relating to the consolidation of 
the Reclaim Fee into other fees as described above, the following chart 
compares the charges Participants incur for a given reclaim pursuant to 
the current Fee Guide and the charge that would be incurred pursuant to 
the proposed rule change, as modified by Amendment No. 1.

----------------------------------------------------------------------------------------------------------------
                                                                         Proposed fee under
            Reclaim               Current fee name     Current fee     which reclaim would be     Proposed fee
                                                          amount         charged (proposed)          amount
----------------------------------------------------------------------------------------------------------------
Daytime Reclaim Delivery         Reclaims.........  26 cents.........  Day deliver order       40 cents.
 Instruction.                                                           (including reclaims;
                                                                        excluding stock
                                                                        loans).
Night Delivery Reclaim           Reclaims.........  26 cents.........  Night deliver order     17 cents.
 Instruction.                                                           (including reclaims).
Reclaim Receive (Regardless of   Reclaims.........  26 cents.........  Receive, regardless of  11 cents.
 Time).                                                                 time (including
                                                                        reclaims; excluding
                                                                        stock loans and
                                                                        returns).
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    As a result of its review of pricing levels against costs of 
operation, DTC believes that the proposed fee changes would enable DTC 
to offset its cost and expense while generating a low margin.
Fee Reduction for Deliveries and Receives of Securities to and From CNS 
and Consolidation of Existing Fee for ACATS Deliveries and Receives 
With the Reduced Fee
    Another important use of DTC book-entry transfer services is the 
interface of DTC with its affiliate National Securities Clearing 
Corporation (``NSCC'') for the processing of trades that are cleared 
and settled in the NSCC Continuous Net Settlement (``CNS'') system and 
are processed as Free Deliveries at DTC.\24\ DTC also processes Free 
Deliveries as instructed by NSCC to DTC relating to NSCC's Automated 
Customer Account Transfer Service (``ACATS'').\25\
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    \24\ See Settlement Guide, supra note 11, at 15-17.
    \25\ See id. at 17.
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    A Participant is charged 16 cents for the Delivery of a Security to 
the NSCC CNS account at DTC (``CNS Account'') on the Participant's 
behalf.\26\ Likewise, the receiving Participant of a Security from the 
CNS Account is charged 16 cents for the Delivery of the Securities from 
the CNS Account to its account.\27\ This fee is named in the Fee Guide 
as ``Delivery to/from CNS.'' \28\
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    \26\ See Fee Guide, supra note 6, at 19.
    \27\ Id.
    \28\ Id.
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    Separately, a Participant is charged 12 cents if it is Delivering 
or Receiving a Delivery from ACATS.\29\ This fee is named in the Fee 
Guide as ``Delivery to/from CNS ACAT.'' This fee would be consolidated 
into a modified Delivery to/from CNS ACAT fee, as described below.
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    \29\ Id.
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    Specifically, pursuant to the proposed rule change, as modified by 
Amendment No. 1, DTC would reduce the Delivery to/from CNS fee from 16 
cents to 7 cents. In addition, the Delivery to/from CNS ACAT fee would 
be consolidated into the proposed reduced Delivery to/from CNS fee, and 
thus would reduce the charge for ACATS-related deliveries and receives 
from 12 cents to 7 cents. This proposed fee change reflects an amount 
that would facilitate DTC's ability, as discussed above, to reduce the 
overall fees DTC collects from Participants relating to its settlement 
services and still cover its costs and maintain the appropriate low 
margin above costs.
    As a result of the above described proposed changes, the text of 
the Fee Guide relating to these fees would be revised as follows (Bold, 
italicized text indicates additions, Bold, strikethrough text indicates 
deletions):
[GRAPHIC] [TIFF OMITTED] TN07DE20.026

    As a result of its review of pricing levels against costs of 
operation, DTC believes that these proposed fee amounts would enable 
DTC to offset its cost and expense while generating a low margin.
Participants Fund Maintenance Fee
    The Maintenance Fee was implemented in 2016 in order to (i) 
diversify DTC's revenue sources, mitigating its dependence on revenues 
driven by settlement volumes, and (ii) add a stable revenue source that 
would contribute to DTC's operating margin by offsetting increasing 
costs and expenses.\30\ The fee is charged to all Participants in 
proportion to the Participant's Actual Participants Fund Deposit, as 
described below.
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    \30\ Securities Exchange Act Release No. 78530 (August 10, 
2016), 81 FR 54639 (August 16, 2016) (SR-DTC-2016-006).
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    The Maintenance Fee is calculated monthly, in arrears, as the 
product of (A) 0.25 percent and (B) the average of the Participant's 
Actual Participants Fund Deposit as of the end of each day, for the 
month, multiplied by the number of days in that month and divided by 
360. However, by its terms, the fee is waived if the monthly rate of 
return on DTC's investment of the Participants Fund is less than 0.25 
percent for the month (``Waiver Provision'').
    The Waiver Provision was included for the benefit of Participants. 
DTC believed that if its monthly rate of return on the investment of 
the

[[Page 78901]]

Participants Fund was less than 0.25 percent, then Participants would 
likely be experiencing similarly low interest income on their deposits, 
including excess reserves, if applicable; in which case, DTC would 
waive the fee. Although this approach exposed DTC to the risk of not 
receiving revenue from the Maintenance Fee, DTC did not believe that 
such an exposure would be common, significant, or long-term.
Proposed Modification to the Maintenance Fee
    Due to the coronavirus global pandemic and overall reaction by the 
financial markets, the rate of return on DTC's investment of the 
Participants Fund has fallen below 0.25 percent, triggering the Waiver 
Provision. However, application of the Waiver Provision in this 
instance has proven to be longer and more significant than what DTC 
originally contemplated when drafting the provision, resulting in a 
drop in DTC's revenues. If unaddressed, DTC's revenue could continue to 
deteriorate and negatively impact DTC's long-term financial health.
    To address this issue, DTC is removing the Waiver Provision so that 
DTC will be able to generate revenue from the Maintenance Fee even if 
DTC's monthly rate of return on the investment of the Participants Fund 
is less than 0.25 percent. The ability to generate such revenue under 
such circumstances is important in helping DTC offset its costs and 
expenses in any economic environment. Additionally, the proposed change 
would help provide consistent pricing between DTC and its affiliate 
clearing agencies, NSCC and Fixed Income Clearing Corporation 
(``FICC''),\31\ as both NSCC and FICC have filed proposed rule changes 
concurrently with this filing that would result in the same calculation 
of their respective Maintenance Fee.\32\
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    \31\ The Depository Trust & Clearing Corporation is the parent 
company of DTC, NSCC, and FICC. DTCC operates on a shared services 
model for DTC, NSCC, and FICC. Most corporate functions are 
established and managed on an enterprise-wide basis pursuant to 
intercompany agreements under which it is generally DTCC that 
provides a relevant service to DTC, NSCC, or FICC.
    \32\ See NSCC File No. SR-NSCC-2020-018 and FICC File No. SR-
FICC-2020-014 available at https://www.dtcc.com/legal/sec-rule-filings.
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    To effectuate the proposed change described above, the Maintenance 
Fee entry in the Settlement Services section of the DTC Fee Guide \33\ 
would be updated to remove the Waiver Provision.
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    \33\ See Fee Guide, supra note 6 at 21.
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Rebate Policy
    DTC is also proposing to amend the Fee Guide to include a 
description of its current policy regarding the issuance of rebates to 
Participants. DTC views its practice of providing a rebate to its 
Participants as a corporate function, and not related to its operation 
as a self-regulatory organization. A DTC rebate is essentially a return 
of the revenue that DTC collects through the fees it charges 
Participants for its services (as set forth in the Fee Guide). Rebates 
are not related to the amounts Participants deposit with DTC as their 
Participants Fund Deposit. The determination to provide a rebate is 
made at the corporation-level, based on a number of factors and 
considerations, as described below, and is not a separate determination 
made for each individual Participant.
    Following the financial recession of 2008, DTC ceased providing 
such discounts in connection with the implementation of a financial 
strategy to strengthen its financial position and health. As a result 
of that strategy and improved financial markets, in 2019, DTC 
determined to reinstitute its practice of discounting Participants' 
invoices, in the form of a rebate, based on its financial performance. 
In connection with this decision, DTC is proposing to include a 
description of its current rebate practice in the Fee Guide. This 
proposed change would not change DTC's rebate practice but would 
provide Participants with transparency into this practice and the 
governance around rebates.
    First, the proposed language would describe that DTC may provide 
Participants with a rebate of excess net income, and would define 
excess net income as income of either DTC or income related to one 
business line of DTC after application of expenses, capitalization 
costs, and applicable regulatory requirements. The language would also 
state that a rebate is discretionary, and DTC is not obligated to 
provide a rebate.
    Second, the proposed language would state that a rebate would be 
approved by the Board. The proposed language would also state that, in 
determining if a rebate is appropriate, the Board would consider, one 
or more of the following, as appropriate: DTC's regulatory capital 
requirements,\34\ anticipated expenses, investment needs, anticipated 
future expenses with respect to improvement or maintenance of DTC's 
operations, cash balances, financial projections, and appropriate level 
of shareholders' equity.
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    \34\ DTC manages its general business risk by holding sufficient 
liquid net assets funded by equity to cover potential general 
business losses so it can continue operations and services as going 
concerns if those losses materialize, in compliance with the 
requirements of Rule 17Ad-22(e)(15). 17 CFR 240.17Ad-22(e)(15). DTC 
maintains a Clearing Agency Policy on Capital Requirements which 
defines the amount of capital it must maintain for this purpose and 
sets forth the manner in which this amount is calculated. See 
Securities Exchange Act Release No. 89361 (July 21, 2020), 85 FR 
45263 (July 27, 2020) (SR-DTC-2020-010) (amending original filing).
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    Third, the proposed language would state that, if it determined to 
issue a rebate, the Board would set a rebate period and a rebate 
payment date, both of which are used to determine which Participants 
are eligible for a rebate. The proposed language would state that 
Participants that maintain their membership during all or a portion of 
the rebate period and on the rebate payment date are eligible for a 
rebate.
    Finally, the proposed language would describe how rebates are 
applied to the invoices of eligible Participants. The proposed language 
would state that rebates are applied to all eligible Participants, on a 
pro-rata basis, based on such Participants' gross fees paid to DTC 
within the applicable rebate period, excluding pass-through fees and 
interest earned on Participants Fund Deposits. The proposed language 
would also state that rebates are applied to eligible Participants' 
invoices on the rebate payment date as either a reduction in fees or, 
if fees owed are lower than the allocated rebate amount, a payment of 
such difference. The proposed language would also note that rebate 
amounts may be adjusted for miscellaneous charges and discounts.
Participant Impact
    The proposed rule change, as modified by Amendment No. 1, is 
expected to increase DTC's annual revenue by approximately $12.7 
million.
    In general, DTC anticipates that the proposal would result in fee 
decreases for approximately 63% of impacted affiliated families of 
Participants and fee increases for approximately 37% of impacted 
affiliated families of Participants. Of the impacted affiliated 
families of Participants that may have their fees decrease, 25% of 
impacted affiliated families of Participants would have a decrease of 
less than $1,000, 49% of impacted affiliated families of Participants 
would have a decrease of between $1,000 and $100,000, and 26% of 
impacted affiliated families of Participants would have a decrease 
greater than $100,000.

[[Page 78902]]

Participant Outreach
    DTC has conducted ongoing outreach to each Participant in order to 
provide them with notice of the proposed changes and the anticipated 
impact for the Participant. As of the date of this filing, no written 
comments relating to the proposed changes have been received in 
response to this outreach. The Commission will be notified of any 
written comments received.
Implementation Timeframe
    DTC would implement this proposal on January 1, 2021. As proposed, 
a legend would be added to the Fee Structure stating there are changes 
that have become effective upon filing with the Commission but have not 
yet been implemented. The proposed legend also would include a date on 
which such changes would be implemented and the file number of this 
proposal, and state that, once this proposal is implemented, the legend 
would automatically be removed from the Fee Structure.
2. Statutory Basis
    DTC believes this proposal is consistent with the requirements of 
the Act, and the rules and regulations thereunder applicable to a 
registered clearing agency. Specifically, DTC believes the proposed 
changes to modify certain settlement service fees and the Maintenance 
Fee, as described above, are consistent with Section 17A(b)(3)(D) of 
the Act,\35\ for the reasons described below. DTC believes that the 
proposed change to include a description of DTC's current policy 
regarding the issuance of rebates to Participants is consistent with 
Rule 17Ad-22(e)(23)(ii),\36\ as promulgated under the Act, for the 
reasons described below.
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    \35\ 15 U.S.C. 78q-1(b)(3)(D).
    \36\ 17 CFR.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(D) of the Act requires, inter alia, that the 
Rules provide for the equitable allocation of reasonable dues, fees, 
and other charges among participants.\37\ For the reasons set forth 
below, DTC believes that each of the proposed rule changes, as modified 
by Amendment No. 1, described above would provide for the equitable 
allocation of reasonable dues, fees, and other charges among 
Participants.
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    \37\ 15 U.S.C. 78q-1(b)(3)(D).
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    DTC believes the proposed rule change to (i) reduce the Day Deliver 
Order Fee and consolidate the Reclaim Fee into the Day Deliver Order 
Fee, Night Deliver Order Fee and Receive Fee, as applicable, and (ii) 
reduce the Delivery to/from CNS fee and consolidate the CNS ACAT-
related fee into the Delivery to/from CNS fee as described above, would 
provide for the equitable allocation of reasonable fees. Because the 
proposed change would not alter how these fees are charged to 
Participants, DTC believes that the fees would continue to be equitably 
allocated because they would continue to be charged based on volume of 
transaction activity for a given Participant. More specifically, as 
mentioned above, the Day Deliver Order Fee and the Night Deliver Order 
Fee are charged based on a Participant's volume of Deliveries during 
the applicable timeframes, as described above. As such, and as is 
currently the case, Participants that provide a greater number of 
Delivery instructions, or receive a greater number of Deliveries, would 
generally be subject to a higher overall charge for Deliveries and/or 
Receives, as applicable, based on volume of related transactions. 
Conversely, Participants that make fewer Deliveries and or receive few 
Deliveries would generally be a smaller overall charge for Deliveries 
and receives based on volume.
    Similarly, DTC believes that the Day Deliver Order Fee, Night 
Deliver Order Fee, Receive Fee, and the Delivery to/from CNS fee would 
continue to be reasonable fees under the proposed change described 
above. As described above, the fee amounts as proposed reflect an 
amount that would facilitate DTC's ability, as discussed above, to 
reduce the overall fees DTC collects from Participants relating to its 
settlement services and still cover its costs and maintain an 
appropriate low margin above costs. For this reason, DTC believes that 
the proposed rule change to (i) reduce the Day Deliver Order Fee and 
consolidate the Reclaim Fee into the Day Deliver Order Fee, Night 
Deliver Order Fee and Receive Fee as applicable, and (ii) reduce the 
Delivery to/from CNS fee and consolidate the ACATS-related fee into the 
Delivery to/from CNS fee, as described above, would be reasonable fees 
charged by DTC for these services and is consistent with Section 
17A(b)(3)(D) of the Act.\38\
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    \38\ Id.
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    DTC believes that the proposed change to the Maintenance Fee is 
consistent with this provision of the Act.\39\
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    \39\ Id.
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    As described above, the proposal would modify the Maintenance Fee 
to remove the Waiver Provision. Because the proposed change would not 
alter how the Maintenance Fee is currently allocated (i.e., charged) to 
Participants, DTC believes the fee would continue to be equitably 
allocated. More specifically, as mentioned above, the Maintenance Fee 
is and would continue to be charged to all Participants in proportion 
to the Participant's average monthly Actual Participants Fund Deposits. 
As such, and as is currently the case, Participants that make greater 
use of DTC's services would generally be subject to a larger 
Maintenance Fee because such Participants would typically be required 
to maintain larger Participants Fund deposits pursuant to the 
Rules.\40\ Conversely, Participants that use DTC's services less would 
generally be subject to a smaller Maintenance Fee because such 
Participants would typically be required to maintain smaller 
Participants Fund deposits pursuant to the Rules.\41\ The described 
change would not adjust that allocation. For this reason, DTC believes 
the Maintenance Fee would continue to be equitably allocated among 
Participants.
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    \40\ See Rule 4, Rules, supra note 5.
    \41\ Id.
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    Similarly, DTC believes that the Maintenance Fee would continue to 
be a reasonable fee under the proposed change described above. Although 
removal of the Waiver Provision means that Participants could be 
assessed a Maintenance Fee at times when they may not otherwise have 
been assessed the fee, the removal of the provision would enable DTC to 
collect needed revenue from the fee even in a difficult economic 
environment. Additionally, the proposed change would help establish 
consistent pricing between DTC and its affiliates, NSCC and FICC, 
regarding each of their respective Maintenance Fees, as concurrent 
proposals by NSCC and FICC would result in the same calculation.\42\ 
For this reason, DTC believes the Maintenance Fee would continue to be 
reasonable.
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    \42\ See supra note 32.
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    Based on the forgoing, DTC believes the proposed rule change 
relating to the modification of certain settlement service fees and the 
Maintenance Fee, as described above, is consistent with Section 
17A(b)(3)(D).\43\
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    \43\ 15 U.S.C. 78q-1(b)(3)(D).
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    Rule 17Ad-22(e)(23)(ii) under the Act requires that DTC establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide sufficient information to enable 
participants to identify and evaluate the risks, fees, and other 
material costs they incur by participating in the covered clearing 
agency.\44\ The proposed change would add to the Fee Guide a

[[Page 78903]]

description of DTC's current rebate practice, which, when applicable, 
results in a reduction to the amount of fees a Participant owes to DTC. 
By updating the Fee Guide with a transparent description of DTC's 
rebate practice, the proposed change would provide Participants with 
sufficient information to evaluate the fees they may incur by 
participating in DTC. Therefore, DTC believes the proposed change would 
be consistent with the requirements of Rule 17Ad-22(e)(23)(ii).\45\
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    \44\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \45\ Id.
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(B) Clearing Agency's Statement on Burden on Competition Fee Revisions 
and Consolidations for Certain Settlement Services

    DTC believes that the proposed rule change to reduce the Day 
Deliver Order Fees and the Delivery to/from CNS fee may promote 
competition among its Participants because the effect of the 
consolidations, as proposed, would result in a reduction of the 
applicable fees, as described above.
    The consolidation of fees, as described above, except for the 
consolidation of the Reclaim Fee into the Day Deliver order fee for 
applicable activity (reclaims that do not occur in the night cycle), 
may promote competition among Participants because the effect of the 
consolidations, as proposed, would result in a reduction of the 
applicable fees, as described above.
    The proposed change to consolidate the Reclaim Fee into the Day 
Deliver Order Fee for applicable activity (reclaims that do not occur 
in the night cycle) may present a competitive burden among Participants 
because this change could increase the fees of those Participants that 
instruct a reclaim in that a Reclaim that would be charged at the 
amount of 26 cents under the current Fee Schedule would be charged at 
40 cents per reclaim under the proposal. DTC does not believe the 
proposed change in and of itself would mean that the burden on 
competition among Participants is significant. This is because even 
though the amount of the fee increase may seem significant, DTC 
believes the increase in fees would similarly affect all Participants 
that utilize DTC's services and be reflective of each Participant's 
individual activity at DTC, and therefore the burden on competition 
would not be significant. Regardless of whether the burden on 
competition is deemed significant, DTC believes any burden that is 
created by the proposed change would be necessary and appropriate in 
furtherance of the purposes of the Act, as permitted by Section 
17A(b)(3)(I) of the Act.\46\
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    \46\ 15 U.S.C. 78q-1(b)(3)(I).
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    The burden would be necessary because a Reclaim is a functional 
equivalent of a Deliver Order except that it represents a Delivery to 
return Securities rather than representing the original Delivery of 
Securities, and therefore should be charged at the same rate as a 
Deliver Order. The burden would be appropriate because a reclaim is the 
functional equivalent of a Delivery and DTC believes a reclaim should 
now be priced the same as other Deliveries given the capability of a 
Receiver via the Receiver Authorized Delivery (``RAD'') functionality 
to return Deliveries prior to processing and a reduced need for 
Receivers to rely on reclaims to return Deliveries to its Account, as 
described below. In this regard, RAD enables a Receiver of valued 
deliveries of securities to manage which deliveries to accept, or to 
reject, prior to further processing by DTC.\47\ Specifically, whereas 
prior to a series of earlier rule changes, transactions below an 
established dollar value could bypass the RAD control, today all valued 
transactions are subject to RAD, whereby a Participant can prevent any 
such Deliveries to its account.\48\ Therefore, a Receiver is able to 
approve all Deliveries to its account through RAD and there is less 
likelihood that a Participant would need to rely on reclaims to remedy 
an errant instruction by a counterparty to make a Delivery to its 
account.
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    \47\ See Settlement Guide, supra note 11 at 5 and 54.
    \48\ See Securities Exchange Act Release Nos. 72576 (July 9, 
2014), 79 FR 41355 (July 15, 2014) (SR-DTC-2014-06); and 73804 
(December 10, 2014), 79 FR 74796 (December 16, 2014) (SR-DTC-2014-
010).
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Maintenance Fee
    DTC does not believe that the proposed change to the Maintenance 
Fee would have an impact on competition among its Participants. As 
described above, the Maintenance Fee is charged ratably based on 
Participants' use of DTC's services, as reflected in Participants' 
Actual Participant Fund Deposits. Thus, the fee is designed to be 
reflective of each Participant's individual activity at DTC. 
Nevertheless, if removal of the Waiver Position, and the resulting 
imposition of the Maintenance Fee at a time when a Participant would 
not have otherwise been assessed the fee, would create a competitive 
burden for a Participant, DTC believes such a burden would not be 
significant, given that the amount assessed would be the same but for 
application of the Waiver Provision. Moreover, DTC believes that any 
such burden would be necessary and appropriate in furtherance of the 
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the 
Act.\49\
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    \49\ 15 U.S.C. 78q-1(b)(3)(I).
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    The burden would be necessary because it is essential that DTC 
offset some of its costs and expenses with stable revenue generated 
from the Maintenance Fee, regardless of the economic environment. As 
described above, not doing so could adversely affect DTC's financial 
health. The burden would be appropriate because, as described above, 
the Maintenance Fee is calculated, using a balanced formula, to assess 
a fee that is reflective of the Participant's use of DTC's services, so 
that DTC can defray some of its costs and expenses in providing those 
services.
Rebate Policy
    DTC does not believe the proposed change to describe its current 
rebate practice would have any impact, or impose any burden, on 
competition among its Participants. As described above, this proposed 
rule change, as modified by Amendment No. 1, would include a 
description of DTC's current rebate practice in the Fee Guide. As 
described in the proposed language, under its current practice, rebates 
are allocated to eligible Participants pro-rata based on such 
Participants' gross fees paid to DTC within the applicable rebate 
period. Therefore, the current practice is applied equally to all 
eligible Participants. The proposed change to provide Participants with 
transparency into this practice would not cause any increase or 
decrease in the rebates Participants may receive. Therefore, this 
proposed rule change, as modified by Amendment No. 1, would not have 
any impact, or impose any burden, on competition among Participants.

(C) Clearing Agency's Statement on Comments on the Proposed Rule 
Change, as Modified by Amendment No. 1, Received From Members, 
Participants, or Others

    Written comments relating to this proposed rule change as modified 
by Amendment No. 1, have not been solicited or received. DTC will 
notify the Commission of any written comments received by DTC.

[[Page 78904]]

III. Date of Effectiveness of the Proposed Rule Change, as Modified by 
Amendment No. 1, and Timing for Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \50\ of the Act and paragraph (f) \51\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, as modified by Amendment No. 1, 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.
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    \50\ 15 U.S.C. 78s(b)(3)(A).
    \51\ 17 CFR 240.19b-4(f).
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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, as modified by Amendment No. 1, 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-2020-014 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-DTC-2020-014. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change, as modified by 
Amendment No. 1, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as modified by 
Amendment No. 1, 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 website 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 
website (http://dtcc.com/legal/sec-rule-filings.aspx). All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2020-014 and should be submitted on 
or before December 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26787 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P