Document ID: SEC-2013-1490-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2013-08-20T04:00Z

[Federal Register Volume 78, Number 161 (Tuesday, August 20, 2013)]
[Notices]
[Pages 51254-51255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20202]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70198; File No. SR-DTC-2013-09]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate Special Procedures for Securities Offered Pursuant to 
Regulation S, Category 3, Under the Securities Act of 1933

August 14, 2013.
    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 July 31, 2013, The Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I, II and III below, which Items have been 
prepared primarily by DTC. DTC filed the rule change pursuant to 
Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(4) \4\ thereunder, 
so that the proposal was effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the rule 
change from interested parties.
---------------------------------------------------------------------------

    \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)(4).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to eliminate special 
procedures of DTC for securities offered pursuant to Regulation S \5\ 
(``Reg S''), Category 3, under the Securities Act of 1933 (``Securities 
Act'').\6\
---------------------------------------------------------------------------

    \5\ 17 CFR 230.901-230.905 and Preliminary Notes.
    \6\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

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

    In its filing with the Commission, DTC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

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

    (i) DTC's Policy Statement on the Eligibility of Foreign Securities 
(the ``Policy'') sets forth the criteria and procedures for making the 
securities of foreign issuers (``Foreign Securities'') eligible for 
deposit and book-entry transfer through the facilities of DTC.\7\ 
Foreign Securities eligible for book-entry services include those 
offered and sold without registration under the Securities Act 
\8\pursuant to Regulation S (``Reg S Securities'').\9\ This includes 
Category 1 securities, Category 2 securities, and Category 3 securities 
as defined therein (``Category 1, 2, and 3 Securities'', 
respectively).\10\ Category 3 of the primary offering safe harbor of 
Regulation S includes the equity securities of non-reporting foreign 
issuers with substantial U.S. market interest in the subject 
securities. In addition to an offshore transaction requirement and 
prohibition on directed selling efforts, further requirements might 
have to be met to qualify for the first safe harbor. The applicable 
requirements depend on the extent to which there is a nexus with the 
United States, with more stringent requirements applying the greater 
the need is for protection of U.S. investors. The spectrum ranges from 
Category 1, where the likelihood of the securities flowing back into 
the United States is least, to Category 3, where that likelihood is 
greatest.\11\ This rule filing relates to a change in procedures for 
Category 3 Securities.
---------------------------------------------------------------------------

    \7\ For additional information please see the Policy as set 
forth in the DTC Rules. See also SEC Release No. 34-56277 (August 
17, 2007), 72 FR 48709 (August 24, 2007) [File No. DR-DTC-2007-04] 
for the rule filing implementing the Policy.
    \8\ 15 U.S.C. 77a et seq.
    \9\ Regulation S provides an exemption from the Section 5 
registration requirements of the Securities Act of 1933, as amended, 
for offerings made outside the United States by both U.S. and 
foreign issuers. A securities offering, whether private or public, 
made by an issuer outside of the United States in reliance on safe 
harbors provided under Regulation S need not be registered under the 
Securities Act. See 17 CFR 230.901-230.905 and Preliminary Notes.
    \10\ Category 1 of the primary offering safe harbor of Reg S 
includes the securities of foreign issuers for which there is no 
substantial U.S. market, securities being offered by foreign (or 
domestic) issuers in overseas directed offerings, securities of 
foreign governments and securities being offered by foreign issuers 
pursuant to employee benefit plans. Category 2 of the primary 
offering safe harbor of Reg S includes the equity securities of 
reporting foreign issuers, the debt securities of foreign (or 
domestic) reporting issuers, and the debt securities of nonreporting 
foreign issuers even if there is substantial U.S. market interest in 
the securities.
    \11\ See 17 CFR 230.903.
---------------------------------------------------------------------------

    Historically, at the request of issuers in consideration of their 
own requirements for compliance with applicable law, Category 3 
Securities held at DTC have been more tightly controlled than the other 
Categories. DTC accordingly required additional documentation from 
issuers for chills on deliveries of Category 3 Securities among 
Participants for a limited period in connection with the underwriting 
distribution of those securities. For the reasons described below, DTC 
hereby proposes to eliminate these additional requirements and the 
related chills.
    Pursuant to the Policy noted above, Issuers and Participants are 
responsible to comply with the Securities Act and the rules and 
regulations of the Commission thereunder in any transaction in Foreign 
Securities through the facilities of DTC. Additionally, prior to 
securities being made eligible at DTC, issuers are required to deliver 
a Letter of Representations (``LOR'') to DTC which reflects the 
issuer's agreement to comply with the requirements set forth in DTC's 
Operational Arrangements (the ``OA'') with respect to securities it has 
issued that are held at DTC.\12\ With respect to Reg S Securities, the 
LOR also includes a ``Reg S Rider'' with representations of the Issuer 
that, at the time of initial issuance, the securities were subject to 
applicable transfer restrictions but were eligible for transfer under 
Regulation

[[Page 51255]]

S.\13\ In addition to the above, the Reg S Rider includes a further 
rider for Category 3 Securities (the ``Category 3 Rider''). The 
Category 3 Rider reflects the issuer's acknowledgement that the subject 
securities will be subject to a ``Deliver Order Chill'' \14\ until DTC 
receives a notice from the issuer or agent that the chill should be 
removed (except that the chill may be temporarily lifted for certain 
transfers relating to depositary banks of certain non-U.S. clearing 
entities).\15\
---------------------------------------------------------------------------

    \12\ The Operational Arrangements set forth the criteria for 
eligibility of securities for DTC services. See www.dtcc.com for a 
copy of the OA.
    \13\ Pursuant to its Rules & Procedures (including the OA), DTC 
does not in any way undertake, or have any responsibility, to 
monitor or ascertain the compliance of any transactions in the 
securities with any of the provisions of: (i) Rule 144A; (ii) of 
other exemptions from registration under the Securities Act or any 
other state or federal securities laws; or (iii) of offering 
documents. The Reg S Rider provides for the issuer's acknowledgement 
of DTC's role in this regard.
    \14\ A chill imposed by DTC automatically prevents processing of 
certain transactions among Participants.
    \15\ Specifically, the chill does not encompass deliveries via 
DTC's Deposit/Withdrawal at Custodian (DWAC) system in Participant 
accounts maintained by banks that act as depositaries for 
Clearstream S.A. and Euroclear.
---------------------------------------------------------------------------

    The Category 3 Rider is a redundant statement of issuer's 
obligations under the applicable securities laws and DTC's Rules & 
Procedures and is generally no longer used efficiently or effectively 
by Issuers. Further, DTC is not responsible for issuer and Participant 
compliance with Reg S and is unable to determine whether the Category 3 
chill is properly imposed or lifted. Also, the existence of a chill 
relating to the Category 3 Rider may preclude timely deliveries among 
Participants. For these reasons, DTC proposes to delete the Category 3 
Rider to the Reg S LOR and to eliminate Category 3 Deliver Order 
Chills. As a conforming change to the OA, DTC will delete any reference 
to the Category 3 Reg S Rider.
    (ii) The proposed rule change is consistent with the requirements 
of Section 17A(b)(3)(F) \16\ of the Securities Exchange Act of 1934, as 
amended (the ``Act''), and the rules and regulations thereunder 
applicable to DTC as it is designed to promote the prompt and accurate 
clearance and settlement of securities transactions. The rule filing 
will harmonize DTC's processes across Categories of Reg S Securities, 
reduce costs and operational burden associated with the imposition and 
lifting of Deliver Order Chills by DTC, and promote efficiency with 
respect to deliveries of affected securities, as applicable.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

(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 since it relates solely to 
the elimination of a redundant procedure, which may create a processing 
burden for DTC, Participants, and issuers.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission of any written 
comments received by DTC.

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

    The foregoing rule change will become effective pursuant to Section 
19(b)(3)(A) \17\ of the Act and paragraph (f)(4) of Rule 19b-4 \18\ 
thereunder on a date to be announced by DTC via Important Notice. 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

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-2013-09 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-2013-09. 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 
10:00 a.m. and 3:00 p.m. Copies of such filings also will be available 
for inspection and copying at the principal office of DTC. 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-2013-09 
and should be submitted on or before September 10, 2013.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2013-20202 Filed 8-19-13; 8:45 am]
BILLING CODE 8011-01-P