Document ID: SEC-2020-0204-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2020-02-18T05:00Z

[Federal Register Volume 85, Number 32 (Tuesday, February 18, 2020)]
[Notices]
[Pages 8918-8921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03087]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88157; File No. SR-DTC-2020-003]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Transition the Application Used for Participant Access to the 
Imaging Function Relating to Deposited Certificates From a Non-Web-
Based Application to a Web-Based Application

February 11, 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 January 31, 2020, 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 the clearing agency. DTC filed the proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ would amend DTC's Procedures \6\ set 
forth in the Deposits Guide and the Custody Guide to provide for an 
update of DTC's imaging function (``Imaging Function'') relating to 
Securities certificates deposited by Participants at DTC, through the 
Deposits service and Custody service, to transition the application 
used for Participant access to the Imaging Function from a non-web-
based application, referred to as the Imaging Fax and Email System 
(``IFE''), available on DTC's Participant Terminal System (``PTS'') and 
Participant Browser Service (``PBS''),\7\ to a web-based application 
accessible through PBS, to be named Image Viewer, as discussed 
below.\8\ The proposed rule change to use Image Viewer on PBS as a 
replacement of IFE would (i) facilitate the modernization of the method 
of making certificate images available to Participants and (ii) make 
ministerial and clarifying changes to the text of Procedures set forth 
in the Deposits Guide and Custody Guide, as discussed below. In 
addition, DTC would amend the Guide to the DTC Fee Schedule (``Fee 
Guide'') \9\ to conform the description of a fee relating to the 
Imaging Function to reflect the proposed changes to the Imaging 
Function, as described below.
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    \5\ Capitalized terms not otherwise defined in this rule filing 
are defined as 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 Deposits Service 
Guide (``Deposits Guide''), available at http://www.dtcc.com/~/
media/Files/Downloads/legal/service-guides/Deposits.pdf and the 
Custody Service Guide (``Custody Guide''), available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Custody.pdf.
    \6\ Pursuant to the Rules, the term ``Procedures'' means the 
Procedures, service guides, and regulations of DTC adopted pursuant 
to Rule 27, as amended from time to time. See Rule 1, supra note 5. 
The Procedures include, but are not limited to, the Deposits Guide 
and the Custody Guide.
    \7\ PTS is an interface accessible through a designated terminal 
that allows for Participant input and inquiry into DTC's services. 
PBS is an interface that allows Participants to make input and 
inquiry using functionality compatible with internet browser 
technology.
    \8\ DTC currently uses an application supported by a vendor for 
its imaging application. This application is reaching end-of-life 
because the vendor has notified DTC that it is terminating its 
support of the application, prompting DTC to replace it with a new 
application and providing an opportunity to modernize image viewing 
capabilities. Image Viewer, the application that DTC would implement 
for the imaging function pursuant to the proposed rule change, has 
been developed by DTC and would be supported by DTC.
    \9\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

[[Page 8919]]

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend DTC's existing Procedures set 
forth in the Deposits Guide and the Custody Guide to provide for an 
update of the Imaging Function, to transition the application used for 
Participant access to the Imaging Function from an application referred 
to as the IFE, available on PTS and PBS, to a web-based application 
accessible through PBS, to be named Image Viewer, as discussed below. 
The proposed rule change to use Image Viewer on PBS as a replacement of 
IFE would (i) facilitate the modernization of the method of making 
certificate images available to Participants and (ii) make ministerial 
and clarifying changes to text of Procedures set forth in the Deposits 
Guide and Custody Guide, as discussed below. In addition, DTC would 
amend the Fee Guide to conform the description of a fee relating to the 
Imaging Function to reflect the proposed changes to the Imaging 
Function, as described below.
Deposit of Security Certificates With DTC
    DTC performs various services for Participants to promote the 
prompt and accurate clearance and settlement of Securities, including 
maintaining Accounts that list a Participant's Securities holdings at 
DTC and allowing Participants to present Securities to be made eligible 
for DTC's depository and book-entry services. If a Security is accepted 
by DTC as meeting DTC's eligibility requirements for services and is 
Deposited with DTC for credit to the Securities Account of a 
Participant, it becomes an ``Eligible Security.'' \10\ Other issues of 
Securities may be added through corporate actions with respect to 
Eligible Securities, including events such as name changes, mergers and 
spinoffs. Prior to processing a corporate action, DTC reviews the 
subject Securities for continuing eligibility.\11\ Thereafter, 
Participants may Deposit shares of an Eligible Security into their 
respective DTC Accounts.\12\
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    \10\ See Rule 5, supra note 5; DTC Operational Arrangements 
(Necessary for Securities to Become and Remain Eligible for DTC 
Services) (``Operational Arrangements''), Section 1, available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/issue-eligibility/
eligibility/operational-arrangements.pdf.
    \11\ See Operational Arrangements, Section I, supra note 10.
    \12\ Rule 6, supra note 5.
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    Security certificates for Eligible Securities are eligible for 
Deposit at DTC when they are delivered to DTC in accordance with the 
Rules and Procedures and pursuant to Article 8 (``Article 8'') of the 
New York Uniform Commercial Code (``NYUCC'').\13\ Under Article 8, a 
registered owner may transfer a Securities certificate, and the 
Securities the certificate represents, to a ``purchaser'' (in this 
case, DTC) by means of indorsement and Delivery.\14\ DTC's Rules and 
Procedures require that the indorsement be made in favor of DTC's 
nominee, Cede & Co, which is the holder of record of Securities 
eligible for DTC's book-entry services.\15\ Having thereby ``acquired'' 
the indorsed Security certificate as the purchaser, DTC comes into 
possession of the rights that the registered owner of the Security 
would have.\16\ Ordinarily, under the DTC Rules and Procedures, the 
indorsed certificate is presented to the issuer or transfer agent for 
registration in the name of Cede & Co., so that, in addition to 
physical possession of the negotiable certificate, Cede & Co. is 
reflected as the registered holder on the books and records of the 
issuer maintained by its transfer agent.\17\
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    \13\ NYUCC 8-101-8-602.
    \14\ NYUCC 8-301, 8-304, 8-102 and Official Comment 11 thereto.
    \15\ See Rule 6, supra note 5.
    \16\ NYUCC 8-302.
    \17\ See Deposits Guide, supra note 5 at 13.
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    Separately, the Custody service enables Participants that hold (i) 
Securities that (A) are not presently eligible for book-entry services 
at DTC and/or (B) would otherwise be eligible for DTC book-entry 
services but are not registered in the name of DTC's nominee, Cede & 
Co., and/or (ii) certain assets that are not Securities (``Non-Security 
Assets''), to deposit those Securities and/or Non-Security Assets, as 
applicable, with DTC for safe-keeping, in accordance with requirements 
set forth in the Custody Guide.\18\ Certificates for Securities and 
Non-Security Assets deposited through the Custody service are 
maintained in DTC's secure vault in a Participant's name or a 
Participant's customer's name (i.e., they are not transferred into 
DTC's nominee name, Cede & Co).\19\ In addition, once a Security is 
deposited into the Custody service, DTC may perform limited depository 
services relating to the Security including physical processing for the 
Security on a Participant's behalf, such as facilitating the transfer 
of Security Certificates, and providing services available through the 
Custody Reorganization Service.\20\
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    \18\ See Custody Guide for the types of Securities and Non-
Security Assets eligible for deposit to the Custody Service, supra 
note 5, at 5, 12.
    \19\ See Custody Guide, supra note 5 at 4.
    \20\ See Custody Guide, supra note 5, at 14-17 (providing 
Procedures for the Custody Reorganization Service). The limited 
depository services provided by DTC as described above relate only 
to securities processing functions and do not apply to Non-Security 
Assets.
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Imaging Function
    DTC scans certificates that are deposited through the Deposits 
service or the Custody service to create electronic images that are 
made available to a Participant via email or facsimile per a request 
submitted by a Participant through IFE.\21\ In order to be able to 
store or forward images, a Participant must access IFE, where it can 
request that an image be faxed or emailed to up to six recipients. Once 
received, an image can be converted into a compatible format, such as 
.pdf, before it can be stored on the recipient's own system or re-
forwarded.
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    \21\ See Deposits Guide, supra note 5 at 21; See Custody Guide 
supra note 5 at 4-5.
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Proposed Replacement of IFE With Image Viewer
    As mentioned above, IFE is reaching end-of-life because the vendor 
that supports it has notified DTC that it is terminating its support of 
the application, prompting DTC to replace it with a new application 
that would modernize image viewing capabilities. Image Viewer, the 
application that DTC would implement for the imaging function pursuant 
to the proposed rule change, has been developed by DTC and would be 
supported by DTC.
    DTC believes that migrating the Imaging function from IFE, which is 
not web-based, to the web-based Image Viewer, would provide 
Participants with a method to obtain electronic images of their 
certificates that is more compatible with modern systems used by its 
Participants. Pursuant to the proposed rule change, Image Viewer would 
allow Participants to view, download and save images of certificates 
using the new web-based application Image Viewer. Through the new Image 
Viewer, images would be transmitted in a format that is readily 
accessible through most modern systems and which may be stored or 
viewed on the Participant's own systems.
    As indicated above, the Image Viewer would only be available via 
PBS. DTC does not believe this will materially impact Participants' 
access to the service as all Participants that previously accessed IFE 
through PTS have connectivity to PBS.

[[Page 8920]]

    DTC believes that the capability to distribute facsimile copies of 
images through IFE has become obsolete as Participants request that 
images be delivered via email nearly all the time.\22\ In this regard, 
pursuant to the proposed rule change, the option to choose facsimile 
distribution would be eliminated.
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    \22\ During the 12-month period ending November 2019, DTC 
received a total of approximately 29,000 IFE requests for images, 
with only 54 (less than .002 percent) of those requests using 
facsimile as the method of distribution. Although the option to 
choose facsimile distribution of an image by DTC would not be 
available upon implementation of the proposed rule change, every 
Participant has access to PBS and would be able to use Image Viewer 
upon implementation of the proposed change to retrieve an image. The 
image would be available to the Participant in a format that could 
be readily used by the Participant to re-transmit the image via 
facsimile if the Participant so chooses.
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Proposed Rule Change
    Pursuant to the proposed rule change DTC would make the following 
changes to the text of the Deposits Guide:
    1. DTC would delete all references to IFE and its functionality, 
including related methods of distribution of images, throughout the 
Deposits Guide.
    2. DTC would add a new section titled ``Image Viewer'' that 
describes the functionality for the application as described above, 
including that a Participant may view, download and save imaged copies 
of certificates via a web-based Image Viewer, which can be accessed 
from the following PBS functions: \23\
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    \23\ These functions are currently available and are listed in 
the Deposits Guide for use by Participants for retrieval of 
certificate images through IFE. Pursuant to the proposed rule 
change, these functions would instead be used to access Image Viewer 
functionality.

     Deposit Automation \24\--for regular, bearer \25\/
nontransferable,\26\ and reorg deposits; \27\
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    \24\ Deposit Automation is a PBS function that allows a 
Participant to prepare a deposit through the Deposit Automation 
System and generate a deposit ticket to be sent to DTC along with 
the physical Security certificates. See Deposits Guide, supra note 5 
at 7 and 12.
    \25\ ``Bearer deposit'' refers to the deposit of a bearer 
Security. A bearer Security is a Security that is not registered 
with the issuer in the name of the owner and that is negotiable 
without endorsement and transferred by delivery. See Deposits Guide, 
supra note 5 at 10.
    \26\ Non-transferable Securities are Securities for which 
transfer services for a Security, typically through the registration 
of the Security on books maintained by a transfer agent, are not 
available. See Securities Exchange Act Release No. 86897 (September 
6, 2019), 84 FR 48187 (September 12, 2019). See Deposits Guide, 
supra note 5 at 34-35 for Deposit Procedures relating to non-
transferable Securities.
    \27\ Reorg Deposits refers to the function that allows 
Participants to deposit an Eligible Security that is undergoing or 
has undergone a mandatory reorganization, as well as full calls and 
partial calls. See Deposits Guide, supra note 5 at 25.
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     Branch Inquiry \28\--for branch deposits;
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    \28\ ``Branch inquiry'' allows a Participant to view the status 
of a Branch Deposit. See Deposits Guide, supra note 5 at 12. A 
Branch Deposit refers to a deposit made through the Branch Deposit 
service where Participant's branch office receives physical 
certificates from their customers and enter details of the 
certificates into their internal system. See Deposits Guide, supra 
note 5 at 11. The branch office of the Participant then transmits 
the certificate details to its main office and ships the Securities 
to DTC. See id.
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     Restricted Deposit Service \29\--for deposits of 
certificates bearing a restricted legend;
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    \29\ See Deposits Guide, supra note 5 at 27-30. DTC's Restricted 
Deposit Service (``RDS'') allows a Participant to deposit restricted 
securities into a Participant's segregated account within DTC's 
Custody Service until the applicable restriction has been lifted and 
the full or partial sale of the securities is complete. See 
Securities Exchange Act Release No. 34-41891 (September 20, 1999), 
64 FR 52115 (September 27, 1999). Securities credited to this 
account will not be registered in the name of Cede & Co. and 
therefore will not be available for book-entry transfer. See id. In 
addition, RDS functionality allows the processing of a transfer of 
all or a portion of the securities once the restriction is lifted, 
and the registration of the unrestricted securities (or portion 
thereof) in the name of Cede & Co. See id.
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     Deposit Inquiry--for deposits still in transfer as of 
the close of business the previous business day; \30\ and
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    \30\ The ``Deposit Inquiry'' function allows a Participant to 
receive a report that tracks the Participant's deposit activity. See 
Deposits Guide, supra note 5 at 37.
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     Securities Transfer Legal Deposits--for legal 
deposits.\31\
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    \31\ A legal deposit consists of a Security registered in the 
name of the holder (i.e., not a bearer security) and the legal 
documentation required for the transfer registration of that 
Security into the name of DTC's nominee, Cede & Co. See Deposits 
Guide, supra note 5 at 16.

    3. DTC would revise individual references to imaging functionality 
included in tables relating to PTS/PBS functions for the Branch 
Deposits service and RDS to reflect the change that the Imaging 
Function would be accessible via Image Viewer instead of IFE, as 
described herein.
    Pursuant to the proposed rule change DTC would make the following 
changes to the text of the Custody Guide:
    1. DTC would make the following changes to the Imaging section:
    a. Remove the two last paragraphs of the section that describe 
connectivity specifications necessary to obtain images (through IFE). 
These specifications would not apply to a Participant's ability to 
access Image Viewer;
    b. Delete references to IFE and any IFE functionality;
    c. Add a description that Participants using Image Viewer would 
have the ability to view, download and save and imaged copies of 
certificates via Image Viewer; and
    d. Consolidate a sentence stating that each item is scanned front 
and back with another sentence that describes that each deposit ticket, 
certificate and legal document is scanned.
    2. DTC would revise a reference to imaging functionality through 
IFE in the section titled ``Restricted Deposit Service'' to reflect 
that Participants would have the ability to view, download and save 
images of certificates via Image Viewer.
    Pursuant to the proposed rule change, DTC would make the following 
change to the Fee Guide to conform text describing a related fee to the 
changes to the Imaging Function as described above:
[GRAPHIC] [TIFF OMITTED] TN18FE20.053

Implementation Timeframe
    The proposed rule change would be implemented by February 28, 2020, 
on a date to be announced via a DTC Important Notice. DTC would include 
a legend on the cover page of the Deposits Guide and the Custody Guide 
stating (i) that proposed changes to the Procedures, as amended by 
proposed rule change would be available at dtcc.com/~/media/Files/
Downloads/legal/rule-filings/2020/DTC/SR-DTC-2020-003.pdf, (ii) that 
these changes became effective upon filing with the SEC but have not 
yet been implemented,

[[Page 8921]]

(iii) the proposed changes will be implemented by February 28, 2020 on 
a date to be announced via a DTC Important Notice and (iv) upon 
implementation, this legend would automatically be removed from these 
Procedures.
2. Statutory Basis
    DTC believes that this proposal is consistent with the requirements 
of the Act,\32\ as described below.
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    \32\ 15 U.S.C. 78q-1.
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    Section 17A(b)(3)(F) of the Act \33\ requires, inter alia, that the 
Rules be designed to assure the safeguarding of securities which are in 
the custody or control of DTC or for which it is responsible. As 
mentioned above, DTC scans certificates, that are deposited through the 
Deposits service or the Custody service and then held in DTC's secure 
vault, to create images that are made available to a Participant in an 
electronic format. The proposed rule change would migrate the 
distribution of images of certificates of Securities, to a more 
flexible application designed to use a web-based platform that would 
facilitate the accessibility of images to Participants by providing for 
enhanced compatibility with modern systems used by Participants to 
obtain the images. In this regard, the proposed rule change would allow 
DTC to continue to provide images of certificates in an electronic 
format that is readily accessible to Participants, without the need to 
remove a certificate from the vault to be able to make and provide a 
copy to the Participant. Therefore, DTC believes that the proposed rule 
change is consistent with Section 17A(b)(3)(F) of the Act,\34\ because 
it is designed to assure the safeguarding of securities which are in 
the custody and control of DTC or for which it is responsible, by 
facilitating an accessible means for Participants to obtain copies of 
Securities certificates deposited by them without removal of the 
certificates from DTC's secure vault.
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    \33\ 15 U.S.C. 78q-1(b)(3)(F).
    \34\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact on competition because neither the decommissioning of IFE nor 
the elimination of access to the Imaging Function through PTS would 
affect Participants' ability to access the Imaging Function, as 
Participants will be able direct their imaging requests through Image 
Viewer.

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

    Written comments relating to this 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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \35\ and paragraph (f) of Rule 19b-4 
thereunder.\36\ 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.
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    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 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 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-2020-003 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-2020-003. 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 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 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-2020-003 and should be submitted on 
or before March 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-03087 Filed 2-14-20; 8:45 am]
 BILLING CODE 8011-01-P