Document ID: SEC-2016-0088-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2016-01-15T05:00Z

[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Notices]
[Pages 2270-2271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00646]

[[Page 2270]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76870; File No. SR-DTC-2016-001]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the DTC Custody Service Guide To Codify Its Current Procedures 
for Assigning a Value to Custody Service Securities for Shipping 
Insurance Valuation Purposes

January 11, 2016.
    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 4, 2016, 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 DTC. DTC filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and subparagraph (f)(1) of Rule 19b-
4 thereunder.\4\ The proposed rule change was effective upon filing 
with the Commission. 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)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would update DTC's Custody Service Guide 
(``Custody Guide'') to codify DTC's current procedures for assigning a 
value to securities held in DTC's Custody Service for shipping 
insurance valuation purposes, as more fully described below.\5\ The 
text of the proposed rule change to update the Custody Guide is set 
forth in Section II(A)(1) below.
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    \5\ Each term not otherwise defined herein has its respective 
meaning as set forth in the DTC Rules, By-laws, and Organization 
Certificate (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx, and the DTC Custody Service Guide, 
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
service-guides/Custody.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, DTC included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule filing submitted by DTC is to 
update the text of the Custody Guide to codify its current procedures 
for assigning a value to securities held in DTC's Custody Service for 
shipping insurance valuation purposes only, as described below.
    The Custody Service enables Participants that hold physical 
securities that are not presently eligible for book-entry services at 
DTC to deposit those securities with DTC for safekeeping and certain 
limited depository services.\6\ Generally, DTC does not price 
securities held in DTC's Custody Service.\7\ However, DTC applies 
pricing when instructed by a Participant to ship a Custody Service 
security from DTC to the Participant or to the Participant's customers 
or agents, to ensure that its applicable insurance coverage limit is 
not exceeded. In response to internal review and to be more transparent 
with respect to its current procedures for assigning a value to 
securities held in its Custody Service, DTC is proposing to codify its 
current practice with respect to assigning such values. Following is an 
excerpt from the applicable section in the Custody Guide, text which is 
in bold and underlined indicates additions to the Custody Guide 
pursuant to the proposed rule change:
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    \6\ See Custody Guide at pp. 5 and 12 for the types of 
securities and assets eligible for deposit to the Custody Service, 
supra note 5. DTC holds certain non-standard assets in its Custody 
Service, however, those are not the subject of this proposed rule 
change.
    \7\ DTC typically only prices securities that are eligible for 
book-entry services.
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Insurance and Replacement of Certificates

    DTC carries insurance relating to the replacement of certificates 
lost in transit or on its premises. Based on DTC's insurance coverage, 
it is recommended that the depositing Participant review its holdings 
and, when possible, submit these high value certificates for breakdowns 
so that the dollar value remains within DTC's insurance limits.
    Prior to shipping high value certificates, when possible, 
arrangements are made with transfer agents or issuers to cancel these 
certificates before shipment. DTC limits its liability for loss with 
respect to high-value certificates to the Limit, as defined below; 
however DTC's liability for loss is not limited to the Limit to the 
extent that such loss is caused directly by DTC's gross negligence or 
willful misconduct; provided that in no event shall DTC be liable for 
any special, consequential, exemplary, incidental, or punitive damages 
in this regard. The ``Limit'' is defined as DTC's insurance coverage at 
the time of the loss in question, provided that with respect to a loss 
during shipment, the Limit is the lesser of DTC's insurance coverage at 
the time of the loss in question and $100 million. Participants may 
request from time to time information regarding the Limit.
    DTC has internal procedures to control, safeguard and limit the 
risk of potential loss of a high value certificate. For example, DTC 
staff will work with the depositing Participant's staff to breakdown 
the deposit into smaller workable denominations so that they fall 
within a more acceptable range of value. In addition, where possible, 
arrangements will be made with transfer agents/issuers to cancel these 
certificates prior to their shipment.

Shipping Insurance Valuation

    Securities held by Participants through the Custody Service are 
segregated from DTC's fungible mass held by Cede & Co., are not 
eligible for book-entry services, and cannot be used as collateral for 
DTC transactions.
    DTC does not generally price securities held in the Custody 
Service. However, when DTC is instructed by a Participant to ship 
securities held in the Custody Service, DTC assigns a price to the 
securities being shipped to ensure that DTC's Limit is not exceeded 
when shipping certificates. If a security being shipped is also a full 
depository eligible security, DTC will assign the full depository 
eligible security's previous day's closing price, to ensure that its 
Limit is not being exceeded. When DTC does not have a price for a 
Custody Service security based on the price of a full depository 
eligible security, and DTC is instructed by its Participant to ship the 
security, DTC will assign a price as follows:
     DTC will use a default price of $1.00 per share for equity 
issues and face value for debt issues (each, ``Default Pricing'').
     Where Default Pricing would otherwise apply, Participants 
may instead provide DTC with a price for DTC to assign to the security 
for shipping insurance valuation purposes. DTC's assignment of that 
price for

[[Page 2271]]

shipping insurance valuation purposes shall not be deemed as an 
agreement to the price or valuation of the security, and in no event 
shall DTC be bound or required to use such price for this or any other 
purpose.
    Default Pricing and Participant-provided pricing are subject to 
DTC's internal procedures to control, safeguard and limit the risk of 
potential loss of a high value certificate, as set forth above. 
Participants should consider use of their own insurance for high value 
certificates in excess of the Limit or in appropriate circumstances 
they deem to be appropriate, in their discretion.

Implementation Date

    The proposed rule change would become effective immediately.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires that the rules of the 
clearing agency be designed, inter alia, to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\8\ By codifying DTC's 
current Default Pricing practice and the option for Participants to 
provide their own pricing, the proposed rule change provides 
transparency to DTC's shipping insurance valuation procedure for 
Custody Service securities, facilitating Participants' consideration of 
their insurance options for such securities. Therefore, DTC believes 
that the proposed rule change would aid in assuring the safeguarding of 
Custody Service securities and is consistent with the requirements of 
the Act, in particular, Section 17A(b)(3)(F) of the Act, cited above.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(d)(15) promulgated under the Act requires, inter alia, 
that a clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to state to its 
participants the clearing agency's obligations with respect to physical 
deliveries and identify and manage the risks from these obligations.\9\ 
DTC believes the proposed rule change is consistent with this provision 
because codifying DTC's current practice would provide transparency 
with respect to DTC's procedures for assigning a value to physical 
securities held in the Custody Service for shipping insurance valuation 
purposes, and therefore is reasonably designed to identify and manage 
risks associated with shipments of Custody Service securities.
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    \9\ 17 CFR 240.17Ad-22(d)(15).
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition because it merely codifies 
DTC's current practice with respect to shipping insurance valuation of 
Custody Service securities and DTC's identification and management of 
the risks therein and does not otherwise impact users of DTC's 
services.

(C) Clearing Agency'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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(1) of Rule 19b-4 
thereunder.\11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(1).
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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-2016-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2016-001. 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 the filing also will be available 
for inspection and copying at the principal office of DTC and on DTCC's 
Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-2016-001 and should be 
submitted on or before February 5, 2016.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00646 Filed 1-14-16; 8:45 am]
BILLING CODE 8011-01-P