

[Federal Register: February 13, 2007 (Volume 72, Number 29)]
[Notices]               
[Page 6797-6799]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13fe07-79]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55239; File No. SR-DTC-2006-15]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change Relating to the 
Canadian Link Service

February 5, 2007.

I. Introduction

    On October 10, 2006, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2006-15 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''). \1\ Notice of the proposal 
was published in the Federal Register on December 8, 2006.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54855, (December 1, 
2006), 71 FR 71206.
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II. Description

    The proposed rule change amends DTC's Rule 30, Canadian-Link 
Service, to allow certain Canadian-Link transactions to settle in U.S. 
dollars. DTC's Canadian-Link Service currently allows participants of 
DTC (``DTC Participants'') to clear and settle two categories of 
securities transactions in Canadian dollars: (1) transactions with 
participants of The Canadian Depository for Securities Limited CDS 
(``CDS Participants'') and (2) transactions with other DTC 
Participants. The Canadian-Link Service also allows DTC Participants to 
transfer Canadian dollar funds to CDS Participants through the 
facilities of CDS and to other DTC Participants through Canadian 
settlement banks acting for DTC and

[[Page 6798]]

such DTC Participants. The proposed rule change would add an additional 
functionality to the Canadian-Link Service to allow DTC Participants to 
settle certain securities transactions with CDS Participants in U.S. 
dollars (``cross border U.S. dollar securities transactions''). Set 
forth below is a description of the current Canadian-Link Service and a 
description of the proposed change.

Current Functionality of the Canadian-Link Service

    The Canadian-Link Service currently allows DTC Participants to 
clear and settle valued securities transactions in Canadian dollars 
with CDS Participants through the link between DTC and CDS. The 
securities that may be the subject of these transactions are securities 
that are eligible for book-entry transfer through the facilities of CDS 
and DTC (``Full-Service Canadian-Link Securities'') and securities that 
are eligible for book-entry transfer through the facilities of CDS but 
not through DTC (``Limited Service Canadian-Link Securities''). The 
securities are delivered to and from CDS Participants through the 
facilities of CDS. Money settlement between DTC and CDS is included in 
Canadian dollar money settlement at CDS. Money settlement between DTC 
and DTC Participants takes place between Canadian settlement banks 
acting for DTC and such DTC Participants.
    The Canadian-Link Service allows DTC Participants to clear and 
settle valued transactions in Canadian dollars with other DTC 
Participants through the facilities of DTC. The securities that may be 
the subject of these transactions are Full-Service Canadian-Link 
Securities. The securities are delivered to and from DTC Participants 
through the facilities of DTC. Money settlement between DTC and DTC 
Participants takes place through Canadian settlement banks acting for 
DTC and such DTC Participants.
    The Canadian-Link Service allows DTC Participants to transfer 
Canadian dollar funds without any corresponding delivery or receipt of 
securities to CDS Participants or other DTC Participants. Transactions 
between DTC Participants and CDS Participants are processed through the 
facilities of CDS. Transactions between DTC Participants and other DTC 
Participants are processed through Canadian settlement banks acting for 
such DTC Participants.
    The proposed rule change would not change any of the existing 
components of the Canadian-Link Service and except for cross border 
U.S. dollar securities transactions, as set forth below, would not 
change how securities transactions are currently processed through the 
Canadian-Link Service.

Enhancement to the Canadian-Link Service

    The proposed rule change enhances the Canadian-Link Service to 
allow DTC Participants to clear and settle certain valued securities 
transactions in U.S. dollars with CDS Participants through the link 
between DTC and CDS.\3\ The securities that will be the subject of U.S. 
dollar settlement are Limited-Service Canadian-Link Securities (i.e., 
securities that are eligible for book-entry transfer through the 
facilities of CDS but not DTC). The securities will be delivered to and 
from CDS Participants through the facilities of CDS. Money settlement 
between DTC and CDS will be included in U.S. dollar money settlement at 
DTC. Money settlement between DTC and DTC Participants will also be 
included in U.S. dollar money settlement at DTC together with the 
settlement of DTC Participants' other transactions at DTC. As the 
foregoing indicates, these cross border U.S. dollar securities 
transactions will be processed in substantially the same way that 
transactions are now processed except that these transactions would 
settle in U.S. dollars rather than in Canadian dollars and the place of 
money settlement will be at DTC rather than at CDS or through Canadian 
settlement banks.
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    \3\ DTC has represented to the Commission that some transactions 
executed in Canadian markets, either on a stock exchange or over-
the-counter, are settled in U.S. dollars. Transactions that settle 
in U.S. dollars are reported to DTC in U.S. dollar amounts. DTC does 
not convert settlement amounts from Canadian to U.S. dollars.
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    The proposed rule change also adds new definitions to DTC Rule 30 
to distinguish between transactions between DTC Participants and CDS 
Participants (``Cross-Border Securities Transactions'') and 
transactions between only DTC Participants (``Intra-DTC Securities 
Transactions''). The proposed rule change also adds new definitions to 
distinguish between transactions that settle in U.S. dollars and 
transactions that settle in Canadian dollars (for example, ``Cross-
Border CAD Securities Transactions'' and ``Intra-DTC USD Securities 
Transactions'').

Risk Management Controls

    Set forth below is a description of DTC's risk management controls 
with respect to the Canadian-Link Service and how these risk management 
controls will be affected as a result of the proposed rule change.
    1. Canadian-Link Required Participants Fund Deposit. A DTC 
Participant that uses the Canadian-Link Service is currently required 
to make an additional required deposit to the DTC participants fund 
that is determined in accordance with a formula that takes into account 
the volume of cross-border Canadian dollar securities transactions 
processed by DTC for such DTC Participant. Under the proposed rule 
change, such formula will also take into account the volume of cross-
border U.S. dollar securities transactions processed by DTC for such 
DTC Participant.
    2. Security for Canadian-Link Transactions. A DTC Participant that 
uses the Canadian-Link Service is currently required to pledge to DTC 
its interest in the securities subject to cross-border Canadian dollar 
securities transactions that are held by DTC for such DTC Participant 
at CDS. Under the proposed rule change, such DTC Participant will also 
be required to pledge to DTC its interest in the securities subject to 
cross-border U.S. dollar securities transactions that are held by DTC 
for such DTC Participant at CDS.
    3. Canadian-Link Service Net Debit Caps of Canadian-Link 
Participants. A DTC Participant that uses the Canadian-Link Service is 
currently subject to a net debit cap on the negative Canadian dollar 
balance that may, from time to time, be incurred by such DTC 
Participant with respect to its use of the Canadian-Link Service. Under 
the proposed rule change, a DTC Participant will also be subject to a 
net debit cap on the negative U.S. dollar balance that may from time to 
time be incurred by such DTC Participant with respect to its cross-
border U.S. dollar securities transactions. The proposed rule change 
will add new definitions to DTC Rule 30 to take into account that there 
will be separate Net Debit Caps for U.S. and for Canadian dollar 
transactions.
    4. Collateral Monitor of Canadian-Link Participants. A DTC 
Participant that uses the Canadian-Link Service is currently subject to 
the DTC collateral monitor with respect to its use of the Canadian-Link 
Service. Under the proposed rule change, a DTC Participant will also be 
subject to the DTC collateral monitor with respect to its cross-border 
U.S. dollar securities transactions.
    As the foregoing indicates, cross-border U.S. dollar securities 
transactions will be subject to essentially the same risk management 
controls that are already applicable to the other securities 
transactions currently processed through the Canadian-Link Service.

[[Page 6799]]

III. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed 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. The Commission first approved Rule 30 to 
permit DTC to provide the Canadian-Link Service in 2005.\4\ In its 
order granting approval of Rule 30, the Commission found that rule 
satisfies the requirements of Section 17A of the Act because while 
streamlining the clearance and settlement of Canadian Dollar 
transactions at DTC, it includes sufficient procedures to assure the 
safeguarding of securities and funds which are in DTC's custody or 
control or for which it is responsible.
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    \4\ Securities Exchange Act Release No. 52784 (November 16, 
2005), 71 FR 70902 (November 23, 2005) (File No. SR-DTC-2005-08).
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    The proposed rule change, by adding to the transactions that are 
eligible to be cleared and settled through the Canadian-Link Service, 
is designed to encourage more CDS-Link Participants to use and to 
benefit from the operational and cost efficiencies of the Canadian-Link 
Service. We are satisfied with DTC's description of the rule change as 
an enhancement that does not otherwise affect the operation of the 
Canadian-Link Service as it was previously approved by the Commission. 
In addition, the corresponding changes made to DTC's risk management 
procedures and the clarifying amendments made to the terminology in 
Rule 30 should assure that DTC can offer U.S. Dollar settlement for the 
Canadian-Link Service without affecting DTC's ability to safeguard 
securities and funds which are in its custody or control or for which 
it is responsible.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\5\
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    \5\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2006-15) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-2419 Filed 2-12-07; 8:45 am]

BILLING CODE 8010-01-P
