
[Federal Register Volume 79, Number 29 (Wednesday, February 12, 2014)]
[Notices]
[Pages 8527-8529]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03006]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71499; File No. SR-DTC-2014-01]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order of Accelerated Approval of Proposed Rule 
Change To Amend the Depository Trust Company Settlement Service Guide 
To Lower the Amount of the Maximum Net Debit Cap for an Affiliated 
Family of Participants and Make Other Related Changes

February 6, 2014.
    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 24, 2014, the Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change described in Items I and II below, which Items have been 
prepared primarily by DTC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and, by this Order, approve the proposed rule change on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of modifications to the DTC 
Settlement Service guide (the ``Service Guide'') to: (i) Lower the 
amount of the maximum Net Debit Cap for an affiliated family of 
Participants, and (ii) make other changes to the Service Guide, as more 
fully described below.\3\
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    \3\ Terms not defined herein have the meaning set forth in DTC's 
Rules & Procedures (the ``Rules''). Please note that DTC's 
Procedures include its service guides, including but not limited to 
the Settlement Service guide.
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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 III below. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such statements.

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

1. Purpose
Introduction
    By this filing, DTC seeks to amend the Service Guide to: (i) Lower 
the amount of the maximum Net Debit Cap \4\ for an affiliated family of 
Participants (``Affiliated Family''),\5\ and (ii) make other changes to 
the Service Guide as more fully described below.
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    \4\ Pursuant to Rule 1 the term: (a) ``Net Debit Cap'' of a 
Participant means an amount determined by the Corporation in the 
manner specified in the Procedures; provided, however, that the 
maximum Net Debit Cap of the Participant shall be the least of: (i) 
A maximum amount applicable to all Participants based on the 
liquidity resources of the Corporation, (ii) the Settling Bank Net 
Debit Cap applicable to such Participant or (iii) any other amount 
determined by the Corporation, in its sole discretion.
    \5\ Pursuant to Rule 1 the term ``Affiliated Family'' means each 
Participant that controls or is controlled by another Participant 
and each Participant that is under the common control of any Person. 
For purposes of this definition, ``control'' means the direct or 
indirect ownership of more than 50% of the voting securities or 
other voting interests of any Person.
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Background
    The Net Debit Cap is a risk management control under the Rules to 
limit the net debit balance of any Participant and of any Affiliated 
Family to no more than the amount of liquidity resources available to 
DTC to complete system-wide settlement in the event of a failure to 
settle by the largest Participant or Affiliated Family. Liquidity 
resources for DTC include cash deposits to the Participants Fund and a 
committed line of credit with a syndicate of commercial lenders.
    Pursuant to the Rules each Participant must: (i) Make a Required 
Participants Fund Deposit in cash and (ii) purchase an amount of DTC 
Series A Preferred Stock (``DTC Preferred Stock'') (the ``Required 
Preferred Stock Investment'').\6\ The aggregate of these amounts across 
all Participants is currently (i) $1.15 billion and (ii) $150 million, 
respectively, equal to an aggregate funded amount of $1.3 billion.\7\ 
This amount, plus a committed line of credit of $1.9 billion,\8\ 
provides DTC with $3.2 billion in liquidity resources. In accordance 
with the Rules, the maximum Net Debit Cap of any Participant and its 
Affiliated Family may not exceed this total amount of liquidity. The 
Net Debit Cap of each Participant is set at or below the maximum based 
on historic activity of the Participant; the aggregate amount of the 
Net Debit Caps of Participants in an Affiliated Family (the ``Aggregate 
Affiliated Family Net Debit Cap'') \9\ is likewise limited by the 
amount of these liquidity resources. The maximum Net Debit Cap 
currently allowed by DTC for an individual Participant is $1.8 billion 
and the maximum Aggregate Affiliated Family Net Debit Cap is $3.0 
billion.\10\
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    \6\ See DTC Rule 4, Section 2 et seq.
    \7\ Securities Exchange Act Release Nos. 41529 (Jun. 15, 1999), 
64 FR 33333 (Jun. 22, 1999) (SR-DTC-1999-08); 43197 (Aug. 23, 2000), 
65 FR 52459 (Aug. 29, 2000) (SR-DTC-2000-02); 54775 (Nov. 17, 2006), 
71 FR 68662 (Nov. 27, 2006) (SR-DTC-2006-14); 59612 (Mar. 20, 2009), 
74 FR 13488 (Mar. 27, 2009) (SR-DTC-2009-06); and 62567 (Dec. 16, 
2010), 75 FR 80878 (Dec. 23, 2010) (SR-DTC-2010-14).
    \8\ Securities Exchange Act Release No. 69556 (May 10, 2013), 78 
FR 28933 (May 16, 2013) (SR-DTC-2013-802).
    \9\ Pursuant to Rule 1, the term ``Aggregate Affiliated Family 
Net Debit Cap'' means the sum of the Net Debit Caps for the 
Participants that are part of an Affiliated Family in the manner 
specified in the Procedures; provided, however, that the maximum 
Aggregate Affiliated Family Net Debit Cap shall not exceed the total 
available liquidity resources of the Corporation.
    \10\ DTC maintains the maximum Aggregate Affiliated Family Net 
Debit Cap below its available liquidity resources to adjust for the 
possibility that a Participant that is part of an Affiliated Family 
and fails to meet its end-of-day settlement obligation may also be 
(or be affiliated with) a lender under the line of credit.

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[[Page 8528]]

Proposed Rule Changes
    For purposes of calculating liquidity resources to set the maximum 
Aggregate Affiliated Family Net Debit Cap, DTC has previously included 
the aggregate amount paid by Participants for the purchase of the DTC 
Preferred Stock ($150 million). (The DTC Preferred Stock itself 
constitutes capital of DTC.) Under the proposed change, DTC will no 
longer count the $150 million amount as a liquidity resource; it will 
account for this amount as capital, available for general business 
purposes. The maximum Aggregate Affiliated Family Net Debit Cap must 
therefore be reduced by $150 million, to reflect reduced cash liquidity 
resources available for settlement. Accordingly, the maximum Aggregate 
Affiliated Family Net Debit Cap of $3.0 billion will be reduced to 
$2.85 billion. In addition, for purposes of calculating Participants 
Fund deposits, $150 million will be subtracted from the base amount of 
the Participants Fund, currently $600 million which will, accordingly, 
be set at $450 million.
    DTC proposes to revise the Service Guide to adjust references to 
the Aggregate Affiliated Family Net Debit Cap amount and reflect 
related changes to calculations of the Participants Fund.
    In addition, the Service Guide contains a sample calculation of a 
Required Participants Fund Deposit which is no longer accurate. Rather 
than continue to provide an example which might require updates, DTC 
proposes to delete the example and, instead, set forth in the Service 
Guide the principles underlying the calculation of the Required 
Participants Fund Deposit and Required Preferred Stock Investment.\11\
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    \11\ The Required Participants Fund Deposit is calculated by a 
formula using the concepts of: (i) A ``base'' amount, allocated 
among all Participants (based upon a sixty business-day rolling 
average of each Participant's intra-day net debit peaks), and (ii) 
an additional amount, allocated among the Affiliated Families that 
present the greatest liquidity risk to DTC. Calculation of the 
Required Preferred Stock Investment uses the methodology referred to 
in clause (i) of the preceding sentence, i.e., the same calculation 
as for the base amount of the Participants Fund. The current example 
in the Service Guide presents a Participants Fund (and DTC Preferred 
Stock) calculation including the base amount and the additional 
amount. The total base amount allocated among all Participants is 
shown in the example as $600 million, representing $450 million in 
cash deposits and $150 million in proceeds of the Required Preferred 
Stock Investments. Because funds invested in the DTC Preferred Stock 
will not be counted as a liquidity resource, the calculation of a 
Participants Required Deposit to the Participants Fund and Required 
Preferred Stock Investment will be described separately in the 
Service Guide, so the Required Preferred Stock Investment 
calculation will be removed from the Participants Fund section.
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    DTC will also take this opportunity to: (i) Clarify procedures for 
payment of Required Participants Fund Deposits and the purchase of a 
Participant's Required Preferred Stock Investment, and (ii) make other 
clarifying technical changes to the Service Guide.
Implementation Timeframe
    The effective date of the proposed Rule change will be announced 
via a DTC Important Notice.
2. Statutory Basis
    By reducing the maximum Aggregate Affiliated Family Net Debit Cap, 
as described above, the proposed rule change will support the 
maintenance of adequate DTC liquidity resources available to complete 
system-wide settlement in the event of a failure to settle by the 
largest Participant or Affiliated Family. Therefore, DTC believes the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to DTC, in particular 
Section 17A(b)(3)(F) \12\ of the Act which requires that DTC's Rules be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and, in general, to protect investors and the 
public interest.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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(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, as DTC expects the 
proposed reduction of the maximum Aggregate Affiliated Family Net Debit 
Cap from $3.0 billion to $2.85 billion to have minimal impact on the 
ability of any affected Participant to settle securities transactions 
through DTC.

(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 yet 
been solicited or received with respect to this filing.

III. 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 No. SR-DTC-2014-01 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 No. SR-DTC-2014-01. 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 and on DTC's Web site at 
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 No. SR-DTC-2014-01 and should be submitted on or 
before March 5, 2014.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    Section 19(b)(2)(C)(i) of the Act \13\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder

[[Page 8529]]

applicable to such organization. Here, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, in 
particular the requirements of Section 17A of the Act,\14\ and the 
rules and regulations thereunder applicable to DTC. Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act,\15\ which requires, among other 
things, that the rules of a registered clearing agency ``are designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions . . ., 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.'' \16\
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    \13\ 15 U.S.C. 78s(b)(2)(C)(i).
    \14\ 15 U.S.C. 78q-1. In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ Id.
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    As described above, DTC intends to no longer account for the $150 
million paid by Participants for their Required Preferred Stock 
Investment as a liquidity resource, but as business capital only. 
Consequently, DTC is proposing this rule change in order to lower its 
Net Debit Cap for Aggregate Affiliated Families by the same amount so 
that the Aggregated Affiliated Family Net Debt Cap, and thus DTC's 
liquidity exposure in the event of an Affiliated Family default, does 
not exceed the actual amount of liquidity resources available to DTC. 
As such, the Commission finds this proposed rule change consistent with 
Section 17A(b)(3)(F) of the Act.\17\
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    \17\ Id.
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    Section 19(b)(2)(C)(iii) of the Act \18\ allows the Commission to 
approve a proposed rule change earlier than 30 days after the date of 
publication of the notice of the proposed rule change in the Federal 
Register where the Commission finds good cause for doing so and 
publishes its reason. Here, as discussed above, DTC has more precisely 
allocated the $150 million in proceeds from the sale of its preferred 
stock solely for business capital purposes rather than for both 
business capital purposes and as a liquidity resource. Given that the 
financial stability of DTC and the safeguarding of securities in its 
custody or control or for which it is responsible is in the public 
interest, the Commission finds good cause for the accelerated approval 
of this proposed rule change under Section 19(b)(2)(C)(iii) of the Act 
\19\ so that DTC can implement the proposed change to reflect DTC's 
reallocation of such proceeds, thus realigning the liquidity exposure 
presented to DTC by the failure of an Affiliated Family to meet its 
settlement obligations with the actual amount of liquidity resources 
available to DTC. If DTC were not able to make this proposed change 
immediately, the potential exists for DTC's liquidity exposure to 
exceed its liquidity resources, which could undermine the stability of 
DTC and the safety of the securities it maintains.
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    \18\ 15 U.S.C. 78s(b)(2)(C)(iii).
    \19\ Id.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-DTC-2014-01) be, and it 
hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03006 Filed 2-11-14; 8:45 am]
BILLING CODE 8011-01-P


