
[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Notices]
[Pages 27658-27661]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72132; File No. SR-DTC-2014-805]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and No Objection To Advance Notice To Renew DTC's 
Existing Credit Facility

May 8, 2014.
    Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, entitled the Payment, 
Clearing, and Settlement Supervision Act of 2010 (``Clearing 
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities 
Exchange Act of 1934,\2\ notice is hereby given that on April 21, 2014, 
The Depository Trust Company (``DTC'')

[[Page 27659]]

filed with the Securities and Exchange Commission (``Commission'') 
advance notice SR-DTC-2014-805 (``Advance Notice'') as described in 
Items I, II and III below, which Items have been prepared primarily by 
DTC. The Commission is publishing this notice to solicit comments on 
the Advance Notice from interested persons and provide notice that the 
Commission does not object to the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    DTC is renewing its 364-day syndicated revolving credit facility 
(``Renewal''), as more fully described below.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, DTC included statements 
concerning the purpose of and basis for the Advance Notice and 
discussed any comments it received on the Advance Notice. 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 Advance Notice

1. Purpose
    As part of its liquidity risk management regime, DTC maintains a 
$1.9 billion 364-day committed revolving line of credit with a 
syndicate of commercial lenders which is renewed every year. The terms 
and conditions of the current Renewal will be specified in the 
Thirteenth Amended and Restated Revolving Credit Agreement, to be dated 
as of May 13, 2014 (``Renewal Agreement''), among The Depository Trust 
Company, National Securities Clearing Corporation (``NSCC''),\3\ the 
Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative 
Agent, and are substantially the same as the terms and conditions of 
the existing credit agreement, dated as of May 14, 2013 (``Existing 
Agreement''),\4\ among the same parties. The substantive terms of the 
Renewal are set forth in the Summary of Indicative Principal Terms and 
Conditions, dated March 17, 2014, which is not a public document. The 
aggregate commitments being sought under the Renewal will be for an 
amount of up to $15 billion for NSCC and DTC together, with a $1.9 
billion aggregate commitment to DTC, as provided in the Existing 
Agreement.
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    \3\ The Renewal Agreement will provide for both DTC and NSCC as 
borrowers, with an aggregate commitment of $1.9 billion for DTC and 
the amount of any excess aggregate commitment for NSCC. The 
borrowers are not jointly and severally liable and each lender has a 
ratable commitment to each borrower. DTC and NSCC have separate 
collateral to secure their separate borrowings.
    \4\ Last year, the Commission published notice of no objection 
to DTC's advance notice filing with respect to DTC's renewal 
beginning on May 14, 2013. See Release No. 34-69556 (May 10, 2013), 
78 FR 28933 (May 16, 2013) (SR-DTC-2013-802).
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    This agreement and its substantially similar predecessor agreements 
have been in place since the introduction of same day funds settlement 
at DTC. DTC requires same-day liquidity resources to cover the failure-
to-settle of the Participant or affiliated family of Participants with 
the largest net settlement obligation. If a Participant fails to 
satisfy its end-of-day net settlement obligation, DTC may borrow under 
the line to enable it, if necessary, to fund settlement among non-
defaulting Participants. Any borrowing would be secured principally by 
securities that were intended to be delivered to the defaulting 
Participant upon payment of its net settlement obligation and 
securities previously designated by the defaulting Participant as 
collateral. The liquidity facility is built into DTC's primary risk 
management controls, the net debit cap and collateral monitor, which 
together require that the end-of-day net funds settlement obligation of 
a Participant cannot exceed DTC's liquidity resources and is fully 
collateralized.
2. Statutory Basis
    The Renewal is consistent with Section 805(b) of the Clearing 
Supervision Act \5\ and with Commission Rule 17Ad-22(d)(11) \6\ 
(regarding default procedures) because it mitigates liquidity risk.
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    \5\ 12 U.S.C. 5461(b). The Financial Stability Oversight Council 
(``FSOC'') designated DTC a systemically important financial market 
utility (``SIFMU'') on July 18, 2012. See FSOC 2012 Annual Report, 
Appendix A, http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf (``FSOC Designation''). Therefore, DTC is 
required to comply with the Clearing Supervision Act.
    \6\ 17 CFR 240.17Ad-22(d)(11).
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B. Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    Written comments on the Advance Notice have not yet been solicited 
or received. DTC will notify the Commission of any written comments 
received by DTC.

C. Advance Notice Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

1. Description of Change
    The terms and conditions to be specified in the Renewal Agreement 
are substantially the same as the terms and conditions specified in the 
Existing Agreement, except that, in order to help protect against 
concentration risk, an enhancement is being added for a back-up 
Administrative Agent and Collateral Agent in case the primary 
Administrative Agent and Collateral Agent is unable to perform its 
obligations.
2. Anticipated Effect on and Management of Risks
    As noted, the committed revolving line of credit is a cornerstone 
of DTC risk management and this Renewal is critical to the DTC risk 
management infrastructure. The Renewal does not otherwise affect or 
alter the management of risk at DTC.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The proposed change may be implemented if the Commission does not 
object to the proposed change within 60 days of the later of (i) the 
date that the proposed change was filed with the Commission or (ii) the 
date that any additional information requested by the Commission is 
received. DTC shall not implement the proposed change if the Commission 
has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing DTC with prompt written notice of the 
extension. A proposed change may be implemented in less than 60 days 
from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies DTC in writing that it does not object to the proposed change 
and authorizes DTC to implement the proposed change on an earlier date, 
subject to any conditions imposed by the Commission.
    DTC shall post notice on its Web site of proposed changes that are 
implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the Advance 
Notice is consistent with the Clearing

[[Page 27660]]

Supervision 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-2014-805 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 No. SR-DTC-2014-805. 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 Advance Notice that are filed 
with the Commission, and all written communications relating to the 
Advance Notice 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 DTC's Web site at 
http://dtcc.com/en/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-2014-805 and 
should be submitted on or before June 4, 2014.

V. Commission Findings and Notice of No Objection

    Although the Clearing Supervision Act does not specify a standard 
of review for advance notices, the Commission believes that the stated 
purpose of the Clearing Supervision Act is instructive.\7\ The stated 
purpose is to mitigate systemic risk in the financial system and 
promote financial stability by, among other things, promoting uniform 
risk management standards for SIFMUs.\8\
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    \7\ 12 U.S.C. 5461(b).
    \8\ Id.
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    Section 805(a)(2) of the Clearing Supervision Act authorizes the 
Commission to prescribe risk management standards for the payment, 
clearing, and settlement activities of designated clearing entities and 
financial institutions engaged in designated activities for which it is 
the supervisory agency or the appropriate financial regulator.\9\ 
Section 805(b) of the Clearing Supervision Act states that the 
objectives and principles for the risk management standards prescribed 
under Section 805(a) shall be to:
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    \9\ 12 U.S.C. 5464(a)(2).
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     promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.\10\
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    \10\ 12 U.S.C. 5464(b).
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    The Commission adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act on October 22, 2012 
(``Clearing Agency Standards'').\11\ The Clearing Agency Standards 
became effective on January 2, 2013 and require registered clearing 
agencies to establish, implement, maintain, and enforce written 
policies and procedures that are reasonably designed to meet certain 
minimum requirements for their operations and risk management practices 
on an ongoing basis.\12\ As such, it is appropriate for the Commission 
to review advance notices against the objectives and principles for 
risk management standards as described in Section 805(b) of the 
Clearing Supervision Act,\13\ as well as the applicable Clearing Agency 
Standards promulgated under Section 805(a) of the Clearing Supervision 
Act.\14\
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    \11\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \12\ The Clearing Agency Standards are substantially similar to 
the risk management standards established by the Board of Governors 
of the Federal Reserve System governing the operations of SIFMUs 
that are not clearing entities and financial institutions engaged in 
designated activities for which the Commission or the Commodity 
Futures Trading Commission is the Supervisory Agency. See Financial 
Market Utilities, 77 FR 45907 (Aug. 2, 2012).
    \13\ See 12 U.S.C. 5464(b).
    \14\ See 12 U.S.C. 5464(a).
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    The Advance Notice is a proposal to enter into a renewed credit 
facility, as described above, which is designed to help mitigate the 
risk that DTC would fail to meet its settlement obligations event that 
a Participant would fail to satisfy its end-of-day net settlement 
obligation. Consistent with Section 805(b) of the Clearing Supervision 
Act,\15\ the Commission believes the proposal promotes robust risk 
management, as well as the safety and soundness of DTC's operations, 
while reducing systemic risks and supporting the stability of the 
broader financial system, by providing a readily available source of 
liquidity for DTC.
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    \15\ See 12 U.S.C. 5464(b).
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    Additionally, Commission Rule 17Ad-22(d)(11) regarding default 
procedures,\16\ adopted as part of the Clearing Agency Standards,\17\ 
requires that registered clearing agencies ``establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable . . . establish default procedures that 
ensure that the clearing agency can take timely action to contain 
losses and liquidity pressures and to continue meeting its obligations 
in the event of a participant default.'' \18\ Here, as described above, 
the renewed credit facility will help DTC continue to meet its 
respective obligations in a timely fashion in the event that a 
Participant fails-to-settle, thereby helping to contain losses and 
liquidity pressures from that failure.
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    \16\ 17 CFR 240.17Ad-22(d)(11).
    \17\ Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 
2012).
    \18\ 17 CFR 240.17Ad-22(d)(11).
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    As described in Item III above, Section 806(e)(1)(G) of the 
Clearing Supervision Act provides that a SIFMU may implement a change 
contained in an advance notice if it has not received an objection to 
the proposed change within the applicable 60 day period.\19\ However, 
Section 806(e)(1)(I) of the Clearing Supervision Act allows the 
Commission to issue no objection prior to the 60th day.\20\ If the 
Commission chooses to issue no objection prior to the 60th day, it must 
notify the SIFMU in writing that it does not object and authorize 
implementation of the change on an earlier date.\21\ If the Commission 
chooses to object prior to the 60th day, it must similarly notify the 
SIFMU.\22\
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    \19\ See 12 U.S.C. 5465(e)(1)(G).
    \20\ 12 U.S.C. 5465(e)(1)(I).
    \21\ Id.
    \22\ 12. U.S.C. 5465(e)(1)(E).
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    In its filing with the Commission, DTC requested that the 
Commission notify DTC, under Section 806(e)(1)(I) of the Clearing 
Supervision Act, that the Commission has no objection to the Advance 
Notice no later than Thursday, May 8, 2014, three business days before 
the existing credit facility is set to expire on Tuesday, May 13, 2014, 
to ensure that there is no period of time

[[Page 27661]]

that DTC operates without a credit facility.
    For the reasons stated above, the Commission does not object to the 
Advance Notice.

VI. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\23\ that the Commission does not object to 
the change described in advance notice SR-DTC-2014-805 and that DTC be 
and hereby is authorized to implement the change as of the date of this 
notice.
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    \23\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11036 Filed 5-13-14; 8:45 am]
BILLING CODE 8011-01-P


