
[Federal Register Volume 79, Number 241 (Tuesday, December 16, 2014)]
[Notices]
[Pages 74796-74797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29360]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73804; File No. SR-DTC-2014-10)]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change in Connection With the 
Modifications To Require Receiver Authorized Delivery Approval for DTC 
Processing of Institutional Delivery Transactions

December 10, 2014.

I. Introduction

    On October 16, 2014, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2014-10 (``Proposed Rule Change'') pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder.\2\ The Proposed Rule Change was published 
for comment in the Federal Register on November 3, 2014.\3\ The 
Commission did not receive any comments on the Proposed Rule Change. 
This order approves the Proposed Rule Change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 73443 (Oct. 28, 2014), 
79 FR 65268 (Nov. 3, 2014).
---------------------------------------------------------------------------

II. Description

    DTC filed the Proposed Rule Change to modify the DTC Settlement 
Service Guide (``Guide'') to require DTC Participants \4\ to use the 
Receiver Authorized Delivery (``RAD'') function to accept any affirmed 
institutional delivery transaction (``ID Transaction'') prior to DTC 
processing of the delivery. With the Proposed Rule Change, DTC seeks to 
reduce uncertainty in the settlement of ID Transactions.
---------------------------------------------------------------------------

    \4\ Terms not defined herein have the meaning set forth in DTC's 
Rules, By-Laws, and Organization Certificate (``Rules''), available 
at http://dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.ashx.
---------------------------------------------------------------------------

    Pursuant to a recent rule change,\5\ DTC requires all non-
institutional Deliver Orders and Payment Orders \6\ to be approved 
through RAD. RAD enables a receiver of valued deliveries of securities 
(``Receiver'') to manage which deliveries to accept, or to reject, 
prior to further processing by DTC. With this process, DTC seeks to 
establish a consistent internal ``matching'' system for book-entry 
deliveries at DTC.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 72576 (Jul. 9, 2014); 79 
FR 41335 (Jul. 15, 2014) (SR-DTC-2014-06).
    \6\ A Deliver Order is a book-entry movement of a particular 
security between two Participants. A Payment Order is a method for 
settling funds related to transactions and payments not associated 
with a Deliver Order.
---------------------------------------------------------------------------

    ID Transactions generally have not required RAD approval because 
the transactions are externally pre-matched through Omgeo, LLC,\7\ 
although Participants were permitted to apply RAD voluntarily.\8\ 
Because RAD was not required, a Receiver could use the same-day reclaim 
process to return securities to the original Participant delivering 
securities (``Deliverer'') without the acceptance of the Deliverer. DTC 
states that this process creates uncertainty for Participants and DTC 
as to whether securities will be delivered or reclaimed on the same day 
without the prior acceptance of the Receiver or original Deliverer.
---------------------------------------------------------------------------

    \7\ Omgeo is a leading provider of post-trade, pre-settlement 
institutional trade management solutions, processing over one 
million trades per day, and servicing approximately 6,500 investment 
managers, broker/dealers, and custodians in over 50 countries. See 
About DTCC: Omgeo LLC, http://dtcc.com/about/businesses-and-subsidiaries/omgeo.aspx.
    \8\ Receivers may optionally set their DTC profile to route ID 
Transactions to RAD.
---------------------------------------------------------------------------

    Pursuant to the Proposed Rule Change, DTC will amend the Guide to 
eliminate this uncertainty by requiring the intended Receiver to 
approve the ID Transaction in RAD before DTC processes the 
transaction.\9\ Same-day reclaims will also be subject to RAD approval 
by the original Deliverer, as though the reclaim was its own, separate 
transaction. As with any securities delivery, these transactions will 
be subject to DTC's risk management controls.\10\
---------------------------------------------------------------------------

    \9\ For processing efficiency, the proposed change to the Guide 
will offer Participants the option to set their system profile to 
allow affirmed ID Transactions to be automatically accepted in RAD. 
However, Participants will no longer have an option to allow ID 
Transactions to bypass RAD.
    \10\ DTC risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in DTC Rule 1), are designed so that 
DTC may complete system-wide settlement notwithstanding the failure 
to settle of its largest Participant or affiliated family of 
Participants. The Collateral Monitor tests that a Receiver has 
adequate collateral to secure the amount of its net debit balance 
and the Net Debit Cap limits the net debit balance of a Participant 
so that it cannot exceed DTC liquidity resources for settlement. See 
DTC Rules, http://dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.ashx.
---------------------------------------------------------------------------

    Additionally, with the Proposed Rule Change DTC will make technical 
updates to the Guide: (i) update the text for consistency to reflect 
that all valued Deliver Orders, Payment Orders, ID Transactions, MMI 
transactions, reclaims, pledges, and releases of pledged securities 
will be subject to RAD; (ii) update the text for consistency to reflect 
that all reclaims will be subject to risk management controls and 
remove references to system functions related to reclaims that have 
become obsolete; (iii) add an email address to which Settling Banks 
seeking to adjust Net Debit Caps may send their requests, in addition 
to via mail or overnight delivery to the existing mailing address; (iv) 
indicate where Participants may access certain system functions via 
Settlement Web either in addition to, or in lieu of, PBS/PTS; (v) 
eliminate references to fees relating to the ID Net service, which are 
redundant since those fees are also listed in DTC's fee schedule; and 
(vi) delete reference to the population of a ``third party'' field on 
DTC's system screens for the ID Net service, which is no longer 
applicable.
    The effective date of the Proposed Rule Change, including the dates 
of the implementation phases described above,

[[Page 74797]]

will be announced via a DTC Important Notice.

III. Discussion

    Section 19(b)(2)(C) of the Act \11\ 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 rules and regulations thereunder applicable 
to such organization. Section 17A(b)(3)(F) of the Act requires, among 
other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions.\12\ In addition, Rule 17Ad-22(d)(12) of the Act requires 
that a clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to ensure that 
final settlement occurs no later than the end of the settlement day and 
require that intraday or real-time finality be provided where necessary 
to reduce risks.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(d)(12).
---------------------------------------------------------------------------

    The Commission finds the Proposed Rule Change consistent with the 
Act. More specifically, as the Proposed Rule Change pertains to 
requiring acceptance through RAD of any affirmed ID Transaction, the 
Commission finds that the Proposed Rule Change is consistent with 
Section 17A(b)(3)(F) of the Act \14\ because the change will increase 
the number of deliveries that will require Receiver approval prior to 
DTC processing. This requirement will reduce the intraday uncertainty 
and associated risks that may currently arise from same-day reclaims, 
thus facilitating the prompt and accurate clearance and settlement of 
securities transactions. The Commission also finds these aspects of the 
Proposed Rule Change consistent with Rule 17Ad-22(d)(12) under the Act 
\15\ because more transactions will be subject to DTC's risk management 
controls, which helps ensure that final settlement occurs no later than 
the end of the settlement day.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
    \15\ 17 CFR 240.17Ad-22(d)(12).
---------------------------------------------------------------------------

    As the Proposed Rule Change pertains to the proposed technical 
changes, the Commission finds that the Proposed Rule Change is also 
consistent with Section 17A(b)(3)(F) of the Act \16\ because updates to 
the Guide to make it more clear, consistent, and current supports the 
prompt and accurate clearance and settlement of securities 
transactions.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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 with the requirements of Section 17A of the Act \17\ and 
the rules and regulations thereunder.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2014-10 be, and hereby is, 
approved.\18\
---------------------------------------------------------------------------

    \18\ 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29360 Filed 12-15-14; 8:45 am]
BILLING CODE 8011-01-P


