
[Federal Register Volume 80, Number 230 (Tuesday, December 1, 2015)]
[Notices]
[Pages 75387-75417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30412]



[[Page 75387]]

Vol. 80

Tuesday,

No. 230

December 1, 2015

Part IV





Securities and Exchange Commission





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Bloomberg STP LLC; SS&C Technologies, Inc.; Order of the Commission 
Approving Applications for an Exemption From Registration as a Clearing 
Agency; Notice

  Federal Register / Vol. 80 , No. 230 / Tuesday, December 1, 2015 / 
Notices  

[[Page 75388]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76514; File Nos. 600-33, 600-34]


Bloomberg STP LLC; SS&C Technologies, Inc.; Order of the 
Commission Approving Applications for an Exemption From Registration as 
a Clearing Agency

November 24, 2015

I. Introduction

    On March 15, 2013, Bloomberg STP LLC (``BSTP'') filed with the 
Securities and Exchange Commission (``Commission'') an application on 
Form CA-1 for an exemption from registration as a clearing agency 
(``BSTP application'') pursuant to Section 17A of the Securities 
Exchange Act of 1934 (``Exchange Act'') and Rule 17Ab2-1 thereunder. 
BSTP amended the BSTP application on May 7, 9, and 10, July 11, August 
8, September 18, and November 21, 2013, December 19, 2014, and January 
22, 2015.\1\ BSTP intends to provide a matching service \2\ and an 
electronic trade confirmation (``ETC'') service, and accordingly the 
BSTP application seeks an exemption from registration as a clearing 
agency. Notice of the BSTP application was published for comment in the 
Federal Register on March 5, 2015.\3\
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    \1\ A copy of the BSTP application is available at http://www.sec.gov/rules/other/2015/34-74394-form-ca-1.pdf.
    \2\ The term ``matching service'' as used herein means an 
electronic service to centrally match trade information between a 
broker-dealer and its institutional customer.
    \3\ See Exchange Act Release No. 34-74394 (Feb. 27, 2015), 80 FR 
12048 (Mar. 5, 2015) (``BSTP notice'').
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    On April 15, 2013, SS&C Technologies, Inc. (``SS&C'') filed with 
the Commission an application on Form CA-1 for an exemption from 
registration as a clearing agency (``SS&C application'') pursuant to 
Section 17A of the Exchange Act and Rule 17Ab2-1 thereunder. SS&C 
amended the SS&C application on August 12, 2013, December 23, 2014, 
March 30, 2015, and November 9, 2015.\4\ SS&C intends to provide a 
matching and ETC service, and accordingly the SS&C application seeks an 
exemption from registration as a clearing agency.\5\ Notice of the SS&C 
application was published for comment in the Federal Register on April 
28, 2015.\6\
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    \4\ A copy of the SS&C application is available at http://www.sec.gov/rules/other/2015/34-74794-form-ca-1.pdf. The November 9, 
2015 amendment to the SS&C application removed the representation 
that SS&C would notify the Commission and seek a volume limit 
amendment to its Form CA-1 at least 180 days before it anticipates 
its volume for U.S. securities matched to reach one percent of the 
U.S. aggregate daily share volume. See infra Part III.B.4.iv.
    In addition, in the November 9, 2015 amendment SS&C replaced a 
representation stating that SS&C shall comply with the White Paper 
on Sound Practices to Strengthen the Resilience of the U.S. 
Financial System before its volume for U.S. securities matched is 1% 
of the U.S. aggregate daily share volume with a representation 
stating that SS&C understands that in offering its ETC services and 
matching services it will be defined as an ``SCI entity'' under 
Regulation Systems, Compliance, and Integrity (``Regulation SCI'') 
and, as such, that it will operate in compliance with applicable 
obligations under Regulation SCI. See infra Part III.B.8.
    \5\ The Commission understands that the applicants included 
descriptions of their ETC services in their applications for the 
sake of completeness in describing their proposed services, as well 
as in connection with FINRA Rule 11860, which contains specific 
references to confirmation and affirmation services.
    \6\ See Exchange Act Release No. 34-74794 (Apr. 23, 2015), 80 FR 
23618 (Apr. 28, 2015) (``SS&C notice'').
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    In all, the Commission received thirty comment letters in response 
to the BSTP and SS&C applications. Among these comment letters, the 
Commission received twenty-seven in response to the BSTP application, 
including two from BSTP itself, and three comment letters on the SS&C 
application, including one from SS&C itself.\7\ After careful review of 
these comment letters and the details and information in the BSTP and 
SS&C applications (including their representations), the Commission 
concludes that it has sufficient information to decide whether BSTP and 
SS&C should be granted exemptions. This order grants BSTP and SS&C each 
an exemption from registration as a clearing agency to provide matching 
and ETC services, subject to certain conditions and limitations 
described below.
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    \7\ See letters from James Wallin, Senior Vice President--Fixed 
Income, AllianceBernstein (Apr. 9, 2015) (``AllianceBernstein''); 
Diane C. Altieri, White Oak Global Advisors, LLC (Mar. 24, 2015) 
(``Altieri''); Jon Ambos (Mar. 29, 2015) (``Ambos''); Anonymous 
(Mar. 16, 2015) (``Anonymous''); Benjamin Macdonald, President, 
Bloomberg STP LLC (August 26, 2015) (``BSTP August letter''); Ben 
Macdonald, President, Bloomberg STP LLC (May 21, 2015) (``BSTP May 
letter''); M. Subramanian, Capital Market Solutions--Wipro Limited 
(Mar. 26, 2015) (``Capital Market Solutions''); Thomas Murphy, 
Managing Director, Citigroup Global Markets Inc., and Automated 
Trading Desk Financial Services, LLC (Apr. 6, 2015) (``Citi''); 
James Connolly, Managing Director, Head of U.S. Broker Dealer 
Operations, RBC Capital Markets, LLC (Mar. 16, 2015) (``Connolly''); 
Joseph Denci, Vice President COO, Scotia Capital (USA) Inc. (Mar. 
31, 2015) (``Denci''); Larry E. Thompson, Vice Chairman and General 
Counsel, The Depository Trust & Clearing Corporation (Sept. 14, 
2015) (``DTCC September letter''); Larry E. Thompson, Vice Chairman 
and General Counsel, The Depository Trust & Clearing Corporation 
(June 23, 2015) (``DTCC June letter''); Larry E. Thompson, Vice 
Chairman and General Counsel, The Depository Trust and Clearing 
Corporation (May 28, 2015) (``DTCC May letter''); Larry E. Thompson, 
Vice Chairman and General Counsel, The Depository Trust & Clearing 
Corporation (Apr. 6, 2015) (``DTCC April letter''); Frank D. Dore, 
Head of Securities Operations, Acadian Asset Management LLC (Apr. 1, 
2015) (``Dore''); Peter J. Durant (Mar. 26, 2015) (``Durant''); 
David Pearson, Head of Post-Trade Strategy, Fidessa (Apr. 3, 2015) 
(``Fidessa''); Bruce James, Managing Director and Chief Operations 
Officer, Amherst Pierpont Securities LLC (Mar. 10, 2015) 
(``James''); James Lang, Managing Director, Cedar Hill Capital 
Partners (Mar. 26, 2015) (``Lang''); Jerome Matthews, Vice 
President, Investment Operations, Prudential Fixed Income (Apr. 6, 
2015) (``Matthews''); Shawn McCafferty (Mar. 11, 2015) 
(``McCafferty''); Barbara Naratil, COO (Mar. 31 and Apr. 6, 2015) 
(``Naratil''); Russell H. Stamey, Senior Vice President, The 
Northern Trust Co. (Apr. 6, 2015) (``Northern Trust''); Paul 
Puskuldjian, Chief Operating Officer, Kinetix Trading Solutions, 
Inc. (Mar. 11, 2015) (``Puskuldjian''); Terrence J. Ransford, Senior 
Vice President, Northern Trust Securities, Inc. (Mar. 18, 2015) 
(``Ransford''); Fredrick Scuteri, Vice President, Head of Trade 
Operations, AQR Capital Management, LLC (Mar. 16, 2015) 
(``Scuteri''); Timothy W. Cameron, Managing Director, Asset 
Management Group--Head, and Elisa Nuottajarvi, Asset Management 
Group, The Asset Managers Forum, Securities Industry and Financial 
Markets Association (Apr. 2, 2015) (``SIFMA AMF''); David I. 
Goldstein, Senior Counsel, SS&C Technologies, Inc. (July 20, 2015) 
(``SS&C letter''); Nick Solinger, Head of Product Strategy and Chief 
Marketing Officer, Traiana, Inc. (Apr. 6, 2015) (``Traiana''). 
Copies of the comment letters are available at http://www.sec.gov/comments/600-33/600-33.shtml and http://www.sec.gov/comments/600-34/600-34.shtml.
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II. Summary of Applicants' Organization and Proposed Services

A. BSTP

    BSTP is a limited liability company organized under the laws of the 
State of Delaware and is wholly-owned by Bloomberg L.P. (``BLP'').\8\ 
BLP is a global business and financial information and news company 
headquartered in New York with offices around the world. BLP's 
principal product is the BLOOMBERG PROFESSIONAL service, which provides 
financial market information, data, news and analytics to banks, 
broker-dealers, institutional investors, governmental bodies, and other 
business and financial professionals worldwide.
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    \8\ The Commission notes that any proposed changes to either 
applicant's organization or its proposed ETC and matching service 
will require an amendment to the applicant's Form CA-1.
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    The BSTP application states that BSTP will enter into a Software 
License Agreement and a License and Services Agreement with BLP. Under 
the terms and conditions of such agreements, BLP will provide BSTP with 
software, hardware, administrative, operational, and other support 
services, and BSTP will retain ultimate legal responsibility for its 
operations. BSTP has also established a board of directors to oversee 
its operations, and the BSTP application states that it will establish

[[Page 75389]]

an advisory board consisting of industry members and users of the 
matching service, including representatives from sell-side firms, buy-
side institutions, and custodians.
    The BSTP application proposes a matching service that will compare 
post-trade information from a broker-dealer (the firm) and the broker-
dealer's institutional customer and reconcile such information to 
generate an affirmed confirmation, operating as follows according to 
the BSTP application:
    1. A customer routes an order to its firm.
    2. The firm executes the order and then sends a notice of execution 
(``NOE'') to the customer.
    3. For voice executed trades, the customer affirms to the firm the 
trade details contained in the NOE. For trades executed electronically, 
the electronic trading platform records the trade in the blotters of 
the customer and the firm.
    4. The customer sends to the matching service, the firm, and the 
customer's custodian allocation information for the trade.
    5. The firm then submits to the matching service trade data 
corresponding to each allocation, including settlement instructions 
and, as applicable, commissions, taxes, and fees.
    6. The matching service next compares the customer's allocation 
information (containing multiple fields of data) with the firm's trade 
data to determine whether the information contained in each field 
matches. If all required fields match, the matching service generates a 
matched confirmation and sends it to the firm, the customer, and other 
entities designated by the customer (e.g., the customer's custodian). 
The matching service will typically perform this step in less than one 
second.
    7. After the matching service creates the matched confirmation, the 
matching service submits it to The Depository Trust Company (``DTC'') 
as an ``affirmed confirmation.'' From there, the trade goes into DTC's 
settlement process.
    Other than the matching service, the BSTP application states that 
BSTP will not perform any other functions of a clearing agency 
requiring registration under Section 17A of the Exchange Act, such as 
net settlement, maintaining a balance of open positions between buyers 
and sellers, marking securities to the market, or handling funds or 
securities.

B. SS&C

    SS&C was incorporated in Delaware in 1996 and has headquarters in 
Windsor, Connecticut, with offices in 20 locations across the United 
States and additional offices in Toronto, Canada, and other locations 
throughout the world. SS&C is a global provider of financial services-
related solutions to investment management, banking, and other 
financial sector clients. All control and direction over SS&C is vested 
in SS&C Technologies Holdings, Inc. (``SS&C Holdings''), SS&C's parent 
company and a public holding company listed on NASDAQ (symbol SSNC).
    The SS&C application states that all matching services would be 
performed by SS&C's subsidiary, SS&C Technologies Canada Corp. (``SS&C 
Canada''). The policies and operations of SS&C Canada are overseen by 
its officers and directors, and are subject to control by SS&C 
Holdings. SS&C Canada will perform the matching services in 
Mississauga, Canada, through its software-enabled service, SSCNet, 
which is a global trade network linking investment managers, broker-
dealers, clearing agencies, custodians, and interested parties. Client 
support for these services will be rendered through SS&C's offices in 
the United States, the United Kingdom, and Australia. SS&C will 
coordinate support activity, which includes help desk facilities and 
call and issue tracking through a shared client call database, and 
relationship management. SS&C and SS&C Canada will maintain an 
intercompany agreement setting forth respective services and 
obligations.
    In addition, the SS&C application makes the following 
representations regarding SS&C's operations: (i) SS&C shall obtain 
contractual commitments from its customers permitting it to provide 
information to the Ontario Securities Commission, the Commission, and 
other third parties; (ii) SS&C shall make available SS&C Canada 
employees in Canada or the United States for interview by the 
Commission subject to reasonable notice, provided that such action does 
not impose unreasonable hardship under applicable immigration law on 
such employees; (iii) as set forth in the intercompany agreement, SS&C 
shall provide the Commission access to information related to SS&C's 
matching system and ETC services, including those documents it receives 
from its service provider, SS&C Canada (the ``business activities 
information''); (iv) SS&C Canada shall provide on the same business day 
to SS&C at its headquarters in Windsor, Connecticut electronically 
generated business activities information, in whatever form SS&C shall 
specify, including regularly and automatically generated and ad hoc 
reports, books and records, correspondence, memoranda, papers, notices, 
accounts, and other such records; and (v) SS&C Canada shall send to 
SS&C at its headquarters in Windsor, Connecticut, all manually 
generated business activities information, in whatever form SS&C shall 
specify, no later than the business day on which the record is 
generated. Further, SS&C has confirmed with external counsel that 
implementation of the intercompany agreement would not violate the 
Canadian Personal Information Protection and Electronic Documents Act 
or the Ontario Business Records Protection Act.\9\ This would allow for 
the disclosure of personal information by SS&C Canada to SS&C.
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    \9\ SS&C has stated that as the draft intercompany agreement is 
governed by Connecticut law, and as SS&C's external counsel are not 
qualified to practice in Connecticut, in providing these opinions 
they have assumed that the provisions of the intercompany agreement 
have the same meaning under Connecticut law as they would under 
Ontario and Canadian law.
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    Like the BSTP application, the SS&C application proposes to provide 
matching and ETC services for broker-dealers and institutional 
customers that will allow such entities to streamline communications 
and process allocation and post-trade information for fixed-income and 
equity trades for depository-eligible U.S. securities. According to the 
SS&C application, SS&C's matching service would allow institutional 
customers to route an order to a broker, receive an execution notice 
from the broker, and enter trade details and allocations so that SS&C's 
matching service can generate a matched confirmation and send an 
affirmed confirmation to the depository at DTC. SS&C's matching service 
will offer both block level matching and detail level matching. 
Standing settlement instructions are provided through the Delivery 
Instruction Database, which is fully integrated into SSCNet, and 
provides a repository for settlement instructions across asset classes, 
including foreign exchange and term deposits. SSCNet is also integrated 
into the Society for Worldwide Interbank Financial Telecommunication 
(``SWIFT'') Network, allowing users to communicate with parties outside 
the SSCNet platform. Users can select the output format for batch 
communications (SSCNet proprietary, SWIFT, ISITC, or DTC affirmation 
format), as well as when the batch should be submitted. Once a 
transaction is exported from SSCNet, central time stamping and a full 
audit trail are available for all transactions, with transaction 
histories maintained online for a minimum of 45

[[Page 75390]]

days and accessible in an online archive for up to ten years.
    Other than the matching service, the SS&C application states that 
SS&C will not perform any other functions of a clearing agency 
requiring registration under Section 17A of the Exchange Act, such as 
net settlement, maintaining a balance of open positions between buyers 
and sellers, marking securities to the market, or handling funds or 
securities.

III. Discussion

A. Statutory Standards

1. Requirements for a National System for Clearance and Settlement
    Section 17A of the Exchange Act directs the Commission to 
facilitate the establishment of (i) a national system for the prompt 
and accurate clearance and settlement of securities transactions and 
(ii) linked or coordinated facilities for clearance and settlement of 
securities transactions.\10\ In facilitating the establishment of the 
national clearance and settlement system, the Commission must have due 
regard for the public interest, the protection of investors, the 
safeguarding of securities and funds, and maintenance of fair 
competition among brokers and dealers, clearing agencies, and transfer 
agents.\11\
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    \10\ See 15 U.S.C. 78q-1(a)(2)(A).
    \11\ See id.
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2. Standard for Approval of an Application for an Exemption From 
Registration as a Clearing Agency
    Section 17A(b)(1) of the Exchange Act requires all clearing 
agencies to register with the Commission.\12\ It also states that, upon 
the Commission's motion or upon a clearing agency's application, the 
Commission may conditionally or unconditionally exempt a clearing 
agency from any provision of Section 17A of the Exchange Act or the 
rules or regulations thereunder if the Commission finds that such 
exemption is consistent with the public interest, the protection of 
investors, and the purposes of Section 17A, including the prompt and 
accurate clearance and settlement of securities and funds.
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    \12\ See 15 U.S.C. 78q-1(b)(1).
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    In the Matching Release,\13\ the Commission concluded that an 
entity providing matching services as an intermediary between broker-
dealers and institutional customers is a clearing agency within the 
meaning of Section 3(a)(23) of the Exchange Act,\14\ and therefore 
subject to the registration requirements of Section 17A of the Exchange 
Act.\15\ The Commission also noted that an entity that limited its 
clearing agency functions to providing matching services might not have 
to be subject to the full range of clearing agency regulation. In 
addition, the Commission stated that it anticipated an entity seeking 
an exemption from clearing agency registration for matching services 
would be required to (i) provide the Commission with information on its 
matching service and notice of material changes to its matching 
service; (ii) establish an electronic link to a registered clearing 
agency that provides for the settlement of its matched trades; (iii) 
allow the Commission to inspect its facilities and records; and (iv) 
make periodic disclosures to the Commission regarding its 
operations.\16\ Accordingly, as noted in the Matching Release, a 
clearing agency whose clearing agency functions are limited to 
providing a matching service generally would be required to register as 
a clearing agency but could apply for an appropriate exemption.\17\
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    \13\ See Exchange Act Release No. 34-39829 (Apr. 6, 1998), 63 FR 
17943 (Apr. 13, 1998) (providing interpretive guidance and 
requesting comment on the confirmation and affirmation of securities 
trades and matching) (``Matching Release'').
    \14\ Section 3(a)(23) defines a ``clearing agency'' as, among 
other things:
    [A]ny person who acts as an intermediary in making payments or 
deliveries or both in connection with transactions in securities or 
who provides facilities for comparison of data respecting the terms 
of settlement of securities transactions, to reduce the number of 
settlements of securities transactions, or for the allocation of 
securities settlement responsibilities.
    See 15 U.S.C. 78c(a)(23).
    \15\ Specifically, the Commission concluded that matching 
services constitute comparison of data respecting the terms of 
settlement of securities transactions. See Matching Release, supra 
note 13, at 17943.
    \16\ See id. at 17947 n.28. In addition, the Commission provided 
a temporary exemption from the clearing agency registration 
requirements to clearing agencies that provide (1) matching, (2) 
trade compression, (3) collateral management, and (4) other non-
central counterparty clearance and settlement services for security-
based swaps. See Exchange Act Release No. 34-64796 (July 1, 2011), 
76 FR 39963 (July 7, 2011) (order pursuant to Section 36 of the 
Exchange Act granting temporary exemptions from clearing agency 
registration requirements under Section 17A(b) of the Exchange Act 
for entities providing certain clearing services for security-based 
swaps).
    \17\ See Matching Release, supra note 13, at 17947.
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B. Comments Received and Commission Response

    The Commission received thirty comment letters in response to the 
BSTP and SS&C notices from twenty-three commenters, including two 
comment letters from BSTP and one from SS&C.\18\ Although the 
Commission received only three comment letters on the SS&C application, 
the comments received in response to both applications are discussed 
together below because the matching services proposed in each 
application are substantially similar and therefore raise many of the 
same issues regardless of which application a particular comment letter 
addresses. In addition, a majority of the comments submitted in 
response to the BSTP application address the question of whether there 
should be multiple providers of matching services, and those comments 
are therefore relevant to the Commission's consideration of both the 
BSTP and SS&C applications.
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    \18\ See supra note 7.
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    Commenters include individuals and firms representing buy-side and 
sell-side market participants, in both front and back-office 
capacities, with expertise in equities and fixed income, asset 
management, post-trade strategy, and operations. Four of the comment 
letters were submitted by the Depository Trust and Clearing Corporation 
(``DTCC''),\19\ which is the holding company for three clearing 
agencies registered with the Commission, including DTC (the central 
securities depository (``CSD'') for the U.S. securities markets), as 
well as Omgeo, an exempt clearing agency that currently provides 
matching and ETC services for the U.S. equity markets (collectively 
``the DTCC complex'').\20\ Excluding BSTP and SS&C, eighteen commenters 
expressed explicit support for the BSTP application and three 
additional commenters submitted comments on the BSTP application 
expressing support for competition in the provision of matching 
services.\21\ One commenter expressed views that it

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would support additional providers of matching and ETC services if they 
met certain criteria.\22\ The remaining commenter, DTCC, endorsed the 
approach described in the Matching Release, stating that (i) a firm 
limiting its clearing agency activities to matching services should be 
eligible for an exemption from registration as a clearing agency and 
(ii) this is consistent with the goals of Section 17A of the Exchange 
Act, expressed general support for competition in the provision of 
matching services,\23\ and raised several concerns with the BSTP and 
SS&C applications, as discussed below. In addition, in its letter, SS&C 
states that it is in complete agreement with BSTP on matters where 
DTCC's concerns are substantially the same between the BSTP and SS&C 
applications, such as DTCC's concerns raised regarding the question of 
how access to DTC for settlement of matched trades should proceed.\24\ 
Similarly, DTCC states that it stands by its statements and positions 
in the DTCC June letter, submitted in response to the BSTP May letter, 
and incorporates those arguments by reference in response to the SS&C 
letter.\25\
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    \19\ The DTCC June letter also includes as an attachment an 
economic analysis of BSTP's application produced by Cornerstone 
Research. See DTCC June Letter at ex. I, available at http://www.sec.gov/comments/600-33/60033-28.pdf (``Cornerstone Report''). 
The Cornerstone Report augments many of the comments in the DTCC 
comment letters with several specific economic considerations that 
are related to those arguments. These comments and considerations 
are addressed throughout this order.
    \20\ The other two registered clearing agencies within the DTCC 
complex are (i) the National Securities Clearing Corporation 
(``NSCC''), which provides central counterparty (``CCP'') services 
to its members for the clearing of transactions in a number of cash 
market products, including equity securities, bonds, and exchange-
traded products, and (ii) the Fixed Income Clearing Corporation 
(``FICC''), which provides CCP services for transactions in U.S. 
government and certain mortgage-backed securities.
    \21\ For commenters expressing explicit support for the BSTP 
application, see AllianceBernstein, Altieri, Anonymous, Capital 
Market Solutions, Connolly, Denci, Dore, Fidessa, James, Lang, 
Matthews, McCafferty, Northern Trust, Puskuldjian, Ransford, 
Scuteri, SIFMA AMF, and Traiana.
    For commenters to the BSTP application expressing support more 
generally for competition in the provision of matching services, see 
Ambos, Durant, and Naratil.
    \22\ See Citi; see also infra note 137 and accompanying text 
(discussing the specific criteria set forth by the commenter).
    \23\ See DTCC April letter at 1-2 (endorsing the approach 
described in the Matching Release); DTCC September Letter at 2; DTCC 
June letter at 2-3; DTCC May letter at 2-3; DTCC April letter at 2, 
12-14 (each stating that competition in service offerings may permit 
useful innovation and product alternatives, to the benefit of 
industry participants and ultimately to investors, and proposing a 
method of facilitating access to DTC through Omgeo for BSTP and 
SS&C).
    \24\ See SS&C letter at 4. Accordingly, as to DTCC's comments, 
the Commission understands that SS&C would be in agreement with BSTP 
as to concerns about access to DTC and the related discussions of 
efficiency; competition, choice, and innovation; systemic risk; 
operational risk; and interoperability with Omgeo. Concerns raised 
about BSTP's governance arrangements and BSTP's request for relief 
under Rule 10b-10 would be specific to BSTP. Concerns raised about 
the cross-border aspects of the SS&C application would be specific 
to SS&C.
    \25\ See DTCC September letter at 2 n.5. In considering and 
addressing DTCC's comments, the Commission has considered each 
application with respect to all of DTCC's comments except where 
DTCC's comments were addressed specifically to BSTP's governance 
arrangements, BSTP's request for relief under Rule 10b-10, and the 
cross-border aspects of the SS&C application, as noted previously 
above. See supra note 24.
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    The discussion below first summarizes DTCC's proposed model for 
access to DTC submitted as part of its comments regarding the BSTP and 
SS&C applications. The discussion next provides an overview of comments 
organized by the particular subject matter raised across the respective 
comment files, and provides BSTP's and SS&C's responses as well as the 
Commission's assessment and response within each subject matter 
section. The Commission notes here that many of DTCC's current 
arguments are inconsistent with prior representations it made when it 
sought for Omgeo--and Omgeo was granted, based on those 
representations--an exemption from registration to provide matching 
services. Those representations are discussed in detail below.
1. DTCC's Proposed Model for Access to DTC
    In order to evaluate many of the particular issues raised by the 
commenters, the Commission first generally notes DTCC's proposal for 
structuring access to DTC, which is referenced throughout the 
Commission's consideration of comments below. According to DTCC, the 
optimal access model, referred to below as the ``single access'' model, 
would enable the industry to continue to rely on the existing systems 
(including certain systems currently located in Omgeo) to serve as the 
unique point of access to what DTCC describes as ``the existing 
infrastructure,'' in particular DTC and the bank and broker-dealer 
custodians/settlement agents for the sending of matching confirmations 
and settlement instructions.\26\ In other words, a single access model 
would require BSTP and SS&C to access this existing infrastructure 
uniquely through Omgeo and not via independent linkages to DTC.
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    \26\ See DTCC September letter at 2; DTCC June letter at 2-3; 
DTCC May letter at 2; DTCC April letter at 3.
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    DTCC believes that this approach would promote the safe and 
efficient clearance and settlement of securities transactions while 
permitting the securities industry to reap the benefits of the 
reliable, centralized infrastructure that has developed over the past 
forty years.\27\ DTCC states that the single access model would permit 
BSTP and SS&C to avail themselves of Omgeo's extensive community of 
custodians and settlement agents without the costs and risks that would 
be incurred if each custodian and settlement agent had to create, 
operate, and maintain a separate interface and infrastructure with BSTP 
and SS&C.\28\ DTCC also notes that this would provide a more rapid, 
less expensive option for BSTP and SS&C to begin providing matching 
services.\29\ DTCC states that the single access model furthers the 
purposes of Section 17A of the Exchange Act, citing previous Commission 
statements that (i) a clearing agency entering into an interface with 
another clearing agency has an interest in assuring itself that the 
participant clearing agency will be able to meet its obligations, and 
that (ii) clearing agencies may require reasonable assurances of 
another clearing agency's ability to meet its obligations, provided 
such requirement does not impose an inappropriate burden on 
competition.\30\
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    \27\ See id.
    \28\ See DTCC April letter at 12-13.
    \29\ See id.
    \30\ See DTCC September letter at 2; DTCC May letter at 8-9.
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    The Commission evaluates the merits of the BSTP and SS&C 
applications on their own terms under the statutory standard described 
above. The Commission is not opining on the general issue of whether a 
multiple access model is always preferable to a single access model.
2. Efficiency
    Under Section 17A of the Exchange Act, Congress directs the 
Commission to facilitate a prompt system for clearing and settling 
transactions, and the Congressional findings in Section 17A state that 
inefficient procedures for clearance and settlement impose unnecessary 
costs on investors and persons facilitating transactions.
    The Commission received multiple comments addressing whether the 
expected effect of the BSTP and SS&C applications would result in 
various inefficiencies, with a particular focus on the possibility of 
unnecessary costs and processing inefficiencies. BSTP states in its 
comment letter that the BSTP application promotes processing 
efficiencies by proposing to bring automation to some segments of the 
marketplace that today use manual procedures and by enabling straight-
through processing throughout the entire trade lifecycle, which BSTP 
states will contribute to increases in same-day affirmation rates and 
increases in settlement rates.\31\ Similarly, SS&C states in its 
comment letter that the SS&C application promotes processing 
efficiencies by streamlining the post-trade communication flow between 
institutional customers, broker-dealers, custodians, and interested 
parties, providing for real-time communications and matching services 
that highlight trade discrepancies early in the trade lifecycle, which 
SS&C states will lead to timely affirmations and a reduction in failed 
deliveries.\32\ In addition, nine commenters identified increases in 
efficiency in the confirmation/affirmation process itself as an

[[Page 75392]]

anticipated benefit of having multiple matching service providers.\33\
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    \31\ See BSTP May letter at 3.
    \32\ See SS&C letter at 2.
    \33\ See AllianceBernstein at 1; Altieri; Capital Market 
Solutions; Connolly; James; Lang; Northern Trust; SIFMA AMF at 2; 
Traiana.
---------------------------------------------------------------------------

    However, DTCC raises multiple concerns, summarized below, about the 
effect of the applications on the efficiency (both in terms of 
unnecessary costs and processing inefficiencies) of the settlement 
system for U.S. equities. The Commission understands that DTCC is 
primarily concerned with the following matters: (i) whether it is 
efficient for BSTP and SS&C to have direct access (rather than mediated 
access) to DTC for submission of delivery orders; (ii) whether new 
matching service providers might negatively affect current trade 
confirmation/affirmation rates; (iii) how control numbers for trades 
can be managed efficiently in a marketplace with multiple matching 
service providers; and (iv) whether the costs that DTCC and market 
participants might incur to incorporate new matching service providers 
into the market infrastructure can be supported by the anticipated 
benefits. The Commission evaluates each of these concerns in turn.
i. Access to DTC
    With respect to the access model proposed by each of the BSTP and 
SS&C applications, DTCC states that allowing both BSTP and SS&C to 
access DTC directly under a ``multiple access'' model would impose 
additional costs on the industry, including the cost of building access 
to DTC for each applicant and the related cost of building parallel 
access to custodians and settlement agents.\34\ In addition, DTCC also 
states that developing a post-trade processing system, including a 
settlement instructions database, that is completely independent of 
Omgeo (including the Omgeo ALERT database that centrally maintains 
account information and standing settlement instructions to enrich 
allocation messages for settlement at DTC) would raise interface costs 
for industry participants and increase the technological complexity of 
the infrastructure for the national clearance and settlement 
system.\35\ DTCC also notes that failed trades are currently resolved 
and reconciled through Omgeo, not DTC.\36\ As an alternative to a 
multiple access model, DTCC proposed a single access model, summarized 
above in Part III.B.1.
---------------------------------------------------------------------------

    \34\ See DTCC April letter at 11; Cornerstone Report at 6, 23.
    \35\ See id. at 17-19. The Commission notes that DTCC's concerns 
about the costs of building linkages are addressed in Part 
III.B.2.iv below.
    \36\ See id. at 14 n.43.
---------------------------------------------------------------------------

    DTCC's current arguments supporting a single access model that runs 
through Omgeo cannot be reconciled with DTCC's own prior 
representations surrounding the formation of the joint venture between 
DTCC and Thomson Financial (Global Joint Venture or ``GJV,'' later 
renamed Omgeo), which was granted an exemption from registration to 
provide matching services in the Omgeo order.\37\ The Commission finds 
that DTCC must continue to abide by prior representations it made that 
led the Commission to approve the Omgeo order.
---------------------------------------------------------------------------

    \37\ See Global Joint Venture Matching Services--US, LLC; Order 
Granting Exemption From Registration as a Clearing Agency, Exchange 
Act Release No. 34-44188 (Apr. 17, 2001), 66 FR 20494 (Apr. 23, 
2001) (``Omgeo order'').
---------------------------------------------------------------------------

    For purposes of background, as a condition precedent to the GJV's 
formation, DTC submitted a proposed rule change to transfer DTC's 
existing ETC and matching engine to Omgeo as its contribution to the 
GJV.\38\ The Commission received thirty-six comment letters in response 
to both the DTC 00-10 proposal and the notice that preceded the Omgeo 
order, seventeen of which requested that the Commission take steps to 
safeguard interoperability and competition among service providers in 
order to prevent any entity from gaining an unfair monopoly.\39\
---------------------------------------------------------------------------

    \38\ See Exchange Act Release No. 34-43541 (Nov. 9, 2000), 65 FR 
69591 (Nov. 17, 2000) (notice of filing by DTC of a proposed rule 
change relating to the combination of the DTC's TradeSuite 
institutional trade processing services with Thomson-Financial ESG's 
institutional trade processing services) (``DTC 00-10 proposal''); 
see also Exchange Act Release No. 34-44189 (Apr. 17, 2001), 66 FR 
20502 (Apr. 23, 2001) (Commission order approving DTC's proposed 
rule change relating to the combination of DTC's TradeSuite 
institutional trade processing services with Thomson-Financial ESG's 
institutional trade processing services) (``DTC 00-10 approval 
order'').
    In the above proposed rule change, the transfer involved 
TradeMessage (automated exchange of messages such as block trade 
notices of execution, allocation instructions, trade confirmations, 
and affirmations), TradeMatch (electronic comparison of investment 
manager allocations with broker-dealer trade confirmations), 
TradeSettle (supplier of account and settlement data using DTC's 
Standing Instructions Database, and router of settlement 
instructions to custodian banks and clearing agents), and TradeHub 
(router of messages).
    \39\ See Omgeo order, supra note 37, at 20504.
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    The Commission believes that providing a summary of key comments on 
the DTC 00-10 proposal is helpful in explaining the Commission's 
assessment of DTCC's objections to the BSTP and SS&C applications 
because the past comments raise many of the same issues raised in the 
comments to this order. One of the commenters cited by the Commission 
in the DTC 00-10 approval order, TradingLinx, focused its concern on 
the transfer of TradeMessage and TradeSettle,\40\ which was notable 
given that the Commission was primarily focused on the transfer of the 
matching service functionality. The TradingLinx letter pointed out 
that, at the time, all vendors had free, open access to the data 
contained in DTC's Standing Instructions Database (``SID''), which 
houses settlement instructions for the industry. TradingLinx worried 
that transferring SID to a for-profit entity might change the cost or 
level of access to SID data. DTCC submitted a comment in response, 
stating that TradingLinx's concerns were misplaced because (i) vendors 
acting on behalf of DTC participants will be able to transmit 
settlement instructions directly to DTC without the involvement of GJV; 
(ii) vendors acting on behalf of customers of the DTC TradeSuite family 
of services have access to SID; (iii) those vendors can enter data in 
and receive data from SID on behalf of broker-dealers, investment 
managers, and custodians who are common customers of the vendors and 
DTC; and (iv) the staffs of DTCC and GJV have determined that the same 
open access by customers' vendors to SID will continue with respect to 
the unified database after GJV commences operations.\41\
---------------------------------------------------------------------------

    \40\ See letter from Justin Lowe, Chief Executive Officer, and 
Robert Raich, Chief Financial Officer, TLX Trading Network (Dec. 18, 
2000), available at http://www.sec.gov/rules/sro/60032/60032-13.pdf.
    \41\ See letter from Carl H. Urist, Managing Director and Deputy 
General Counsel, DTCC (Jan. 4, 2001), available at http://www.sec.gov/rules/sro/60032/60032-18.pdf.
---------------------------------------------------------------------------

    Another commenter on the DTC 00-10 proposal, GSTP AG, expressed 
concerns that combining elements of DTC with a commercial entity could 
result in denial of access to DTC for matching service competitors, 
and/or pricing for access to DTC settlement and depository services 
that might preference GJV over matching service competitors.\42\ DTCC 
responded by reiterating the assurances it made in its response to 
TradingLinx, stating that GJV will at the option of its customers 
either enter settlement instructions on their behalf into the DTC 
settlement system (or any other settlement system with which the GJV 
interfaces) or make the settlement instructions available to the 
customers or their vendors so that the customers or vendors can enter 
the instructions into a settlement system.\43\

[[Page 75393]]

GSTP AG then responded with requests (also cited by the Commission in 
the Omgeo order) that, before these issues can be resolved, it be 
clearly understood which functions will continue to be performed 
exclusively by DTC and which will be performed by the GJV, noting that 
(i) DTC offers through TradeSuite a service to all U.S. settlement 
agents who have an account with DTC for settlement whereby the trades 
confirmed and/or affirmed are relayed to the settlement agent involved 
in the trade; (ii) this feature of the service is an integral part of 
the clearance and settlement process as it is used by all settlement 
agents to update their records and by the DTC to proceed with the 
settlement; and (iii) fair and open access to DTC settlement functions 
for all matching services must encompass a requirement that DTC, and 
not the GJV, continue to provide this service.\44\
---------------------------------------------------------------------------

    \42\ See letter from Burkhard H. Gutzeit, Chairman, and G. 
Steven Crosby, Acting Chief Executive Officer, GSTP AG (Jan. 3, 
2001), available at http://www.sec.gov/rules/sro/60032/60032-16.pdf.
    \43\ See letter from Carl H. Urist, Managing Director and Deputy 
General Counsel, DTCC (Jan. 12, 2001), available at http://www.sec.gov/rules/sro/60032/60032-24.pdf.
    \44\ See letter from Burkhard H. Gutzeit, Chairman, and G. 
Steven Crosby, Acting Chief Executive Officer, GSTP AG (Jan. 30, 
2001), available at http://www.sec.gov/rules/sro/60032/60032-33.pdf.
---------------------------------------------------------------------------

    DTCC's subsequent response indicated that DTC would limit its 
activities to following the settlement instructions authorized by its 
participants, whether those instructions were submitted by GJV or GSTP 
AG.\45\ The Commission ultimately approved the DTC-00-10 proposal after 
DTC submitted an amendment to the rule filing stating that DTC shall 
not favor any single provider of matching services, including GJV, over 
any other matching services in terms of the quality and caliber of the 
interface to DTC's clearing agency or settlement functions, quality of 
connectivity, receipt of delivery and payment orders, speed or 
processing delivery and payment orders, capacity provided, or priority 
assigned in processing delivery and payment orders.\46\
---------------------------------------------------------------------------

    \45\ See letter from Richard B. Nesson, Managing Director and 
General Counsel, DTCC (Mar. 9, 2001), available at http://www.sec.gov/rules/sro/60032/60032-38.pdf.
    \46\ See DTC 00-10 approval, supra note 38, at 20505.
---------------------------------------------------------------------------

    Subsequent to approval of the Omgeo order, DTC also submitted 
proposed rule change SR-DTC-2001-11, proposing to authorize DTC to 
accept and act upon instructions provided by a central matching 
provider other than Omgeo. The Commission's approval order discussed 
two significant factors relevant to DTCC's comments regarding access to 
DTC.\47\ First, the approval order noted that DTC neither engaged in 
matching institutional trade information nor communicated to its 
participants or others prior to settlement that a transaction has been 
matched.\48\ Pursuant to the order, then, DTC and Omgeo had clear and 
distinct functions: Omgeo was to provide matching services and DTC was 
to facilitate settlement. Second, the approval order noted that (i) DTC 
assumed a matching service provider would make arrangements for the 
communication of trade information to the DTC participants expected to 
settle a matching transaction by book-entry delivery at DTC, and (ii) 
DTC was prepared to accept from a matching service provider a file of 
deliver order instructions to settle transactions between DTC 
participants that had authorized it to accept such instructions from 
the matching service provider.\49\
---------------------------------------------------------------------------

    \47\ See Exchange Act Release No. 34-44905 (Oct. 4, 2001), 66 FR 
51987 (Oct. 11, 2001) (order approving DTC rule change authorizing 
DTC to act upon instructions provided by a central matching service 
provider).
    \48\ See id. at 51987.
    \49\ See id. at 51987-88.
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission stated its 
belief that the DTC rule change was consistent with the Exchange Act 
because it would allow DTC to act upon deliver order instructions 
received from a matching service provider.\50\ The Commission observes 
that this is precisely the arrangement now contemplated by the BSTP and 
SS&C applications--one where BSTP and SS&C, as matching service 
providers, can communicate settlement instructions to DTC without Omgeo 
as an intermediary. Given the series of representations made by DTCC in 
support of approving the DTC rule changes that facilitated the creation 
of Omgeo and approval of the Omgeo order itself, the Commission views 
DTCC's current suggestion that the Commission now require a single 
access model for new matching service providers to be inconsistent with 
DTCC's prior representations.
---------------------------------------------------------------------------

    \50\ See id. at 51988.
---------------------------------------------------------------------------

    Even apart from DTCC's prior inconsistent representations, the 
Commission is also unpersuaded that the prospect of incurred costs 
merits denial or modification of the applications insofar as they 
propose a multiple access model. Matching service providers cannot 
settle transactions since they necessarily require access to the 
central securities depository for the United States, and as such access 
to the central securities depository is distinct from access to other 
post-trade processes (such as providing a standing instructions 
database).\51\ The Commission further believes that multiple points of 
access to DTC have value with respect to redundancy (discussed further 
below). The Commission also finds that DTCC's objections to costs 
generated by multiple points of access--which the Cornerstone Report 
did not estimate--are speculative.\52\ Moreover, these types of costs 
should not be unexpected in light of the Omgeo order, as described in 
more detail below. Further, if the Commission were to require each 
matching service provider to access DTC through Omgeo, such dependency 
could allow Omgeo to impose surcharges or other costs on its 
competitors that are not imposed on Omgeo itself, which the Commission 
believes could lead to unnecessary costs. Even if no fees were imposed, 
the structure could also limit innovation in the provision of matching 
services by other matching service providers. BSTP and SS&C also 
cautioned against such an outcome. BSTP describes in its comment letter 
that any new matching service provider required to rely on Omgeo would 
find itself in the untenable position of being dependent on a 
competitor's infrastructure, cooperation, and fee structure to operate 
its business and would likely find that such circumstances create an 
insurmountable barrier to entry.\53\ Similarly, SS&C infers from DTCC's 
position that Omgeo would impose the same charges on competing matching 
services as they do on clients today and states that, should the 
Commission accept this position, SS&C doubts that any service would 
find it economically viable to enter the market for post-trade services 
to compete with Omgeo.\54\
---------------------------------------------------------------------------

    \51\ As noted above, SS&C has its own Delivery Instruction 
Database. See supra Part II.B (describing SS&C's proposed service).
    \52\ See, e.g., Cornerstone Report at 30 (stating that there are 
aspects of central matching services that may be best provided by a 
single provider).
    \53\ See BSTP August letter at 4.
    \54\ See SS&C letter at 3.
---------------------------------------------------------------------------

    The Commission notes that the BSTP and SS&C applications did not 
specify whether BSTP or SS&C planned to develop their own duplicate 
standing instructions database. In cases where BSTP and SS&C can choose 
whether to depend on an existing system or develop their own, the 
Commission expects that market forces will determine whether utilizing 
existing services or systems will be dictated by an assessment of the 
business costs and benefits related to such choices. The Commission 
believes that such decisions are not predetermined.

[[Page 75394]]

    Finally, the Commission notes that DTCC has adopted a multiple 
access model for trade data submitted to one of its other registered 
clearing agencies, NSCC. Currently, NSCC receives trade data directly 
from exchanges, qualified special representatives, correspondent 
clearing agencies, and Omgeo.\55\ Because trade information is coming 
from separate market participants directly into NSCC, the Commission 
believes that this example further suggests that a DTCC registered 
clearing agency can receive data directly from Omgeo and multiple other 
entities in an effective and efficient manner that is consistent with 
the Exchange Act.\56\
---------------------------------------------------------------------------

    \55\ See generally NSCC & Industry Working Group, Trade 
Clearance Input Concept Paper (August 2014), available at http://www.dtcc.com/news/2014/september/16/dtcc-publishes-concept-paper-on-trade-clearance-input (discussing NSCC's system for capturing 
trades).
    \56\ The history of ETC services reflects a similar multiple 
access approach. To facilitate settlement in a registered securities 
depository following use of an ETC service, DTC coordinated with the 
Midwest Securities Trust Company (``MSTC'') and the Philadelphia 
Depository Trust Company (``Philadep'') to ensure that DTC 
participants on one side and sole participants in either MSTC or 
Philadep on the other side could collectively achieve ETC by linking 
DTC's automated settlement system for institutional transactions 
with similar systems developed in coordination with MSTC and 
Philadep. See Exchange Act Release No. 34-19227 (Nov. 9, 1982), 47 
FR 51658, 51659-60 (Nov. 16, 1982). The Commission noted that these 
linked systems facilitated communications without regard to the 
parties' choice of depository, thereby promoting uniformity in 
clearance and settlement procedures. The Commission also noted at 
the time that the linkages should reduce unnecessary costs 
associated with settlement, such as from delayed or lost affirmation 
and settlement instructions. See id. at 51660-61.
---------------------------------------------------------------------------

ii. Effect on Trade Confirmation/Affirmation Rates and Industry Efforts 
To Shorten the Settlement Cycle
    DTCC states that the multiple access model contemplated by the BSTP 
and SS&C applications may decrease the promptness of the current 
matching services infrastructure by increasing the time necessary to 
route confirmations and affirmations between customers and service 
providers.\57\ In the Cornerstone Report, DTCC cites research 
suggesting that certain components of the market's infrastructure, 
which may include the national system for clearance and settlement, 
have characteristics where the optimal structure is to provide clearing 
and settlement services via a single, regulated entity rather than 
multiple competing firms.\58\ DTCC states that broker-dealers using 
multiple matching services would be required to either modify existing 
systems to account for multiple matching service providers or invest in 
multiple systems, one for each such matching service provider, to 
obtain trade confirmations and transmit settlement instructions.\59\ 
DTCC also states that this duplication in systems would likely lead to 
additional costs and risks of error to the detriment of industry 
participants and their customers, who may face additional burdens to 
make timely deliveries, impairing their ability to comply with Rule 
10b-10 and Regulation SHO.\60\ Further, DTCC states that BSTP's entry 
may induce participants to move from Omgeo's to a less efficient 
sequential model, which according to data from Omgeo yields 
significantly lower affirmation rates in the majority of DTC eligible 
transactions.\61\ DTCC states that the combined effect of these 
potential consequences could also impair industry efforts to shorten 
the settlement cycle.\62\
---------------------------------------------------------------------------

    \57\ See DTCC April letter at 13.
    \58\ See Cornerstone Report at 4, 20-21 (describing the roles 
that economies of scale and network effects play in the provision of 
clearing services). DTCC also notes, for example, that there appears 
to be little dispute that the core depository services currently 
provided by DTC are more efficiently provided by a single depository 
than by multiple competing depositories. See id. at 4.
    \59\ See id. at 19; DTCC April letter at 8. This section focuses 
specifically on aspects of this concern related to efficiency, such 
as the potential need for broker-dealers to obtain trade 
confirmations and transmit settlement instructions using multiple 
systems. The costs of establishing linkages are addressed below in 
Part III.B.2.iv. The potential for an increase in systemic or 
operational risk are addressed, respectively, in Parts III.B.4 and 
III.B.5.
    \60\ See Cornerstone Report at 7; DTCC April letter at 8 (noting 
that maintaining multiple systems for compliance with Rule 10b-10 
would require not only referencing two sources for providing trade 
instructions but also two sources for receiving, downloading, and 
maintaining such trade confirmations under the applicable 
recordkeeping rules, resulting in unnecessary duplication, 
additional costs, and an increased risk of errors).
    BSTP requested that the Commission clarify the need for a 
matching service provider to obtain no-action relief under Rule 10b-
10 in order to provide ETC and matching services. The Commission 
notes that BSTP has obtained such no-action relief from the Division 
of Trading and Markets. In addition, the Commission notes that SS&C 
obtained no-action relief from the Division of Trading and Markets 
in 2008.
    \61\ See Cornerstone Report at 6.
    \62\ See DTCC April letter at 16.
---------------------------------------------------------------------------

    After carefully considering these comments, the Commission believes 
that, on balance, approval of the BSTP and SS&C applications is more 
likely to promote rather than impair promptness in the market for 
matching services, particularly with respect to the effect on 
confirmation/affirmation rates and industry efforts to shorten the 
settlement cycle. First, the Commission acknowledges that obtaining 
access to new matching service providers may require market 
participants to modify existing systems or purchase new systems to 
facilitate access to those matching service providers. But the 
Commission notes that these costs would be borne only by market 
participants presented with new products or services that they 
anticipate will offer benefits not available via the existing market 
infrastructure or via existing matching service providers that justify 
bearing these costs. DTCC's concern that these systems may be 
duplicative ignores that duplicative services may carry benefits that 
market participants seek, such as providing a new access point to DTC, 
a new interface with features not provided by Omgeo, or access to new 
markets or market participants not accessible through Omgeo.
    BSTP states that its matching service will receive trade execution 
information in real time, thereby enabling users to immediately 
identify and address processing exceptions on the trade date. BSTP 
states that it will provide a variety of efficiency tools that it 
believes are not currently offered to market participants to help them 
manage settlement exceptions, including tools for exception monitoring 
and instant chat functionality.\63\ The Commission believes that 
streamlining the confirmation/affirmation function helps facilitate 
prompt settlement because, as the use of manual processes for entry of 
information decreases, the opportunity to improve same-day (i.e., 
prompt) affirmation rates for U.S. equities increases. The Commission 
also believes that the tools BSTP intends to offer will increase the 
ability of market participants and their custodians to manage 
settlement exceptions.
---------------------------------------------------------------------------

    \63\ See BSTP application at S-3, S-5; see also BSTP May letter 
at 8.
---------------------------------------------------------------------------

    Second, the Commission does not find DTCC's argument that matching 
services fall among those components of the market's infrastructure 
having characteristics where the optimal structure is to provide them 
via a single entity rather than multiple competing firms to be so 
compelling as to justify denial or modification of the applications. 
DTCC comments, including comments in the Cornerstone Report, fail to 
establish or otherwise substantiate in any specific detail how the 
fixed costs of operating a matching service are so high as to generate 
inefficiencies if borne by more than one provider.\64\ As BSTP notes in 
its

[[Page 75395]]

comment letter, the Cornerstone Report concedes that the research 
supporting this argument concerns providers of CSD and CCP services, 
not confirmation/affirmation platforms or matching services.\65\ The 
Commission believes that this difference in clearing agency activity is 
significant and notes that the characteristics of a matching service 
provider are distinct from those of a clearing agency providing CSD or 
CCP services. The Commission's treatment of the different entities 
within the DTCC complex helps to illustrate this point. For instance, 
clearing agencies that provide CSD and CCP services, such as DTC and 
NSCC, are registered with the Commission, act as SROs under Section 19 
of the Exchange Act, submit rule filings for Commission review and 
approval, and remain subject to the full set of requirements applicable 
to clearing agencies under Section 17A of the Exchange Act, as well as 
the rules and regulations thereunder. Matching service providers like 
Omgeo are, in contrast, exempt clearing agencies that the Commission 
has authorized to provide certain services, subject to specific 
conditions as set forth in an exemptive order. The different approaches 
reflect the Commission's view that different types of clearing entities 
have different operating structures with different attributes that 
reflect different regulatory goals and objectives. The Commission 
believes that differences stemming from the types of clearing entity or 
service provided in this case support allowing multiple entities to act 
as matching service providers, and may lead to increases in efficiency 
in the market for matching services.\66\
---------------------------------------------------------------------------

    \64\ The Cornerstone Report states that interoperability is the 
key to competition in central matching services and notes that there 
are conditions in the respective orders that are designed to 
facilitate interoperability. The Cornerstone Report concludes that 
there are significant complexities associated with pricing in an 
interoperating central matching services marketplace, and that more 
careful analysis is needed to ensure that these complexities are 
resolved in a manner consistent with the Commission's mandate. See 
Cornerstone Report at 26-29.
    \65\ See BSTP August letter at 1 (citing Cornerstone Report at 
n.58).
    \66\ The Commission believes that these gains in efficiency may 
stem from increased competition and innovation in the market for 
matching services, as discussed below in Part III.B.3.
---------------------------------------------------------------------------

    DTCC also suggests that access to multiple matching service 
providers may increase the time necessary to route confirmations and 
affirmations between customers and service providers, which may 
interfere with market participants' ability to satisfy their 
obligations under Regulation SHO. DTCC also states that duplication of 
systems may result in multiple providers of Rule 10b-10 confirmations, 
resulting in unnecessary duplicate systems, additional costs, and an 
increased risk of errors.\67\ The Commission also finds these arguments 
too speculative. First, as BSTP notes in its comment letter, the 
Cornerstone Report identifies a particular scenario whereby delays in 
the affirmation or matching process in connection with a long sale of 
securities occurs at NSCC and leads to delivery failures, which could 
occur within the existing market structure and is not specifically 
caused by the existence of multiple matching service providers.\68\ The 
Commission agrees that this example is not unique to an environment 
with multiple matching service providers and therefore finds the 
Cornerstone Report's assertions highly speculative. Second, the 
operational and interoperability conditions included in the Omgeo order 
are designed to limit communication errors or other delays by setting 
conditions with respect to interoperability among multiple matching 
service providers.\69\ Regulation SCI,\70\ which also applies to exempt 
clearing agencies subject to ARP,\71\ further seeks to establish 
standards for connectivity, reliability, and resiliency to minimize the 
types of disruptions contemplated by DTCC. Third, the Commission notes 
that the examples of potential Regulation SHO violations presented in 
the Cornerstone Report, similar to the Rule 10b-10 comments discussed 
above, are speculative and more fundamentally unrelated to the concerns 
about efficiency raised by DTCC because, as BSTP also notes, the 
absence or presence of multiple confirmation service providers was not 
material or even relevant to the violations in question.\72\ The 
Commission therefore believes that these DTCC comments are too 
speculative and attenuated to be persuasive.
---------------------------------------------------------------------------

    \67\ See supra notes 59-60 and accompanying text. The Commission 
notes that it has addressed comments expressing concerns about 
duplicate systems above. In addition, the costs of establishing 
linkages are addressed below in Part III.B.2.iv. The potential for 
increases in systemic or operational risk are addressed, 
respectively, in Parts III.B.4 and III.B.5.
    \68\ See BSTP August letter at 5.
    \69\ These conditions are also included below for BSTP and SS&C. 
See infra Part IV.A.2.ii (for BSTP) and Part IV.B.2.ii (for SS&C).
    \70\ See Exchange Act Release No. 34-73639 (Nov. 19, 2014), 79 
FR 72251 (Dec. 5, 2014).
    \71\ Application of Regulation SCI to exempt clearing agencies 
is discussed in Part III.B.8.
    \72\ Specifically, as BSTP describes, one involved violations 
that persisted over four years and the other involved allegations of 
knowingly and willfully ignoring requirements. See BSTP August 
letter at 5 & n.19. The Commission notes that neither has 
circumstances implicating either the presence of multiple service 
providers or the linkages between them.
---------------------------------------------------------------------------

    In response to DTCC, BSTP counters that Omgeo actually impedes the 
move to a shortened settlement cycle by reducing the incentives for new 
providers to enter the market and thereby attract market participants 
to use matching services. BSTP states that it intends to service, among 
others, investment managers, brokers, and custodians that currently 
rely on manual processes for post-trade matching of trade and 
allocation information. In particular, BSTP states that it will enable 
such investment managers to gain the benefits of an electronic matching 
service while continuing to use their existing workflows (fax, email, 
PDF, etc.) to send allocation instructions to their executing brokers, 
an important segment of market participants necessary to shorten the 
settlement cycle.\73\ In contrast to the concerns raised by DTCC, BSTP 
states that transmission of matched settlement data without a direct 
electronic link to DTC would introduce a layer of inefficiency and 
complexity that would impair efforts to move to a shortened settlement 
cycle.\74\ Consistent with BSTP's position, five other commenters also 
expressed the view that increasing the number of matching service 
providers, by increasing efficiency, would likely also facilitate 
moving to a shortened settlement cycle.\75\ The Commission does not 
believe that expanding the scope of market participants engaged in 
matching services will impede industry efforts to shorten the 
settlement cycle because, in this situation, the availability of 
multiple matching service providers will provide market participants 
with more venues to match their trades in a timely, efficient manner, 
thereby increasing the potential for a higher global rate of affirmed 
trades within the current settlement cycle.\76\
---------------------------------------------------------------------------

    \73\ See BSTP May letter at 8. BSTP also notes that increased 
resiliency is necessary to move to a shortened settlement cycle. See 
id. Comments related to resiliency (i.e., operational risk) are 
addressed in Part III.B.5.
    \74\ See BSTP August letter at 4. Comments regarding access to 
DTC were addressed above in Part III.B.2.i.
    \75\ See AllianceBernstein at 1; Capital Market Solutions; 
Puskuldjian; SIFMA AMF at 1; Traiana.
    \76\ See Exchange Act Release No. 34-49405 (Mar. 11, 2004), 69 
FR 12922, 12926 (Mar. 18, 2004) (noting that it is generally 
accepted that a substantial portion of the risks in a clearance and 
settlement system is directly related to the length of time it takes 
for trades to settle and that, in other words, time equals risk).
---------------------------------------------------------------------------

iii. Management of Control Numbers
    Related to DTCC's concerns regarding efficient access to DTC, DTCC 
also raises concerns about how, under a multiple access model, control 
numbers

[[Page 75396]]

used to identify trades throughout the trade lifecycle would be 
assigned. First, DTCC explains that DTCC TradeSuite ID, which is part 
of Omgeo, provides control numbers to market participants upon 
receiving the trade data input from the executing broker-dealer.\77\ 
DTCC states that issuing control numbers from DTC, rather than 
TradeSuite ID, would require substantial system changes, either through 
building a new system within DTC or transferring the TradeSuite ID 
control number issuance capability to DTC.\78\ Second, DTCC notes that 
there are potential benefits to centralizing this data. For example, 
DTCC states that centralization of time-stamped trade records at DTCC 
has permitted the settlement agents and DTC to more efficiently and 
effectively settle trades that failed to settle on the scheduled 
settlement date, while allowing market participants to reconstruct 
trades and even unwind them when appropriate.\79\
---------------------------------------------------------------------------

    \77\ See DTCC April letter at 15.
    \78\ See id.; see also Cornerstone Report at 19-22. The 
Commission notes, however, that, in its comments regarding the 
timeframes for building and operating interfaces, DTCC identifies 
assignment of control numbers as one of the functionalities it will 
need to develop with BSTP and SS&C to ensure interoperability 
consistent with the conditions of the Omgeo order. See infra Part 
III.B.7.ii.
    \79\ See DTCC April letter at 7.
---------------------------------------------------------------------------

    The Commission agrees that there are potential benefits to 
centralizing trade data in a single repository. Indeed, BSTP states 
that the creation of the control number, the transmission of the 
control number to the parties involved in settlement, and the 
transmission of settlement instructions to DTC are critical components 
of post-trade processing, and, as such, are elements of the national 
clearance and settlement system that ought to be provided on a fair and 
non-discriminatory basis by DTC.\80\ BSTP further notes, however, that 
even if the Commission were to continue to allow DTC to outsource 
issuance of control numbers to Omgeo, DTC could simply allow BSTP to 
generate its own control numbers on DTC's behalf. BSTP states that, 
whatever the approach, it is capable of enriching a confirmation with a 
control number, thereby providing the same benefit of efficiently and 
effectively settling trades, as provided by the existing 
infrastructure.\81\
---------------------------------------------------------------------------

    \80\ See BSTP May letter at 14.
    \81\ See id.
---------------------------------------------------------------------------

    DTC rule change SR-DTC-2001-11 was approved to allow DTC to accept 
and act upon instructions provided by a matching service provider, and 
if centralization of trade data is necessary for such settlement, DTC 
has undertaken, in its capacity as a registered clearing agency and 
SRO, to perform such services.\82\ Further, centralization of trade 
data remains possible under a multiple access model supported by 
consistent data standards and identifiers. In this regard, BSTP notes 
that DTC could ensure that control numbers generated by BSTP are 
distinguishable from those generated by Omgeo by requiring, for 
example, use of a ``B'' prefix for the former and an ``O'' prefix for 
the latter.\83\
---------------------------------------------------------------------------

    \82\ See supra Part III.B.2.i.
    \83\ See BSTP May letter at 14 n.41.
---------------------------------------------------------------------------

iv. Costs of Linkages
    DTCC states that both the DTCC complex and market participants 
would face increased costs if the multiple access model contemplated by 
the BSTP and SS&C applications were implemented, and that the risks and 
costs of building and testing these connections would multiply 
exponentially as additional matching service providers enter the 
market.\84\ DTCC states that the Commission should therefore allow the 
industry to avail itself of the systems and controls that have already 
been established through Omgeo, an industry-owned utility.\85\ First, 
DTCC states that DTC would have to develop, build, and maintain new 
systems to interoperate with BSTP and SS&C. DTCC states that it would 
have to modify its internal systems and network management 
infrastructure and build in capabilities to prepare for the possibility 
of additional central matching services with direct access to DTC, and 
that BSTP and SS&C would also incur substantial costs.\86\ DTCC states 
that, as DTC's systems become more complex, DTC's maintenance 
requirements would also become more complex and costly, costs which 
would be borne by industry participants and ultimately investors. 
According to DTCC, these additional costs would also require DTC to 
reprioritize other critical projects, thereby potentially delaying 
important industry initiatives intended to make the national clearance 
and settlement system more secure and efficient.\87\ Second, DTCC 
states that market participants involved in the settlement of trades 
matched by BSTP and SS&C would need to develop, build, and maintain new 
interfaces and reengineer internal systems to receive and process 
messages from BSTP and SS&C. DTCC also states that market participants 
would inevitably bear at least some of the costs incurred by DTC, BSTP, 
and SS&C, as those costs are passed on to investors.\88\
---------------------------------------------------------------------------

    \84\ See DTCC April letter at 11
    \85\ See DTCC April letter at 11; Cornerstone Report at 18-19.
    \86\ Specifically, DTCC states that BSTP and SS&C would be 
required to (i) implement a redundant fault tolerant network design, 
including interfaces that ensure robust security protocols and 
processes based on DTCC standards, and (ii) build access to the 
custodian/settlement agent community to implement the multiple 
access model, imposing significant time, cost and other resources on 
BSTP, SS&C, and the custodians/settlement agents, costs that DTCC 
states would inevitably be passed on to investors. See DTCC April 
letter at 11.
    \87\ See id. at 12.
    \88\ See id. at 11; Cornerstone Report at 24.
---------------------------------------------------------------------------

    With respect to the implementation of new network designs and 
interfaces, and the provision of access, the Commission is unpersuaded 
that the prospect of additional expenses merits denial or modification 
of the applications. The Commission acknowledges that the entry of BSTP 
and SS&C into the market for matching services may initially result in 
additional investments by BSTP, SS&C, Omgeo, and DTC, as well as 
potentially a number of other market participants who rely upon such 
entities in various capacities. Neither DTCC nor any of those entities 
quantified the associated costs, however. The Commission expects that, 
as for-profit entities, neither BSTP nor SS&C would choose to bear 
these costs, including costs passed through from DTC, unless either 
believed it could do so profitably. While there may be initial costs 
required to establish new linkages, these new linkages will introduce 
competition and choice into the market for matching services, providing 
new opportunities for innovation that may reduce costs to market 
participants in the long run, as discussed further below. Indeed, there 
was unanimity in the comments by market participants about the impact 
on costs passed down to them: twenty-three market participants or 
industry groups commented on the BSTP application and expressed no 
concerns about costs being passed on to them. Rather, as noted 
previously, many of the commenters stated the opposite--that the 
introduction of new matching service providers would reduce costs to 
industry.\89\
---------------------------------------------------------------------------

    \89\ See, e.g., infra note 94 and accompanying text regarding 
reduced costs.
---------------------------------------------------------------------------

    With respect to implementation difficulties, the Commission is 
unpersuaded that the prospect of expenditures merits denial or 
modification of the applications. As previously discussed, both Omgeo 
and DTC agreed to a number of conditions that anticipated, and were 
designed to facilitate, the possibility of new matching service 
providers.\90\ The

[[Page 75397]]

Commission notes that neither DTCC nor the Cornerstone Report provided 
concrete descriptions of which critical projects would be delayed, or 
for how long. Further, as a registered clearing agency, DTC has 
obligations under Section 17A(b)(3)(F) of the Exchange Act to foster 
cooperation and coordination with persons engaged in the clearance and 
settlement of securities transactions, which it cannot abrogate due to 
cost. To the extent that DTCC reprioritizes projects, entities within 
the DTCC complex registered pursuant to Section 17A of the Exchange Act 
must continue to meet their legal and regulatory obligations.
---------------------------------------------------------------------------

    \90\ See supra notes 37-50 and accompanying text.
---------------------------------------------------------------------------

3. Competition, Choice, and Innovation
    Section 17A of the Exchange Act directs the Commission, in 
facilitating the establishment of the national clearance and settlement 
system, to have due regard for, among other things, maintenance of fair 
competition among clearing agencies.\91\ Below is an overview of 
comments related to competition. The Commission also received comments 
about choice and innovation, which are discussed below.
---------------------------------------------------------------------------

    \91\ See 15 U.S.C. 78q-1(a)(2)(A).
---------------------------------------------------------------------------

    One commenter states explicitly that approving the BSTP application 
would be consistent with the objectives of Section 17A of the Exchange 
Act and investor protection by promoting the integrity of the financial 
markets.\92\ DTCC, however, states that it is unclear whether the 
national clearance and settlement system can effectively sustain 
competition among multiple matching services and that the outcome of 
such competition may be that a for-profit entity becomes the primary 
provider of matching services. DTCC questions whether a for-profit 
entity like BSTP or SS&C can ensure that pricing decisions will be 
undertaken in a way that benefits the long-term best interest of the 
industry.\93\
---------------------------------------------------------------------------

    \92\ See SIFMA AMF at 2.
    \93\ See Cornerstone Report at 5-6, 29-30.
---------------------------------------------------------------------------

    There was unanimous support for new entrants to provide matching 
services. Several commenters anticipated that additional providers of 
matching services would yield benefits, namely increases in 
competition, choice, and innovation within the market for matching 
services.\94\ Twelve commenters identified as a related benefit a 
reduction in costs to market participants generally.\95\ In addition, 
four commenters cited BLP's role in BSTP's proposed matching service 
and BLP's overall reputation as positive aspects of the BSTP 
application.\96\ BSTP states that its application will promote fair 
competition, consistent with Section 17A(a)(2)(A),\97\ and SS&C 
similarly notes that its application would allow for competition in the 
area of institutional trade matching.\98\ In its comment letters, DTCC 
generally expressed support for the promotion of competition in service 
offerings to customers, including ETC and matching services to 
registered broker-dealers, investment managers, and custodians/
settlement agents. DTCC states that competition in service offerings, 
including ETC and matching services to registered broker-dealers, 
investment managers, and custodians/settlement agents, may permit 
useful innovation and product alternatives, to the benefit of industry 
participants and ultimately to investors.\99\
---------------------------------------------------------------------------

    \94\ See AllianceBernstein at 1; Altieri; Anonymous; Connolly; 
Denci; Dore; Durant; Fidessa; James; Lang; Matthews; McCafferty; 
Naratil; Northern Trust; Puskuldjian; Scuteri; SIFMA AMF at 1-2; 
Traiana.
    \95\ See AllianceBernstein at 1 (noting that reduced costs would 
be a natural economic byproduct of the increased availability of 
service providers, promoting trading and liquidity in the market); 
Ambos (noting that Omgeo's matching service potentially charged its 
group three times, as broker-dealer, outsourcer, and custodian, 
which the commenter stated may not be necessary if BSTP offers a 
matching service); Capital Market Solutions (noting that the ability 
to choose between matching services on a per-trade basis will help 
firms test services without having to invest in a large upfront 
cost); Connolly (noting that competition keeps prices at market 
rates); James; Lang (noting that adding a capable competitor in the 
post-trade processing space will lead to innovation which will 
ultimately result in lower transaction costs); Puskuldjian; 
Ransford; Scuteri (noting that competition allows the free market to 
dictate fair pricing); SIFMA AMF at 2; Traiana; see also Dore 
(noting that the absence of competition results in a lack of fee 
transparency).
    \96\ See Altieri; Connolly; James; Ransford.
    \97\ See BSTP May letter at 4; see also 15 U.S.C. 78q-
1(a)(2)(A).
    \98\ See SS&C letter at 1.
    \99\ See DTCC June letter at 2; DTCC May letter at 2; DTCC April 
letter at 2.
---------------------------------------------------------------------------

    Despite general agreement on the benefit of competition among 
matching service providers, DTCC and the applicants disagreed on the 
specific terms under which new entrants would compete with Omgeo, the 
only current matching service provider. DTCC states that the conditions 
on access and pricing in the BSTP and SS&C notices should be 
reconsidered. While noting that the conditions are substantially the 
same as those imposed on Omgeo, DTCC offers several bases for 
modification: Changes in the marketplace (including DTCC's 2013 
purchase of Thomson Financial's outstanding ownership interest in 
Omgeo), differences in the ownership and governance of Omgeo and the 
applicants, differences in the related services offered by applicants' 
affiliates, differences in the pricing structures of Omgeo and the 
applicants, and changes in law and regulation since 2001.\100\ DTCC 
states that the pricing and access conditions in the Omgeo order 
derived largely from concerns that central matching, which at the time 
was provided by DTC as an industry utility, would be performed by a 
separate for-profit entity in Omgeo. According to DTCC, the concern was 
that Omgeo could restrict competitors' access to DTC and give Omgeo an 
unfair advantage through differential pricing, lack of 
interoperability, and preferential treatment of Omgeo's clients by DTC. 
Therefore, Omgeo represented in its request for an exemption that it 
would not impose prohibitions or limit access to its services by 
potential customers, though it might terminate a subscription for 
failure to pay fees. According to DTCC, now that Omgeo is a wholly-
owned subsidiary of DTCC, it does not compete with BSTP or SS&C for 
customers, while BSTP and SS&C are for-profit entities and therefore 
subject to the incentive to limit access to competitors.\101\ DTCC says 
the Commission should impose on BSTP, and where applicable BLP, pricing 
and access conditions appropriate to the specific roles of each within 
the national market system and the national clearance and settlement 
system.\102\
---------------------------------------------------------------------------

    \100\ See DTCC April letter at 18-19.
    \101\ See DTCC April letter at 18-19; DTCC May letter at 16; 
Cornerstone Report at 5-6.
    \102\ See DTCC April letter at 19; Cornerstone Report at 5-6. 
For purposes of the below discussion, the Commission assumes that 
DTCC would seek to impose the same on SS&C and its parent company 
and/or affiliates.
---------------------------------------------------------------------------

    In response to DTCC's comments above, SS&C comments that it is not 
for DTCC to determine the affordability of its offering but rather for 
the marketplace to decide. SS&C states that it is fully committed to 
honoring the pricing and access conditions set forth in the SS&C 
application and notice. SS&C also notes that while Omgeo may not 
compete for customers in the United States, it does in other 
jurisdictions, including Canada, where Omgeo and SS&C are already 
direct competitors.\103\
---------------------------------------------------------------------------

    \103\ See SS&C letter at 5.
---------------------------------------------------------------------------

    DTCC also raises several competition concerns specific to the BSTP 
application. First, DTCC questions whether BSTP might bundle its 
matching service with other BLP services, raising potential antitrust 
concerns by creating a disincentive for BLP customers to use Omgeo's 
matching service. DTCC states that BLP should clarify its intentions 
with regard to

[[Page 75398]]

bundled pricing and that the Commission should clarify whether BSTP may 
offer different prices to distinct groups of customers while requiring 
fair access to BSTP's matching service. DTCC also requests that any 
determination to grant BSTP an exemption be expressly conditioned on 
BSTP not engaging either in tying of its matching service to other BLP 
services or in bundled pricing with respect to its matching service. 
DTCC requests that BSTP be required to make its matching service 
``separately available'' to someone who does not wish to purchase any 
other BLP service.\104\ Second, DTCC questions whether BSTP might 
deplete Omgeo's high-volume customer base, requiring Omgeo to either 
(i) raise prices on its remaining customers to cover its fixed costs or 
(ii) leave prices unchanged, thereby through DTCC subsidizing BLP's 
operations. DTCC stated that BSTP, as a for-profit entity, should not 
be allowed to provide matching services in an anti-competitive manner 
by targeting solely larger, more actively trading end-users while not 
permitting fair access to smaller, less active end-users. In this 
regard, DTCC also states that BSTP should not be allowed to condition 
use of its matching service on customers renting Bloomberg 
Terminals.\105\
---------------------------------------------------------------------------

    \104\ See DTCC April letter at 21 & n.64.
    \105\ See id. at 19 & n.59.
---------------------------------------------------------------------------

    In response to the multiple comments summarized above, BSTP 
comments that DTCC's assertion of potential antitrust concerns has no 
merit and that DTCC does not offer any logical explanation of how 
approving the BSTP application, and thereby introducing Omgeo's first 
competitor, could harm competition, but notes that it may affect 
Omgeo's current monopoly and DTCC's own business interests.\106\ BSTP 
also responds that there is nothing unusual or pernicious in the fact 
that BSTP will be a for-profit business, noting that many SEC-regulated 
entities, including those operating pursuant to exemptions, are for-
profit. Indeed, BSTP further notes that, in the Omgeo order, the 
Commission observed that Omgeo would be operated on a for-profit 
basis.\107\
---------------------------------------------------------------------------

    \106\ See BSTP May letter at 22.
    \107\ See id. at 19-20 n.59.
---------------------------------------------------------------------------

    Lastly, DTCC states that the Commission should require conditions 
on access to BSTP's FailStation product that are similar to those 
required for Omgeo's ALERT service and contained in the Omgeo order. 
DTCC cites BSTP's own description of FailStation as an industry utility 
that aggregates failed trade and settlement pre-matching data from all 
trade counterparties in real time into a single report for the 
investment manager, custodian, and broker. DTCC draws parallels between 
access to FailStation and access to ALERT, noting that commenters 
expressed concerns about access to ALERT after the creation of Omgeo, 
and the conditions were included to provide assurances that other 
central matching services and persons that represent or otherwise 
provide services to customers (i.e., end-users) of Omgeo would have 
access to ALERT on fair and reasonable terms.\108\ BSTP responds that 
FailStation is a product offered by Bloomberg Finance LP and is made 
available to all market participants who wish to purchase it, and 
accordingly there is no reason to impose a regulatory obligation on 
BSTP to ensure FailStation remains accessible to market participants. 
In discussing the comparisons made by DTCC between FailStation and 
Omgeo's ALERT service, BSTP states that the two are completely 
different services because ALERT is a database of customer relationship 
information and settlement data that is shared by institutions, broker-
dealers, and custodians. According to BSTP, FailStation is, by 
contrast, a tool that allows users of BSTP's service to monitor and 
manage pre- and post-settlement exceptions for a particular trade in 
real time.\109\
---------------------------------------------------------------------------

    \108\ See DTCC April letter at 20 & n.63.
    \109\ See BSTP May letter at 26 & n.83.
---------------------------------------------------------------------------

    Because of the interconnected nature of DTCC's many concerns raised 
above regarding the appropriateness of the access and pricing 
conditions contained in the BSTP and SS&C notices, the Commission will 
address them together. With respect to the absence of access and 
pricing conditions within the BSTP and SS&C applications reflective of 
their role in the marketplace, the Commission is unpersuaded that the 
prospect of bundling services, cross-subsidization of services, 
profitability, restrictions on access to unrelated services, and other 
like concerns merits denial or modification of the applications. To 
clarify, the Commission disagrees with DTCC's characterization of the 
historical purpose of these conditions under the Omgeo order as being 
tied to any particular applicant's ownership model or any particular 
marketplace structure.\110\ As the Commission stated in the Omgeo 
order, the Commission intended to require substantially the same 
conditions for other matching service providers,\111\ and did not 
distinguish among future hypothetical applicants on the basis of their 
non-profit or for profit status, governance structures, affiliated 
companies, or other factors related to the marketplace as a whole. 
Instead, these conditions were intended to assure that matching service 
providers other than Omgeo receive equal treatment by DTC, an affiliate 
of Omgeo.\112\ Additionally, the Commission does not see how Omgeo's 
status as a subsidiary of DTCC affects whether it will compete with 
BSTP and SS&C. That Omgeo does not compete with any other matching 
service provider currently is solely a reflection of its position as 
the only current matching service provider in the U.S. market. 
Moreover, DTCC's comments, including its concern the BSTP may deplete 
Omgeo's high-volume customer base, demonstrate that DTCC does 
anticipate competing with BSTP and SS&C for customers, in line with the 
Commission's expectation that market forces resulting from the 
introduction of multiple matching service providers would necessarily 
drive customer choice in this regard.
---------------------------------------------------------------------------

    \110\ See, e.g., DTCC April letter at 18-19; see also DTCC May 
letter at 16.
    \111\ See Omgeo order, supra note 37, at 20498.
    \112\ See id.; see also supra note 43 and accompanying text.
---------------------------------------------------------------------------

    The Commission also disagrees with DTCC's attempts to draw a 
parallel between the role that DTC and associated settlement system 
products (such as ALERT) play in the national clearance and settlement 
system and the role that Bloomberg Terminals, FailStation, and other 
BLP products play in the national clearance and settlement system. 
Despite any promotional claims that such products are industry 
utilities, from a regulatory perspective, Bloomberg Terminals, 
FailStation, and other BLP products primarily provide functionality for 
executing trades rather than clearing and settling trades. DTC, in 
contrast, as a registered clearing agency and the CSD for U.S. 
equities, is a critical element of the national system for clearance 
and settlement. In addition, the arguments presented by DTCC raising 
concerns over the potential for BSTP to bundle are speculative and the 
Commission believes that allowing market forces to determine whether 
bundling, Bloomberg Terminals access, or any other factor influences 
either high- or low-volume customer choice to be appropriate at this 
juncture.
    With respect to modifying the conditions as applied to SS&C and 
BSTP, the Commission believes that market conditions continue to 
support consistent treatment across matching service providers. The 
Commission believes that a potential overlap in targeted customer bases 
between the

[[Page 75399]]

applicants and Omgeo is not a sufficiently compelling reason to support 
modifying the conditions because the conditions were included to 
facilitate competition and that necessarily implied competition for 
customers.
    With respect to innovation, both BSTP and SS&C state that their 
applications will promote new data processing techniques and 
technology-driven solutions. For example, SS&C states that its service 
stands out in terms of its flexibility,\113\ while BSTP states that its 
offering stands out in terms of potential synergies with other tools 
currently used.\114\ Congressional findings cite to techniques that 
create the opportunity for more efficient, effective, and safe 
procedures, and the Commission believes that the description of 
services in the BSTP and SS&C applications may promote such 
opportunities, which are consistent with the public interest and the 
protection of investors.
---------------------------------------------------------------------------

    \113\ See BSTP letter at 3-4.
    \114\ See SS&C letter at 3.
---------------------------------------------------------------------------

    On balance, the Commission believes that the access and pricing 
conditions in the BSTP and SS&C notices would promote fair competition. 
New entrants such as BSTP and SS&C could foster competition in the 
provision of matching services by competing with Omgeo by reducing the 
cost of matching services to broker-dealers and institutional customers 
or increasing the quality or type of services offered. Competition, in 
turn, could foster innovation in the market for matching services, 
resulting in more efficient matching and communications systems.
i. Impact of Applicants' Workflows on Competition, Choice and 
Innovation
    Competition, choice, and innovation are not only addressed by 
commenters in the context of the general prospect of new entrants BSTP 
and SS&C, but also within the context of the discussion raised by DTCC 
regarding BSTP and SS&C's multiple access model workflow and DTCC's 
alternative single access model workflow. DTCC states that the 
Commission should distinguish competition in central matching from 
competition in access to settlement and related functions (e.g., 
providing internal control numbers and sending matching confirmation 
and settlement instructions to settlement agents and DTC). The 
Commission has previously described DTCC's position that the single 
access model is the optimal way to support competition in matching in 
Part III.B.2.i.\115\ DTCC states that requiring BSTP and SS&C to send 
trade instructions to DTC solely through the existing infrastructure 
would not impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act because it would be 
justified by the benefits to the clearance and settlement system 
resulting from greater visibility for DTC and its participants into 
pre-settlement trade activity, enabling firms to correct errors before 
fails occur and reducing the number of places in the trade lifecycle 
where an error in settlement could occur without imposing additional 
costs on industry, as DTCC states the multiple access proposal 
would.\116\
---------------------------------------------------------------------------

    \115\ See DTCC June letter at 2-3; DTCC May letter at 2; DTCC 
April letter at 3.
    \116\ See DTCC April letter at 14 n.45.
---------------------------------------------------------------------------

    In response, BSTP states that using Omgeo, as DTCC proposes, 
creates an unjustified barrier to entry, discouraging vendors from 
entering the matching services business because of the limited scope of 
services they would be able to provide outside Omgeo and because a 
competitor, Omgeo, would continue to control certain basic matching 
services functions. For example, BSTP states that such a workflow would 
place a competitor between the matching service provider and DTC, and 
between the matching service provider and custodians and settlement 
agents.\117\ BSTP states that DTCC's recommendation to use Omgeo 
reflects a fundamental conflation of DTCC's commercial interests as an 
unregulated holding company with the regulatory obligations of its 
subsidiaries, including DTC and Omgeo. BSTP further notes that the 
Cornerstone Report focuses primarily on how the approval of the BSTP 
application could affect Omgeo and Omgeo's business model, which BSTP 
states is itself rooted in a de facto monopoly over matching services. 
BSTP notes that DTC is subject to the full range of requirements under 
Section 17A of the Exchange Act while Omgeo is subject to the terms of 
the Omgeo order. BSTP states that DTCC fails to distinguish between its 
own corporate business interests and the requirements applicable to DTC 
under the Exchange Act and Omgeo under the Omgeo order.\118\ BSTP also 
states that mandating usage of Omgeo would hamper innovation because it 
would preserve the status quo, eliminating incentives for DTCC and its 
affiliates to innovate or to upgrade or improve infrastructure.\119\
---------------------------------------------------------------------------

    \117\ See BSTP May letter at 6-7.
    \118\ See id. at 8-9.
    \119\ See id. at 7.
---------------------------------------------------------------------------

    BSTP states that direct access to DTC is essential to the matching 
services concept and critical to the national system for clearance and 
settlement. BSTP states that DTCC's recommendation for a single-access 
model draws a fundamentally incorrect and inappropriate dichotomy by 
highlighting the distinction between matching services and access to 
settlement functions because it suggests that a matching service 
consists only of the internal function of comparing data and not the 
function of transmitting an affirmed confirmation to DTC. BSTP notes 
that previous Commission statements have clarified that a matching 
service seeking an exemption from registration as a clearing agency 
would be required to establish an electronic link to a registered 
clearing agency that provides for the settlement of its matched 
trades.\120\ According to BSTP, this recognizes that the capability of 
a matching service to send affirmed trades directly to DTC is critical 
to a safe and sound process for clearing and settling trades in the 
national clearance and settlement system, and that mandating the use of 
Omgeo would frustrate and impair the benefits that matching services 
bring to market participants.\121\
---------------------------------------------------------------------------

    \120\ See id. at 9. For discussion of previous Commission 
statements on the requirements that an entity seeking an exemption 
to provide matching service would need to satisfy, see the Matching 
Release, supra note 13, at 17947 n.28.
    \121\ See BSTP May letter at 10.
---------------------------------------------------------------------------

    BSTP also states that mandating the use of Omgeo would be 
inconsistent with DTC's obligations as a registered clearing agency. 
Citing Section 17A(b)(3)(F) and (I) of the Exchange Act, BSTP states 
that DTC has an obligation to maintain rules that foster cooperation 
and coordination with persons engaged in the clearance and settlement 
of securities transactions, that remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions, and that do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. BSTP states that mandating the use of 
Omgeo would be inconsistent with these obligations because DTCC would 
have the Commission adopt a requirement that favors one or more of 
DTCC's wholly-owned subsidiaries when Section 17A imposes an 
affirmative obligation to facilitate the development of matching 
services in a manner that

[[Page 75400]]

does not burden competition and that facilitates the linking of 
clearance and settlement facilities.\122\
---------------------------------------------------------------------------

    \122\ See id.
---------------------------------------------------------------------------

    BSTP notes that access to DTC was a major concern when the 
Commission issued the Omgeo order, and the Commission has above already 
assessed DTC's arguments regarding efficient access to DTC against the 
historical background to the Omgeo order and related DTC rule 
filings.\123\ For example, citing DTCC's comment letters from that 
period, BSTP states that, in moving TradeSuite to Omgeo, DTCC promised 
that vendors acting on behalf of DTC participants will be able to 
transmit settlement instructions directly to DTC without the 
involvement of Omgeo.\124\ BSTP also cites DTCC's comment letter 
stating that it shall not favor any single matching service provider 
over any other in terms of the quality and caliber of the interface to 
DTC's clearing agency or settlement functions, quality of connectivity, 
receipt of delivery and payment orders, speed or processing of delivery 
and payment orders, capacity provided, or priority assigned in 
processing delivery and payment orders. BSTP also cites DTCC's 
statement that DTC's longstanding practice of providing members of the 
financial industry with equal, standardized access to DTC's services 
will continue after the formation of Omgeo, and that such practice is 
required by Section 17A of the Exchange Act and subject to Commission 
oversight.
---------------------------------------------------------------------------

    \123\ See supra notes 37-50 and accompanying text.
    \124\ See BSTP May letter at 10.
---------------------------------------------------------------------------

    Further, BSTP states that mandating the use of Omgeo would require 
DTC to propose an unjustifiable rule change. BSTP notes that, as a 
registered clearing agency, DTC is a rules-based organization, and BSTP 
further notes that DTCC has cited to no rule that would require 
matching services to use Omgeo to access DTC. BSTP states that, if DTC 
wished to adopt such a requirement, it would be required to submit a 
proposed rule change, subject to notice, public comment, and Commission 
review and approval. BSTP notes that DTC has not submitted such a 
proposed rule change and further notes its belief that any such 
proposed rule change would be unsupportable under the Exchange 
Act.\125\
---------------------------------------------------------------------------

    \125\ See id. at 12.
---------------------------------------------------------------------------

    SS&C states in its letter that it is in complete agreement with 
BSTP's response on matters where the concerns raised by DTCC are 
substantially the same between the BSTP and SS&C applications, 
including the single versus multiple access question.\126\ Separately, 
SS&C also notes that, under DTCC's proposal for a single access model, 
competition as it relates to institutional post-trade processing would 
be confined to central matching while all other key ancillary services 
would remain outside this scope, subject to DTCC control as part of 
Omgeo. As noted previously, SS&C infers from DTCC's position that Omgeo 
would impose the same charges on competing matching services as they do 
on clients today and states that, should the Commission accept this 
position, SS&C doubts that any service would find it economically 
viable to enter the market for post-trade services to compete with 
Omgeo.\127\
---------------------------------------------------------------------------

    \126\ See SS&C letter at 4.
    \127\ See SS&C letter at 3. For prior discussion of these 
expected surcharges, see Part III.B.2.i, and supra notes 53-54 and 
accompanying text.
---------------------------------------------------------------------------

    The Commission is unpersuaded that, in considering the prospect of 
competition among matching service providers, it must find that a 
single, direct link to DTC through Omgeo is the only outcome sufficient 
to support approval of the BSTP and SS&C applications. As discussed 
previously, the Commission has already approved DTC rule change SR-DTC-
2001-11, which authorized DTC to accept from a matching service 
provider a file of deliver order instructions to settle transactions 
between DTC participants that have authorized DTC to accept such 
instructions from the matching service provider.\128\ The Commission 
notes that DTCC states that its Investment Management System (``IMS'') 
may receive deliver orders from multiple sources, including Omgeo as 
well as other matching service providers.\129\
---------------------------------------------------------------------------

    \128\ See supra notes 47-50 and accompanying text.
    \129\ See DTCC, Inventory Management System, available at http://www.dtcc.com/asset-services/settlement/inventory-management-system 
(last accessed Nov. 2, 2015) (discussing IMS transaction types, 
including code ``MITS''--matched institutional deliveries sent to 
IMS from Omgeo or another matching utility).
---------------------------------------------------------------------------

    Further, the Commission is unpersuaded that it should deviate from 
this existing regulatory framework because of DTCC's proposed vision 
for how competition among matching service providers could work. As 
discussed above, the Commission notes that it has previously described 
its expectation that an entity seeking an exemption as a matching 
service provider would be required to establish an electronic link to a 
registered clearing agency that provides for the settlement of its 
matched trades.\130\ The Commission specifically expressed concern 
about the concentration of risk that occurs in an entity that performs 
matching services instead of dispersing that risk more broadly to 
broker-dealers and their institutional customers. The Commission's 
concerns regarding concentration of risk--whether through aggregation 
of activity in multiple matching service providers, or further 
aggregation of trade enrichment activity under a single access model--
remain unchanged from those expressed in the Matching Release, even if 
multiple links to DTC result in some implementation costs.
---------------------------------------------------------------------------

    \130\ See Matching Release, supra note 13, at 17947 n.28.
---------------------------------------------------------------------------

4. Systemic Risk
    Within the concept of requiring linked or coordinated facilities 
for clearance and settlement of securities transactions is the 
implication that any one facility that is connected to other facilities 
could generate externalities that can affect the system as a whole. If 
such externalities can create disruptions to the national system for 
clearance and settlement, then the prospect of such systemic risk 
implicates facilitating the establishment of linked or coordinated 
systems.
    The Commission received multiple comments addressing the expected 
effect of the BSTP and SS&C applications on systemic risk. BSTP notes 
in its comment letter that the BSTP application promotes investor 
protection by providing a prompt and accurate matching service that 
eliminates a single point of dependency in the current market 
infrastructure for matching services, thus enhancing the robustness of 
the clearance and settlement system.\131\ As noted above, BSTP also 
highlights that its application promotes efficiency by enabling 
straight-through processing throughout the entire trade lifecycle, 
which it states will contribute to increases in same-day affirmation 
rates and in settlement rates.\132\ As to SS&C, as noted above, SS&C 
states that it is in agreement with BSTP on those points that overlap 
between the BSTP and SS&C applications.\133\
---------------------------------------------------------------------------

    \131\ See BSTP May letter at 3; see also BSTP August letter at 
2-4.
    \132\ See id.; see also supra note 31 and accompanying text.
    \133\ See supra note 24 and accompanying text.
---------------------------------------------------------------------------

    Multiple commenters agree with BSTP and SS&C. Ten commenters note 
that increasing the number of matching service providers would remove 
the single point of dependency present in the existing market 
infrastructure for matching services, decreasing the risks associated 
with a single point of failure.\134\ Similarly, four commenters

[[Page 75401]]

cite improved confirmation/affirmation rates overall as anticipated 
benefits of having multiple matching service providers,\135\ and one of 
those commenters also notes the related benefit of a likely reduction 
in settlement fails.\136\ An additional commenter supports the approval 
of additional providers of matching services where the matching service 
(i) supports standardized message formats and processing procedures, 
(ii) adheres to interoperability principles with current and future 
providers, (iii) accommodates increased volume on a scalable basis 
sufficient to function as a continuity of business alternative in the 
event other providers experience operational issues or failure, (iv) 
facilitates a shortened settlement cycle, and (v) supports straight 
through processing.\137\
---------------------------------------------------------------------------

    \134\ See AllianceBernstein at 1; Ambos; Capital Market 
Solutions; Connolly; Denci; Fidessa; Northern Trust; Ransford; 
Scuteri; SIFMA AMF at 2.
    \135\ See Capital Market Solutions; Lang; Matthews; Puskuldjian.
    \136\ See Puskuldjian.
    \137\ See Citi at 1-2. The Commission notes that the aspects of 
this comment are addressed throughout this order: Concerns related 
to standardized messaging formats and processing procedures are 
discussed in Parts III.B.2.i, iii, and iv; concerns related to the 
sufficiency of an applicant to provide a business continuity 
alternative are discussed in Part III.B.5; concerns related to 
interoperability are discussed in Part III.B.7; and concerns related 
to a shortened settlement cycle and straight-through processing are 
discussed in Part III.B.2.ii.
---------------------------------------------------------------------------

    In its comment letters and in the Cornerstone Report, however, DTCC 
raises multiple concerns about the effect of the applications on 
systemic risk. Central to the disagreement between the applicants and 
DTCC is whether BSTP and SS&C should have direct access to DTC. 
Further, to the extent that BSTP and SS&C have direct access to DTC, 
DTCC states that such linkage arrangements may increase systemic risk 
to the market's settlement infrastructure. DTCC also disagrees with 
commenters stating that the BSTP and SS&C applications will alleviate 
the single point of dependency problem that exists in the current 
market infrastructure, stating that a single market participant is 
unlikely to subscribe to two separate matching service providers and 
therefore not increase the resiliency that results from redundant 
systems.\138\ In addition, DTCC raises other concerns regarding the 
solvency of BSTP, SS&C, their respective parent companies, and their 
respective affiliates; the resiliency of SS&C, its parent company, and 
its affiliates; and the volume limits represented in the SS&C 
application.
---------------------------------------------------------------------------

    \138\ See Cornerstone Report at 4-5.
---------------------------------------------------------------------------

i. Single Point of Dependency
    First, BSTP states that Omgeo represents a single point of failure 
for matching services because it is the only means of accessing DTC for 
settlement.\139\ BSTP states that a resilient environment is needed in 
matching services, which can be achieved through the introduction of 
additional matching service providers if they are allowed to establish 
separate, redundant connections to DTC and market participants.\140\ 
BSTP states that centralization of records is worrisome and that 
introducing an additional venue for storing records will benefit the 
marketplace by alleviating reliance on a single entity.\141\ BSTP notes 
that a single access model would prevent the establishment of separate, 
direct connections to DTC and therefore eliminate the benefit that 
multiple pathways would provide, such as alleviating message traffic 
congestion during high volume trading periods (such as near the time of 
market close). In its comment letters, BSTP states that it will provide 
increased resiliency by providing an alternative means for affirmed 
confirmations to be transmitted to DTC, custodians, and settlement 
agents.\142\
---------------------------------------------------------------------------

    \139\ See BSTP May letter at 6.
    \140\ See BSTP August letter at 3-4. BSTP cites to recent events 
in which the presence of multiple service providers and points of 
connectivity helped facilitate trading on alternate trading venues 
when the primary listing venue suffered a disruption. See id. at 4 & 
n.12.
    \141\ See id. at 17.
    \142\ See id. at 8.
---------------------------------------------------------------------------

    DTCC counters that allowing both BSTP and SS&C to access DTC 
directly would increase systemic risk relative to a single access model 
because a single access model has fewer interfaces within the market 
infrastructure that provides matching services, meaning fewer potential 
points of failure, less complexity, and therefore less risk to the 
national clearance and settlement system.\143\ DTCC also notes that, 
under the current model, when a broker-dealer executes an institutional 
trade, they provide a trade record and Omgeo assigns a control number 
to be used throughout the trade lifecycle, allowing DTC, market 
participants, and regulators to track the phases of one or more trades 
over time.\144\ In addition, the Cornerstone Report states that a 
multiple access model can only reduce the single-point-of-dependency 
problem during a matching service provider outage when the two parties 
to a trade have access to multiple matching service providers and can 
easily transition from using one to using the other.\145\ The 
Cornerstone Report also states that, even if a second market entrant 
could feasibly provide matching services, further complexities may 
arise when additional entrants become matching service providers.\146\
---------------------------------------------------------------------------

    \143\ See DTCC April letter at 11, 13; Cornerstone Report at 6, 
23.
    \144\ See DTCC April letter at 7; DTCC May letter at 3-15.
    \145\ See Cornerstone Report at 23-24.
    \146\ See id. at 41.
---------------------------------------------------------------------------

    The Commission notes that it has already addressed several 
arguments related to efficiency concerns regarding access to DTC in 
Part III.B.2.i. On the single point of dependency question, the 
Commission agrees with BSTP and disagrees with DTCC. As DTCC correctly 
notes, the risk that the clearance and settlement system would fail 
during times of market stress, such as the 1987 market break, has been 
described as the single most important threat to the U.S. financial 
system, and that settlement failures, if widespread, can have a 
systemic impact on the national clearance and settlement system while 
imposing significant costs on market participants.\147\ As described 
above, the Commission maintains the concerns it expressed within the 
Matching Release with respect to concentration of processing risk in a 
single matching service provider.\148\ On balance, the Commission 
believes that the redundancy created by more interfaces and linkages 
within the settlement infrastructure increases resiliency, as suggested 
by BSTP. In the event of a disruption in services at Omgeo, the 
redundancy facilitated by the addition of matching services provided by 
BSTP and SS&C makes it more likely that market participants can 
continue to match and settle trades than if Omgeo stands as a necessary 
intermediary for settlement at DTC.
---------------------------------------------------------------------------

    \147\ See DTCC April letter at 1-2, 3.
    \148\ See Matching Release, supra note 13, at 17946.
---------------------------------------------------------------------------

    The Commission acknowledges, as noted by DTCC, that in order for 
one matching service provider to facilitate redundant access to DTC in 
the event Omgeo or another matching service provider experiences a 
disruption, customers will need to have access to multiple matching 
service providers. The Commission notes that, unlike participants in a 
CCP, customers of a matching service provider are not subject to 
requirements to determine suitability for membership. Because obtaining 
access to a matching service provider is not subject to determinations 
regarding suitability for membership, the Commission expects that 
customers could gain access to a secondary matching service provider 
with enough

[[Page 75402]]

ease to meaningfully reduce disruption to the marketplace, as compared 
to a scenario where access to DTC is not redundant.
    With respect to the direct links proposed by the BSTP and SS&C 
applications, the Commission is unpersuaded that the prospect of 
increased technical complexity merits denial or modification of the 
applications. As BSTP notes in its comment letter, technological 
improvements since approval of the Omgeo order have increased the 
ability to establish safe and secure communication links.\149\ Further, 
BSTP states that there is nothing new or unique about the activities 
that will be required of DTC to establish an interface with BSTP. BSTP 
states that it would expect to use the same protocol as Omgeo, and 
notes that the comment letters demonstrate that market participants do 
not view linkage requirements as disadvantageous.\150\ According to 
BSTP, whether the trade instructions are in a proper format requires 
only the use of an agreed protocol. BSTP further states that BSTP's 
matching service will use industry standard communication, message, and 
file-transfer protocols and will be able to ensure that the trade 
instructions sent to DTC are in the proper format.\151\ BSTP states 
that, like many industry participants, its affiliates also currently 
maintain as part of their day-to-day operations multiple connections 
with a variety of pre- and post-trade services (including Omgeo) using 
FIX and other standardized protocols.\152\ As BSTP correctly notes, 
even DTCC acknowledges that Omgeo currently interfaces with over 60 
vendors, including a BSTP affiliate, on behalf of its customers.\153\
---------------------------------------------------------------------------

    \149\ See BSTP May letter at 11.
    \150\ See id. at 13 (citing to SIFMA AMF for the point that 
additional service providers will permit firms to improve upon 
contingency strategies and disaster recovery models as well as allow 
firms to diversify their support model and mitigate risk by moving 
trade volume to other service providers if one is experiencing 
interruptions or outages).
    \151\ See id. at 15.
    \152\ See id.
    \153\ See id. at 12 n.37.
---------------------------------------------------------------------------

    The Commission acknowledges that there may be externalities 
associated with a settlement infrastructure where multiple competing 
matching services link to DTC. Such externalities could manifest if, 
for example, a systems failure at BSTP reduces the ability of DTC to 
process transaction information received from Omgeo or SS&C. In such a 
scenario, BSTP may not fully internalize the costs of errors in its 
systems because a portion of these costs are imposed on its 
competitors. The Commission believes, however, that the 
interoperability conditions, along with the requirements in Regulation 
SCI for SCI entities to coordinate the testing of business continuity 
and disaster recovery plans on an industry-wide basis,\154\ help to 
mitigate the risk that one or more matching services with access to DTC 
could establish systems that significantly externalize the consequences 
of systems malfunctions to the national system for clearance and 
settlement.
---------------------------------------------------------------------------

    \154\ See 17 CFR 242.1004(c). Application of Regulation SCI to 
exempt clearing agencies is addressed in Part III.B.8.
---------------------------------------------------------------------------

    In addition, DTCC notes two other benefits of its single-access 
model: (i) DTC would receive earlier warnings of potential problem 
transactions, which would reduce disruptions and improve the 
reliability and efficiency of the national clearance and settlement 
system; and (ii) exclusive reliance on Omgeo for access to DTC, NSCC, 
and the custodians/settlement agents would permit DTCC to facilitate 
future developments in the operational systems used to generate trade 
instructions for clearance and settlement, thereby reducing risk of 
system disruptions or system incompatibilities that result in trade 
failures.\155\ The Commission does not see why these benefits cannot 
materialize if the BSTP and SS&C applications are approved. BSTP, for 
example, is proposing to include as part of its matching service other 
services that provide information to custodians and other stakeholders 
earlier in the settlement process than currently provided, which may 
also reduce the number of problem transactions. Similarly, approving 
the BSTP and SS&C applications does not prevent DTCC from facilitating 
future developments in the operational systems used to generate trade 
instructions for clearance and settlement. On the contrary, with three 
matching service providers, the number of entities that may be working 
to facilitate new developments in the generation of trade instructions 
will be increased.
---------------------------------------------------------------------------

    \155\ As an example, DTCC cites a recent approved rule change in 
support of DTC's settlement matching initiative, intended to reduce 
uncertainty in the settlement of institutional transactions at DTC. 
See DTCC April letter at 14 n.44.
---------------------------------------------------------------------------

    Second, DTCC states it is essential that only one entity issue 
control numbers because multiple issuers of control numbers would 
greatly increase the likelihood of settlement errors.\156\ DTCC 
therefore recommends that regardless of where a trade is centrally 
matched, the broker be required to send a trade record and obtain a 
control number for that trade from Omgeo in a manner that facilitates 
the single access model, as the electronic confirmation and matching 
process is currently conducted.\157\ DTCC further states that 
centralizing time-stamped trade records in this way allows DTC and 
settlement agents to more efficiently and effectively settle trades 
that have failed to settle on the scheduled date while allowing market 
participants to reconstruct trades or unwind positions as appropriate. 
DTCC notes that the time-stamped audit trail has allowed DTC and its 
affiliates to reconstruct trades after September 11, 2001, the 
bankruptcy of Lehman Brothers in 2008, and the ``flash crash'' in 2010, 
among other significant market events. DTCC also states that this 
centralized record allows DTC, market participants, and regulators to 
piece together events that cause market stress and has provided 
enormous benefit to regulators in examining trading history among 
investment managers and broker dealers.\158\ DTCC states that, under a 
multiple access model, these efforts would be severely hampered, 
perhaps even lost.\159\ It states that, because DTCC's audit records 
are centralized, the industry can evaluate affirmation and settlement 
rates industry-wide because only a single entity has the records of all 
institutional trades from execution through settlement. Bifurcating 
this process, according to DTCC, would make it more difficult to 
monitor improvements and spot trends in affirmation and settlement 
rates, including, in particular, spotting the points in transactions 
where failure is most likely to occur.\160\
---------------------------------------------------------------------------

    \156\ See id. at 15.
    \157\ See id.
    \158\ See DTCC April letter at 7.
    \159\ See id. at 8.
    \160\ See id.
---------------------------------------------------------------------------

    BSTP acknowledges that, ideally, there should be one issuer of 
control numbers and that, because it is essential to the safe and sound 
settlement of securities transactions, it is the responsibility of DTC 
to provide control numbers as a registered clearing agency.\161\ BSTP 
states that the creation of control numbers, the transmission of 
control numbers to the parties involved in settlement, and the 
transmission of settlement instructions to DTC are critical components 
of post-trade processing and, as such, are elements of the national 
clearance and settlement system that must be provided on a fair

[[Page 75403]]

and non-discriminatory basis by DTC.\162\
---------------------------------------------------------------------------

    \161\ See BSTP May letter at 14.
    \162\ See BSTP August letter at 5 (citing statements regarding 
the issuance of control numbers made in the Cornerstone Report at 
21).
---------------------------------------------------------------------------

    BSTP explains that, contrary to DTCC's claim that a specific time 
for obtaining a control number should be incorporated into BSTP's 
application, incorporating a control number in the matching process is 
well understood. BSTP cites the Matching Release in explaining that the 
control number is obtained from DTC during the process of confirming 
the terms of a trade with the broker-dealer involved in the trade.\163\ 
As mentioned above in Part III.B.2.iii, BSTP notes that DTC could 
ensure that control numbers generated by BSTP are distinguishable from 
those generated by Omgeo.\164\ BSTP also notes that a control number is 
required to be obtained by qualified vendors of ETC services, and notes 
that FINRA Rule 11860 does not require the use of the Omgeo-centric 
existing infrastructure by qualified vendors.\165\
---------------------------------------------------------------------------

    \163\ See id. at 14 n.42 (citing 63 FR at 17944-45).
    \164\ See id. at 14 n.41.
    \165\ See id. at 14 n.40. BSTP also clarifies that it will be 
authorized under FINRA Rule 11860 to be utilized for the electronic 
confirmation and affirmation of all depository-eligible transactions 
if the Commission grants an exemption. See id. at 25-26. In the 
Matching Release, the Commission stated that, in the process of 
considering whether to grant an exemption, an entity would have to 
meet the requirements to become a qualified vendor under the 
relevant SRO rules because they are necessary elements in providing 
a matching service. See Matching Release, supra note 13, at 17947 
n.27.
---------------------------------------------------------------------------

    The Commission has previously addressed the concerns regarding 
issuance and management of control numbers above in Part III.B.2.iii, 
including DTCC's concerns regarding centralization of trade data. The 
Commission does not view the prospect of a multiple access model as 
being inconsistent with the ability to have a centralized source of 
control numbers. Consequently, the Commission finds the systemic risk 
concerns cited by DTCC on this matter to be unpersuasive.
    Lastly, the Cornerstone Report raises concerns that, because of the 
potential increase in systemic risk resulting from the approval of 
multiple matching service providers, market participants' ability to 
comply with Regulation SCI may be impaired.\166\ The Commission views 
this argument as speculative and unpersuasive. Neither DTCC nor the 
Cornerstone Report identify how a market participant, or even which 
market participant, might find it harder to comply with Regulation SCI 
in the wake of the Commission approving new matching service providers. 
Neither DTCC nor the Cornerstone Report estimate any costs that might 
result from such changes either. Further, the Commission notes that 
industry-wide testing required under Regulation SCI should not be 
negatively impacted by whether the number of participants in any 
particular market segment ebbs and flows from one year to the next. The 
Commission believes the benefit of removing a single point of 
dependency, as discussed above, is consistent with the public interest 
and the protection of investors and supports the approval of new 
matching service providers.
---------------------------------------------------------------------------

    \166\ See Cornerstone Report at 32-35, 36-37. The Commission 
notes that this particular issue raised in the Cornerstone Report is 
directed at whether BSTP and SS&C specifically can comply with 
Regulation SCI. Concerns regarding general compliance by exempt 
clearing agencies with Regulation SCI related are addressed in Part 
III.B.8.
---------------------------------------------------------------------------

ii. Solvency of Applicants
    DTCC raises concerns about how the sudden insolvency of either BSTP 
or SS&C might raise systemic risk concerns in the event that market 
participants, who had come to rely on the availability of BSTP and SS&C 
as matching service providers, were no longer able to use their 
matching services.\167\ DTCC states that the benefits of the BSTP and 
SS&C applications may ultimately be fleeting because BSTP and SS&C are 
private companies that may become insolvent or choose to forego or 
discontinue providing matching services after a short time if providing 
such services does not prove to be profitable or otherwise 
advisable.\168\ DTCC suggests that insolvency is more likely for BSTP 
and SS&C because they are for-profit companies, and notes that the 
potential insolvency of either of their parent or affiliate companies 
could raise the same concerns. DTCC implies that, as an industry-owned 
utility, Omgeo does not carry the same level of risk. DTCC states that 
if either BSTP or SS&C ceased to provide matching services after the 
industry had become reliant on it to perform such services, the 
likelihood of failed trades could increase and the industry may need to 
undergo an extensive reintegration period to onboard market 
participants. Accordingly, DTCC believes that BSTP, SS&C, and their 
parent and affiliate companies should each be required to provide 
additional assurances regarding insolvency.
---------------------------------------------------------------------------

    \167\ See DTCC April letter at 17-18 (as to BSTP); DTCC May 
letter at 15 (as to SS&C).
    \168\ See id. at 12 n.37.
---------------------------------------------------------------------------

    BSTP responds that it has devoted substantial resources to 
developing its matching service, is committed to that matching service, 
and is adequately capitalized. In addition, BSTP states that, as part 
of obtaining an exemption from registration as a clearing agency, BSTP 
has agreed to provide the Commission annual audited financial 
statements, and states that no additional assurances regarding 
financial strength should be necessary.\169\ Similarly, SS&C responds 
that DTCC's concerns are speculative and unfounded. SS&C notes that it 
is a public company and therefore publishes audited financial 
statements which are also supplied to the Commission. SS&C states that 
no further assurances regarding financial strength are necessary.\170\
---------------------------------------------------------------------------

    \169\ See BSTP May letter at 20.
    \170\ See SS&C letter at 4.
---------------------------------------------------------------------------

    With respect to the future potential insolvency of the applicants, 
their parents, and their affiliates, the Commission believes such 
speculation does not merit denial or modification of the applications 
at this time. DTCC provides no rationale for why, as for-profit 
entities, BSTP and SS&C, or their parent companies or affiliates, are 
more likely to become insolvent than Omgeo or DTCC. Indeed, the 
Commission notes that DTCC's own Cornerstone Report suggests that, in a 
market with multiple matching service providers, Omgeo may find itself 
no longer financially viable.\171\ Should the prospect of insolvency of 
a matching service provider materialize, the Commission can consider 
modifying or revoking an exemption from registration under certain 
procedures, addressing the specific conditions as they arise.
---------------------------------------------------------------------------

    \171\ See Cornerstone Report at 22.
---------------------------------------------------------------------------

    Further, the Commission is mindful that, during an extended service 
outage, the failure of a single matching service provider could cause 
significant disruption to the financial markets. In this regard, 
denying the BSTP and SS&C applications would preserve such risk and 
leave it concentrated in a single entity because Omgeo is currently the 
only matching service provider for the U.S. equity markets. The 
Commission believes that approving the BSTP and SS&C applications could 
help mitigate this risk.
iii. Resiliency of Applicants
    DTCC expressed concerns regarding whether BSTP and SS&C systems 
would have the capacity to handle the significant amount of potential 
order flow, particularly during the high volumes that can occur during 
times of market stress or volatility, noting that Omgeo has developed 
with its customers both direct proprietary links to existing systems as 
well as web-based linkages and interfaces hosted by third party order 
management systems and

[[Page 75404]]

vendors.\172\ DTCC states that the proprietary linkages can handle 
tremendous trading volumes, as has been demonstrated repeatedly in the 
past, including during the 2010 ``flash crash.'' \173\
---------------------------------------------------------------------------

    \172\ See DTCC May letter at 17; DTCC April letter at 22.
    \173\ See DTCC May letter at 17 & n.42.
---------------------------------------------------------------------------

    The Commission is satisfied that both the BSTP and SS&C 
applications provide sufficient assurances regarding their proposed 
risk management framework. First, as SS&C notes in its comment letter, 
SS&C Canada and SSCNet have represented that they are staffed 
adequately with qualified and experienced industry veterans that have 
been in the post-trade services industry for decades and notes that it 
has long advocated for responsible growth when it comes to staffing 
numbers, facilities, and infrastructure. SS&C also represented that it 
has consistently applied stress and capacity disciplines during its 
history to ensure the soundness of its post-trade application.\174\ 
Similarly, BSTP represented that it has planned for adequate systems 
capacity and conducts stress testing. It also represented that BSTP and 
its affiliates have a comprehensive business continuity management 
program to ensure a timely response to, and effective recovery from, 
unanticipated business interruptions that may affect facilities, 
technology, and/or people. BSTP represented that, to minimize business 
interruption events, BSTP will undertake continuous monitoring and 
identification of potential risks and take action designed to mitigate 
the impact of these risks.\175\
---------------------------------------------------------------------------

    \174\ See SS&C letter at 5.
    \175\ See BSTP May letter at 22.
---------------------------------------------------------------------------

    The Commission discusses concerns specific to BSTP and SS&C's 
operational risk management frameworks below in Part III.B.5. Concerns 
raised by DTCC in response to the cross-border nature of the SS&C 
application are addressed in Part III.B.5.i below as well.
iv. Volume Limits in the SS&C Application
    DTCC notes that the SS&C application represents that SS&C will only 
match up to one percent of the U.S. aggregate daily volume of 
securities trades and would seek an amendment 180 days prior to 
exceeding that limit, which means that SS&C may have to refuse to 
provide matching services to some trades in some instances, which may 
create problems for market participants that are uncertain whether 
their trades would be accepted for matching by SS&C.\176\ The 
Commission is mindful of this concern, and requested an amendment, 
which SS&C submitted on November 9, 2015 to remove the representation 
regarding volume limits. The Commission agrees that volume limitations 
may create uncertainty as to whether SS&C's matching service is able to 
match trades, increasing the risk that a trade may fail in the event 
that SS&C has unexpectedly exceeded the volume limits represented in 
its application. Therefore, the Commission does not believe that volume 
limitations are necessary for the SS&C application to be consistent 
with the public interest, the protection of investors, and the purposes 
of Section 17A of the Exchange Act.
---------------------------------------------------------------------------

    \176\ See DTCC May letter at 17 n.41.
---------------------------------------------------------------------------

5. Operational Risk
    Under Section 17A of the Exchange Act, applicants must demonstrate 
that they are so organized and have the capacity to be able to 
facilitate the prompt and accurate clearance and settlement of 
securities transactions. Questions of capacity have previously been 
addressed in Parts III.B.2.ii, in connection with facilitating access 
to DTC, and III.B.4.iii, in connection with questions about the 
applicants' resiliency. Nevertheless, several comments raised concerns 
related to particular operational risks, and the Commission considers 
such concerns below.
    With respect to operational risk management, DTCC notes that its 
own regulated affiliates have each been subject to business continuity 
standards higher than those set forth in Regulation SCI.\177\ DTCC 
states that BSTP, SS&C, and their parent companies should be held to 
the same standard. DTCC also states that the Commission should also 
hold the parents and affiliates of BSTP and SS&C to the same standards 
of internal controls, security, and business continuity as the 
Commission holds other critical participants in the national clearance 
and settlement system to the extent those parents and affiliates are 
relied upon to perform matching services because that would best serve 
the public interest and the protection of investors.\178\ In addition, 
because BSTP seeks to license from BLP the operations and systems to 
conduct its matching service, DTCC states that both BSTP and BLP should 
be subject to the full panoply of legal and regulatory requirements 
under Regulation SCI, and that BLP should be required to make available 
its books and records, as well as its operating systems, to inspection 
by the Commission upon request.\179\ Similarly, because SS&C seeks to 
rely on SS&C Canada for the operations and systems to conduct central 
matching, DTCC states that both SS&C and SS&C Canada should be subject 
to the full panoply of legal and regulatory requirements under 
Regulation SCI and ARP.\180\ DTCC notes that both BSTP and SS&C would 
have relatively small staffs to oversee their matching services.\181\
---------------------------------------------------------------------------

    \177\ See infra note 246.
    \178\ See DTCC May letter at 3; DTCC April letter at 7, 21-22.
    \179\ See DTCC June letter at 4-5; DTCC April letter at 21-22 & 
n.67.
    \180\ See DTCC September letter at 3; DTCC May letter at 17.
    \181\ See DTCC April letter at 21; DTCC May letter at 16-17.
---------------------------------------------------------------------------

    BSTP responds that it is staffed with an adequate number of 
qualified and experienced personnel to operate BSTP. BSTP notes that 
its staff includes industry veterans who know the marketplace and are 
well suited to operate BSTP and ensure that BSTP complies with all 
applicable regulatory standards, including stringent business 
continuity, information security, and capacity testing plans and 
procedures.\182\ With respect to Regulation SCI, BSTP notes that DTCC's 
regulated affiliates (namely, DTC, NSCC, and FICC) are subject to high 
standards because they are registered clearing agencies and have been 
designated as systemically important under Title VIII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act. BSTP notes that Omgeo 
is not a registered clearing agency and has not been designated 
systemically important, and therefore the standards applicable to 
DTCC's registered clearing agency subsidiaries do not apply to 
Omgeo.\183\
---------------------------------------------------------------------------

    \182\ See BSTP May letter at 21.
    \183\ See id. at 25.
---------------------------------------------------------------------------

    SS&C responds that, if granted an exemption, all parts of the 
SSCNet matching service would be subject to Regulation SCI. SS&C states 
that there is no legal basis for Regulation SCI to apply to the broader 
SS&C complex, however, because those affiliates and subsidiaries are 
not within the scope of entities subject to Regulation SCI under the 
conditions proposed in the SS&C notice. SS&C further states that SSCNet 
will be subject to and intends to comply with all of the standards 
specified by the Commission that are applicable to exempt clearing 
agencies.\184\ SS&C also adds that DTCC's proposed single access model 
would pose greater security and confidentiality risks than a multiple 
access model because transactions involving non-Omgeo clients would 
have to be routed through the existing

[[Page 75405]]

Omgeo infrastructure, thereby exposing confidential information to a 
competitor (Omgeo) that otherwise is not a party to the 
transaction.\185\
---------------------------------------------------------------------------

    \184\ See SS&C letter at 5.
    \185\ See SS&C letter at 4-5.
---------------------------------------------------------------------------

    The Commission addresses concerns specific to the cross-border 
nature of SS&C's operations below. More generally, the Commission notes 
that there has been a long history of parent and affiliate companies 
providing facilities management and operational support for clearing 
entities, and this has been accepted by the Commission in the past. For 
example, in 1972 the New York Stock Exchange and Amex founded the 
Securities Industry Automation Corporation (``SAIC'') to handle such 
services for their clearinghouses.\186\ SAIC later became the 
facilities manager for NSCC, which is now a clearing agency within the 
DTCC complex. In this regard, BSTP's staffing arrangements and reliance 
on affiliates are similar to Omgeo and the other registered clearing 
agencies within the DTCC complex. The Commission also believes that 
subjecting BSTP and SS&C to Regulation SCI pursuant to the conditions 
in this order addresses the concern about business continuity standards 
and is consistent with Regulation SCI's approach to exempt clearing 
agencies subject to ARP. The Commission also believes that whether 
Regulation SCI should apply to such affiliates and/or parent companies 
is a function of the provisions and definitions in Regulation SCI 
considered and adopted by the Commission.
---------------------------------------------------------------------------

    \186\ See Bradford Nat'l Clearing Corp. v. SEC, 590 F.2d 1085, 
1097 (D.C. Cir. 1978).
---------------------------------------------------------------------------

    Further, as noted elsewhere in this order,\187\ the Commission 
believes that BSTP and SS&C should be held to the same regulatory 
requirements as Omgeo because each entity is providing the same type of 
service. That the DTCC complex as a whole may be subject to heightened 
standards for, in this case, resiliency and business continuity under 
Section 17A of the Exchange Act and Regulation SCI stems from, among 
other things, its role as holding company for three registered clearing 
agencies that provide CCP and CSD services.\188\ As previously 
mentioned and discussed further in Part III.B.8, BSTP and SS&C, like 
Omgeo, are exempt clearing agencies subject to the Commission's ARP and 
therefore SCI entities under Regulation SCI. The Commission believes 
that the requirements under Regulation SCI are sufficient to help 
ensure that BSTP and SS&C are held to high standards for internal 
controls, redundancy, security, and business continuity.
---------------------------------------------------------------------------

    \187\ See, e.g., supra notes 110-112 and accompanying text.
    \188\ See, e.g., supra note 65-66 and accompanying text.
---------------------------------------------------------------------------

    DTCC states that BLP's historic treatment of intellectual property 
raises concerns regarding BSTP's safeguards in this area, as well as in 
maintaining the privacy of users and the confidentiality of data within 
its databases. DTCC notes that BSTP plans to license its software, 
hardware, administrative, operational, and other support services from 
BLP, and therefore stated that the Commission should require extensive 
firewalls and other internal controls to prevent the misuse of clearing 
data obtained through BSTP's ETC and matching service.\189\ BSTP 
responds that, in raising concerns about BSTP's ability to maintain 
privacy of users and confidentiality of data, DTCC cites to BLP's 
enhancement of access controls to prevent inappropriate access to BLP's 
client data. BSTP states that, if anything, these enhanced access 
controls provide added assurance that BSTP data will be held securely. 
BSTP notes that BLP is a preeminent data service provider, and that BLP 
and BSTP have information security policies and procedures in place 
that meet or exceed industry standards.\190\
---------------------------------------------------------------------------

    \189\ See DTCC April letter at 18.
    \190\ See BSTP May letter at 22.
---------------------------------------------------------------------------

    The Commission has evaluated the aspects of the BSTP application 
relating to operational risk management and internal controls. DTCC's 
arguments made about the prospect of confidentiality or privacy 
breaches are speculative and unsubstantiated by any past conduct or 
previous violations. The BSTP application indicates that BSTP has 
planned for adequate systems capacity and that it conducts stress 
testing. The Commission notes that BSTP and its affiliates have a 
business continuity management program to ensure a timely response to, 
and effective recovery from, unanticipated business interruptions that 
may affect facilities, technology, and/or people. The Commission also 
notes that the BSTP application indicates BSTP staff includes industry 
veterans knowledgeable of the marketplace and well suited to operate 
BSTP.
    As with BSTP, the Commission has reviewed the staffing, reliance on 
affiliates for operational systems, internal controls, and related 
aspects of the SS&C application. Again, DTCC's arguments made about the 
prospect of confidentiality or privacy breaches are speculative and 
unsubstantiated by any past conduct or previous violations, and SS&C 
has been providing local and centralized matching facilities and ETC 
services for twenty years.\191\ SSCNet is currently operating as a real 
time and batch-based system, so its proposed functionality under the 
SS&C application is not purely hypothetical. Further, as mentioned 
above, requiring trade data from SS&C customers to pass through Omgeo 
in order to arrive at DTC, as contemplated by DTCC's suggested single 
access model, could create conditions more favorable for 
confidentiality breaches than if such data was not routed through a 
competitor.
---------------------------------------------------------------------------

    \191\ See SS&C letter at 4.
---------------------------------------------------------------------------

    In addition, as discussed above, BSTP and SS&C, as SCI entities, 
will be subject to Regulation SCI. For example, Rule 1001(b) of 
Regulation SCI requires an SCI entity to have policies and procedures 
reasonably designed to ensure that their SCI systems operate in a 
manner that complies with the Exchange Act and rule and regulations 
thereunder and the entity's rules and governing documents, as 
applicable.\192\
---------------------------------------------------------------------------

    \192\ See id. at 72437-38.
---------------------------------------------------------------------------

i. Cross-Border Aspects of the SS&C Application
    DTCC notes that the SS&C application indicates all matching service 
activities will be performed by SS&C Canada. DTCC states that SS&C's 
reliance on a foreign subsidiary to perform critical functions 
distinguishes the SS&C application from the circumstances underlying, 
and the regulatory impact of, Omgeo's current exempt status, and raises 
concerns for the safety and soundness of the national clearance and 
settlement system.\193\
---------------------------------------------------------------------------

    \193\ See DTCC September letter at 3; DTCC May letter at 10.
---------------------------------------------------------------------------

    On a general level, DTCC states that the Commission must satisfy 
itself of the following: (i) that the role of SS&C Canada would not 
weaken the regulatory framework applicable to SS&C's activities; and 
(ii) that the proposed framework in which SS&C is the regulated entity 
but SS&C Canada performs the actual matching function would not create 
a risk of disconnectedness or regulatory impairment with respect to the 
Commission's oversight of the national clearance and settlement system. 
In addition, DTCC states that the Commission should carefully 
scrutinize SS&C's undertakings with respect to operational, 
interoperability, and access matters, and its own ability to monitor 
the effects of SS&C's overall activities on the national system for 
clearance and settlement.\194\
---------------------------------------------------------------------------

    \194\ See DTCC May letter at 11.

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

[[Page 75406]]

    On a more specific level, DTCC states several concerns relating to 
choice of law, jurisdiction, privacy of information, and timely access 
to records.\195\ One concern is that the Commission should require SS&C 
to demonstrate that applicable Canadian employment law would not impede 
or impair SS&C's ability to perform the undertakings provided in the 
SS&C application, including with respect to access to SS&C Canada 
employees.\196\ DTCC also raises concerns with respect to conflicts 
between U.S. and Canadian privacy and securities laws and states that 
SS&C should be required to employ Connecticut counsel to offer its 
views on whether Connecticut law would interpret the Canadian privacy 
statutes to permit SS&C Canada to provide trade information to SS&C 
daily without concerns about being in violation of those statutes.\197\ 
DTCC also states that SS&C needs to demonstrate that Canadian law 
applicable to the treatment and production of relevant data and client 
information would not impede or impair the production and provision of 
information required by regulators.\198\
---------------------------------------------------------------------------

    \195\ See DTCC September letter at 3.
    \196\ See DTCC May letter at 12.
    \197\ See id. at 13. DTCC notes that the intercompany agreement 
between SS&C and SS&C Canada described in the SS&C application 
states that SS&C shall provide the Commission with access to 
information relating to SS&C Canada's matching system and electronic 
confirmation services, including all documents it receives from SS&C 
Canada. DTCC further notes that the SS&C application states that 
SS&C has confirmed with external counsel that implementation of the 
intercompany agreement would not violate the Canadian privacy 
statutes, which specifically are the Canadian Personal Information 
Protection and Electronic Document Act and the Ontario Business 
Records Protection Act. DTCC also states that, according to the SS&C 
application, because the intercompany agreement is governed by 
Connecticut law and SS&C's external counsel are not qualified to 
practice in Connecticut, SS&C has only assumed that Connecticut 
courts would interpret the intercompany agreement the same as the 
applicable Canadian courts. DTCC explains that if SS&C's external 
counsel were incorrect in their assumption, a Canadian customer 
might be able to sue SS&C to prevent SS&C Canada from providing SS&C 
with daily trade information, including confirmations, which would 
make it difficult for SS&C to oversee SS&C Canada's operations and 
may prevent the Commission from having ready access to trade 
records. See id.
    \198\ See id. DTCC says that, given the importance of this 
issue, the opinion of qualified legal counsel concerning whether 
local Ontario privacy and business record laws would be breached by 
the intercompany agreement seems insufficient and further due 
diligence is warranted. In addition, DTCC says that SS&C should 
address whether other Canadian law could result in the unanticipated 
disclosure of customer information or could provide the basis for a 
Canadian customer asserting that data held by SS&C Canada should not 
be provided to SS&C or to regulators. See id.
---------------------------------------------------------------------------

    Further, DTCC states that it understands that certain activities of 
SS&C Canada are regulated by the Ontario Securities Commission 
(``OSC'') and the Autorit[eacute] des march[eacute]s financiers 
(``AMF''), and therefore SS&C should demonstrate that its reliance on 
SS&C Canada for the purposes contemplated in the SS&C application are 
not in conflict or inconsistent with existing requirements under 
applicable Canadian provincial securities laws.\199\ DTCC also notes 
that SS&C's Form 10-K indicates that SS&C has recognized that a 
substantial portion of its operations are conducted outside of the 
United States and that it is subject to a variety of related risks, 
including the potential difficulty to enforce third-party contractual 
obligations and intellectual property rights. DTCC states that the 
Commission should therefore require further due diligence by SS&C in 
this area.\200\
---------------------------------------------------------------------------

    \199\ See id.
    \200\ See id. at 14.
---------------------------------------------------------------------------

    In addition, DTCC states that the SS&C application does not discuss 
any due diligence performed by SS&C with respect to SS&C Canada and 
SS&C Canada's capabilities in supporting SS&C or its abilities to 
discharge the services and obligations contemplated in the intercompany 
agreement.\201\ In this regard, DTCC cites the IOSCO Principles on 
Outsourcing of Financial Services for Market Intermediaries (2005) as 
noting various risks related to cross-border outsourcing, for which 
financial institutions should conduct enhanced due diligence.\202\ DTCC 
states that the Commission should require SS&C to demonstrate that it 
has conducted such enhanced due diligence, including the written 
documentation of the results of such due diligence.\203\
---------------------------------------------------------------------------

    \201\ See id. at 11.
    \202\ See id. at 11-12. DTCC notes, for instance, that when 
considering cross-border outsourcing, the outsourcing firm should 
conduct enhanced due diligence that focuses on special compliance 
risks, including the ability to effectively monitor the foreign 
service provider, the ability to maintain the confidentiality of 
firm and customer information, and the ability to execute 
contingency plans and exit strategies where the service is being 
performed on a cross-border basis. See id. at 11. DTCC states that 
special outsourcing risks also include individual firm concentration 
risk and the associated exit strategy risk (e.g., over-reliance on 
the outsourced provider and a lack of relevant skills within SS&C 
itself), that concentration risk includes the potential sale of SS&C 
Canada by SS&C, and that access risk includes both the risk of 
timely access by SS&C and its auditors and regulators to data, 
records, or assets and conversely risk of access by SS&C Canada 
employees to SS&C client account data, records, and assets. See id. 
at 11-12.
    \203\ See id. at 12.
---------------------------------------------------------------------------

    Finally, DTCC notes that, pursuant to the SS&C application, SS&C 
Canada will operate the matching and ETC service on behalf of SS&C. 
DTCC believes operational support may be provided to an exempt clearing 
agency by a non-U.S. affiliate but states that the SS&C application 
raises issues related to such support. DTCC states, for example, that 
pursuant to its application, the policies and procedures of SS&C Canada 
are overseen by its officers and directors and subject to control by 
SS&C Holdings. DTCC believes that SS&C Canada's policies and operations 
related to matching should be overseen by SS&C itself.\204\
---------------------------------------------------------------------------

    \204\ See id. at 14.
---------------------------------------------------------------------------

    DTCC notes, in particular, the integral role played by SS&C Canada 
suggests that extra scrutiny be placed on cross-border issues to the 
extent they could delay or impede the proper functionality of trade 
matching and settlement, as previously noted above.\205\ Specifically, 
DTCC says that SS&C's plan to rely on SS&C Canada and other off-shore 
affiliates within the SS&C complex for operational performance of its 
matching and ETC service, along with other related services, raises 
concerns about SS&C's ability to appropriately protect its intellectual 
property and to maintain the privacy of users and confidentiality of 
data within its databases. DTCC says that the Commission should require 
extensive firewalls and other internal controls to prevent the misuse 
of clearing data obtained through SS&C's electronic confirmation and 
matching service, including the misuse of such data in providing other 
services within the SS&C complex.\206\
---------------------------------------------------------------------------

    \205\ See id. at 3.
    \206\ See id at 15.
---------------------------------------------------------------------------

    SS&C responds that the various assertions described above regarding 
the oversight of SS&C Canada by SS&C are unfounded and that SS&C has 
complete oversight of and visibility into the operations of SSCNet. 
SS&C further states that SS&C Canada and the SSCNet application fall 
under the scrutiny and review of a number of SS&C's U.S.-based 
executive committees providing direct oversight, including its 
Operating Committee, its Security Committee, and a U.S.-based internal 
audit department that reports to the U.S.-based Audit Committee. It 
also states that the SSCNet division reports to the U.S.-based Senior 
Vice President, Institutional and Investment Management; its 
development division reports to the U.S.-based Senior Vice President, 
Chief Development Officer; and its Information Technology Services 
division reports to the U.S.-based Chief Technology Officer. SS&C also 
notes that Omgeo operates in many

[[Page 75407]]

jurisdictions outside the United States, including Canada, on the same 
basis.\207\
---------------------------------------------------------------------------

    \207\ See SS&C letter at 4.
---------------------------------------------------------------------------

    SS&C also responds that DTCC incorrectly asserts that some or all 
applications offered by SS&C are comingled with each other and that 
intellectual property, privacy of users, and confidentiality of data is 
lacking. SS&C states that it is a leading global data service provider 
that deploys information security policies, procedures, and controls 
that meet or exceed industry standards and that SS&C has never 
experienced a breach of security or privacy.
    The Commission is satisfied that the cross-border aspects of the 
SS&C application have been sufficiently addressed without requiring 
denial or modification of the application. First, as described in Part 
II.B, the SS&C application includes a series of representations 
designed to ensure that the Commission can fulfill its regulatory 
obligations with respect to SS&C. SS&C is a U.S. person incorporated in 
Delaware with a Connecticut business registration that dates back to 
1996. According to its application, SS&C will enter into an 
intercompany agreement with SS&C Canada governing the availability of 
information related to matching services. As a subsidiary of SS&C, SS&C 
Canada will be subject to the control of its parent company. Further, 
as described in the SS&C letter, SS&C's executive committees such as 
the Operating Committee and the Security Committee provide direct 
oversight of SSCNet.\208\ The Commission believes that control of SS&C 
Canada by a U.S. parent and the contractual arrangements outlined in 
SS&C's application are sufficient to allow the Commission to exercise 
oversight of SS&C consistent with the Exchange Act.
---------------------------------------------------------------------------

    \208\ See SS&C letter at 4.
---------------------------------------------------------------------------

    Second, the Commission has entered into a memorandum of 
understanding concerning consultation, cooperation, and the exchange of 
information related to the supervision of cross-border regulated 
entities with the AMF and the OSC. The MOU notes that it is intended to 
express each authority's willingness to cooperate with each other in 
the interest of fulfilling their respective regulatory mandates, 
particularly in the areas of investor protection, fostering the 
integrity of and maintaining confidence in the capital markets, and 
reducing systemic risk.\209\
---------------------------------------------------------------------------

    \209\ See Memorandum of Understanding Concerning Consultation, 
Cooperation and the Exchange of Information Related to the 
Supervision of Cross-Border Regulated Entities, Sept. 2011, 
available at http://www.sec.gov/about/offices/oia/oia_bilateral/canada_regcoop.pdf.
---------------------------------------------------------------------------

    More generally, as previously discussed, the Commission is familiar 
with arrangements whereby a registered entity contracts out functions 
to other entities that may or may not be directly regulated by the 
Commission, and may or may not be located within the U.S. In the 
absence of a concrete obstacle--for example, a specific foreign statute 
blocking access currently in effect, or a history of instances of non-
compliance by an entity--DTCC's arguments about cross-border risks 
depend on purely speculative concerns. For example, such prospects are 
not grounded in a particular fact pattern identified by DTCC or other 
commenters, and do not demonstrate that SS&C is hindered in its ability 
to comply with the conditions below.
    Finally, we note that as with the Omgeo order, this order includes 
provisions for modification if necessary or appropriate in the public 
interest, the protection of investors, or otherwise in furtherance of 
the purposes of the Exchange Act.\210\ The Commission may also limit, 
suspend, or revoke this exemption if it finds that SS&C has violated or 
is unable to comply with any of the provisions set forth in this order 
if such action is necessary or appropriate in the public interest, for 
the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act.\211\ Thus, should concerns about SS&C 
arise in the future, the Commission retains sufficient tools to ensure 
that SS&C acts consistent with the public interest, the protection of 
investors, and the purposes of Section 17A of the Exchange Act.
---------------------------------------------------------------------------

    \210\ See infra Parts IV.A.3 (for BSTP) and IV.B.3 (for SS&C).
    \211\ See id.
---------------------------------------------------------------------------

6. Governance of BSTP
    DTCC states that the composition of BSTP's board of directors as 
described in the BSTP application raises concerns about the overlap 
between BSTP and its for-profit parent BLP because only one of the 
board's four members is an industry representative, which could 
compromise BSTP's independence from BLP and the extent to which BSTP is 
capable of playing a neutral role as an industry utility.\212\
---------------------------------------------------------------------------

    \212\ See DTCC April letter at 17.
---------------------------------------------------------------------------

    According to BSTP, while BSTP's parent, BLP, will provide BSTP with 
software, hardware, administrative, operational, and other support 
services, BSTP has established a separate board of directors to oversee 
its operations and will hold ultimate legal responsibility over its 
operations.\213\ BSTP states that its governance arrangements are 
designed to help ensure that BSTP will be operated in a manner that is 
consistent with the public interest and the protection of investors by 
establishing specific governance principles and fitness standards for 
qualification of each member of the board of directors.\214\ BSTP also 
states that it intends to establish an advisory board consisting of 
industry members and users of BSTP, including representatives from 
broker-dealers, investment managers, and custodians, and that it 
intends to continue engaging with the securities industry and market 
participants as a further means of ensuring that BSTP operates in a 
manner that is consistent with the public interest and the protection 
of investors.\215\
---------------------------------------------------------------------------

    \213\ See BSTP May letter at 20.
    \214\ See id.
    \215\ See id. at 20-21. Specifically, BSTP stated that, in 
designing BSTP's matching service, BSTP met with over 30 investment 
managers, created and obtained input from two working groups (one 
comprised of representatives from seven industry-leading custodians 
and one comprised of representatives from fifteen prominent broker-
dealers). See id. at 20 n.62.
---------------------------------------------------------------------------

    The Commission is mindful of DTCC's concerns but disagrees. As BSTP 
notes, DTCC provides no support from the Omgeo order that matching 
service providers be non-profit entities or that for-profit entities be 
subject to special controls by virtue of that status.\216\ Omgeo itself 
was 49.9-percent owned by a for-profit entity at its formation.\217\ 
The Commission recognizes that, as originally conceived, five of nine 
voting managers on Omgeo's board of managers were industry 
representatives,\218\ which reflects a higher ratio of industry 
representatives than BSTP's board of directors. The Commission also 
notes that BSTP has represented that it will make efforts to 
incorporate industry representatives into BSTP's decision-making 
process. Specifically, the Commission believes that the advisory board 
would provide useful industry input into the decisions made by BSTP's 
board of directors. In addition, the Commission believes that BSTP's 
proposed industry working group will help ensure that the users of 
BSTP's matching service will have significant input into BSTP's service 
offerings and operations. Further, as with the Omgeo order and as noted 
above with respect to SS&C, this order includes provisions for 
modification if necessary or appropriate in the public interest, the 
protection of investors, or

[[Page 75408]]

otherwise in furtherance of the purposes of the Exchange Act. The 
Commission may also limit, suspend, or revoke this exemption if it 
finds that BSTP has violated or is unable to comply with any of the 
provisions set forth in this order if such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act. Thus, 
should concerns about BSTP arise in the future, the Commission retains 
sufficient tools to ensure that BSTP acts consistent with the public 
interest, the protection of investors, and the purposes of Section 17A 
of the Exchange Act.
---------------------------------------------------------------------------

    \216\ See id. at 19.
    \217\ See Omgeo order, supra note 37, at 20495.
    \218\ See id.
---------------------------------------------------------------------------

    DTCC additionally states that BSTP should be subject to stricter 
corporate governance controls similar to those imposed on Omgeo, and 
that BSTP's board should be required to maintain fair representation of 
its ETC and matching service customers.\219\ The Commission disagrees 
and continues to believe that an entity such as BSTP that limits its 
clearing agency functions only to providing matching services need not 
be subject to the full panoply of clearing agency regulation.\220\ This 
includes the requirement that the rules of the clearing agency assure a 
fair representation of its shareholders and participants in the 
selection of its directors.\221\
---------------------------------------------------------------------------

    \219\ See DTCC April letter at 17; Cornerstone Report at 29.
    \220\ See Matching Release, supra note 13, at 17947.
    \221\ See 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    In response to DTCC's suggestion that Omgeo is subject to 
heightened governance requirements, the Commission believes it is 
appropriate to highlight several reasons for the various legal and 
other regulatory requirements to which the entities within the DTCC 
complex are subject, as follows. First, Omgeo is an exempt clearing 
agency subject to the terms and conditions of the Omgeo order. Second, 
DTC, by contrast, is a registered clearing agency subject to the full 
panoply of clearing agency regulation. Accordingly, when the Commission 
approved transfer of the TradeSuite ID system from DTC to Omgeo, it 
highlighted the statutory requirement that DTC provide equitable 
allocation of dues, fees, and other charges among its participants and 
refrain from imposing any burden on competition not necessary or 
appropriate in furtherance of the purposes of Section 17A of the 
Exchange Act.\222\ These requirements are obligations of DTC, not 
Omgeo, and the Commission finds no basis for imposing obligations on 
BSTP and SS&C that have not been imposed on Omgeo.
---------------------------------------------------------------------------

    \222\ See Omgeo order, supra note 37, at 20498 n.39.
---------------------------------------------------------------------------

7. Interoperability Among Matching Service Providers
i. Sufficiency of the Interoperability Conditions
    Several commenters expressed views on the need for interoperability 
to ensure that a market structure with multiple matching service 
providers can facilitate the anticipated benefits described above. 
Specifically, four commenters emphasized the importance of facilitating 
interoperability between matching services. Two commenters stated that 
interoperability is vital to ensure that industry participants may 
choose their service providers free of any dependency and to support 
use by the full spectrum of potential users.\223\ Another similarly 
stated that interoperability must be mandatory given the number of 
institutions active in this space while also noting that it may result 
in increased implementation costs to current and future matching 
services.\224\ A fourth stated that, in its experience connecting to 
securities and derivatives clearing and settlement services globally, 
fair and open approaches have been valuable in encouraging continued 
investments by market participants and vendors, reinforcing the cycle 
of innovation and meaningful cost reduction in global markets.\225\ Two 
commenters further stated that the conditions proposed in the BSTP 
notice, which are the same as those proposed in the SS&C notice (and 
substantially the same as those contained in the Omgeo order),\226\ 
were appropriate and adequate to facilitate interoperability and 
regulatory oversight.\227\
---------------------------------------------------------------------------

    \223\ See Citi at 2; Fidessa.
    \224\ See Northern Trust.
    \225\ See Traiana.
    \226\ See generally Omgeo order, supra note 37.
    \227\ See SIFMA AMF at 1-3; Northern Trust.
---------------------------------------------------------------------------

    The Commission agrees that interoperability among matching service 
providers is critical to facilitating the establishment of linked and 
coordinated facilities for the clearance and settlement of securities 
transactions. In 2001, the Commission issued the Omgeo order mindful of 
concerns about interoperability. Accordingly, the Omgeo order included 
interoperability conditions designed to address concerns that, as the 
sole provider of matching services, Omgeo could improperly gain a 
monopoly in post-trade processing.\228\ The interoperability conditions 
were designed to address these competition concerns and help ensure 
that Omgeo's exemption was consistent with the public interest, the 
protection of investors, and the purposes of Section 17A of the 
Exchange Act.\229\ In particular, the Commission notes that the 
conditions set forth in the Omgeo order help facilitate the 
establishment of linked and coordinated facilities for the clearance 
and settlement of securities transactions, ensure choice among service 
providers, reduce costs to the users of matching service providers, and 
facilitate the entry of new matching service providers that might 
encourage innovation in the provision of matching services.
---------------------------------------------------------------------------

    \228\ See Omgeo order, supra note 37, at 20496-97, 20498.
    \229\ See id. at 20498.
---------------------------------------------------------------------------

    The Commission is satisfied that the BSTP and SS&C applications, 
which include substantially the same interoperability provisions as 
those set forth in the Omgeo order, will continue to facilitate these 
same goals. The Commission notes that both BSTP and SS&C expressed 
support for interoperability in their comment letters,\230\ and that 
BSTP and SS&C also state that their applications will promote linkages 
and standardization, consistent with Section 17A(a)(1)(D) of the 
Exchange Act.\231\ Specifically, SS&C states that it has a long history 
of linking with upstream accounting and order management systems used 
by institutional customers, service bureaus used by broker-dealers, and 
direct linkages into custodian platforms for those banks directly on 
its platform. It has also created interfaces with services that are 
seen as competitors such as SWIFT, SCRL, FX matching platforms, and 
vendors offering local matching engines. SS&C states it was also a 
charter member of ISITC North America (then the Financial Models 
Company) and that the promotion of standards and interoperability has 
long been a cornerstone of the company's philosophy.\232\ Similarly, 
BSTP states that it will use industry standard communication protocols 
(e.g., TCP/IP, SNA) and message and file transfer protocols (e.g., FIX, 
WebSphere MQ), as well as support the FIX global post-trade processing 
guidelines. BSTP states that, as a result, it will be able to accept a 
market participant's preferred means of

[[Page 75409]]

sending and receiving data, thereby minimizing the development cost 
needed to use BSTP's matching service.\233\
---------------------------------------------------------------------------

    \230\ See BSTP May letter at 4 (citing interoperability as one 
way in which the BSTP application promotes standards and linkages 
consistent with Section 17A of the Exchange Act); SS&C letter at 3 
(stating that the promotion of uniform standards and 
interoperability have long been cornerstones of SS&C's company 
philosophy).
    \231\ See BSTP May letter at 4; SS&C letter at 2-3; see also 15 
U.S.C. 78q-1(a)(1)(D).
    \232\ See SS&C letter at 3.
    \233\ See BSTP May letter at 4.
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ii. Timeframes for Building and Operating Interfaces
    DTCC states that the timeframes for building and operating 
interfaces, as set forth in the Omgeo order and included for BSTP and 
SS&C as part of this order, do not take into account the amount and 
complexity of the work that would need to be done to accommodate BSTP 
and/or SS&C's entry into the market structure for matching services and 
likely would be insufficient to enable the operational accuracy and 
reliability for the proper operation of an interface.\234\ DTCC states 
that it would need to analyze requirements for and provide 
interoperability specifications to BSTP and/or SS&C to facilitate the 
formation of an interface, but such specifications cannot be determined 
until a functioning interface has been designed, developed, and 
tested.\235\ DTCC further states that because functionality related to 
central matching interoperability does not currently exist within Omgeo 
or elsewhere within DTCC, DTCC would need to analyze its existing 
systems to ensure those systems, processes, and workflows would not be 
compromised by connecting to BSTP and/or SS&C.\236\ DTCC indicates that 
the functionality to be considered would include, among others, (i) 
matching rules, (ii) reconciliation routines, (iii) exception 
management, (iv) control number assignments, and (v) account matter 
file requirements.\237\
---------------------------------------------------------------------------

    \234\ See DTCC September letter at 2; DTCC June letter at 4; 
DTCC April letter at 15.
    \235\ See DTCC April letter at 15.
    \236\ See id. at 15-16.
    \237\ See id. at 16.
---------------------------------------------------------------------------

    DTCC further states that because it does not know the nature of the 
BSTP and/or SS&C systems, if any, and whether or on what terms BSTP 
and/or SS&C might be eligible for an exemption from the Commission, it 
would be unreasonable to expect DTCC to devote resources to such issues 
until it has sufficient certainty about the nature of the interfaces 
that would need to be developed, if any.\238\ DTCC also notes that 
additional time would also be needed if multiple matching service 
providers are simultaneously developing interfaces with each other, 
adding another layer of complexity that would need to be addressed in a 
risk-mitigating manner.\239\
---------------------------------------------------------------------------

    \238\ See DTCC June letter at 4; DTCC May letter at 10; DTCC 
April letter at 15-16.
    \239\ See DTCC May letter at 10.
---------------------------------------------------------------------------

    BSTP responds that there is no justification to delay 
interoperability of Omgeo with other matching services. BSTP notes 
that, in the fourteen years since the Commission issued the Omgeo 
order, neither DTCC nor Omgeo has raised any concerns regarding the 
terms of that exemption. BSTP notes that the need for DTCC and its 
subsidiaries to devote resources to comply with the conditions in the 
Omgeo order is not a valid reason to modify the provisions found in the 
Omgeo order.\240\ Further, BSTP notes that technological improvements 
since 2001 have increased the ease of establishing safe and secure 
communication links, suggesting that technological developments do not 
support modifying or extending the timeframes in the Omgeo order.\241\
---------------------------------------------------------------------------

    \240\ See BSTP May letter at 17-18; BSTP August letter at 6.
    \241\ See BSTP May letter at 11.
---------------------------------------------------------------------------

    SS&C acknowledges that there could be other appropriate timeframes 
for building and operating interfaces, and SS&C also states that the 
interoperability conditions contained within the Omgeo order already 
provide the means for extending those timeframes. SS&C further states 
that the conditions proposed in the SS&C notice (the same as those 
contained in the Omgeo order) provide the appropriate mechanisms to 
allow parties to extend the timeframes, and accordingly SS&C sees no 
issue with the conditions proposed in the SS&C notice as they relate to 
timeframes for building and operating interfaces.\242\ The Commission 
agrees with SS&C's observations inasmuch as interoperability condition 
(6), which appears in the Omgeo order and is applied to BSTP and SS&C 
below,\243\ gives each matching service provider the flexibility to 
negotiate and determine appropriate timeframes beyond what the orders 
prescribe, as well as specified channels for appropriate resolution of 
disputes in certain instances.
---------------------------------------------------------------------------

    \242\ See SS&C letter at 4.
    \243\ See Omgeo order, supra note 37, at 20499; infra Parts 
IV.A.2.ii (for BSTP) and IV.B.2.ii (for SS&C).
---------------------------------------------------------------------------

    Further, the Commission is mindful that Omgeo, BSTP, and SS&C will 
need time to develop the appropriate interfaces to ensure that their 
systems are interoperable consistent with the conditions set forth in 
the Omgeo order and this order below. The Commission agrees with SS&C 
that, while other timeframes may also be appropriate to build and 
operate interfaces, the interoperability conditions provide a mechanism 
for extending time on which the parties must agree, mitigating the 
concerns raised by DTCC. Indeed, the conditions help ensure that no one 
party can unnecessarily delay the process of building and operating 
interfaces for interoperability. In that regard, to the extent that 
DTCC was hesitant to devote resources to building and operating 
interfaces with other matching service providers because of questions 
as to whether and on what terms BSTP and SS&C would be eligible for an 
exemption to provide matching services, those questions are fully 
resolved in this order.
8. Application of Regulation SCI to Exempt Clearing Agencies
    DTCC requests that the Commission clarify whether and to what 
extent Regulation SCI has superseded reporting requirements for system 
outages and other events in the Omgeo order. Specifically, DTCC notes 
that Rule 1003(a) of Regulation SCI requires SCI entities to report 
material system changes, including submitting to the Commission a 
report within thirty calendar days after the end of each calendar 
quarter describing completed, ongoing, and planned material changes to 
SCI systems and the security of indirect SCI systems.\244\ DTCC 
requests clarification of the relationship between this requirement and 
the requirement in operational condition (4) of the Omgeo order 
requiring Omgeo to provide twenty-days advance notice of material 
system changes to the Commission.\245\
---------------------------------------------------------------------------

    \244\ Rule 1003(a)(1) requires an SCI entity to provide 
quarterly reports to the Commission, describing completed, ongoing, 
and planned material systems changes to its SCI systems and the 
security of indirect SCI systems, during the prior, current, and 
subsequent calendar quarters. Rule 1003(a)(1) also requires an SCI 
entity to establish reasonable written criteria for identifying a 
change to its SCI systems and the security of its indirect SCI 
systems as material.
    In addition Rule 1003(a)(2) requires an SCI entity to promptly 
submit a supplemental report to notify the Commission of a material 
error in or material omission from a previously submitted report. 
See 17 CFR 242.1003.
    \245\ See id at 17-18 & n.43; DTCC April letter at 22 & n.69.
---------------------------------------------------------------------------

    On November 19, 2014, the Commission adopted Regulation SCI, which 
requires SCI entities to comply with requirements for policies and 
procedures with respect to their automated systems that support the 
performance of their regulated activities.\246\ Regulation SCI became 
effective on February 3, 2015, and, with some exceptions, the 
compliance date

[[Page 75410]]

was November 3, 2015.\247\ In relevant part, Rule 1000 of Regulation 
SCI defines an SCI entity to include, among other things, a registered 
clearing agency and an exempt clearing agency subject to ARP.\248\ In 
particular, the term ``exempt clearing agency subject to ARP'' includes 
an entity that has received from the Commission an exemption from 
registration as a clearing agency under Section 17A of the Exchange 
Act, and whose exemption contains conditions that relate to the 
Commission's ARP Policies, or any Commission regulation that supersedes 
or replaces such policies.\249\ As set forth below, operational 
condition (1) to this order requires an audit report that addresses all 
areas discussed in ARP.\250\ Accordingly, BSTP and SS&C are each an 
exempt clearing agency subject to ARP and therefore SCI entities 
subject to Regulation SCI. Because the Omgeo order contains the same 
condition,\251\ it also is an exempt clearing agency subject to ARP and 
therefore an SCI entity subject to Regulation SCI.
---------------------------------------------------------------------------

    \246\ See Regulation SCI, supra note 70, at 72271.
    \247\ See id. at 72366.
    \248\ See Regulation SCI, supra note 70, at 72437.
    \249\ See id. at 72271.
    \250\ See infra Part IV.A.2.i (for BSTP) and Part IV.B.2.i (for 
SS&C).
    \251\ See Omgeo order, supra note 37, at 20498.
---------------------------------------------------------------------------

    In response to DTCC's comment, the Commission notes that 
operational condition (4) was not a component of the ARP policy 
statements and therefore has not been superseded by Regulation SCI. 
Operational condition (4) ensures that the Commission receives 20-days 
advance notice of systems changes, which the Commission believes is 
necessary for matching service providers in light of the potential for 
linkages between matching service providers and the corresponding need 
for matching service providers to maintain interoperability pursuant to 
the interoperability conditions of the Omgeo order and this order.\252\ 
Because the ARP policy statements did not explicitly contemplate 
advance notice of material systems changes, the requirement in 
operational condition (4) has not been superseded. In light of the 
similarity between the requirements in operational condition (4) and 
Rule 1003(a) of Regulation SCI, however, if any matching service 
provider believes that operational condition (4) should be modified or 
removed, the proper mechanism for modifying the condition is to file an 
amendment to the matching service provider's Form CA-1. The Commission 
notes that operational condition (4) is applied to both BSTP and SS&C 
below.\253\
---------------------------------------------------------------------------

    \252\ See id.
    \253\ See infra Parts IV.A.2.i (for BSTP) and IV.B.2.i (for 
SS&C).
---------------------------------------------------------------------------

    In addition, because Regulation SCI has superseded the requirements 
in ARP, the Commission is providing clarification as to the 
requirements in operational conditions (1) and (2), which appear in the 
Omgeo order and are applied to BSTP and SS&C below.\254\ Operational 
condition (1) states that before beginning the commercial operation of 
its matching service, an exempt clearing agency shall provide the 
Commission with an audit report that addresses all the areas discussed 
in the Commission's ARP. Operational condition (2) states, in relevant 
part, that an exempt clearing agency shall provide the Commission with 
annual reports and any associated field work prepared by competent, 
independent audit personnel that are generated in accordance with the 
annual risk assessment of the areas set forth in ARP and that an exempt 
clearing agency shall provide the Commission (beginning in its first 
year of operation) with annual audited financial statements prepared by 
competent independent audit personnel. The Commission finds that Rule 
1003(b) of Regulation SCI has superseded these requirements.\255\ 
Accordingly, pursuant to operational condition (1), BSTP and SS&C are 
required to submit an annual SCI review prior to beginning the 
commercial operation of their matching services. Pursuant to 
operational condition (2), Omgeo, BSTP, and SS&C, as SCI entities, are 
each required to submit an annual SCI review each calendar year 
consistent with Regulation SCI.
---------------------------------------------------------------------------

    \254\ See id.; Omgeo order, supra note 37, at 20498.
    \255\ See Regulation SCI, supra note 70, at 72439. Rule 
1003(b)(1) of Regulation SCI requires an SCI entity to conduct an 
``SCI review'' of the SCI entity's compliance with Regulation SCI 
not less than once per calendar year. An SCI review must contain (i) 
a risk assessment with respect to an SCI entity's SCI systems and 
indirect SCI systems, and (ii) an assessment of internal control 
design and effectiveness of such systems to include logical and 
physical security controls, development processes, and information 
technology governance, consistent with industry standards.
    Pursuant to Rule 1003(b)(2), an SCI entity must submit a report 
of the SCI review to senior management of the SCI entity for review 
no more than 30 calendar days after completion of such a review. 
Moreover, under Rule 1003(b)(3), an SCI entity must submit to the 
Commission, and to the board of directors of the SCI entity or the 
equivalent of such board, a report of the SCI review and any 
response by senior management within 60 calendar days after its 
submission to senior management.
---------------------------------------------------------------------------

IV. Evaluation of the Applications

A. BSTP

    In evaluating the BSTP application, the Commission has been guided 
by the requirements of Section 17A of the Exchange Act. Among other 
factors, the Commission has considered BSTP's risk management 
procedures, operational capacity and safeguards, organizational 
structure, and ability to operate in a manner that will satisfy the 
fundamental goals of Section 17A. The Commission has also carefully 
considered the comments received in response to the BSTP application, 
as discussed above. The Commission believes that the BSTP application 
supports the establishment of linked and coordinated facilities for the 
clearance and settlement of securities transactions.
    Accordingly, for the reasons discussed throughout this order, the 
Commission finds that the BSTP application, including the terms and 
conditions set forth in the application and reproduced below, is 
consistent with the public interest, the protection of investors, and 
the purposes of Section 17A of the Exchange Act, and that BSTP is so 
organized and has the capacity to be able to facilitate prompt and 
accurate matching services.
    Below are the terms and conditions of BSTP's exemption.
1. Scope of Exemption
    This order grants BSTP an exemption from registration as a clearing 
agency under Section 17A of the Exchange Act to provide an ETC and 
matching service. The exemption is granted subject to conditions that 
the Commission believes are necessary and appropriate in light of the 
statutory requirements of Section 17A.\256\ This order and the 
conditions and limitations contained in it are consistent with the 
Commission's statement in the Matching Release that an entity that 
limits its clearing agency functions to providing matching services 
does not have to be subject to the full range of clearing agency 
regulation.
---------------------------------------------------------------------------

    \256\ The Commission is granting BSTP an exemption from clearing 
agency registration, so it will not be considered a self-regulatory 
organization under Section 3(a)(26) and therefore will not be 
required to file rule changes in accordance with Section 19(b) of 
the Exchange Act. The Commission is also not imposing a rule change 
filing requirement as a condition of the exemption.
---------------------------------------------------------------------------

2. Conditions of Exemption
    The Commission is including specific conditions to this exemption 
designed to facilitate the establishment of a national system for the 
prompt and

[[Page 75411]]

accurate clearance and settlement of securities transactions and the 
establishment of linked and coordinated facilities for the clearance 
and settlement of securities transactions. The conditions are designed 
to promote competition, transparency, consistency, and interoperability 
in the market for matching services.
i. Operational Conditions
    (1) Before beginning the commercial operation of its matching 
service, BSTP shall provide the Commission with an audit report that 
addresses all the areas discussed in the Commission's Automation Review 
Policies (``ARP'').\257\
---------------------------------------------------------------------------

    \257\ See Exchange Act Release Nos. 27445 (Nov. 16, 1989), 54 FR 
48703 (Nov. 24, 1989) (``ARP I''), and 29185 (May 9, 1991), 56 FR 
22490 (May 15, 1991) (``ARP II''); see also Memorandum from the 
Securities and Exchange Commission Division of Market Regulation to 
SROs and NASDAQ (June 1, 2001) (``Guidance for Systems Outages and 
System Change Notifications''), available at http://www.sec.gov/divisions/marketreg/sro-guidance-for-systems-outage-06-01-2001.pdf.
---------------------------------------------------------------------------

    (2) BSTP shall provide the Commission with annual reports and any 
associated field work prepared by competent, independent audit 
personnel that are generated in accordance with the annual risk 
assessment of the areas set forth in the ARP. BSTP shall provide the 
Commission (beginning in its first year of operation) with annual 
audited financial statements prepared by competent independent audit 
personnel.
    (3) BSTP shall report all significant systems outages to the 
Commission. If it appears that the outage may extend for thirty minutes 
or longer, BSTP shall report the systems outage immediately. If it 
appears that the outage will be resolved in less than thirty minutes, 
BSTP shall report the systems outage within a reasonable time after the 
outage has been resolved.
    (4) BSTP shall provide the Commission with 20 business days advance 
notice of any material changes that BSTP makes to the matching service 
or ETC service. These changes will not require the Commission's 
approval before they are implemented.
    (5) BSTP shall respond and require its service providers (including 
BLP) to respond to requests from the Commission for additional 
information relating to the matching service and ETC service, and 
provide access to the Commission to conduct on-site inspections of all 
facilities (including automated systems and systems environment), 
records, and personnel related to the matching service and the ETC 
service. The requests for information shall be made and the inspections 
shall be conducted solely for the purpose of reviewing the matching 
service's and the ETC service's operations and compliance with the 
federal securities laws and the terms and conditions in any exemptive 
order issued by the Commission with respect to BSTP's matching service 
and the ETC service.
    (6) BSTP shall supply the Commission or its designee with periodic 
reports regarding the affirmation rates for institutional transactions 
effected by institutional investors that utilize its matching service 
and ETC service.
    (7) BSTP shall preserve a copy or record of all trade details, 
allocation instructions, central trade matching results, reports and 
notices sent to customers, service agreements, reports regarding 
affirmation rates that are sent to the Commission or its designee, and 
any complaint received from a customer, all of which pertain to the 
operation of its matching service and ETC service. BSTP shall retain 
these records for a period of not less than five years, the first two 
years in an easily accessible place.
    (8) BSTP shall not perform any clearing agency function (such as 
net settlement, maintaining a balance of open positions between buyers 
and sellers, or marking securities to the market) other than as 
permitted in an exemption issued by the Commission.
    (9) Before beginning the commercial operation of its matching 
service, BSTP shall provide the Commission with copies of the service 
agreement between BLP and BSTP and shall notify the Commission of any 
material changes to the service agreement.
ii. Interoperability Conditions
    (1) BSTP shall develop, in a timely and efficient manner, fair and 
reasonable linkages between BSTP's matching service and other matching 
services that are registered with the Commission or that receive or 
have received from the Commission an exemption from clearing agency 
registration that, at a minimum, allow parties to trades that are 
processed through one or more matching services to communicate through 
one or more appropriate effective interfaces with other matching 
services.
    (2) BSTP shall devise and develop interfaces with other matching 
services that enable end-user clients or any service that represents 
end-user clients to BSTP (``end-user representative'') to gain a single 
point of access to BSTP and other matching services. Such interfaces 
must link with each other matching service so that an end-user client 
of one matching service can communicate with all end-user clients of 
all matching services, regardless of which matching service completes 
trade matching prior to settlement.
    (3) If any intellectual property proprietary to BSTP is necessary 
to develop, build, and operate links or interfaces to BSTP's matching 
service, as described in these conditions, BSTP shall license such 
intellectual property to other matching services seeking linkage to 
BSTP on fair and reasonable terms for use in such links or interfaces.
    (4) BSTP shall not engage in any activity inconsistent with the 
purposes of Section 17A(a)(2) of the Exchange Act,\258\ which section 
seeks the establishment of linked or coordinated facilities for 
clearance and settlement of transactions. In particular, BSTP will not 
engage in activities that would prevent any other matching service from 
operating a matching service that it has developed independently from 
BSTP's matching service.
---------------------------------------------------------------------------

    \258\ 15 U.S.C. 78q-1(a)(2)(A)(ii).
---------------------------------------------------------------------------

    (5) BSTP shall support industry standards in each of the following 
categories: communication protocols (e.g., TCP/IP, SNA); message and 
file transfer protocols and software (e.g., FIX, WebSphere MQ, SWIFT); 
message format standards (e.g., FIX); and message languages and 
metadata (e.g., XML). However, BSTP need not support all existing 
industry standards or those listed above by means of example. Within 
three months of regulatory approval, BSTP shall make publicly known 
those standards supported by BSTP's matching service. To the extent 
that BSTP decides to support other industry standards, including new 
and modified standards, BSTP shall make these standards publicly known 
upon making such decision or within three months of updating its system 
to support such new standards, whichever is sooner. Any translation to/
from these published standards necessary to communicate with BSTP's 
system shall be performed by BSTP without any significant delay or 
service degradation of the linked parties' services.
    (6) BSTP shall make all reasonable efforts to link with each other 
matching service in a timely and efficient manner, as specified below. 
Upon written request, BSTP shall negotiate with each other matching 
service to develop and build an interface that allows the two to link 
matching services (``interface''). BSTP shall involve neutral industry 
participants in all negotiations to build or develop interfaces and, to 
the extent feasible, incorporate input from such

[[Page 75412]]

participants in determining the specifications and architecture of such 
interfaces. Absent adequate business or technological 
justification,\259\ BSTP and the requesting other matching service 
shall conclude negotiations and reach a binding agreement to develop 
and build an interface within 120 calendar days of BSTP's receipt of 
the written request. This 120-day period may be extended upon the 
written agreement of both BSTP and the other matching service engaged 
in negotiations. For each other matching service with whom BSTP reaches 
a binding agreement to develop and build an interface, BSTP shall begin 
operating such interface within 90 days of reaching a binding agreement 
and receiving all the information necessary to develop and operate it. 
This 90-day period may be extended upon the written agreement of both 
BSTP and the other matching service. For each interface and within the 
same time BSTP must negotiate and begin operating each interface, BSTP 
and the other matching service shall agree to ``commercial rules'' for 
coordinating the provision of matching services through their 
respective interfaces, including commercial rules: (A) Allocating 
responsibility for performing matching services; and (B) allocating 
liability for service failures. BSTP shall also involve neutral 
industry participants in negotiating applicable commercial rules and, 
to the extent feasible, take input from such participants into account 
in agreeing to commercial rules. At a minimum, each interface shall 
enable BSTP and the other matching service to transfer between them all 
trade and account information necessary to fulfill their respective 
matching responsibilities as set forth in their commercial rules 
(``trade and account information''). Absent an adequate business or 
technological justification, BSTP shall develop and operate each 
interface without imposing conditions that negatively impact the other 
matching service's ability to innovate its matching service or develop 
and offer other value-added services relating to its matching service 
or that negatively impact the other matching service's ability to 
compete effectively against BSTP.
---------------------------------------------------------------------------

    \259\ The failure of neutral industry participants to be 
available or to submit their input within the 120 day or 90 day time 
periods set forth in this paragraph shall not constitute an adequate 
business or technological justification for failing to adhere to the 
requirements set forth in this paragraph.
---------------------------------------------------------------------------

    (7) In order to facilitate fair and reasonable linkages between 
BSTP and other matching services, BSTP shall publish or make available 
to any other matching service the specifications for any interface and 
its corresponding commercial rules that are in operation within 20 days 
of receiving a request for such specifications and commercial rules. 
Such specifications shall contain all the information necessary to 
enable any other matching services not already linked to BSTP through 
an interface to establish a linkage with BSTP through an interface or a 
substantially similar interface. BSTP shall link to any other matching 
service, if the other matching service so opts, through an interface 
substantially similar to any interface and its corresponding commercial 
rules that BSTP is currently operating. BSTP shall begin operating such 
substantially similar interface and commercial rules with the other 
matching service within 90 days of receiving all the information 
necessary to operate that link. This 90-day period may be extended upon 
the written agreement of both BSTP and the other matching service that 
plans to use that link.
    (8) BSTP and respective other matching services shall bear their 
own costs of building and maintaining an interface, unless otherwise 
negotiated by the parties.
    (9) BSTP shall provide to all other matching services and end-user 
representatives that maintain linkages with BSTP sufficient advance 
notice of any material changes, updates, or revisions to its interfaces 
to allow all parties who link to BSTP through affected interfaces to 
modify their systems as necessary and avoid system downtime, 
interruption, or system degradation.
    (10) BSTP and each other matching service shall negotiate fair and 
reasonable charges and terms of payment for the use of their interface 
with respect to the sharing of trade and account information 
(``interface charges''). In any fee schedule adopted under conditions 
A.2.ii(10), A.2.ii(11), or A.2.ii(12) herein, BSTP's interface charges 
shall be equal to the interface charges of the respective other 
matching service.
    (11) If BSTP and the other matching service cannot reach agreement 
on fair and reasonable interface charges within 60 days of receipt of 
the written request, BSTP and the other matching service shall submit 
to binding arbitration under the rules promulgated by the American 
Arbitration Association. The arbitration panel shall have 60 days to 
establish a fee schedule. The arbitration panel's establishment of a 
fee schedule shall be binding on BSTP and the other matching service 
unless and until the fee schedule is subsequently modified or abrogated 
by the Commission or BSTP and the other matching service mutually agree 
to renegotiate.
    (12)(A) The following parameters shall be considered in determining 
fair and reasonable interface charges: (i) The variable cost incurred 
for forwarding trade and account information to other matching 
services; (ii) the average cost associated with the development of 
links to end-users and end-user representatives; and (iii) BSTP's 
interface charges to other matching services. (B) The following factors 
shall not be considered in determining fair and reasonable interface 
charges: (i) The respective cost incurred by BSTP or the other matching 
service in creating and maintaining interfaces; (ii) the value that 
BSTP or the other matching service contributes to the relationship; 
(iii) the opportunity cost associated with the loss of profits to BSTP 
that may result from competition from other matching services; (iv) the 
cost of building, maintaining, or upgrading BSTP's matching service; or 
(v) the cost of building, maintaining, or upgrading value added 
services to BSTP's matching service. (C) In any event, the interface 
charges shall not be set at a level that unreasonably deters entry or 
otherwise diminishes price or non-price competition with BSTP by other 
matching services.
    (13) BSTP shall not charge its customers more for use of its 
matching service when one or more counterparties are customers of other 
matching services than BSTP charges its customers for use of its 
matching service when all counterparties are customers of BSTP. BSTP 
shall not charge customers any additional amount for forwarding to or 
receiving trade and account information from other matching services 
called for under applicable commercial rules.
    (14) BSTP shall maintain its quality, capacity, and service levels 
in the interfaces with other matching services (``matching services 
linkages'') without bias in performance relative to similar 
transactions processed completely within BSTP's service. BSTP shall 
preserve and maintain all raw data and records necessary to prepare 
reports tabulating separately the processing and response times on a 
trade-by-trade basis for (A) completing its matching service when all 
counterparties are customers of BSTP; (B) completing its matching 
service when one or more counterparties are customers of other matching 
services; or (C) forwarding trade information to other matching 
services called for under applicable commercial rules. BSTP shall 
retain the data and records for a period not less than six years. 
Sufficient information

[[Page 75413]]

shall be maintained to demonstrate that the requirements of condition 
A.2.ii(15) below are being met. BSTP and its service providers shall 
provide the Commission with reports regarding the time it takes BSTP to 
process trades and forward information under various circumstances 
within thirty days of the Commission's request for such reports. 
However, BSTP shall not be responsible for identifying the specific 
cause of any delay in performing its matching service where the fault 
for such delay is not attributable to BSTP.
    (15) BSTP shall process trades or facilitate the processing of 
trades by other matching services on a first-in-time priority basis. 
For example, if BSTP receives trade and account information that BSTP 
is required to forward to other matching services under applicable 
commercial rules (``pass-through information'') prior to receiving 
trade and account information from BSTP's customers necessary to 
provide matching services for a trade in which all parties are 
customers of BSTP (``intra-hub information''), BSTP shall forward the 
pass-through information to the designated other matching service prior 
to processing the intra-hub information. If, on the other hand, the 
information were to come in the reverse order, BSTP shall process the 
intra-hub information before forwarding the pass-through information.
    (16) BSTP shall sell access to its databases, systems or 
methodologies for transmitting settlement instructions (including 
settlement instructions from investment managers, broker-dealers, and 
custodian banks) and/or transmitting trade and account information to 
and receiving authorization responses from settlement agents on fair 
and reasonable terms to other matching services and end-user 
representatives. Such access shall permit other matching services and 
end-user representatives to draw information from those databases, 
systems, and methodologies for transmitting settlement instructions 
and/or transmitting trade and account information to and receiving 
authorization responses from settlement agents for use in their own 
matching services or end-user representatives' services. The links 
necessary for other matching services and end-user representatives to 
access BSTP's databases, systems or methodologies for transmitting 
settlement instructions and/or transmitting trade and account 
information to and receiving authorization responses from settlement 
agents will comply with conditions A.2.ii(3), A.2.ii(5), A.2.ii(9), 
A.2.ii(14) and A.2.ii(15) above.
    (17) For the first five years from the date of an exemptive order 
issued by the Commission with respect to BSTP's matching service, BSTP 
shall provide the Commission with reports every six months sufficient 
to document BSTP's adherence to the obligations relating to interfaces 
set forth in conditions A.2.ii(6) through A.2.ii(13) and A.2.ii(16) 
above. BSTP shall incorporate into such reports information including 
but not limited to: (A) All other matching services linked to BSTP; (B) 
the time, effort, and cost required to establish each link between BSTP 
and other matching services; (C) any proposed links between BSTP and 
other matching services as well as the status of such proposed links; 
(D) any failure or inability to establish such proposed links or fee 
schedules for interface charges; (E) any written complaint received 
from other matching services relating to its established or proposed 
links with BSTP; and (F) if BSTP failed to adhere to any of the 
obligations relating to interfaces set forth in conditions A.2.ii(6) 
through A.2.ii(13) and A.2.ii(16) above, its explanation for such 
failure. The Commission shall treat information submitted in accordance 
with this condition as confidential, non-public information, subject to 
the provisions of applicable law. If any other matching service seeks 
to link with BSTP more than five years after issuance of an exemptive 
order issued by the Commission with respect to BSTP's matching service, 
BSTP shall notify the Commission of the other matching service's 
request to link with BSTP within ten days of receiving such request. In 
addition, BSTP shall provide reports to the Commission in accordance 
with this paragraph commencing six months after the initial request for 
linkage is made until one year after BSTP and the other matching 
service begin operating their interface. The Commission reserves the 
right to request reports from BSTP at any time. BSTP shall provide the 
Commission with such updated reports within thirty days of the 
Commission's request.
    (18) BSTP shall also publish or make available upon request to any 
end-user representative the necessary specifications, protocols, and 
architecture of any interface created by BSTP for any end-user 
representative.
3. Modifications to Exemption
    BSTP is required to file with the Commission amendments to its 
application for exemption on Form CA-1 if it makes any material change 
affecting its ETC or matching service--as summarized in this order, in 
its Form CA-1 dated March 15, 2013, or in any subsequently filed 
amendments to its Form CA-1--that would make such previously provided 
information incomplete or inaccurate.
    In addition, the Commission may modify by order the terms, scope, 
or conditions of BSTP's exemption from registration as a clearing 
agency if it determines that such modification is necessary or 
appropriate in the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act. 
Furthermore, the Commission may limit, suspend, or revoke this 
exemption if it finds that BSTP has violated or is unable to comply 
with any of the provisions set forth in this order if such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Exchange 
Act.

B. SS&C

    In evaluating the SS&C application, the Commission has been guided 
by the requirements of Section 17A of the Exchange Act. Among other 
factors, the Commission has considered SS&C's risk management 
procedures, operational capacity and safeguards, organizational 
structure, and ability to operate in a manner that will satisfy the 
fundamental goals of Section 17A. The Commission has also carefully 
considered the comments received in response to the SS&C application, 
as discussed above. The Commission believes that the SS&C application 
supports the establishment of linked and coordinated facilities for the 
clearance and settlement of securities transactions.
    Accordingly, for the reasons discussed throughout this order, the 
Commission finds that the SS&C application, including the terms and 
conditions set forth in the application and reproduced below, is 
consistent with the public interest, the protection of investors, and 
the purposes of Section 17A of the Exchange Act, and that SS&C is so 
organized and has the capacity to be able to facilitate prompt and 
accurate matching services.
    Below are the terms and conditions of SS&C's exemption.
1. Scope of Exemption
    This order grants SS&C an exemption from registration as a clearing 
agency under Section 17A of the Exchange Act to provide an ETC and 
matching service. The exemption is granted subject to conditions that 
the Commission believes are necessary and appropriate in light of the 
statutory requirements of Section

[[Page 75414]]

17A.\260\ This order and the conditions and limitations contained in it 
are consistent with the Commission's statement in the Matching Release 
that an entity that limits its clearing agency functions to providing 
matching services does not have to be subject to the full range of 
clearing agency regulation.
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    \260\ The Commission is granting SS&C an exemption from clearing 
agency registration, so it will not be considered a self-regulatory 
organization under Section 3(a)(26) and therefore will not be 
required to file rule changes in accordance with Section 19(b) of 
the Exchange Act. The Commission is also not imposing a rule change 
filing requirement as a condition of the exemption.
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2. Conditions of Exemption
    The Commission is including specific conditions to this exemption 
designed to facilitate the establishment of a national system for the 
prompt and accurate clearance and settlement of securities transactions 
and the establishment of linked and coordinated facilities for the 
clearance and settlement of securities transactions. The conditions are 
designed to promote competition, transparency, consistency, and 
interoperability in the market for matching services.
i. Operational Conditions
    (1) Before beginning the commercial operation of its matching 
service, SS&C shall provide the Commission with an audit report that 
addresses all the areas discussed in the Commission's Automation Review 
Policies (``ARP'').\261\
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    \261\ See Exchange Act Release Nos. 27445 (Nov. 16, 1989), 54 FR 
48703 (Nov. 24, 1989) (``ARP I''), and 29185 (May 9, 1991), 56 FR 
22490 (May 15, 1991) (``ARP II''); see also Memorandum from the 
Securities and Exchange Commission Division of Market Regulation to 
SROs and NASDAQ (June 1, 2001) (``Guidance for Systems Outages and 
System Change Notifications''), available at http://www.sec.gov/divisions/marketreg/sro-guidance-for-systems-outage-06-01-2001.pdf.
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    (2) SS&C shall provide the Commission with annual reports and any 
associated field work prepared by competent, independent audit 
personnel that are generated in accordance with the annual risk 
assessment of the areas set forth in the ARP. SS&C shall provide the 
Commission (beginning in its first year of operation) with annual 
audited financial statements prepared by competent independent audit 
personnel.
    (3) SS&C shall report all significant systems outages to the 
Commission. If it appears that the outage may extend for thirty minutes 
or longer, SS&C shall report the systems outage immediately. If it 
appears that the outage will be resolved in less than thirty minutes, 
SS&C shall report the systems outage within a reasonable time after the 
outage has been resolved.
    (4) SS&C shall provide the Commission with 20 business days advance 
notice of any material changes that SS&C makes to the matching service 
or ETC service. These changes will not require the Commission's 
approval before they are implemented.
    (5) SS&C shall respond and require its service providers to respond 
to requests from the Commission for additional information relating to 
the matching service and ETC service, and provide access to the 
Commission to conduct on-site inspections of all facilities (including 
automated systems and systems environment), records, and personnel 
related to the matching service and the ETC service. The requests for 
information shall be made and the inspections shall be conducted solely 
for the purpose of reviewing the matching service's and the ETC 
service's operations and compliance with the federal securities laws 
and the terms and conditions in any exemptive order issued by the 
Commission with respect to SS&C's matching service and the ETC service.
    (6) SS&C shall supply the Commission or its designee with periodic 
reports regarding the affirmation rates for institutional transactions 
effected by institutional investors that utilize its matching service 
and ETC service.
    (7) SS&C shall preserve a copy or record of all trade details, 
allocation instructions, central trade matching results, reports and 
notices sent to customers, service agreements, reports regarding 
affirmation rates that are sent to the Commission or its designee, and 
any complaint received from a customer, all of which pertain to the 
operation of its matching service and ETC service. SS&C shall retain 
these records for a period of not less than five years, the first two 
years in an easily accessible place.
    (8) SS&C shall not perform any clearing agency function (such as 
net settlement, maintaining a balance of open positions between buyers 
and sellers, or marking securities to the market) other than as 
permitted in an exemption issued by the Commission.
    (9) Before beginning the commercial operation of its matching 
service, SS&C shall provide the Commission with copies of the 
intercompany agreement between SS&C and SS&C Canada and shall notify 
the Commission of any material changes to the service agreement.
ii. Interoperability Conditions
    (1) SS&C shall develop, in a timely and efficient manner, fair and 
reasonable linkages between SS&C's matching service and other matching 
services that are registered with the Commission or that receive or 
have received from the Commission an exemption from clearing agency 
registration that, at a minimum, allow parties to trades that are 
processed through one or more matching services to communicate through 
one or more appropriate effective interfaces with other matching 
services.
    (2) SS&C shall devise and develop interfaces with other matching 
services that enable end-user clients or any service that represents 
end-user clients to SS&C (``end-user representative'') to gain a single 
point of access to SS&C and other matching services. Such interfaces 
must link with each other matching service so that an end-user client 
of one matching service can communicate with all end-user clients of 
all matching services, regardless of which matching service completes 
trade matching prior to settlement.
    (3) If any intellectual property proprietary to SS&C is necessary 
to develop, build, and operate links or interfaces to SS&C's matching 
service, as described in these conditions, SS&C shall license such 
intellectual property to other matching services seeking linkage to 
SS&C on fair and reasonable terms for use in such links or interfaces.
    (4) SS&C shall not engage in any activity inconsistent with the 
purposes of Section 17A(a)(2) of the Exchange Act,\262\ which section 
seeks the establishment of linked or coordinated facilities for 
clearance and settlement of transactions. In particular, SS&C will not 
engage in activities that would prevent any other matching service from 
operating a matching service that it has developed independently from 
SS&C's matching service.
---------------------------------------------------------------------------

    \262\ 15 U.S.C. 78q-1(a)(2)(A)(ii).
---------------------------------------------------------------------------

    (5) SS&C shall support industry standards in each of the following 
categories: communication protocols (e.g., TCP/IP, SNA); message and 
file transfer protocols and software (e.g., FIX, WebSphere MQ, SWIFT); 
message format standards (e.g., FIX); and message languages and 
metadata (e.g., XML). However, SS&C need not support all existing 
industry standards or those listed above by means of example. Within 
three months of regulatory approval, SS&C shall make publicly known 
those standards supported by SS&C's matching service. To the extent 
that SS&C decides to support other

[[Page 75415]]

industry standards, including new and modified standards, SS&C shall 
make these standards publicly known upon making such decision or within 
three months of updating its system to support such new standards, 
whichever is sooner. Any translation to/from these published standards 
necessary to communicate with SS&C's system shall be performed by SS&C 
without any significant delay or service degradation of the linked 
parties' services.
    (6) SS&C shall make all reasonable efforts to link with each other 
matching service in a timely and efficient manner, as specified below. 
Upon written request, SS&C shall negotiate with each other matching 
service to develop and build an interface that allows the two to link 
matching services (``interface''). SS&C shall involve neutral industry 
participants in all negotiations to build or develop interfaces and, to 
the extent feasible, incorporate input from such participants in 
determining the specifications and architecture of such interfaces. 
Absent adequate business or technological justification,\263\ SS&C and 
the requesting other matching service shall conclude negotiations and 
reach a binding agreement to develop and build an interface within 120 
calendar days of SS&C's receipt of the written request. This 120-day 
period may be extended upon the written agreement of both SS&C and the 
other matching service engaged in negotiations. For each other matching 
service with whom SS&C reaches a binding agreement to develop and build 
an interface, SS&C shall begin operating such interface within 90 days 
of reaching a binding agreement and receiving all the information 
necessary to develop and operate it. This 90-day period may be extended 
upon the written agreement of both SS&C and the other matching service. 
For each interface and within the same time SS&C must negotiate and 
begin operating each interface, SS&C and the other matching service 
shall agree to ``commercial rules'' for coordinating the provision of 
matching services through their respective interfaces, including 
commercial rules: (A) Allocating responsibility for performing matching 
services; and (B) allocating liability for service failures. SS&C shall 
also involve neutral industry participants in negotiating applicable 
commercial rules and, to the extent feasible, take input from such 
participants into account in agreeing to commercial rules. At a 
minimum, each interface shall enable SS&C and the other matching 
service to transfer between them all trade and account information 
necessary to fulfill their respective matching responsibilities as set 
forth in their commercial rules (``trade and account information''). 
Absent an adequate business or technological justification, SS&C shall 
develop and operate each interface without imposing conditions that 
negatively impact the other matching service's ability to innovate its 
matching service or develop and offer other value-added services 
relating to its matching service or that negatively impact the other 
matching service's ability to compete effectively against SS&C.
---------------------------------------------------------------------------

    \263\ The failure of neutral industry participants to be 
available or to submit their input within the 120 day or 90 day time 
periods set forth in this paragraph shall not constitute an adequate 
business or technological justification for failing to adhere to the 
requirements set forth in this paragraph.
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    (7) In order to facilitate fair and reasonable linkages between 
SS&C and other matching services, SS&C shall publish or make available 
to any other matching service the specifications for any interface and 
its corresponding commercial rules that are in operation within 20 days 
of receiving a request for such specifications and commercial rules. 
Such specifications shall contain all the information necessary to 
enable any other matching services not already linked to SS&C through 
an interface to establish a linkage with SS&C through an interface or a 
substantially similar interface. SS&C shall link to any other matching 
service, if the other matching service so opts, through an interface 
substantially similar to any interface and its corresponding commercial 
rules that SS&C is currently operating. SS&C shall begin operating such 
substantially similar interface and commercial rules with the other 
matching service within 90 days of receiving all the information 
necessary to operate that link. This 90-day period may be extended upon 
the written agreement of both SS&C and the other matching service that 
plans to use that link.
    (8) SS&C and respective other matching services shall bear their 
own costs of building and maintaining an interface, unless otherwise 
negotiated by the parties.
    (9) SS&C shall provide to all other matching services and end-user 
representatives that maintain linkages with SS&C sufficient advance 
notice of any material changes, updates, or revisions to its interfaces 
to allow all parties who link to SS&C through affected interfaces to 
modify their systems as necessary and avoid system downtime, 
interruption, or system degradation.
    (10) SS&C and each other matching service shall negotiate fair and 
reasonable charges and terms of payment for the use of their interface 
with respect to the sharing of trade and account information 
(``interface charges''). In any fee schedule adopted under conditions 
B.2.ii(10), B.2.ii(11), or B.2.ii(12) herein, SS&C's interface charges 
shall be equal to the interface charges of the respective other 
matching service.
    (11) If SS&C and the other matching service cannot reach agreement 
on fair and reasonable interface charges within 60 days of receipt of 
the written request, SS&C and the other matching service shall submit 
to binding arbitration under the rules promulgated by the American 
Arbitration Association. The arbitration panel shall have 60 days to 
establish a fee schedule. The arbitration panel's establishment of a 
fee schedule shall be binding on SS&C and the other matching service 
unless and until the fee schedule is subsequently modified or abrogated 
by the Commission or SS&C and the other matching service mutually agree 
to renegotiate.
    (12)(A) The following parameters shall be considered in determining 
fair and reasonable interface charges: (i) The variable cost incurred 
for forwarding trade and account information to other matching 
services; (ii) the average cost associated with the development of 
links to end-users and end-user representatives; and (iii) SS&C's 
interface charges to other matching services. (B) The following factors 
shall not be considered in determining fair and reasonable interface 
charges: (i) The respective cost incurred by SS&C or the other matching 
service in creating and maintaining interfaces; (ii) the value that 
SS&C or the other matching service contributes to the relationship; 
(iii) the opportunity cost associated with the loss of profits to SS&C 
that may result from competition from other matching services; (iv) the 
cost of building, maintaining, or upgrading SS&C's matching service; or 
(v) the cost of building, maintaining, or upgrading value added 
services to SS&C's matching service. (C) In any event, the interface 
charges shall not be set at a level that unreasonably deters entry or 
otherwise diminishes price or non-price competition with SS&C by other 
matching services.
    (13) SS&C shall not charge its customers more for use of its 
matching service when one or more counterparties are customers of other 
matching services than SS&C charges its customers for use of its 
matching service when all counterparties are customers of SS&C. SS&C 
shall not charge customers any additional amount for forwarding to or 
receiving trade and account information from other matching

[[Page 75416]]

services called for under applicable commercial rules.
    (14) SS&C shall maintain its quality, capacity, and service levels 
in the interfaces with other matching services (``matching services 
linkages'') without bias in performance relative to similar 
transactions processed completely within SS&C's service. SS&C shall 
preserve and maintain all raw data and records necessary to prepare 
reports tabulating separately the processing and response times on a 
trade-by-trade basis for (A) completing its matching service when all 
counterparties are customers of SS&C (B) completing its matching 
service when one or more counterparties are customers of other matching 
services; or (C) forwarding trade information to other matching 
services called for under applicable commercial rules. SS&C shall 
retain the data and records for a period not less than six years. 
Sufficient information shall be maintained to demonstrate that the 
requirements of condition B.2.ii(15) below are being met. SS&C and its 
service providers shall provide the Commission with reports regarding 
the time it takes SS&C to process trades and forward information under 
various circumstances within 30 days of the Commission's request for 
such reports. However, SS&C shall not be responsible for identifying 
the specific cause of any delay in performing its matching service 
where the fault for such delay is not attributable to SS&C.
    (15) SS&C shall process trades or facilitate the processing of 
trades by other matching services on a first-in-time priority basis. 
For example, if SS&C receives trade and account information that SS&C 
is required to forward to other matching services under applicable 
commercial rules (``pass-through information'') prior to receiving 
trade and account information from SS&C's customers necessary to 
provide matching services for a trade in which all parties are 
customers of SS&C (``intra-hub information''), SS&C shall forward the 
pass-through information to the designated other matching service prior 
to processing the intra-hub information. If, on the other hand, the 
information were to come in the reverse order, SS&C shall process the 
intra-hub information before forwarding the pass-through information.
    (16) SS&C shall sell access to its databases, systems or 
methodologies for transmitting settlement instructions (including 
settlement instructions from investment managers, broker-dealers, and 
custodian banks) and/or transmitting trade and account information to 
and receiving authorization responses from settlement agents on fair 
and reasonable terms to other matching services and end-user 
representatives. Such access shall permit other matching services and 
end-user representatives to draw information from those databases, 
systems, and methodologies for transmitting settlement instructions 
and/or transmitting trade and account information to and receiving 
authorization responses from settlement agents for use in their own 
matching services or end-user representatives' services. The links 
necessary for other matching services and end-user representatives to 
access SS&C's databases, systems or methodologies for transmitting 
settlement instructions and/or transmitting trade and account 
information to and receiving authorization responses from settlement 
agents will comply with conditions B.2.ii(3), B.2.ii(5), B.2.ii(9), 
B.2.ii(14) and B.2.ii(15) above.
    (17) For the first five years from the date of an exemptive order 
issued by the Commission with respect to SS&C's matching service, SS&C 
shall provide the Commission with reports every six months sufficient 
to document SS&C's adherence to the obligations relating to interfaces 
set forth in conditions B.2.ii(6) through B.2.ii(13) and B.2.ii(16) 
above. SS&C shall incorporate into such reports information including 
but not limited to (A) all other matching services linked to SS&C (B) 
the time, effort, and cost required to establish each link between SS&C 
and other matching services; (C) any proposed links between SS&C and 
other matching services as well as the status of such proposed links; 
(D) any failure or inability to establish such proposed links or fee 
schedules for interface charges; (E) any written complaint received 
from other matching services relating to its established or proposed 
links with SS&C and (F) if SS&C failed to adhere to any of the 
obligations relating to interfaces set forth in conditions B.2.ii(6) 
through B.2.ii(13) and B.2.ii(16) above, its explanation for such 
failure. The Commission shall treat information submitted in accordance 
with this condition as confidential, non-public information, subject to 
the provisions of applicable law. If any other matching service seeks 
to link with SS&C more than five years after issuance of an exemptive 
order issued by the Commission with respect to SS&C's matching service, 
SS&C shall notify the Commission of the other matching service's 
request to link with SS&C within ten days of receiving such request. In 
addition, SS&C shall provide reports to the Commission in accordance 
with this paragraph commencing six months after the initial request for 
linkage is made until one year after SS&C and the other matching 
service begin operating their interface. The Commission reserves the 
right to request reports from SS&C at any time. SS&C shall provide the 
Commission with such updated reports within thirty days of the 
Commission's request.
    (18) SS&C shall also publish or make available upon request to any 
end-user representative the necessary specifications, protocols, and 
architecture of any interface created by SS&C for any end-user 
representative.
3. Modifications to Exemption
    SS&C is required to file with the Commission amendments to its 
application for exemption on Form CA-1 if it makes any material change 
affecting its ETC or matching service--as summarized in this order, in 
its Form CA-1 dated April 15, 2013, or in any subsequently filed 
amendments to its Form CA-1--that would make such previously provided 
information incomplete or inaccurate.
    In addition, the Commission may modify by order the terms, scope, 
or conditions of SS&C's exemption from registration as a clearing 
agency if it determines that such modification is necessary or 
appropriate in the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act. 
Furthermore, the Commission may limit, suspend, or revoke this 
exemption if it finds that SS&C has violated or is unable to comply 
with any of the provisions set forth in this order if such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Exchange 
Act.

V. Conclusion

    The Commission believes that the BSTP and SS&C applications 
demonstrate that BSTP and SS&C will have sufficient operational and 
processing capabilities to facilitate prompt and accurate matching 
services and to support the establishment of linked and coordinated 
facilities for the clearance and settlement of securities transactions. 
The Commission also notes that BSTP and SS&C's exemptions will be 
subject to conditions that are designed to enable the Commission to 
monitor BSTP and SS&C's risk management procedures, operational 
capacity and safeguards, corporate structure, and ability to operate in 
a manner to further the fundamental goals of Section 17A of the 
Exchange Act. Therefore, for the reasons discussed

[[Page 75417]]

throughout this order, the Commission finds that the BSTP and SS&C 
applications are consistent with the public interest, the protection of 
investors, and the purposes of Section 17A of the Exchange Act.
    IT IS HEREBY ORDERED, pursuant to Section 17A(b)(1) of the Exchange 
Act, that the applications for exemption from registration as a 
clearing agency under Section 17A(b)(1) filed by Bloomberg STP LLC 
(File No. 600-33) and SS&C Technologies, Inc. (File No. 600-34) be, and 
hereby are, approved within the scope described in this order and 
subject to the terms and conditions contained in this order.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30412 Filed 11-30-15; 8:45 am]
 BILLING CODE 8011-01-P


