[Federal Register Volume 83, Number 169 (Thursday, August 30, 2018)]
[Notices]
[Pages 44377-44381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18784]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83940; File No. SR-DTC-2018-006]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of Proposed Rule Change To Amend Rule 35 To 
Provide for Designated Accounts for Use With Designated Collateral 
Management Service Providers

August 24, 2018.
    On July 9, 2018, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2018-006 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change was published for comment in the Federal Register 
on July 24, 2018.\3\ The Commission did not receive any comment letters 
on the proposed rule change. For the reasons discussed below, the 
Commission approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No.83667 (July 18, 
2018), 83 FR 35044 (July 24, 2018) (SR-DTC-2018-006) (``Notice'').
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I. Description of the Proposed Rule Change

    The proposed rule change would amend the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company (``DTC 
Rules'') \4\ to revise DTC's current Rule 35--CMS Reporting (``Rule 
35'').
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    \4\ Available at http://www.dtcc.com/legal/rules-and-procedures.aspx. Each capitalized term not otherwise defined herein 
has its respective meaning as set forth in the DTC Rules.
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A. Background

    Currently, Rule 35 provides that a Participant of DTC 
(``Participant'') may establish a collateral management service 
(``CMS'') \5\ sub-account (``CMS Sub-Account''), which authorizes DTCC 
Euroclear Global Collateral Ltd. (``DEGCL'') \6\ to receive from DTC 
(i) a CMS report that provides information regarding securities 
credited to the CMS Sub-Account of such Participant at the time of the 
report (``CMS Report''), and (ii) CMS delivery information that 
provides real-time information regarding any delivery or pledge from, 
or delivery or release to, the CMS Sub-Account (``CMS Delivery 
Information'').\7\
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    \5\ Collateral management generally involves calculating 
collateral requirements and facilitating the transfer of collateral 
between counterparties. See Securities Exchange Act Release No. 
64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (S7-28-11).
    \6\ DEGCL is a joint venture of The Depository Trust & Clearing 
Corporation, the corporate parent of DTC, and Euroclear S.A./N.V. 
and was formed for the purpose of offering global information, 
record keeping, and processing services for derivatives collateral 
transactions and other types of financing transactions. DEGCL offers 
service options for the selection of collateral to satisfy the 
collateral obligations of its users (``DEGCL CMS''). See Securities 
Exchange Act Release No. 80280 (March 20, 2017), 82 FR 15081 (March 
24, 2017) (SR-DTC-2017-001) (``CMS Order'') (providing additional 
information on DEGCL and DEGCL CMS). One option relates exclusively 
to Securities held at DTC, and is dependent on Rule 35. Id.
    \7\ CMS Order, 82 FR at 21838.
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B. The Proposed Rule Change

    DTC proposes five changes to Rule 35: (1) Adding the term ``CMSP'' 
(i.e., a CMS provider) and its associated function; (2) adding the term 
``CMSP Accounts'' and its associated function; (3) adding the term 
``CMSP Reports'' and its associated function; (4) authorizing a CMSP to 
submit CMSP instructions (``CMSP Instructions'') on behalf of a 
Participant or a Pledgee of DTC (``Pledgee''); and (5) making 
ministerial changes to conform with the proposed changes, as well as 
making stylistic edits.\8\ Each of these proposed changes is described 
below.
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    \8\ Notice, 83 FR at 35044-45.
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1. CMSP
    The proposal would add to Rule 35 the term and function of a CMSP, 
which a Participant or Pledgee could then designate to act on its 
behalf under the rule, pursuant to the proposed changes.\9\ The term 
CMSP would replace the existing, singular designation of DEGCL to act 
under Rule 35 as a collateral management provider.\10\ A partnership, 
corporation, or other organization or entity could become a CMSP, under 
the proposed changes to Rule 35, if it satisfies three proposed 
criteria: (1) One or more Participants or Pledgees designate the entity 
as a CMSP for purposes of Rule 35; (2) the entity (i) satisfies at 
least one of the qualifications set forth in Section 1(a)-(h) of Rule 3 
\11\ or (ii) is organized in a country other than the United States, is 
regulated by a financial regulatory authority in the country in which 
it is organized, and demonstrates that it has notified the Commission 
in writing of its intention to operate under Rule 35; \12\ and (3) the 
entity establishes a connection to DTC, in accordance with the 
reasonable requirements of DTC, in order to be able to receive position 
and transaction information and to submit instructions to DTC in 
accordance with the DTC Rules and Procedures.\13\
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    \9\ Notice, 83 FR at 35045.
    \10\ Id.
    \11\ Sections 1(a)-(h) of Rule 3 provide the qualifications for 
a partnership, corporation or other organization or entity to be 
eligible to become a Participant. See DTC Rules, Rule 3, Sections 
1(a)-(h), supra note 4.
    \12\ DTC states that in order to protect DTC, its Participants 
and Pledgees, a CMSP that wishes to act under the proposed changes 
to Rule 35 would need to be subject to regulatory oversight 
comparable to a Participant, as provided in proposed Section 2(b)(i) 
of Rule 35, or, if the entity is organized in a country other than 
the United States (a ``non-U.S. entity''), it would need to be 
regulated by a financial regulatory authority in the country in 
which it is organized, as provided in proposed Section 2(b)(ii) of 
Rule 35. Notice, 83 FR at 35045. Further, the proposed rule change 
would require that, in order to be eligible to become a CMSP, the 
non-U.S. entity must notify the Commission in writing of its 
intention to operate under Rule 35, as modified by the proposed 
changes. Id. While DTC reserves the right to request documentation 
and/or information relating to a CMSP's compliance with the 
requirements of proposed Section 2 of Rule 35, it would be the sole 
responsibility of the Participant or Pledgee to evaluate and choose 
an appropriate CMSP that, at a minimum, satisfies the requirements. 
Id. Under proposed Section 2 of Rule 35, the designating Participant 
or Pledgee would remain liable as principal for the actions of its 
designated CMSP(s) on its behalf, and would indemnify DTC for any 
loss, liability, or expense as a result of any claim arising from 
(i) any act or omission of the CMSP, (ii) the provision of CMSP 
Reports to the CMSP by DTC, or (iii) DTC's compliance with 
instructions of the CMSP. Id.
    \13\ Id.
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    As proposed, DTC may decline to accept an entity as a CMSP if it 
would present material risk to DTC, its Participants and Pledgees, or 
impose material costs to DTC.\14\ DTC states that some examples of 
circumstances in which DTC might reject an applicant as a CMSP include 
when DTC reasonably believes that acceptance of the applicant as a CMSP 
would (i) subject DTC to additional legal or regulatory regimes, to 
which it is not otherwise subject; (ii) expose DTC to additional 
technology risk; or (iii) cause DTC to be in violation of applicable 
law or regulation.\15\
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    \14\ Id.
    \15\ Id.
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2. CMSP Account
    The proposed rule change would add the term and function of a 
``CMSP Account'' to Rule 35.\16\ Currently, Rule 35 requires a 
Participant looking to utilize the services offered through Rule 35 to 
designate an account for such

[[Page 44378]]

purposes (i.e., a CMS Sub-Account).\17\ A Pledgee, however, is not 
permitted to designate a CMS Sub-Account under the existing Rule 35.
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    \16\ Id.
    \17\ Id.
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    The proposed CMSP Account would replace the concept of the existing 
CMS Sub-Account and would allow either a Participant or a Pledgee to 
designate any account as a CMSP Account.\18\ Once established, a CMSP 
Account would allow the designated CMSP access and authority to provide 
instruction to DTC (as further described below) for the Delivery, 
Pledge, or Release of securities on behalf of a Participant or Pledgee, 
as applicable.\19\ As proposed, a Participant or Pledgee could 
designate one or more CMSP Accounts and, concurrently, designate one or 
more CMSPs with respect to each CMSP Account.\20\
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    \18\ Id.
    \19\ Id. The proposed rule change would specify that, with 
respect to a CMSP Account, a Participant or Pledgee would retain the 
right to instruct DTC as otherwise provided in the DTC Rules and 
Procedures. Id.
    \20\ Id.
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    A Participant's or Pledgee's designation of a CMSP for a CMSP 
Account would serve four functions: (1) The appointment of the CMSP to 
act on its Participant's or Pledgee's behalf for the purposes of Rule 
35; (2) the authorization of the CMSP to receive CMSP Reports and to 
provide CMSP Instructions on behalf of its Participant or Pledgee; (3) 
the authorization of DTC to act in accordance with any CMSP Instruction 
of a Participant's or Pledgee's designated CMSP; and (4) the 
representation and warranty of the Participant or Pledgee that it is 
duly authorized to instruct DTC to provide CMSP Reports to the CMSP and 
to act in accordance with any CMSP Instruction.\21\
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    \21\ Id.
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    The proposed rule change would not substantially alter the current 
liability and indemnification provisions provided for in Rule 35.\22\ 
Specifically, the proposed rule change would provide that each 
Participant and Pledgee that designates a CMSP would indemnify DTC, and 
any nominee of DTC, against any loss, liability or expense as a result 
of any claim arising from the compliance of DTC with CMSP Instructions, 
except to the extent such loss, liability, or expense is caused 
directly by the DTC's gross negligence or willful misconduct.\23\
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    \22\ Id.
    \23\ Id.
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3. CMSP Reports
    Rule 35 currently authorizes DEGCL, and only DEGCL, to receive 
position and transaction information from DTC on behalf of a 
Participant in the form of CMS Delivery Information and CMS 
Reports.\24\ The proposed rule change would permit a Participant or 
Pledgee to authorize a CMSP, which may or may not be DEGCL, to receive 
CMSP Reports (with respect to CMSP Accounts for which the CMSP is 
designated).\25\ The CMSP Information and CMSP Position Report are 
analogous to the reports currently provided to DEGCL under Rule 35 
(i.e., CMS Report and CMS Delivery Information, respectively).\26\
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    \24\ Id.
    \25\ Id.
    \26\ Id.
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    Currently, Rule 35 defines ``CMS Delivery Information'' to mean, 
``with respect to CMS Securities and any Delivery or Pledge thereof 
from, or Delivery or Release thereof to, a CMS Sub-Account, a copy of 
any Delivery, Pledge, or Release message sent to the CMS Participant by 
DTC, including the following information: (x) The CUSIP, ISIN, or other 
identification number of such CMS Securities, and (y) the number of 
shares or other units or principal amount of such CMS Securities.'' 
\27\ DTC states that this definition was drafted to align with DEGCL 
specifications.\28\
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    \27\ Notice, 83 FR at 35046.
    \28\ Id.
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    Pursuant to the proposed rule change, the definition of ``CMSP 
Information'' would be drafted in more general terms to provide 
flexibility for the different collateral management service offerings 
of CMSPs (in addition to DEGCL).\29\ Pursuant to the proposed rule 
change, ``CMSP Information'' would mean, ``with respect to a CMSP 
Account of a Participant or Pledgee, a copy of any message sent to the 
Participant or Pledgee by the Corporation.'' \30\ These messages would 
include, but would not be limited to, the Delivery, Pledge, and Release 
messages referenced in the definition of CMS Delivery Information in 
existing Rule 35.\31\
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    \29\ Id.
    \30\ Id.
    \31\ Id.
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    Similarly, Rule 35 currently defines ``CMS Report'' to mean, ``with 
respect to a CMS Participant and its CMS Sub-Account, the following 
information identifying the CMS Securities that are, at the time of 
such report, credited to such CMS Sub-Account: (i) The CUSIP, ISIN, or 
other identification number of the CMS Securities, and (ii) the number 
of shares or other units or principal amount of the CMS Securities.'' 
\32\ DTC states that this definition was drafted to align with DEGCL 
specifications.\33\ Pursuant to the proposed rule change, the specific 
language ``(i) the CUSIP, ISIN, or other identification number of the 
CMS Securities, and (ii) the number of shares or other units or 
principal amount of the CMS Securities'' would be deleted from the 
definition of ``CMSP Position Reports.'' \34\
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    \32\ Id.
    \33\ Id.
    \34\ Id.
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    Finally, similar to what is provided for in Rule 35 today, the 
proposed changes would provide that DTC would have no liability to any 
Participant or Pledgee as a result of providing one or more CMSP 
Reports to any CMSP pursuant to proposed Section 5 of Rule 35.\35\
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    \35\ Id.
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4. CMSP Instructions
    The proposed rule change would provide that a CMSP would be 
authorized to instruct DTC, on behalf of the Participant or Pledgee, 
for the Delivery, Pledge, or Release of securities credited to such 
Participant or Pledgee's CMSP Account, as applicable.\36\ CMSP 
Instructions would be subject to the terms and conditions of the DTC 
Rules and Procedures applicable to Deliveries, Pledges, and Releases of 
securities generally, including risk management controls.\37\ DTC 
states that the purpose of this proposed change is to streamline 
collateral processing by CMSPs by allowing them to receive information 
directly from DTC and to take direct action on that information through 
CMSP Instructions, on behalf of Participants and Pledgees.\38\
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    \36\ For a CMSP Account of a Participant, that would include 
Delivery or Pledge. Id. For a CMSP Account of a Pledgee, that would 
include Delivery or Release. Id.
    \37\ DTC states that its risk management controls, including 
Collateral Monitor and Net Debit Cap (as defined in Rule 1, Section 
1 of the Rules), are designed so that DTC may complete system-wide 
settlement notwithstanding the failure to settle of its largest 
Participant or Affiliated Family of Participants. Id. The Collateral 
Monitor tests whether a Participant has sufficient collateral for 
DTC to pledge or liquidate if that Participant were to fail to meet 
its settlement obligation. Id. Pursuant to these controls under 
applicable DTC Rules and Procedures, DTC states that it would not 
process any Delivery or Pledge instruction order from a CMSP Account 
that would cause the Participant to exceed its Net Debit Cap or to 
have insufficient DTC Collateral to secure its obligations to DTC. 
Id. DTC states that Deliveries would be processed in the same order 
and with the same priority as otherwise provided in the DTC Rules 
and Procedures (i.e., such Deliveries and Pledges would not take 
precedence over any other type of Delivery or Pledge in the DTC 
system). Id.
    \38\ Id.
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    The proposal would not preclude instructions by the Participant or 
Pledgee itself, or CMSP Instructions by another CMSP, with respect to 
the same

[[Page 44379]]

CMSP Account.\39\ Furthermore, the proposed changes to Rule 35 would 
provide that DTC has no liability (i) to a Participant or Pledgee for 
acting in accordance with, or relying upon, CMSP Instructions, or (ii) 
to any CMSP as a result of DTC acting in accordance with, or relying 
upon, instructions of any other Person, including, but not limited to, 
the Participant or Pledgee or any other designated CMSP.\40\
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    \39\ Id.
    \40\ Id.
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5. Ministerial Changes
    In connection with the foregoing, DTC proposes the following 
ministerial changes to Rule 35 in order to conform the existing rule 
text to the proposed changes, as well as to make stylistic edits: \41\
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    \41\ Id.
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    Title. DTC proposes to replace the current title ``CMS Reporting'' 
with ``CMSP Reports and Instructions,'' to reflect the amended 
substance of the proposed rule.\42\
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    \42\ Id.
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    Section 1. For stylistic consistency, DTC proposes to insert the 
title ``Certain Defined Terms'' for Section 1.\43\ DTC further proposes 
to (i) delete the definitions of CMS, CMS Participant, CMS 
Representative, CMS Securities, DEGCL, and DTCC; (ii) add definitions 
for CMSP, CMSP Account, CMSP Instruction, and CMSP Reports; (iii) 
replace the defined term ``CMS Delivery Information'' with ``CMSP 
Information'' and simplify the definition by referring to ``a copy of 
any message sent to the Participant or Pledgee'' with respect to a CMSP 
Account, instead of ``a copy of any Delivery, Pledge, or Release 
message sent to the CMS Participant by DTC, including the following 
information: (x) The CUSIP, ISIN, or other identification number of 
such CMS Securities, and (y) the number of shares or other units or 
principal amount of such CMS Securities''; and (iv) replace the defined 
term ``CMS Report'' with ``CMSP Position Report'' and simplify the 
definition by removing the DEGCL specifications of ``(i) the CUSIP, 
ISIN, or other identification number of the CMS Securities, and (ii) 
the number of shares or other units or principal amount of the CMS 
Securities.'' \44\
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    \43\ Id.
    \44\ Id.
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    Proposed Section 2 (New). DTC proposes to insert a new proposed 
Section 2, titled ``Qualification as a CMSP.'' \45\ This section would 
identify the aforementioned requirements that an entity must satisfy to 
become a CMSP.\46\
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    \45\ Id.
    \46\ Id.
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    Section 2 (Proposed Section 3). DTC proposes to renumber Section 2 
to Section 3, and to change the title of proposed Section 3 to ``CMSP 
Accounts.'' \47\ DTC also proposes to modify subsection (a) to delete 
DEGCL CMS-specific terms and to reflect that (i) a Participant or 
Pledgee can designate one or more CMSP Accounts, as well as designate 
one or more CMSPs for each CMSP Account, and (ii) as noted above, 
describe what the designation of a CMSP entails, with respect to a CMSP 
Account by a Participant or Pledgee would constitute.\48\ DTC further 
proposes to modify subsection (b) to remove CMS-specific references, to 
reflect the inclusion of Pledgees, CMSPs, and CMSP Instruction in the 
proposed rule, and to make ministerial changes.\49\ Additionally, DTC 
proposes to remove subsection (c) as it would be no longer relevant 
because it relates exclusively to DEGCL.\50\
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    \47\ Id.
    \48\ Notice, 83 FR at 35046-7.
    \49\ Notice, 83 FR at 35047.
    \50\ Id.
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    Section 3 (Proposed Section 4). DTC proposes to renumber Section 3 
as Section 4, and to change the title of the section to ``Instructions 
on a CMSP Account.'' \51\ DTC further proposes to (i) modify subsection 
(a) to remove provisions relating to the transfer of securities to a 
CMS Sub-Account, and to insert a provision stating that a Participant 
or Pledgee retains its right to instruct DTC with respect to its CMSP 
Account, and (ii) modify subsection (b) to remove provisions relating 
to the transfer of securities to a CMS Sub-Account, and to insert a 
provision specifying that a CMSP may instruct the Delivery, Pledge, or 
Release of securities to or from a CMSP Account for which it is 
designated pursuant to proposed Section 3 of Rule 35.\52\ Further, DTC 
proposes to insert the new subsection (c) that would state that all 
Deliveries, Pledges, and Releases to or from a CMSP Account would be 
subject to the terms and conditions of the DTC Rules and Procedures 
applicable to Deliveries, Pledges, and Releases of securities 
generally.\53\
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    \51\ Id.
    \52\ Id.
    \53\ Id.
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    Section 4. DTC proposes to delete this section, as it relates to 
DEGCL specifications for a CMS Report.\54\
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    \54\ Id.
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    Section 5. DTC proposes to replace the current title of ``CMS 
Delivery Information'' with ``CMSP Reports.'' \55\ DTC is further 
proposing to insert proposed subsection (a) to provide for the 
provision of CMSP Position Reports and CMSP Information to each CMSP 
for each CMSP Account for which it is designated.\56\ DTC additionally 
proposes to delete language relating to DEGCL-specific requirements 
regarding ``CMS Delivery Information.'' \57\ Further, DTC proposes to 
incorporate the remaining language of Section 5, modified to conform to 
the defined terms of the proposed rule change, into proposed subsection 
(b).\58\
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    \55\ Id.
    \56\ Id.
    \57\ Id.
    \58\ Id.
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    Section 6. DTC proposes to modify the section to (i) add references 
to CMSPs, Pledgees, CMSP Reports, and CMSP Instructions, (ii) remove 
references to CMS Participant, CMS Report, Delivery Information, and 
CMS Representative, and (iii) update a cross-reference relating to CMSP 
Reports.\59\ DTC further proposes to add disclaimers of liability to 
(i) a Participant or Pledgee for acting in accordance with, or relying 
upon, CMSP Instructions, or (ii) any CMSP as a result of DTC acting in 
accordance with, or relying upon, instructions of any other Person, 
including, but not limited to, the Participant or Pledgee or any other 
designated CMSP, with respect to a CMSP Account.\60\
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    \59\ Id.
    \60\ Id.
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    For additional clarity, DTC also proposes to make ministerial 
changes to (i) update articles, pronouns, and determiners, and (ii) 
modify language for stylistic conformity within the proposed rule.\61\
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    \61\ Id.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \62\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission believes the proposal is 
consistent with the Act, specifically Section 17A(b)(3)(F) of the Act 
and Rule 17Ad-22(e)(21) under the Act.\63\
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    \62\ 15 U.S.C. 78s(b)(2)(C).
    \63\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(20).

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[[Page 44380]]

A. Consistency With Section 17A

    Section 17A(b)(3)(F) of the Act \64\ requires, inter alia, that the 
rules of the clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.
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    \64\ 15 U.S.C. 78q-1(b)(3)(F).
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    As described above, DTC proposes to make five core changes to Rule 
35. First, DTC proposes to no longer reference DEGCL as the sole CMS 
provider under Rule 35 but, instead, to reference the new term CMSP and 
its associated functions. Specifically, the proposed change would allow 
any otherwise eligible partnership, corporation, or other organization 
or entity that meets the proposed criteria to offer collateral 
management services through DTC for the purpose of Rule 35. The 
Commission believes that by expanding Rule 35 to include a broader 
concept of a CMSP, not just one specific CMSP (i.e., DEGCL), the 
proposed change (i) opens up the opportunity for other collateral 
management providers to compete in offering their services under Rule 
35, and (ii) affords Participants and Pledgees the opportunity to 
evaluate whether another entity could better meet its collateral 
management requirements. By increasing the opportunity for competition 
and selection, the proposed change should help collateral management 
providers, Participants, and Pledgees be better positioned to more 
efficiently effect the settlement of collateral transactions under Rule 
35. Therefore, the change would help promote the prompt and accurate 
clearance and settlement of securities transactions.
    Second, as described above, DTC proposes to add to Rule 35 the term 
CMSP Account and its associated functions. As proposed, a CMSP Account 
would allow Pledgees, not just Participants, to use collateral 
management service offerings of CMSPs for the purposes of Rule 35. By 
establishing the ability for Pledgees to utilize collateral management 
services under Rule 35, through the proposed CMSP Account, the proposal 
affords Pledgees the same opportunities to manage such collateral 
transactions through DTC as Participants. The Commission believes that 
expanding Rule 35 to include Pledgees should help Pledgees more 
efficiently effect the settlement of their collateral transactions at 
DTC, thus helping to promote the prompt and accurate clearance and 
settlement of such securities transactions.
    Third, as described above, DTC proposes to add to Rule 35 the term 
CMSP Reports and its associated functions; namely, the CMSP Position 
Report and the CMSP Information. The CMSP Position Report would enable 
the CMSP to know what securities are credited to a Participant or 
Pledgee's CMSP Account each day, while the CMSP Information would allow 
the CMSP to know the Participant's or the Pledgee's real-time 
correspondence with DTC. These two reports are designed to furnish the 
CMSP with information needed to calculate collateral requirements and 
facilitate the transfer of collateral between counterparties. As such, 
the Commission believes that the CMSP Position Report and CMSP 
Information would assist CMSPs in providing collateral management 
services, and thereby, promote the prompt and accurate clearance and 
settlement of those securities transactions.
    Fourth, as described above, the proposed rule change would allow a 
CMSP to instruct DTC to Deliver, Pledge, or Release securities credited 
to a CMSP Account, on behalf of a Participant or Pledgee. In doing so, 
the proposed rule change should help reduce the number of actions that 
a Participant or Pledgee that uses a CMSP would need to take in order 
to effect the settlement of collateral transactions at DTC. The 
Commission believes that the proposal would thereby help add efficiency 
to the clearance and settlement process by providing straight-through 
submission and processing of settlement instructions by a CMSP, without 
further actions by the Participant or Pledgee. As such, the proposed 
CMSP Instructions would help promote the prompt and accurate clearance 
and settlement of securities transactions.
    Fifth, as described above, the proposal would make ministerial 
changes to Rule 35 to conform the existing language in Rule 35 to the 
proposed changes. The proposal would also make various stylistic edits 
to the rule text. These changes are designed to help ensure that the 
final rule text is coherent and all cross-references within the rule 
text are current. The Commission believes the ministerial and stylistic 
changes thereby would help Participants and Pledgees to better 
understand their rights and obligations with respect to the collateral 
management services provide under Rule 35. Therefore, the changes would 
help promote the prompt and accurate clearance and settlement of such 
transactions.
    As each of the aforementioned changes is designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions, the Commission finds that the proposal is consistent with 
the requirements Section 17A(b)(3)(F).

B. Consistency With Rule 17Ad-22(e)(21)

    Rule 17Ad-22(e)(21) promulgated under the Act requires, inter alia, 
a covered clearing agency \65\ to establish, implement, maintain and 
enforce written policies and procedures reasonably designed to be 
efficient and effective in meeting the requirements of its participants 
and the markets it serves.\66\
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    \65\ A ``covered clearing agency'' means, among other things, a 
clearing agency registered with the Commission under Section 17A of 
the Exchange Act (15 U.S.C. 78q-1 et seq.) that is designated 
systemically important by the Financial Stability Oversight Counsel 
(``FSOC'') pursuant to the Payment, Clearing, and Settlement 
Supervision Act of 2010 (12 U.S.C. 5461 et seq.). See 17 CFR 
240.17Ad-22(a)(5)-(6). On July 18, 2012, FSOC designated DTC as 
systemically important. U.S. Department of the Treasury, ``FSOC 
Makes First Designations in Effort to Protect Against Future 
Financial Crises,'' available at https://www.treasury.gov/press-center/press-releases/Pages/tg1645.asp. Therefore, DTC is a covered 
clearing agency.
    \66\ 17 CFR 240.17Ad-22(e)(21).
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    As described above, the proposal would amend Rule 35 to, generally, 
(i) broaden what entities may serve as a CMSP, (ii) allow Participants 
and Pledgees to utilize the services offered by Rule 35, (iii) and 
permit Participants and Pledgees to designate one or more CMSPs, with 
respect to a CMSP Account, to provide CMSP Instructions, as well as 
receive CMSP Information and CMSP Position Reports. With these proposed 
changes, the Commission believes that the proposal would grant both 
Participants and Pledgees the flexibility to establish and structure 
their respective CMSP Accounts, including the eligible CMSP that would 
service the accounts, in a manner that is most effective and efficient 
for the collateral management needs of that Participant or Pledgee and 
for the specifications of its designated CMSP(s).
    The proposed rule change also would make ministerial revisions and 
stylistic edits to Rule 35, as described above. These changes are 
designed to help Participants and Pledgees better understand their 
rights and obligations with respect to the services offered under Rule 
35. By helping Participants and Pledgees better understand their rights 
and obligations with respect to Rule 35, the Commission believes that 
the proposed changes are designed to be efficient and effective in 
meeting the requirements of Participants and Pledgees that take 
advantage of DTC's collateral management services under Rule 35.

[[Page 44381]]

    Therefore, the Commission finds that the proposal is designed to be 
efficient and effective in meeting the requirements of Participants and 
Pledgees, consistent with Rule 17Ad-22(e)(21) under the Act.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, in particular 
the requirements of Section 17A of the Act \67\ and the rules and 
regulations thereunder.
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    \67\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2018-006 be, and hereby is, 
approved.\68\
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    \68\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18784 Filed 8-29-18; 8:45 am]
BILLING CODE 8011-01-P


