[Federal Register Volume 84, Number 156 (Tuesday, August 13, 2019)]
[Notices]
[Pages 40107-40111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17232]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86589; File No. SR-DTC-2018-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing Amendment Nos. 1 and 2, and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
2, To Amend the Settlement Guide Procedures To Provide Status 
Information for Institutional Transactions to a Matching Utility

August 7, 2019.
    On November 29, 2018, The Depository Trust Company (``DTC''), filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change, pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ to allow DTC to 
share status information with matching utilities (SR-DTC-2018-010).
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The proposed rule change was published for comment in the Federal 
Register on December 12, 2018.\3\ In response, the Commission received 
one comment letter on the proposed rule change.\4\ On December 26, 
2018, the Commission extended the time period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change to March 12, 2019.\5\ On March 11, 2019, the 
Commission issued an order instituting proceedings under Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change (``OIP'').\7\ The Commission 
received additional comments on the proposal in response to the OIP.\8\ 
On June 5, 2019, the Commission designated a longer period for 
Commission action on the proceedings to determine whether to approve or 
disapprove the proposed rule change.\9\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 84751 (December 7, 
2018), 83 FR 63948 (December 12, 2018) (SR-DTC-2018-010) 
(``Notice'').
    \4\ Letter from Mari-Anne Pisarri, Pickard Djinis and Pisarri 
LLP, dated January 2, 2019, to Eduardo A. Aleman, Assistant 
Secretary, Commission, available at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-4842066-177179.pdf (``SS&C Letter I'').
    \5\ Securities Exchange Act Release No. 84954 (December 26, 
2018), 84 FR 873 (January 31, 2019) (SR-TC-2018-010).
    \6\ 15 U.S.C. 78s(b)(2)(B)(ii).
    \7\ Securities Exchange Act Release No. 85288 (March 11, 2019), 
84 FR 9565 (March 15, 2019) (SR-DTC-2018-010).
    \8\ Letter from John F. Abel, Executive Director, Settlement and 
Asset Services, Depository Trust and Clearing Corporation, dated 
July 1, 2019, to Vanessa Countryman, Acting Secretary, Commission, 
available at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5749578-186788.pdf (``DTC Letter II''); Letter from 
Mari-Anne Pisarri, Pickard Djinis and Pisarri LLP, dated April 15, 
2019, to Vanessa Countryman, Acting Secretary, Commission, available 
at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5364127-184089.pdf (``SS&C Letter II''); and Letter from Murray 
Pozmanter, Managing Director, Head of Clearing Agency Services and 
Global Operations, Depository Trust and Clearing Corporation, dated 
March 26, 2019, to Brent J. Fields, Secretary, Commission, available 
at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5224494-183708.pdf (``DTC Letter I'').
    \9\ Securities Exchange Act Release No. 88037 (June 5, 2019), 84 
FR 27172 (June 11, 2019) (SR-DTC-2018-010).
---------------------------------------------------------------------------

    On June 28, 2019, DTC filed Amendment No. 1 to the proposed rule 
change to provide status information to a matching utility even if that 
matching utility did not submit a transaction to DTC.\10\ On August 5, 
2019, DTC filed Amendment No. 2 to the proposed rule change to delay 
the implementation timeframe of the proposal to until DTC has submitted 
a subsequent fee filing.\11\ The Commission is publishing this notice 
to solicit comment on Amendment Nos. 1 and 2 from interested persons 
and to approve the proposed rule change, as modified by Amendment Nos. 
1 and 2 (hereinafter, ``Proposed Rule Change''), on an accelerated 
basis.
---------------------------------------------------------------------------

    \10\ DTC submitted a courtesy copy of Amendment No. 1 to the 
proposed rule change through the Commission's electronic public 
comment letter mechanism. Accordingly, Amendment No. 1 to the 
proposed rule change has been publicly available on the Commission's 
website at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010.htm since July 2, 2019.
    \11\ DTC submitted a courtesy copy of Amendment No. 2 to the 
proposed rule change through the Commission's electronic public 
comment letter mechanism. Accordingly, Amendment No. 2 to the 
proposed rule change has been publicly available on the Commission's 
website at https://www.sec.gov/comments/sr-dtc-2018-010/srdtc2018010-5914689-188969.pdf since August 6, 2019.
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

Background

    DTC proposes to amend the procedures, set forth in the DTC 
Settlement Service Guide (``Settlement Guide''),\12\ to allow DTC to 
provide status information (``Status Information'') for institutional 
transactions in eligible securities (``Institutional Transactions'') 
\13\ to an entity providing a matching service (``Matching 
Utility''),\14\ as described below.
---------------------------------------------------------------------------

    \12\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in the Rules, By-Laws and 
Organization Certificate of The Depository Trust Company 
(``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx, and the Settlement Service Guide, available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf (``Settlement Guide'').
    \13\ DTC defines an Institutional Transaction as a securities 
transaction between a broker-dealer and its institutional customer 
(e.g., sell-side firms, buy-side institutions, and custodians). 
Notice, supra note 3, 83 FR at 63948.
    \14\ A ``matching service'' is defined in the Settlement Guide 
as an electronic service to match trade information, centrally, 
between a broker-dealer and its institutional customer.
---------------------------------------------------------------------------

    In accordance with the Settlement Guide, for a Matching Utility to 
establish and maintain a connection with DTC the Matching Utility must 
be able to balance with DTC in an automated way \15\ and communicate 
transactions to and from DTC with information required though mandated 
fields in order to provide DTC with data necessary for it to be able to 
process a transaction.\16\ The submission of an

[[Page 40108]]

Affirmed Transaction by the Matching Utility to DTC, on behalf of a 
Participant, constitutes the duly authorized instruction of the 
Participant to DTC to process the Affirmed Transaction in accordance 
with the Rules and Procedures.\17\
---------------------------------------------------------------------------

    \15\ For each Matching Utility interfacing with DTC, DTC 
requires the Matching Utility to deliver a daily message on each 
business day shortly after noon from the Matching Utility with their 
accepted item counts of institutional delivery and ID Net 
transaction totals for transactions settling the previous day. 
Settlement Guide, supra note 12 at 35. DTC's system will compare the 
totals from the Matching Utility to its accepted item counts. Id. If 
the totals match, an ``acknowledged balance'' balance file will be 
sent to the Matching Utility. Id. If the totals do not match, DTC 
will respond with the list of control numbers received from the 
Matching Utility for transactions that settled on the previous day, 
along with their respective transaction types for the originating 
Matching Utility to compare. Id.
    \16\ Settlement Guide, supra note 12 at 35. The mandated fields 
for this purpose are the transaction control number (``Control 
Number''), DTC receiver and deliverer account numbers, CUSIP, 
message type, share quantity, market type, buy-sell indicator, 
broker ID, ID agent internal account number, broker internal account 
number, agent bank ID, settlement amount, origination entity, 
recipient of message, institution, and settlement date. 
Institutional Transactions that are not Affirmed Transactions, but 
which include a Control Number, may be submitted directly by 
Participants. Id.
    \17\ Settlement Guide, supra note 12 at 35.
---------------------------------------------------------------------------

    A transaction submitted to DTC for processing may be subject to a 
processing exception (``Exception''), causing it to pend in the DTC 
system or not be processed because the transaction does not satisfy 
certain requirements and/or controls set forth in the Rules and 
Settlement Guide. A Matching Utility that has submitted an 
Institutional Transaction to DTC, or is otherwise involved with the 
matching of a transaction, does not receive Status Information 
regarding the transaction and is therefore unable to provide services 
to facilitate resolution of processing Exceptions occurring at DTC. 
Therefore, in order to resolve an Exception, the Participants to an 
Institutional Transaction currently must (i) access Status Information 
directly through the DTC Settlement User Interface and (ii), as 
necessary, supply the information to their customers that are 
counterparties to the transaction on their books, in order to 
facilitate the coordination of the resolution of the Exception among 
the counterparties. DTC states that currently, these communications 
among the counterparties to a transaction often occur in a 
decentralized manner via email, which is time consuming and subject to 
error.\18\
---------------------------------------------------------------------------

    \18\ Notice, supra note 3, 83 FR at 63950.
---------------------------------------------------------------------------

Proposed Rule Change

    DTC received a request from its Matching Utility affiliate, ITP 
Matching (US) LLC (``ITP''), to receive Status Information so that ITP 
may transmit the Status Information to counterparties in a centralized 
format. DTC believes that distribution of Status Information to 
relevant counterparties in a centralized format would facilitate 
Participants' ability to monitor Exceptions and coordinate with their 
institutional customers in order to resolve Exceptions.
    Pursuant to the proposed rule change, in order to facilitate more 
seamless transmission of the Status Information to Participants and 
facilitate their ability to manage Exceptions for (i) Affirmed 
Transactions and (ii) other Institutional Transactions that may have 
been confirmed at a Matching Utility and received a Control Number and 
are submitted directly to DTC by a Participant in an instruction 
containing the Control Number (collectively, ``Eligible 
Transactions''), DTC proposes to amend the Settlement Guide to provide 
that DTC may provide Status Information on Eligible Transactions to the 
applicable Matching Utility that submitted the transaction to DTC or 
with respect to which its Control Number is included in transaction 
details provided by a Participant,\19\ if so requested by the Matching 
Utility.
---------------------------------------------------------------------------

    \19\ DTC states that it is DTC's understanding that a 
transaction that has been confirmed within a Matching Utility's 
system, but has not been affirmed, may be assigned a Control Number 
by the Matching Utility. Any transaction not affirmed by a Matching 
Utility would not be submitted by it to DTC as an Affirmed 
Transaction. In that case, the Participant may submit the 
transaction directly through DTC as a Deliver Order and include the 
applicable Control Number as assigned by the Matching Utility on its 
submission to DTC.
---------------------------------------------------------------------------

    In this regard, DTC would send to a Matching Utility Status 
Information for Eligible Transactions that DTC has received from the 
Matching Utility or have been entered by the Participant that have a 
Control Number associated with that Matching Utility. The Status 
Information provided to the Matching Utility would include the status 
of the transaction (e.g., the Delivery of Securities has been made 
within DTC, the transaction is pending Delivery within DTC, or the 
transaction was reclaimed (i.e., sent back to the Deliverer)) and a 
reason for any pending status (e.g., the Deliverer has insufficient 
inventory in the applicable Securities, the Deliverer has insufficient 
Collateral, the Receiver to the transaction has insufficient Net Debit 
Cap, etc.). The Status Information would also include information 
(``Identifying Information'') to facilitate the Matching Utility's 
ability to identify the applicable Eligible Transaction and reconcile 
the Status Information to the Eligible Transaction in its records. 
Identifying Information would include, but not be limited to, (i) the 
applicable Control Number, (ii) identification numbers of the 
Participants to the transaction, (iii) quantity of Securities of the 
transaction, (iv) dollar amount of the transaction, and (v) an 
indicator of whether the transaction was submitted to DTC by the 
Matching Utility or directly by a Participant.

Proposed Changes to the Settlement Guide

    Pursuant to the proposed rule change, DTC proposes to revise the 
Settlement Guide to allow DTC to provide Status Information of Eligible 
Transactions to a Matching Utility that requests such information, but 
only for those transactions that are associated with a Control Number 
relating to the Matching Utility. The proposed text to the Settlement 
Guide would also (i) describe the types of Status Information and 
related Identifying Information that would be shared with a Matching 
Utility in this regard, and (ii) provide that DTC may charge a fee 
(``Status Information Fee'') to a Matching Utility that receives Status 
Information as set forth in the DTC Fee Guide.\20\ The Proposed Rule 
Change would also add a defined term for ``Control Number'' to the 
Settlement Guide in existing text where the term is referred to but not 
defined.
---------------------------------------------------------------------------

    \20\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf. Any such fee would be the subject 
of a subsequent proposed rule change that DTC would file with the 
Commission.
---------------------------------------------------------------------------

    The Proposed Rule Change would require that prior to providing 
Status Information to a Matching Utility, DTC would obtain the written 
agreement, in such form as determined by DTC from time to time 
(``Status Information Agreement''), from the Matching Utility that 
includes the following:
    (i) A request from the Matching Utility to receive Status 
Information from DTC;
    (ii) an agreement by the Matching Utility that the Matching Utility 
will not distribute Status Information to any third party other than 
(a) the Participants indicated on the Status Information and (b) the 
institutional customers that are counterparties to the transaction for 
which the Participants indicated on the Status Information are acting 
with respect to the transaction;
    (iii) the agreement of the Matching Utility that the Matching 
Utility will indemnify, hold harmless and agree, on demand, to 
reimburse DTC, its stockholders, officers, directors and employees from 
and against and for any and all claims, liabilities, obligations, 
damages, actions, penalties, losses, costs, expenses and disbursements, 
including, without limitation, attorneys' fees and disbursements 
(``Claims''), which they may sustain by reason of DTC's providing 
Status Information to the Matching Utility, except for any Claims which 
result from the gross negligence or willful misconduct of the person 
asserting a right to indemnification;

[[Page 40109]]

    (iv) the agreement of the Matching Utility to pay the Status 
Information Fee;
    (v) the agreement of the Matching Utility to notify DTC immediately 
if the Matching Utility becomes aware of Status Information provided to 
it by DTC being distributed to a third party other than as authorized 
pursuant to (ii) above; and
    (vi) the acknowledgement of the Matching Utility that DTC may 
terminate the Status Information Agreement in the event that (a) DTC 
becomes aware that the Matching Utility has used or distributed the 
Status Information in a manner that violates the terms of the Status 
Information Agreement, (b) the Matching Utility does not pay the Status 
Information Fee in accordance with the terms of the Fee Schedule, or 
(c) DTC submits a rule filing to the SEC, which is approved by the SEC 
or otherwise becomes effective pursuant to the Act, to discontinue 
DTC's distribution of Status Information to Matching Utilities.

Description of Amendment No. 1

    In Amendment No. 1, DTC proposes to provide status information to a 
Matching Utility even if that Matching Utility did not submit a 
transaction to DTC.\21\ Specifically, DTC will develop the mechanism 
necessary for DTC to directly provide Status Information to a Matching 
Utility for each transaction submitted to DTC to which a customer of 
the Matching Utility is a party to the transaction and matched the 
transaction via the Matching Utility, regardless of whether or not that 
Matching Utility submitted the transaction to DTC, subject to (i) the 
agreement by the Matching Utility to pay DTC for the reasonable cost to 
cover for the development of the mechanism by DTC and (ii) the Matching 
Utility subscribing to receive Status Information, as described above. 
To the extent that the transaction is an interoperable transaction 
submitted to DTC by another Matching Utility, then in order to receive 
Status Information for the interoperable transaction, the Matching 
Utility would be required to submit an indicator to DTC for the purpose 
of notifying DTC that a customer of the Matching Utility is a party to 
the transaction.
---------------------------------------------------------------------------

    \21\ Amendment No. 1, supra note 10.
---------------------------------------------------------------------------

Description of Amendment No. 2

    In Amendment No. 2, DTC proposes to delay the implementation 
timeframe of the proposal to until DTC has submitted a subsequent fee 
filing.\22\ Specifically, as filed, the proposed rule change would be 
effective upon approval by the Commission. Pursuant to Amendment No. 2, 
the Proposed Rule Change would not become effective until DTC has 
submitted a subsequent proposed rule change pursuant to Rule 19b-4 
under the Act,\23\ and the subsequent proposed rule change has become 
effective. DTC states that subsequent proposed rule change would 
implement changes to the DTC Fee Guide \24\ that establish (i) the 
Status Information Fee and (ii) a charge that would cover the cost of 
DTC's provision of Status Information to a Matching Utility for each 
transaction submitted to DTC to which a customer of the Matching 
Utility is a party to the transaction and matched the transaction via 
the Matching Utility, regardless of whether or not that Matching 
Utility submitted the transaction to DTC, as described in Amendment No. 
1.
---------------------------------------------------------------------------

    \22\ Amendment No. 2, supra note 11.
    \23\ 17 CFR 240.19b-4.
    \24\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf.
---------------------------------------------------------------------------

II. Solicitation of Comments on Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views and 
arguments concerning whether Amendment Nos. 1 and 2 are consistent with 
the Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-DTC-2018-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2018-010. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the Proposed Rule Change that are filed with 
the Commission, and all written communications relating to the Proposed 
Rule Change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2018-010 and should be submitted on 
or before August 28, 2019.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \25\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to such 
organization. After carefully considering the Proposed Rule Change, and 
all comments received, the Commission finds that the Proposed Rule 
Change is consistent with the Act and the rules and regulations 
thereunder applicable to DTC.\26\ In particular, as discussed below, 
the Commission finds that the Proposed Rule Change, is consistent with 
Sections 17A(b)(3)(F) and (I) of the Act.\27\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(2)(C).
    \26\ In approving this Proposed Rule Change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f). The Commission 
addresses comments about economic effects of the Proposed Rule 
Change, including competitive effects, below.
    \27\ 15 U.S.C. 78q-1(b)(3)(F) and (I).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a clearing agency be designed to, among other things, promote the 
prompt and accurate clearance and settlement of securities 
transactions.\28\ For the reasons set forth below, the Commission 
believes that the changes described in the Proposed Rule Change are 
designed to promote the prompt and accurate

[[Page 40110]]

clearance and settlement of securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act.\29\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78q-1(b)(3)(F).
    \29\ Id.
---------------------------------------------------------------------------

    As described above, DTC proposes to share Status Information with 
Matching Utilities. Matching Utilities already electronically 
facilitate communication among the parties to an Institutional 
Transaction. Providing Status Information to Matching Utilities would 
leverage their existing communication platform to eliminate the need 
for Participants to access the Status Information directly from DTC and 
then communicate Exception information to other parties in a 
decentralized way, including by sending emails which are less efficient 
and more error-prone. The Commission believes that this approach should 
increase efficiency in communicating Status Information that in turn 
could help facilitate enhanced communication among the parties to an 
Eligible Transaction to address an Exception so that the Eligible 
Transaction may meet DTC controls and be processed for end-of-day 
settlement. As such, the Commission believes that the Proposed Rule 
Change is designed to promote the prompt and accurate clearance and 
settlement of securities transactions and is consistent with Section 
17A(b)(3)(F) of the Act.\30\
---------------------------------------------------------------------------

    \30\ Id.
---------------------------------------------------------------------------

B. Consistency With Section 17A(b)(3)(I) of the Act

    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\31\ DTC proposes 
to share Status Information with Matching Utilities so that Matching 
Utilities can help facilitate the resolution of Exceptions by using 
their central platform. Currently the parties to Institutional 
Transactions must communicate in an inefficient, time-consuming manner 
to resolve an Exception. Because the increased efficiency in 
communicating Status Information could help facilitate enhanced 
communication among the parties to an Eligible Transaction and address 
an Exception (i.e., so that the Eligible Transaction may meet DTC 
controls and be processed for end-of-day settlement), the Commission 
believes that the Proposed Rule Change could benefit all of the parties 
to an Eligible Transaction. As a result, the Commission believes that 
the Proposed Rule Change would not impose any burden on competition 
regarding fees not necessary or appropriate in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    As originally proposed, the Proposed Rule Change would provide 
Status Information to the Matching Utility that submitted the 
transaction to DTC or with respect to which its Control Number is 
included in transaction details provided by a Participant. Further, a 
Matching Utility would be required to sign an agreement that the 
Matching Utility will not distribute Status Information to any third 
party other than (a) the Participants indicated on the Status 
Information and (b) the institutional customers that are counterparties 
to the transaction for which the Participants indicated on the Status 
Information are acting with respect to the transaction. One commenter 
opposes the original proposal limiting access to the Status Information 
only to Matching Utilities that either submitted the transaction to DTC 
or whose Control Number is included in the transaction detailed 
provided to DTC by a Participant, because this original proposal does 
not provide for transmitting Status Information to a linked Matching 
Utility, over the interface or otherwise.\32\ The commenter states that 
by restricting distribution of Status Information to the Matching 
Utility that submits a transaction to DTC or whose Control Number is 
included in transaction details provided by a Participant on whose 
behalf it confirmed the trade, the original proposal would impede the 
free flow of information between Matching Utilities, thereby further 
thwarting the development of a competitive interoperating environment 
for central trade matching services.\33\
---------------------------------------------------------------------------

    \32\ SS&C Letter II at 2-3.
    \33\ SS&C Letter II at 2-3; SS&C Letter I at 4-5.
---------------------------------------------------------------------------

    In response, DTC states that it does not intend for the Proposed 
Rule Change to preclude sharing of Status Information among 
interoperating Matching Utilities in a circumstance where both Matching 
Utilities are acting for a party to the transaction.\34\ To address the 
commenter's concern, DTC amended the proposal to directly provide 
Status Information to a Matching Utility for each transaction submitted 
to DTC to which a customer of the Matching Utility is a party to the 
transaction and matched the transaction via the Matching Utility.\35\
---------------------------------------------------------------------------

    \34\ DTC Letter II at 4.
    \35\ Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change, as amended, 
would not impose any burden on competition on the future development of 
an interoperability arrangement among Matching Utilities not necessary 
or appropriate in furtherance of the purposes of the Act. The Proposed 
Rule Change would allow any Matching Utilities involved in a 
transaction to access Status Information directly from DTC, regardless 
of whether a Matching Utility's control number was submitted with the 
transaction. The Commission understands that under the Proposed Rule 
Change, the method by which a Matching Utility accesses Status 
Information would differ based on whether the Matching Utility's 
control number is associated with the transaction (i.e., if a Matching 
Utility's control number is not included in the transaction as 
submitted, the Matching Utility would be required to submit an 
indicator to DTC to notify DTC that a customer of the Matching Utility 
is a party to the transaction). The Commission believes that providing 
distinct methods for Matching Utilities to access the same Status 
Information directly from DTC should help ensure that all interested 
Matching Utilities can access such information regardless of which 
Matching Utility submits the transaction to DTC. Therefore, the 
Commission believes that these different methods of access would not 
impose any burden on competition not necessary or appropriate in 
furtherance of the Act.
Fees Associated With the Provision of Status Information
    As discussed above, the Proposed Rule Change would authorize DTC to 
charge (i) a Status Information Fee to a Matching Utility that receives 
Status Information as set forth in the DTC Fee Guide through a future 
proposed rule change and (ii) the reasonable cost to cover for the 
development of the mechanism by DTC to provide Status Information to a 
Matching Utility even if that Matching Utility did not submit a 
transaction to DTC.
    One commenter opposes the proposal to charge a fee for Status 
Information on both procedural and substantive grounds.\36\ As a 
procedural matter, the commenter states that any fee for Status 
Information should be considered by the Commission in the Proposed Rule 
Change. The commenter notes that once DTC's authority to impose a fee 
on a Matching Utility for Status Information is established, any 
subsequent filing to implement that authority by setting the amount of 
the fee will become effective immediately upon filing with the

[[Page 40111]]

Commission.\37\ The commenter states that ``[t]he Commission's 
authority to temporarily suspend the fee, once implemented, is no 
substitute for a careful consideration at this juncture of the 
important issues [it] has raised.'' \38\ Substantively, the commenter 
states any fee charged to ITP would be merely a paper transfer of 
revenue from one corporate affiliate to another, while a fee charged to 
the commenter, another Matching Utility, would be a true cost with real 
consequences.\39\
---------------------------------------------------------------------------

    \36\ See SS&C Letter II at 3-4; SS&C Letter I at 4-5.
    \37\ See SS&C Letter II at 3; see also 15 U.S.C. Sec.  
78s(b)(3).
    \38\ See SS&C Letter II at 3-4.
    \39\ See SS&C Letter II at 4.
---------------------------------------------------------------------------

    For the following reasons, the Commission believes that the 
Proposed Rule Change would not impose any burden on competition 
regarding fees that is not necessary or appropriate in furtherance of 
the purposes of the Act. As a procedural matter, not including the fee 
for Status Information in the Proposed Rule Change is consistent with 
the Act. Sections 19(b)(3)(A) and (C) of the Act \40\ specifically 
provide for the process to which the commenter objects, i.e., a 
proposed rule change that establishes a fee imposed by a self-
regulatory organization on any person, whether or not the person is a 
member of the organization, shall take effect upon filing with the 
Commission and be subject to potential suspension if the Commission 
determines that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of Section 19 of the Act. Therefore, the Commission 
believes that DTC choosing to include any associated fee in a 
subsequent proposed rule change is consistent with the Act.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. Sec.  78s(b)(3)(A) and (C).
---------------------------------------------------------------------------

    Substantively, it is consistent with the Act to charge fees to both 
affiliates and third-party competitors of the affiliate. The commenter 
argues that the mere existence of a fee is problematic because DTC 
would be charging that fee to its affiliate which renders the fee a 
``paper transfer'' of revenue.\41\ However, the Commission believes 
that, under the Act, any fee charged by DTC for this service should be 
equitably allocated among potential users, including users that are 
affiliates of DTC. \42\ Therefore, it would not be reasonable for DTC 
to not charge a fee for this service solely because its affiliate may 
be a user of the service.
---------------------------------------------------------------------------

    \41\ See SS&C Letter I at 5; SS&C Letter II at 4.
    \42\ Although Section 17A(b)(3)(D) applies to clearing agency 
fees on participants, the Commission believes that it is also 
instructive here with respect to fees on users of a service provided 
by a clearing agency. 15 U.S.C. 78q-1(b)(D).
---------------------------------------------------------------------------

    Finally, the Commission notes that the Proposed Rule Change would 
also provide that a Matching Utility agree to pay DTC for the 
reasonable cost of DTC's development of the mechanism necessary for DTC 
to directly provide Status Information to a Matching Utility for each 
transaction to which a customer of the Matching Utility is a party and 
matched via the Matching Utility. As noted above, the Commission notes 
that this approach, which applies to all Matching Utilities, is 
consistent with Section 17A(b)(3)(D),\43\ which requires the equitable 
allocation of fees among a clearing agency's participants. The 
Commission also notes that it would review the future fee filing for 
consistency with this provision and all other relevant Exchange Act 
provisions, as well as the standard set forth by DTC in this filing.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78q-1(b)(D).
---------------------------------------------------------------------------

    Therefore, for all of the above reasons, the Commission believes 
that the Proposed Rule Change is consistent with Section 17A(b)(3)(I) 
of the Act.\44\
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

IV. Accelerated Approval of Amendment Nos. 1 and 2

    As noted above, in Amendment No. 1, as compared to the original 
proposal, DTC proposes to provide status information to a Matching 
Utility even if that matching utility did not submit a transaction to 
DTC.\45\ As noted above, in Amendment No. 2, as compared to the 
original proposal, DTC proposes to delay the implementation timeframe 
of the proposal to until DTC has submitted a subsequent fee filing.\46\
---------------------------------------------------------------------------

    \45\ Amendment No. 1, supra note 10.
    \46\ Amendment No. 1, supra note 11.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that the amendments do 
not raise any regulatory issues and are consistent with the Act because 
Amendment No. 1 provides different methods for Matching Utilities to 
access Status Information directly from DTC to help ensure that 
Matching Utilities can access Status Information regardless of which 
Matching Utility submits the transaction to DTC. Likewise, Amendment 
No. 2 would provide more time before the proposal would go into effect.
    Therefore, the Commission finds that Amendment Nos. 1 and 2 to the 
proposal raise no novel regulatory issues, that they are reasonably 
designed to protect investors and the public interest, and that they 
are consistent with the requirements of the Act. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\47\ to approve the proposed rule change, as modified by Amendment 
Nos. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 1 and 2, is 
consistent with the requirements of the Act, in particular, with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\48\ that proposed rule change SR-DTC-2018-010, as modified by 
Amendment Nos. 1 and 2, be, and it hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \48\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17232 Filed 8-12-19; 8:45 am]
 BILLING CODE 8011-01-P


