[Federal Register Volume 84, Number 219 (Wednesday, November 13, 2019)]
[Notices]
[Pages 61670-61673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24600]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87474; File No. SR-DTC-2019-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
in Connection With Changes to the Account Structure of Euroclear Bank 
at The Depository Trust Company

November 6, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 24, 2019, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II and III below, which Items have 
been prepared by the clearing agency. DTC filed the proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ of DTC would make technical amendments 
to

[[Page 61671]]

Rule 34 (EB Link) in connection with changes to the account structure 
of Euroclear Bank SA/NV (``EB'') at DTC, as described below.
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    \5\ 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 (the 
``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposal would make technical amendments to Rule 34 (EB Link) 
in connection with changes to the account structure of EB at DTC, as 
described below.
(i) Background
    EB was accepted by DTC as a Participant on February 18, 2016. At 
the time, the purpose of EB's membership was to establish a free-of-
payment (``FOP'') Account at DTC (``EB CP Account'') \6\ to facilitate 
the positioning of securities (``CP Securities'') held at DTC (``EB 
Collateral Positioning'') for transfers on the books of EB in 
connection with EB collateral management services.\7\ To support EB 
Collateral Positioning, DTC filed Rule 34, which was approved by the 
Commission on July 19, 2016.\8\
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    \6\ Rule 34 provides that the adjectival use of ``CP'' in Rule 
34 refers to terms or matters relating and limited to ``Collateral 
Positioning'' under Rule 34. See id.
    \7\ Prior to the establishment of the EB CP Account, EB had not 
been a DTC Participant nor had an Account at DTC.
    \8\ See Securities Exchange Act Release No. 78358 (July 19, 
2016), 81 FR 48482 (July 25, 2016) (SR-DTC-2016-004) (``Rule 34 
Approval Order'').
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    Under Rule 34, a DTC Participant that is also a participant of EB 
(``CP Participant'') may designate a sub-account at DTC (``CP Sub-
Account'') for use under Rule 34, thereby authorizing EB as its 
representative (``CP Representative''), and authorizing DTC to provide 
position and transaction information to EB and to accept EB 
instructions submitted on behalf of such CP Participant, with respect 
to the CP Sub-Account of the CP Participant.\9\
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    \9\ In addition, Rule 34 provides that the CP Participant has to 
be a user of the DTCC Euroclear Global Collateral Ltd. (``DEGCL'') 
Inventory Management Service (``DEGCL IMS''). DEGCL is a United 
Kingdom joint venture of The Depository Trust & Clearing 
Corporation, the corporate parent of DTC, and Euroclear S.A./N.V. 
(``Euroclear''). As noted in the Rule 34 Approval Order, DTC 
understands that by providing Participants with a mechanism for EB 
Collateral Positioning, Rule 34 indirectly supports the DEGCL IMS 
service. DEGCL IMS is operated by EB and other entities in the 
Euroclear group, as the service provider to DEGCL, in accordance 
with appropriate agreements among them and in compliance with 
applicable regulatory requirements. There is no direct relationship 
between DTC and DEGCL IMS.
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    The CP Participant instructs DTC to deliver securities from the CP 
Participant's Securities Account to its CP Sub-Account, in order to 
identify the securities that it wishes to make available for EB 
Collateral Positioning and collateral transfers on the books of EB 
(``EB Collateral Transactions''). After the CP Securities have been 
credited to the CP Sub-Account, EB, as CP Representative of the CP 
Participant, instructs DTC to make a FOP delivery of the CP Securities 
from the CP Sub-Account to the EB CP Account. After CP Securities have 
been credited to the EB CP Account, it is then EB's responsibility to 
credit them to an account at EB maintained for the CP Participant, as 
an EB participant using EB collateral management services (``EB 
Collateral Participant''), for EB Collateral Transactions.
    Pursuant to Rule 34, EB may also instruct DTC to make a FOP 
delivery of CP Securities from the EB CP Account to the Securities 
Account of a Participant that EB has designated to DTC as EB's global 
custodian (``EB Global Custodian'') in order to liquidate CP 
Securities, if a CP Participant that is an EB Collateral Participant 
has defaulted on its obligations in respect of any EB Collateral 
Transaction (``EB Liquidating Transaction'').
(ii) Proposed Rule Change
    EB has now applied to DTC for a delivery-versus-payment (``DVP'') 
Account, and its application was approved by DTC on September 20, 2019. 
With a DVP Account, EB will be permitted to engage in other 
transactions, including DVP transactions, at DTC, in addition to the 
FOP deliveries provided for under Rule 34.\10\ EB has also requested 
that the new DVP Account (``New EB Account'') become its main 
Securities Account, and that the EB CP Account become a sub-account of 
the New EB Account.
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    \10\ DTC understands that EB performs certain functions of a 
clearing agency with respect to U.S. securities for its U.S. 
participants pursuant to an exemption from clearing agency 
registration approved by the Commission (the ``EB Exemption''). See 
Self-Regulatory Organizations; Morgan Guaranty Trust Company of New 
York, Brussels Office, as Operator of the Euroclear System; Order 
Approving Application for Exemption From Registration as a Clearing 
Agency, Securities Exchange Act Release No. 39643 (February 11, 
1998), 63 FR 8232 (February 18, 1998); Self-Regulatory 
Organizations; Morgan Guaranty Trust Company, Brussels Office, as 
Operator of the Euroclear System and Euroclear Bank, S.A.; Order 
Approving Application to Modify an Existing Exemption From Clearing 
Agency Registration, Securities Exchange Act Release No. 43775 
(December 28, 2000), 66 FR 819 (January 4, 2001); and Euroclear Bank 
SA/NV; Order of the Commission Approving an Application To Modify an 
Existing Exemption From Clearing Agency Registration, Securities 
Exchange Act Release No. 79577 (December 16, 2016), 81 FR 93994 
(December 22, 2016) (File No. 601-01).
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    In light of this development, DTC has reviewed Rule 34 and 
determined that, although no substantive changes may be necessary, it 
would be preferable to clarify certain provisions of Rule 34 to more 
accurately reflect the new EB account structure. Specifically, DTC is 
proposing to make minor technical amendments to Rule 34 that would (i) 
more clearly differentiate between the EB CP Account and other 
Securities Accounts of EB, and (ii) expressly provide EB with the 
option to instruct DTC to deliver CP Securities from the EB CP Account 
to another Securities Account of EB for EB Liquidating Transactions if 
a CP Participant that is an EB Collateral Participant has defaulted on 
one of its EB Collateral Transaction obligations.
A. EB Collateral Positioning
    Currently, the language of Rule 34 reflects that the EB CP Account 
is the only EB Account at DTC.\11\ In particular, Rule 34 defines the 
Securities Account established by EB for purposes of Rule 34 as the 
``EB Account.'' However, because EB's application to establish a DVP 
Account has been approved by DTC, the Securities Account established by 
EB for Rule 34 will no longer be the only EB Account. Therefore, to 
more clearly differentiate between the EB CP Account and other 
Securities Accounts of EB that may be established, including, but not 
limited to the New EB Account, DTC is proposing to change the defined 
term in Rule 34 from ``EB Account'' to ``EB CP Account.'' In addition, 
to conform with that change, DTC is proposing to replace the current 
title of Rule 34, ``EB Link,'' with a new title, ``EB Collateral 
Positioning,'' and to delete the defined term ``EB Link'' from Rule 34.
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    \11\ See supra note 7.

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[[Page 61672]]

B. EB Liquidating Transactions
    Rule 34 currently provides that EB may instruct DTC to deliver CP 
Securities from the EB CP Account to the EB Global Custodian in 
connection with an EB Liquidating Transaction. With its new account 
structure, EB may process EB Liquidating Transactions through its own 
DVP Securities Accounts, including the New EB Account, and may no 
longer require an EB Global Custodian. Therefore, DTC is proposing to 
amend Rule 34 to expressly provide EB with the option to deliver CP 
Securities from the EB CP Account to another Securities Account of EB 
for EB Liquidating Transactions. Specifically, the proposed rule change 
would provide that ``EB may, from time to time . . . (iii) in 
connection with an EB Liquidating Transaction, instruct the Corporation 
to make a Free Delivery of CP Securities from the EB CP Account \12\ to 
the Securities Account of the EB Global Custodian or to another 
Securities Account of EB, whereupon such Securities shall no longer be 
CP Securities [emphasis added].''
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    \12\ As noted above, pursuant to the proposed rule change, DTC 
would change the defined term ``EB Account'' to ``EB CP Account.''
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    In addition, DTC is proposing to make conforming changes to the 
definitions of ``CP Securities'' and ``EB Global Custodian.''
2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder 
applicable to DTC, in particular Section 17A(b)(3)(F) of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act requires, inter alia, that the 
rules of the clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\14\ The 
proposed rule change would make minor technical amendments to Rule 34 
in connection with changes requested by EB to its account structure at 
DTC in order to (i) clearly differentiate between the EB CP Account and 
other Securities Accounts of EB, and (ii) expressly provide EB with the 
option, under specific circumstances, to instruct DTC to deliver 
securities from the EB CP Account to another Securities Account of EB. 
By amending Rule 34 in this manner, the proposed rule change would 
enhance the clarity and transparency of Rule 34 so that Participants 
may better understand how to use Rule 34 for EB Collateral Positioning, 
which would allow Participants to more accurately and efficiently 
deploy their securities collateral for EB Collateral Transactions. 
Therefore, DTC believes that the proposed rule change is designed to 
promote the prompt and accurate clearance and settlement of securities 
collateral transactions, consistent with the requirements of the Act, 
in particular Section 17A(b)(3)(F), cited above.
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    \14\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change would not have an impact 
on competition.\15\ The proposed rule change would make minor technical 
amendments to Rule 34 in connection with changes requested by EB to its 
account structure at DTC by (i) clearly differentiating between the EB 
CP Account and other Securities Accounts of EB, and (ii) expressly 
providing EB with the option, under specific circumstances, to instruct 
DTC to deliver securities from the EB CP Account to another Securities 
Account of EB. The proposed rule change would not make any substantive 
changes to the rights and obligations of Participants or other 
interested parties under Rule 34, and so would not affect such rights 
and obligations. Therefore, DTC believes that the proposed rule change 
to make technical amendments to Rule 34 would not have an impact on 
competition.\16\
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    \15\ 15 U.S.C. 78q-1(b)(3)(I).
    \16\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission of any written 
comments received by DTC.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is 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-2019-010 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2019-010. 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-2019-010 and should be submitted on 
or before December 4, 2019.


[[Page 61673]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24600 Filed 11-12-19; 8:45 am]
BILLING CODE 8011-01-P


