[Federal Register Volume 86, Number 196 (Thursday, October 14, 2021)]
[Notices]
[Pages 57221-57226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22439]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93279; File No. SR-DTC-2021-011]


Self-Regulatory Organizations; Depository Trust Company; Order 
Approving the Proposed Rule Change Relating to Confidential 
Information, Market Disruption Events, and Other Changes

October 8, 2021.

I. Introduction

    On June 25, 2021, Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2021-011 (the ``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 amend DTC's rules relating to 
confidentiality requirements, Market Disruption Events, and procedures 
for disconnecting a participant from DTC's network, among other 
changes.\3\ The Proposed Rule Change was published for comment in the 
Federal Register on July 13, 2021.\4\ The Commission received comments 
that it has considered with respect to the Proposed Rule Change.\5\ For 
the reasons discussed below, the Commission is approving the Proposed 
Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing, infra note 4, at 86 FR 36833.
    \4\ See Securities Exchange Act Release No. 92342 (June 25, 
2021), 86 FR 36833 (July 13, 2021) (File No. SR-DTC-2021-011) 
(``Notice of Filing'').
    \5\ See id. The comment letters are available on the 
Commission's website at https://www.sec.gov/comments/sr-dtc-2021-011/srdtc2021011.htm. Several comments generally supported the 
Proposed Rule Change, and the Commission considers the additional 
comments in its analysis at Section III infra.
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II. Description of the Proposed Rule Change

    Pursuant to the Proposed Rule Change, DTC is proposing three main 
changes to its Rules, Bylaws, and Organization Certificate(``Rules''): 
\6\ (1) Standardizing the confidentiality requirement applicable to DTC 
with respect to its participants' information and adding 
confidentiality requirement applicable to participants with respect to 
DTC's information, (2) updating its Market Disruption and Force Majeure 
Rule (``Force Majeure Rule'') to authorize two additional officers to 
determine that a Market Disruption Event has occurred, and (3) adding a 
new rule setting forth the procedures under which DTC would be able to 
disconnect a participant from its network in certain circumstances 
(``Systems Disconnect Rule''). The Commission provides relevant 
background and describes each of these proposed changes in greater 
detail below.
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    \6\ Capitalized terms not defined herein are defined in the 
Rules, available at https://www.dtcc.com/~/media/Files/Downloads/
legal/rules/dtc_rules.pdf.
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A. Background

    DTC serves as the central securities depository for substantially 
all corporate and municipal debt and equity securities available for 
trading in the United States.\7\ DTC provides depository services and 
asset servicing for a wide

[[Page 57222]]

range of security types such as money market instruments, equities, 
warrants, rights, corporate debt and notes, municipal bonds, government 
securities, asset-backed securities, and collateralized mortgage 
obligations.\8\ DTC's custodial services include the safekeeping, 
record keeping, book entry transfer, and pledge of securities among its 
Participants and Pledgees.\9\ DTC also provides services to securities 
issuers, such as maintaining current ownership records and distributing 
payments to shareholders.\10\ In light of DTC's critical role in the 
marketplace, DTC was designated a Systemically Important Financial 
Market Utility (``SIFMU'') under Title VIII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010.\11\ Due to DTC's 
unique position in the marketplace, a failure or a disruption to DTC 
could, among other things, increase the risk of significant liquidity 
problems spreading among financial institutions or markets, and thereby 
threaten the stability of the financial system in the United 
States.\12\
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    \7\ See Financial Stability Oversight Counsel 2012 Annual 
Report, Appendix A (``FSOC 2012 Report''), available at http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.
    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ 12 U.S.C. 5465(e)(1). See FSOC 2012 Report, supra note 5.
    \12\ See FSOC 2012 Report, supra note 5.
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    DTC participants connect to DTC's systems, either directly through 
the Securely Managed and Reliable Technology (``SMART'') network or 
through a third party service provider or service bureau.\13\ DTC's 
parent company, The Depository Trust & Clearing Corporation (``DTCC'') 
manages the SMART network, which connects a nationwide complex of 
networks, processing centers, and control facilities.\14\
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    \13\ See Securities Exchange Act Release No. 87698 (December 9, 
2019), 84 FR 68269 (December 13, 2019) (File No. SR-DTC-2019-008) 
(describing the DTCC SMART network).
    \14\ DTCC provides a set of core business processes for DTC and 
DTCC's other subsidiaries, including the technology systems and 
networks, that provide connectivity between DTC and its participants 
and that provide DTC with the ability to provide its services as 
required under the Rules. Most corporate functions are established 
and managed on an enterprise-wide basis pursuant to intercompany 
agreements under which it is generally DTCC that provides services 
to DTC and DTCC's other subsidiaries.
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B. Proposed Changes

1. Confidentiality Requirements
    Confidentiality Requirements Applicable to DTC: DTC collects 
confidential information from its participants to assess whether each 
participant meets DTC's membership requirements either to gain or 
continue access to DTC's depository, custodial and settlement services 
(hereinafter collectively, settlement services).\15\ In turn, DTC is 
required to maintain the confidentiality of any information furnished 
by its participants. Currently, DTC's Rules obligate DTC to hold 
participants' information in the same degree of confidence as may be 
required by law or the rules and regulations (hereinafter collectively, 
``regulations'') of the appropriate regulatory body having jurisdiction 
over the participant.\16\
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    \15\ See Rule 2, supra note 4 (establishing DTC's right to 
require applicants to furnish information to become Participants or 
Pledgees of DTC and to require participants to furnish information 
relating to assurances of financial responsibility and operational 
capability).
    \16\ See Section 1 of Rule 2, supra note 4.
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    DTC states that its current Rules create ambiguity because DTC's 
obligations depend on each participant's regulatory requirements, which 
could lead to unequal treatment of participants and conflicts of law 
with DTC's regulatory requirements or with respect to a participant who 
is subject to multiple jurisdictions' regulations.\17\ DTC also states 
that applying different standards creates operational burdens because 
DTC must track the regulations applicable to each of its participants 
and must maintain the confidentiality of each participant's information 
to the same degree as required by the applicable regulations.\18\
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    \17\ See Notice of Filing, supra note 4, at 36833-34.
    \18\ See id.
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    In order to clarify its confidentiality requirements and to enhance 
its operational efficiency, DTC proposes to revise its Rules to 
establish a standard, which will require DTC to hold participant 
confidential information to the same degree as DTC's regulatory 
requirements that relate to the confidentiality of records, and to 
remove the references to each participant's particular regulatory 
obligations. DTC represents that the proposed change would provide 
participants with similar protections because DTC believes its 
regulatory requirements are comparable to the regulations applicable to 
its participants and, therefore, would not result in changes to DTC's 
current practices or the protection offered to its participants' 
confidential information.\19\
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    \19\ See id. at 36834.
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    Confidentiality Requirements Applicable to Participants: DTC's 
Rules do not include obligations for its participants to protect 
confidential information furnished by DTC or its affiliates.\20\ 
However, DTC states that, in connection with the development of cyber 
and information security programs pursuant to applicable participant 
regulatory requirements, DTC and DTCC have received an increasing 
number of requests from participants for confidential information, such 
as information regarding DTCC's network operations, data security 
practices, and legal settlements.\21\ Additionally, DTC states that 
participants may request DTC or DTCC to disclose confidential 
information regarding its cyber threat indicators, sources of cyber 
threat information, or other information and actions taken following a 
cyber incident relating to a participant, DTC, or DTCC.\22\
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    \20\ DTC states that, historically, it has generally not 
provided, nor been requested to provide, information that contains 
confidential or proprietary information of DTC or its affiliates to 
its participants except for information necessary for participants 
to connect to DTCC Systems, which is typically protected under 
intellectual property laws. See id.
    \21\ See id. See also, supra discussion in Section II.A 
(Background) relating to DTCC Systems.
    \22\ See id.
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    To facilitate information sharing by DTC while protecting the 
confidentiality of proprietary and confidential information DTC shares 
with its participants, DTC proposes to add participant confidentiality 
requirements to its Rules. The new provisions will require participants 
to maintain the confidentiality of information furnished by DTC through 
proper safeguards to prevent disclosure of such confidential 
information, except as necessary to perform its obligations under DTC's 
Rules or as otherwise required by applicable law. DTC proposes that 
participants be required to maintain the confidentiality of this 
information to the same extent and using the same means the participant 
uses to protect its own confidential information, but no less than a 
reasonable standard of care. DTC's proposal will also entitle DTC or 
DTCC to seek any temporary or permanent injunctive or other equitable 
relief in addition to any monetary damages under the Rules if a 
participant breaches its confidentiality requirements. Additionally, 
DTC's proposal will entitle DTC to impose other disciplinary 
proceedings or restrictions on access to services for a participant's 
failure to comply with its confidentiality requirements, consistent 
with the existing tools available to DTC regarding a participant's 
failure to comply with its Rules.
2. Market Disruption Event
    DTC's Rules contain provisions that identify the events or 
circumstances that DTC would consider to be a Market Disruption Event, 
including, for

[[Page 57223]]

example, events that lead to the suspension or limitation of trading or 
banking in the markets in which DTC operates, or the unavailability or 
failure of any material payment, bank transfer, wire or securities 
settlement systems.\23\ Upon the declaration of a Market Disruption 
Event, DTC's Rules provide DTC with tools to address such an event, 
such as suspending any or all services and taking, or requiring 
participants to take, any actions DTC considers appropriate to 
facilitate the continuation of DTC's services.\24\
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    \23\ See Rule 38, supra note 6. See also Securities Exchange Act 
Release Nos. 83953 (August 27, 2018), 83 FR 44381 (August 30, 2018) 
(File No. SR-DTC-2017-803); 83972 (August 28, 2018), 83 FR 44964 
(September 4, 2018) (File No. SR-DTC-2017-021).
    \24\ See Rule 38, supra note 6.
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    Currently, DTC's Board of Directors may declare a Market Disruption 
Event and may take any actions authorized by DTC's Rules to address the 
event.\25\ However, DTC's Rules also authorize certain officers to make 
an interim declaration of a Market Disruption Event, to allow DTC to 
prevent delays in addressing a Market Disruption Event if the Board of 
Directors is unable to convene.\26\ In the event of such an interim 
declaration, the Board of Directors must ratify, modify, or rescind the 
officer's determination as soon as practicable.\27\ Currently, the 
officers authorized to make such determination are the Chief Executive 
Officer, Chief Financial Officer, Group Chief Risk Officer, and General 
Counsel.\28\
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    \25\ See Section 2 of Rule 38, id.
    \26\ See id.
    \27\ See id.
    \28\ See id.
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    DTC proposes to add two additional officers of DTC, the Chief 
Information Officer and the Head of Clearing Agency Services, to the 
list of authorized officers that could make such an interim 
determination if the Board of Directors is unable to convene. DTC 
states these two officers, like the other officers currently provided 
in the Rules, maintain senior executive level positions at DTC, oversee 
divisions of DTC, and hold positions at DTC that would provide them a 
necessary global view into DTC's operations and systems to enable them 
to determine the existence of a Market Disruption Event.\29\ DTC states 
adding these two additional officers would facilitate DTC's ability to 
implement its emergency procedures in the event of a Market Disruption 
Event.\30\
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    \29\ See Notice of Filing, supra note 4, at 36834.
    \30\ See id.
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3. Systems Disconnect Rule
    As mentioned above in Section II.A (Background), DTC's participants 
connect to DTC's systems, either through the DTCC-managed SMART network 
or through other electronic means, such as through a third party 
service provider or service bureau. DTC's Rules do not address DTC's 
ability to disconnect a participant whose network connection risks 
harming DTC's systems. DTC's proposal will establish procedures under 
which DTC would be able to disconnect a participant from its network 
due to the risk of an imminent threat to DTC, participants, or other 
market participants.\31\
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    \31\ See Notice of Filing, supra note 4, at 36834-35.
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    DTC's proposal will address DTC's authority to take certain actions 
upon the occurrence, and during the pendency, of a Major Event. A 
``Major Event'' will be defined as the happening of one or more 
``Systems Disruptions'' reasonably likely to have a significant impact 
on DTC's operations, including ``DTCC Systems,'' \32\ that affect the 
business, operations, safeguarding of securities or funds, or physical 
functions of DTC, its participants, or other market participants. 
``Systems Disruption'' will, in turn, be defined as the unavailability, 
failure, malfunction, overload, or restriction (whether partial or 
total) of a DTCC Systems Participant's systems that disrupts or 
degrades the normal operation of such DTCC Systems Participant's 
systems; or anything that impacts or alters the normal communication or 
the files that are received, or information transmitted, to or from the 
DTCC Systems.
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    \32\ ``DTCC Systems'' will be defined as the systems, equipment 
and technology networks of DTCC, DTC and/or their Affiliates, 
whether owned, leased, or licensed, software, devices, IP addresses 
or other addresses or accounts used in connection with providing the 
services set forth in the Rules, or used to transact business or to 
manage the connection with DTC.
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    DTC's proposal would also provide governance procedures applicable 
to DTC's determination whether, and how, to implement the provisions of 
the Systems Disconnect Rule. The same officers with delegated authority 
under the Force Majeure Rule may make a determination that a Major 
Event has occurred. As discussed in Section II.B.2 (Market Disruption 
Event) above, DTC states these officers maintain senior executive level 
positions at DTC, oversee divisions of DTC, and hold positions at DTC 
that would provide them a necessary global view into DTC's operations 
and systems to enable them to determine the existence of a Market 
Disruption Event, which would also enable them to determine the 
existence of a Major Event.
    However, the proposed process for declaring a Major Event, by 
contrast, would start with a designated officer, whereas, for a Market 
Disruption Event, the officer would make an interim determination only 
if the Board of Directors were unable to timely convene. DTC states it 
designed the process in this way to improve its ability to respond 
quickly, efficiently, and effectively to a Major Event that arises 
abruptly.\33\ Following this determination, any management committee 
including all of the officers authorized to determine a Major Event 
would convene, and DTC would convene a Board of Directors meeting as 
soon as practicable thereafter, and in any event within five Business 
Days following such determination, to ratify, modify, or rescind the 
Officer Major Event Action.\34\
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    \33\ See Notice of Filing, supra note 4, at 36835.
    \34\ See id.
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    In addition, the proposed rule will require participants to notify 
DTC immediately upon becoming aware of a Major Event, and, likewise, 
will require DTC to notify its participants promptly of any action DTC 
takes or intends to take with respect to a Major Event.\35\ Finally, 
the proposal will address certain miscellaneous related matters 
including: (i) A limitation of liability for any failure or delay in 
performance, in whole or in part of DTC's obligations under the Rules, 
arising out of or related to a Major Event, (ii) a statement that DTC's 
power to take any action pursuant to the Systems Disconnect Rule also 
includes the power to repeal, rescind, revoke, amend or vary such 
action, (iii) a statement that DTC's powers pursuant to the Systems 
Disconnect Rule shall be in addition to, and not in derogation of, 
authority granted elsewhere in the Rules to take action as specified 
therein, (iv) a requirement that participants shall keep any 
confidential information provided to them by DTC in connection with a 
Major Event confidential, and (v) a statement that in the event of any 
conflict between the provisions of the Systems Disconnect Rule and any 
other Rules or Procedures, the provisions of the Systems Disconnect 
Rule would prevail.
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    \35\ See id.

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[[Page 57224]]

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \36\ 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 the rules and regulations thereunder 
applicable to such organization. After careful consideration, the 
Commission finds that the Proposed Rule Change is consistent with the 
requirements of the Act and the rules and regulations applicable to 
DTC. In particular, the Commission finds that the Proposed Rule Change 
is consistent with Section 17A(b)(3)(F) \37\ of the Act and Rules 17Ad-
22(e)(1),\38\ (e)(2),\39\ and (e)(17)(i) \40\ thereunder.
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    \36\ 15 U.S.C. 78s(b)(2)(C).
    \37\ 15 U.S.C. 78q-1(b)(3)(F).
    \38\ 17 CFR 240.17Ad-22(e)(1).
    \39\ 17 CFR 240.17Ad-22(e)(2).
    \40\ 17 CFR 240.17Ad-22(e)(17)(i).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) \41\ of the Exchange Act requires, in part, 
that the rules of a clearing agency, such as DTC, be designed, in part, 
to promote the prompt and accurate clearance and settlement of 
securities transactions and to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible. The Commission finds that the Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act \42\ for 
the reasons discussed below.
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    \41\ 15 U.S.C. 78q-1(b)(3)(F).
    \42\ Id.
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    As described above in Section II.B.1 (Confidentiality 
Requirements), DTC proposes to revise its Rules to establish a standard 
relating to DTC's obligation to maintain the confidentiality of 
information it collects from participants to assess each participant's 
compliance with DTC's membership requirements. The Commission believes 
such a uniform standard will help DTC meet its obligations and will 
help each participant better understand DTC's obligations for 
maintaining the confidential information it shares with DTC, which, in 
turn, may facilitate the sharing of such information and improve DTC's 
ability to evaluate its participants' eligibility to access DTC's 
settlement services.
    Also, as described above in Section II.B.1 (Confidentiality 
Requirements), DTC proposes to add participant confidentiality 
requirements to its Rules to ensure participants maintain the 
confidentiality of information DTC shares, which participants may then 
use to determine whether to participate in DTC's settlement services by 
understanding DTC system requirements and DTC system safeguards. The 
Commission believes participant confidentiality requirements will help 
each participant better understand its rights and obligations for 
maintaining the confidential information DTC shares, which, in turn, 
may facilitate participant compliance. Therefore, the Commission 
believes the proposed changes to DTC and participant confidentiality 
requirements are consistent with promoting the prompt and accurate 
settlement of securities transactions by DTC.
    As described above in Section II.B.2 (Market Disruption Event) and 
Section II.B.3 (Systems Disconnect Rule), risks, threats, and potential 
vulnerabilities due to a Market Disruption Event or a Major Event could 
impede DTC's ability to provide its settlement services. DTC proposes 
to add two officers authorized to make an interim determination that a 
Market Disruption Event has occurred if the Board of Directors is 
unable to timely convene. The Commission believes the proposed change 
will improve DTC's ability to respond quickly to a Market Disruption 
Event, which could help DTC mitigate the impact of such event on DTC, 
its participants, and the broader market.
    Additionally, as described above in Section II.B.3 (Systems 
Disconnect Rule), DTC proposes to add the Systems Disconnect Rule, 
which will set forth the procedures under which DTC would be 
authorized, upon the occurrence of a Major Event (as defined in the 
proposed rules), to take certain actions, including disconnecting a 
participant from DTC's systems, suspending data transmissions between 
DTC and the participant, and requiring the participant to take other 
actions necessary to protect DTC and its participants. The Commission 
believes the proposed Systems Disconnect Rule will enable DTC to 
respond quickly to a potential cyber threat or other network 
disruption, which could help DTC prevent the spread of a participant's 
systems disruptions to DTC, its participants, and other market 
participants that could otherwise cause losses to DTC or its 
participants.
    One commenter suggests certain revisions to the definition of Major 
Event so that certain terms in the Systems Disconnect Rule are 
consistent with the definition of Market Disruption Event in the Force 
Majeure Rule.\43\ The Commission disagrees. Consistency between the 
Systems Disconnect Rule and Force Majeure Rule is not necessary because 
DTC designed the Systems Disconnect Rule for a different purpose. 
Although both rules relate to events that, if left unaddressed, could 
affect DTC's ability to provide settlement services, the Force Majeure 
Rule is designed to cover events caused by external forces that impact 
DTC and its participants, whereas the Systems Disconnect Rule is 
designed only to cover disruptions to participant's computer systems or 
network that could flow through to DTC systems. Therefore, differences 
between the two rules do not raise consistency concerns, because of 
their different purposes.\44\
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    \43\ See letter from Anonymous, dated July 28, 2021, supra note 
5.
    \44\ The commenter also suggests adding language to the end of 
the Major Event definition to indicate that, to avoid doubt, a Major 
Event would not include disruptions due to normal market forces. The 
Commission does not believe that such additional language is 
necessary because, as discussed above in Section II.B.3 (Systems 
Disconnect Rule), a Major Event is limited to one or more ``Systems 
Disruption(s)'' (as defined in the proposed rule), which is properly 
limited to disruptions to participant systems or its network 
connection.
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    Therefore, for the reasons described above, the Commission believes 
the proposed changes relating to a Market Disruption Event or a Major 
Event will help promote the prompt and accurate clearance and 
settlement of securities transactions and with assuring DTC safeguards 
securities and funds that are in its custody or control or for which it 
is responsible. Accordingly, the Commission finds that the 
implementation of the Proposed Rule Change is consistent with Section 
17A(b)(3)(F) of the Act.\45\
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    \45\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(1)

    Rule 17Ad-22(e)(1) under the Exchange Act requires that a covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide for a well-
founded, clear, transparent and enforceable legal basis for each aspect 
of its activities in all relevant jurisdictions.\46\ The Commission 
finds that the Proposed Rule Change is consistent with Rule 17Ad-
22(e)(1) of the Exchange Act \47\ for the reasons discussed below.
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    \46\ 17 CFR 240.17Ad-22(e)(1).
    \47\ Id.
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    As described above in Sections II.B.1 (Confidentiality 
Requirements) and II.B.2 (Market Disruption Event), DTC proposes to 
establish a consistent standard for its obligation to maintain the 
confidentiality of information it collects from its participants and to

[[Page 57225]]

establish participant confidentiality requirements. The Commission 
believes a consistent standard for DTC's confidentiality requirements 
will provide for clear and transparent standard rules for participants, 
rather than maintaining potentially different confidentiality standards 
for participants based on the various, unrelated regulatory bodies 
governing those participants. Additionally, the Commission believes 
that imposing specific legal standards applicable to both DTC and its 
participants to follow will provide for a well-founded legal basis for 
the sharing and maintaining of confidential information between DTC and 
its participants.\48\
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    \48\ One commenter suggests adding an exception for negligence 
or fraud to the limitation of liability clause in the proposed 
Systems Disconnect Rule, which the commenter states is customary 
contractual language. See letter from Anonymous, dated July 28, 
2021, supra note 5. The Commission notes DTC has already included 
similar language in its Rules, which would be applicable to this 
aspect of the proposal. See Rule 6, supra note 6 (providing for DTC 
liability to its participants for ``gross negligence, willful 
misconduct, or violations of Federal securities laws for which there 
is a private right of action'', which is not limited by the proposed 
Rule 38A pursuant to section 5).
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    Accordingly, the Commission finds that the implementation of the 
Proposed Rule Change is consistent with Rule 17Ad-22(e)(1) of the 
Exchange Act.\49\
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    \49\ 17 CFR 240.17Ad-22(e)(1).
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C. Consistency With Rule 17Ad-22(e)(2)

    Rule 17Ad-22(e)(2) under the Exchange Act requires, in part, that a 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to provide for 
governance arrangements that are clear and transparent and that specify 
clear and direct lines of responsibility.\50\ The Commission finds that 
the Proposed Rule Change is consistent with Rule 17Ad-22(e)(2) of the 
Exchange Act \51\ for the reasons discussed below.
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    \50\ 17 CFR 240.17Ad-22(e)(2).
    \51\ Id.
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    The Commission believes DTC's proposal, as described above in 
Section II.B.2 (Market Disruption Event), to add two officers 
authorized to make an interim determination of a Market Disruption 
Event if the Board of Directors is unable to convene in a timely manner 
provides for governance arrangements that are clear and transparent and 
that provide clear and direct lines of responsibility. Likewise, the 
Commission believes DTC's proposal to identify the officers authorized 
to make an interim determination of a Major Event, which will then be 
ratified, modified, or rescinded by the management committee and the 
Board of Directors will provide for clear and transparent governance 
procedures and will specify clear and direct lines of responsibility. 
Accordingly, the Commission finds that the implementation of the 
Proposed Rule Change is consistent with Rule 17Ad-22(e)(2) of the 
Exchange Act.\52\
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    \52\ Id.
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D. Consistency With Rule 17Ad-22(e)(17)(i)

    Rule 17Ad-22(e)(17)(i) under the Exchange Act requires that a 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to manage the 
covered clearing agency's operational risks by identifying the 
plausible sources of operational risk, both internal and external, and 
mitigating their impact through the use of appropriate systems, 
policies, procedures, and controls.\53\ The Commission finds that the 
Proposed Rule Change is consistent with Rule 17Ad-22(e)(17)(i) of the 
Exchange Act \54\ for the reasons discussed below.
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    \53\ 17 CFR 240.17Ad-22(e)(17)(i).
    \54\ Id.
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    The Commission believes DTC's proposal, as described above in 
Section II.B.2 (Market Disruption Event), to add two officers 
authorized to make an interim determination of a Market Disruption 
Event could help DTC mitigate the impact of a Market Disruption Event 
by ensuring DTC can respond quickly to such event if the Board of 
Directors were unable to convene in a timely manner. Likewise, the 
Commission believes the proposed Systems Disconnect Rule, as described 
in Section II.B.3 above, provides a rules-based process that will 
enable DTC to identify potential cyber threats or other network 
disruptions, which could help DTC prevent the spread of a participant's 
systems disruptions to DTC, its participants, and other market 
participants that could otherwise cause losses to DTC or its 
participants.
    One commenter suggests revising the definition of Major Event to be 
consistent with the definition of Market Disruption Event in the Force 
Majeure Rule.\55\ The commenter further argues the impact to DTC 
covered by the definition of Major Event should be limited to ``DTCC 
Systems'' (as defined in the proposed rule) to ensure the scope of the 
proposed rule is limited to technical systems.\56\ The Commission 
disagrees. As noted above, the purposes of both the Force Majeure Rule 
and the Systems Disconnect Rule are different. The Force Majeure Rule 
is designed to cover events external to DTC and its participants that 
materially impact, or are likely to materially impact, DTC's ability to 
provide its settlement services. The Systems Disconnect Rule, by 
contrast, is designed to cover a participant's systems or network 
disruption, which through its connection to DTC, is reasonably likely 
to have a significant impact on DTC's systems. The differences between 
the rules' purposes support the need for differing standards.\57\ 
Furthermore, the Commission notes the reference to ``including DTCC 
Systems'' in the proposed definition of Major Event takes into account 
how DTC's operations, i.e., its settlement services, work, in that they 
utilize DTCC Systems. Consequently, the commenter's proposed revisions 
are not necessary.\58\
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    \55\ Specifically, the commenter suggests deleting reference to 
``reasonably'' and by replacing ``significant'' with ``material'' 
when describing the likelihood and level of impact to DTC. See 
letter from Anonymous, dated July 28, 2021, supra note 5.
    \56\ See id.
    \57\ The Commission also disagrees with the commenter's 
suggestion to remove the references to ``reasonably'' with respect 
to the likelihood of an event impacting DTC's operations. The 
Commission believes that DTC's assessment of the likelihood of such 
an impact should be reasonable before taking actions like 
disconnecting a participant from its systems. In addition, the 
Commission notes that DTC's references to ``reasonably likely'' and 
``significant impact'' in the proposed definition of Major Event are 
consistent with the Commission's definition of a ``Major SCI Event'' 
under Regulation SCI. 17 CFR 242.1000. Likewise, the Commission 
notes that references in the proposed rule text to ``reasonable 
basis'' and ``appropriate'' is consistent with the obligations 
related to a Major SCI Event under Regulation SCI. 17 CFR 242.1002.
    \58\ Another commenter expressed concern that the proposed 
Systems Disconnect Rule could be used to benefit the trading 
activity of certain participants at the detriment of disconnected 
participants. See letter from Jarrod Knudson, dated June 27, 2021, 
supra note 5. The Commission disagrees because the proposed rule, by 
its terms, would only apply when certain Systems Disruptions occur 
at a participant that could impact DTC's operations.
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    Accordingly, the Commission finds that the implementation of the 
Proposed Rule Change is consistent with Rule 17Ad-22(e)(17)(i) of the 
Exchange Act.\59\
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    \59\ 17 CFR 240.17Ad-22(e)(17)(i).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act and 
in particular with the requirements of Section 17A of the Act \60\ and 
the rules and regulations promulgated thereunder.
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    \60\ 15 U.S.C. 78q-1.

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[[Page 57226]]

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\61\ that Proposed Rule Change SR-DTC-2021-011, be, and hereby is, 
approved.\62\
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    \61\ 15 U.S.C. 78s(b)(2).
    \62\ In approving the Proposed Rule Change, the Commission 
considered the proposals' 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.\63\
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    \63\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22439 Filed 10-13-21; 8:45 am]
BILLING CODE 8011-01-P


