[Federal Register Volume 87, Number 74 (Monday, April 18, 2022)]
[Notices]
[Pages 22971-22977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08169]



[[Page 22971]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94692; File No. SR-DTC-2022-002]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change To Provide Settlement 
Services for Transactions Entered Into Under the Proposed Securities 
Financing Transaction Clearing Service of the National Securities 
Clearing Corporation

April 12, 2022.
    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 March 28, 2022, 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. 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.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change of DTC would amend the Rules, the 
Settlement Guide, and the Fee Guide \3\ in order to provide 
Participants that are also members of the National Securities Clearing 
Corporation (``NSCC'') with settlement services in connection with a 
proposed optional securities financing transaction clearing service of 
NSCC (``NSCC SFT Service'').
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    \3\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth in DTC's rules, including, but not 
limited to, the Rules, By-Laws and Organization Certificate of DTC 
(``Rules''), the DTC Settlement Service Guide (``Settlement 
Guide''), and the Guide to the 2022 DTC Fee Schedule (``Fee 
Guide''), 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 proposed rule change would amend the Rules, the Settlement 
Guide, and the Fee Guide in order to provide Participants that are also 
members of NSCC with settlement services in connection the NSCC SFT 
Service. The proposed NSCC SFT Service would provide central clearing 
for equity securities financing transactions, which are, broadly 
speaking, transactions where the parties exchange equity securities 
against cash and simultaneously agree to exchange the same securities 
and cash, plus or minus a rate payment, on a future date (each, an 
``SFT'').\4\ SFTs between counterparties that are members of NSCC 
(each, an ``NSCC SFT Counterparty'') \5\ would be settled through their 
respective Participant Accounts at DTC.\6\
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    \4\ On March 28, 2022, NSCC filed a proposed rule change and an 
advance notice to establish the NSCC SFT Service (``NSCC Proposed 
Rules''). See SR-NSCC-2022-003 and SR-NSCC-2022-801, which were 
filed with Commission and the Board of Governors of the Federal 
Reserve System, respectively, but have not been published in the 
Federal Register. Copies of the proposed rule change and the advance 
notice are available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
    \5\ DTC understands that the NSCC SFT Service would offer the 
clearance of SFT transactions between a buy-side entity (a 
``Sponsored Member'') and the member of NSCC that sponsored that 
entity for the NSCC SFT Service (``Sponsoring Member''). This 
proposed rule change by DTC does not relate to Sponsoring Members, 
Sponsored Members, or their SFT transactions at NSCC. All SFT 
transactions between a Sponsored Member and its Sponsoring Member 
would settle on the books of the Sponsoring Member. These SFT 
transactions and the related activity would occur outside of DTC and 
would not settle at DTC. The term ``NSCC SFT Counterparty,'' as used 
in this filing, does not refer to Sponsored Members or Sponsoring 
Members.
    \6\ DTC understands that, pursuant to the NSCC Proposed Rules, 
NSCC would establish a new membership category for agent clearing 
members (each, an ``Agent CM''), where members of NSCC would be 
permitted to submit SFTs to NSCC for novation on behalf of their 
customers. All SFTs settling at DTC would be processed by DTC 
without regard to whether a Participant is acting as Agent CM under 
the NSCC Proposed Rules or is acting on its own behalf. DTC would 
not establish any SFT or Agent CM Participant membership type, or 
any special SFT or Agent CM Participant accounts, at DTC.
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    Pursuant to the proposed rule change, DTC would (i) expand the 
types of instructions that NSCC, as the representative (``Special 
Representative'') of each Participant that is also a member of NSCC, 
can submit to DTC on behalf of a Participant with respect to an Account 
of the Participant, (ii) establish a new type of payment order for the 
crediting and debiting of payment amounts relating to SFT activity at 
NSCC (``SFT Price Differential'' or ``SFT PD'') \7\ to and from the 
Accounts of the Participants that are NSCC SFT Counterparties, (iii) 
apply a modified look-ahead process to the new Account that NSCC would 
maintain at DTC in connection with the NSCC SFT Service (the ``NSCC SFT 
Account'' or ``Special Representative SFT Account''),\8\ and (iv) 
establish a fee for the payor and payee of an SFT Price Differential 
payment order. Finally, DTC is proposing to make clarifying and 
conforming changes, as discussed below.
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    \7\ DTC understands that the Proposed NSCC Rules would define 
such credit/debit amount as a ``Price Differential,'' which would 
include, but would not be limited to, mark-to-market payments and 
payments relating to offsetting SFT obligations.
    \8\ The NSCC SFT Account, which would appear in the Rules as the 
``Special Representative SFT Account,'' would be Account No. 881.
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(i) Overview of Proposed Rule Change
    DTC understands that, pursuant to the Proposed NSCC Rules and 
consistent with the manner in which NSCC accepts cash market 
transactions, SFTs would be submitted to NSCC by an Approved SFT 
Submitter \9\ already matched as between the pre-novation NSCC SFT 
Counterparties (i.e., on a locked in basis).\10\ Once the SFT 
instruction is processed by NSCC, NSCC would submit Delivery Versus 
Payment (``DVP'') instructions or SFT PD payment orders to DTC in 
accordance with the NSCC Proposed Rules. Pursuant to the NSCC Proposed 
Rules and the proposed rule change, NSCC would typically only submit 
pairs of instructions to DTC, as follows: (i) One instruction on its 
own behalf, with respect to the NSCC SFT Account, and (ii) one 
instruction on behalf of a Participant, as its Special Representative, 
with respect to the DTC Account of the Participant.\11\

[[Page 22972]]

Accordingly, these DVP and SFT PD transactions between Participants 
that are NSCC SFT Counterparties to an SFT would pass through the NSCC 
SFT Account.
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    \9\ DTC understands that the Proposed NSCC Rules would define 
the term ``Approved SFT Submitter'' as a provider of transaction 
data on an SFT that the parties to the SFT have selected and NSCC 
has approved.
    \10\ DTC understands that the NSCC Proposed Rules would provide 
that the obligations reflected in the transaction data on an SFT 
would be deemed to have been confirmed and acknowledged by each NSCC 
SFT Counterparty designated by the Approved SFT Submitter as a party 
thereto and to have been adopted by such NSCC SFT Counterparty and, 
for the purposes of determining the rights and obligations between 
NSCC and such NSCC SFT Counterparty under the NSCC Proposed Rules, 
would be valid and binding upon such NSCC SFT Counterparty.
    \11\ The NSCC Proposed Rules would provide that the submission 
of each SFT to NSCC constitutes an authorization to NSCC by the NSCC 
SFT Counterparties for NSCC to give instruction regarding the SFT to 
DTC in respect of the relevant Participant Accounts of the NSCC SFT 
Counterparties at DTC.
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A. NSCC Instructions to DTC
(1) NSCC as the Special Representative of Participants That Are Members 
of NSCC
    Pursuant to Rule 6, NSCC is the Special Representative of each 
Participant that is also a Member of NSCC. Currently, as the Special 
Representative of the Participant, NSCC may instruct DTC, on behalf of 
the Participant, to make a transfer of securities from the Account of 
the Participant to an Account that NSCC maintains at DTC in connection 
with its Continuous Net Settlement (``CNS'') System \12\ (the ``Special 
Representative CNS Account'').\13\ The purpose of these transfers is to 
settle the CNS obligations of a member of NSCC to NSCC through the 
member's Participant Account at DTC.
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    \12\ See e.g., Rule 11 of the NSCC Rules & Procedures, available 
at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \13\ The Special Representative CNS Account is Account No. 888.
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    The NSCC SFT Service would operate separately from the NSCC CNS 
system, and NSCC would use its new NSCC SFT Account, and not the NSCC 
CNS Account, in connection with the NSCC SFT Service. In order to 
efficiently provide Participants with settlement services for SFTs 
cleared through the NSCC SFT Service and settled at DTC, DTC is 
proposing to leverage the status of NSCC as the Special Representative 
of Participants that are members of NSCC. Pursuant to the proposed rule 
change, Rule 6 would provide NSCC, as the Special Representative of a 
Participant, with the additional authority to submit instructions to 
DTC with respect to DVP and SFT PD transactions from the Account of the 
Participant to the NSCC SFT Account.\14\
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    \14\ See supra notes 10 and 11.
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(2) DVP Instructions
    As noted above, pursuant to the proposed rule change, NSCC would 
submit pairs of instructions to DTC as follows: (i) One instruction on 
its own behalf, with respect to the NSCC SFT Account, and (ii) one 
instruction on behalf of a Participant as its Special Representative, 
with respect to the DTC Account of the Participant. Accordingly, in 
order to effectuate a DVP transaction between Participants that are 
NSCC SFT Counterparties to an SFT, NSCC would send DTC a pair of DVP 
instructions: (i) One instruction, as the Special Representative of the 
Participant that is an NSCC SFT Counterparty, to deliver the subject 
securities versus payment from the Account of the delivering 
Participant to the NSCC SFT Account, and (ii) one instruction, on 
NSCC's own behalf, to deliver the subject securities versus payment 
from the NSCC SFT Account to the Account of the receiving Participant 
that is the other NSCC SFT Counterparty. As explained in more detail 
below, if the pair of instructions satisfy DTC risk management controls 
\15\ and the modified look-ahead, DTC would process the deliveries. If 
risk management controls and the modified look-ahead are not satisfied, 
the instructions would recycle \16\ and, if not completed, would drop 
at the end of the day.
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    \15\ DTC uses its risk management controls, the Collateral 
Monitor and Net Debit Cap, to manage its credit risk. These two 
controls work together to protect the DTC settlement system in the 
event of Participant default. The Collateral Monitor requires net 
debit settlement obligations, as they accrue intraday, to be fully 
collateralized; the Net Debit Cap limits the amount of any 
Participant's net debit settlement obligation to an amount that can 
be satisfied with DTC liquidity resources (the Participants Fund and 
the committed line of credit from a consortium of lenders). See 
Settlement Guide, supra note 3, at 64-67.
    \16\ For a description of Recycle Processing, see Settlement 
Guide, supra note 3, at 56.
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    There is only one situation where NSCC would only send a single DVP 
instruction to DTC.\17\ Specifically, pursuant to the NSCC Proposed 
Rules, the initial transfer of the securities that are the subject of 
the SFT versus the payment amount would be initiated at DTC by the 
Participant that is the delivering NSCC SFT Counterparty. Therefore, 
pursuant to the proposed rule change, the Participant that is the 
delivering NSCC SFT Counterparty would submit the DVP instruction to 
DTC to deliver the subject securities versus the payment amount from 
the Account of the Participant to the NSCC SFT Account. Provided that 
the SFT had already been submitted to NSCC by an Approved SFT Submitter 
on that business day,\18\ NSCC would submit a DVP instruction to DTC to 
deliver the subject securities versus the payment amount from the NSCC 
SFT Account to the Account of the Participant that is the receiving 
NSCC SFT Counterparty. If the Participant instruction and the NSCC 
instruction satisfy DTC risk management controls and the modified look-
ahead, DTC would process the deliveries. If risk management controls 
and the modified look-ahead are not satisfied, the instructions would 
recycle and, if not completed, would drop at the end of the day.
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    \17\ This paragraph does not apply to a ``Bilaterally Initiated 
SFT,'' which is described in the NSCC Proposed Rules as an SFT that 
was submitted to NSCC after the initial transfer of securities 
versus payment had already occurred. DTC is agnostic to whether an 
NSCC SFT instruction relates to a Bilaterally Initiated SFT or a 
typical SFT.
    \18\ If the SFT was not submitted to NSCC on that business day, 
the Participant DVP instruction would be rejected.
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(3) Price Differential Payment Orders
    Pursuant to the proposed rule change, NSCC would also submit SFT PD 
payment orders to DTC on behalf of itself and on behalf of DTC 
Participants, as their Special Representative, in connection with SFT 
activity at NSCC.
    DTC Rule 9(A) provides that a Participant may submit to DTC an 
instruction to (i) credit the Account of the Participant with an amount 
of funds and debit the Account of another Participant the same amount 
of funds, or (ii) debit the Account of the Participant with an amount 
of funds and credit the Account of another Participant the same amount 
of funds (each, a ``payment order'').\19\ The Settlement Guide 
describes the DTC payment order service as providing Participants with 
a method for settling money payments for securities transactions that 
were processed separately.\20\ Currently, Participants use payment 
orders to collect option contract premiums (a ``premium payment order'' 
or ``PPO'') and mark-to-market open contracts such as stock loans (a 
``securities payment order'' or ``SPO''). Payment orders are subject to 
DTC risk management controls.
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    \19\ See Rule 9(A), supra note 3.
    \20\ See Settlement Guide, supra note 3, at 3.
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    Pursuant to the proposed rule change, DTC would enhance the DTC 
payment order service by adding the SFT PD payment order. The SFT PD 
payment order would offer an efficient way for NSCC to instruct DTC, on 
behalf of a Participant or on its own behalf, to credit and debit funds 
between the NSCC SFT Account and the Accounts of the Participants that 
are NSCC SFT Counterparties. DTC understands that the amount of each 
SFT PD would be calculated and instructed by NSCC in accordance with 
the instructions of an Approved SFT Submitter.
    In order to effectuate the payments between Participants that are 
NSCC SFT Counterparties in connection with SFT activity at NSCC, NSCC 
would submit a pair of SFT PD payment orders to DTC: (i) One 
instruction, on NSCC's own behalf, to debit the payment amount from the 
Account of the payor Participant and credit the payment

[[Page 22973]]

amount to the NSCC SFT Account, and (ii) one instruction, as the 
Special Representative of the payee Participant, to debit the payment 
amount from the NSCC SFT Account and credit the payment amount to the 
Account of the payee Participant. If the pair of instructions satisfy 
DTC risk management controls and the modified look-ahead, DTC would 
process the transaction. If the pair of SFT PD payment orders do not 
satisfy DTC risk management controls and the modified look-ahead, the 
instructions would recycle and, if they are not completed, would drop 
at the end of the day.
B. Modified Look-Ahead Processing
    The typical look-ahead process utilized by DTC reduces transaction 
blockage by applying the net amount of offsetting receive and deliver 
transactions in the same security rather than the gross amount of the 
receive transaction to a Participant's Net Debit Cap. The look-ahead 
process calculates and processes submitted transactions in the same 
CUSIP that, when processed simultaneously, would not violate the risk 
management controls of the involved Participants. Specifically, the 
look-ahead process identifies a receive transaction pending due to a 
net debit cap insufficiency and determines whether an offsetting 
delivery transaction pending because of a quantity deficiency in the 
same security would permit both transactions to be completed in 
compliance with DTC risk management controls.\21\
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    \21\ See Settlement Guide, supra note 3, at 45. See also supra 
note 15.
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    As noted above, the NSCC SFT Account is intended to be a pass-
through account for DVP and SFT PD transactions between Participants 
that are NSCC SFT Counterparties. DTC understands that because NSCC, as 
the central counterparty, would substitute itself as the counterparty 
for each SFT, it is essential to NSCC that there not be any net 
settlement obligation against the NSCC SFT Account intraday or at the 
end of any day. It is essential to NSCC that its obligations to DTC 
with respect to all completed DVP and SFT PD transactions to which the 
NSCC SFT Account was a party should be netted to zero with respect to 
both securities and funds. In an effort to help ensure that there would 
not be any net settlement obligation against the NSCC SFT Account, and 
to prevent transaction blockage due to risk management controls on the 
NSCC SFT Account, DTC is proposing to use a modified look-ahead process 
for the instructions it receives from NSCC in connection with the NSCC 
SFT Account.
    Pursuant to the proposed rule change, upon receipt of a pair of DVP 
instructions or SFT PD payment orders from NSCC, DTC would only 
complete the transaction if the modified look-ahead is satisfied. The 
modified look-ahead would be satisfied when (i) the pair of 
instructions from NSCC are consistent in terms of the number of subject 
shares and/or dollar amount, CUSIP, and DTCC Reference ID,\22\ and (ii) 
the net effect of processing the instructions would not violate the 
respective Net Debit Caps, Collateral Monitor or other risk management 
system controls of the Participants that are on each side of the DVP or 
SFT PD transaction.\23\ If the modified look-ahead is not satisfied, 
then the pair of instructions would recycle until the look-ahead is 
satisfied or until the 3:10 p.m. cutoff time, when all recycling valued 
transactions at DTC are dropped.\24\
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    \22\ The DTCC Reference ID is the fourteen-digit UTC Loan ID 
that NSCC assigns to each SFT transaction.
    \23\ DTC uses the same modified look-ahead (except for the DTCC 
Reference ID) for DVP transactions to and from the OCC Market Loan 
Program Account, which is maintained by The Options Clearing 
Corporation (``OCC'') at DTC in connection with the OCC Market Loan 
Program. See Securities Exchange Act Release No. 59298 (January 26, 
2009), 74 FR 5692 (January 30, 2009) (SR-DTC-2008-15).
    \24\ DTC would also set the Net Debit Cap of the NSCC SFT 
Account to one dollar ($1), which would help ensure that no DVP or 
SFT PD to or from the NSCC SFT Account would be completed unless an 
offsetting DVP or SFT PD is also completed. The OCC Market Loan 
Program Account is similarly risk managed to help ensure that no 
receives are completed to the OCC Market Loan Program Account unless 
an offsetting delivery is also completed. See Securities Exchange 
Act Release No. 59298 (January 26, 2009), 74 FR 5692 (January 30, 
2009) (SR-DTC-2008-15).
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    In addition, because the modified look-ahead relies on the 
completion of offsetting transactions, transactions to and from the 
NSCC SFT Account would not be subject to either reclaims or Receiver 
Authorized Delivery (``RAD'').\25\ Since both reclaims and RAD 
effectively permit one side of the transaction to reject or reverse the 
transaction, allowing such activity would interfere with the ability of 
the modified look-ahead to rely on the completion of the offsetting 
transactions. DTC believes that Participants would not be affected by 
the exclusion of reclaims and RAD because the NSCC SFT instructions 
would be based on instructions that were matched and submitted to NSCC 
on a locked-in basis by an Approved SFT Submitter on behalf of the NSCC 
SFT Counterparties. Therefore, the Participants that are NSCC SFT 
Counterparties to an SFT would have already agreed to the transactions 
to and from the NSCC SFT Account relating to their Participant Account, 
and, as such, the reclaim and RAD functions would not be necessary.\26\
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    \25\ A reclaim is the return of a deliver order, payment order, 
institutional delivery transaction or MMI transaction received by a 
Participant. RAD is a control mechanism that allows a Participant to 
review transactions prior to completion of processing. See 
Settlement Guide, supra note 3, at 6.
    \26\ See supra notes 10 and 11.
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C. SFT Price Differential Fee
    DTC is proposing to amend the Fee Guide to establish a fee for SFT 
PD payment orders. DTC is proposing a fee of $0.005 per item delivered 
or received, to be charged to the payor and to the payee of an SFT PD 
payment order.
    DTC recognizes that the fee for SFT PD payment orders would be 
significantly less than the $0.10 fee for SPO payment orders, which are 
used by Participants in connection with their noncleared stock loan 
transactions. DTC is proposing to establish this lower fee for SFT PD 
payment orders because settling payment obligations for cleared SFTs 
would require a higher volume of payment orders than would otherwise be 
required for settling payment obligation for uncleared SFTs. More 
specifically, pursuant to the NSCC Proposed Rules, NSCC SFT 
Counterparties would pay and collect Price Differentials at the 
individual transaction level. In the bilateral world, mark-to-market 
payments and collections on securities lending transactions are 
typically done at the CUSIP level via SPOs, inclusive of all open 
securities lending transactions of a given participant. Accordingly, it 
is likely that there would be more SFT PD payment orders processed by 
DTC in connection with SFTs than the amount of SPOs DTC would have 
otherwise processed if those SFTs were bilateral, non-cleared 
securities lending transactions. Therefore, as an initial matter,\27\ 
DTC is proposing to charge the lower fee $0.005 for SFT PD payment 
orders in an effort to maintain cost efficiency for both the cleared 
SFT activity and the uncleared securities

[[Page 22974]]

financing transactions of market participants.''
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    \27\ DTC understands that since NSCC would be offering central 
clearing for overnight SFTs for the first time, NSCC is not able at 
this time to anticipate the size and composition of the SFT 
portfolios and activity. Therefore, DTC is not yet able to estimate 
the volume of SFT PD payment orders that it would process after the 
NSCC SFT Service is implemented. Once the NSCC SFT Service is 
implemented and historical data is available, DTC may, if 
circumstances warrant, review the amount of the SFT PD payment order 
fee.
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(ii) Proposed Rule Change
A. Amendments to the Rules
(1) Rule 1
    In order to clearly differentiate between the Special 
Representative CNS Account and the NSCC SFT Account in Rule 6, DTC is 
proposing to insert the following definitions into Section 1 of Rule 1:
    i. Special Representative: The term ``Special Representative'' has 
the meaning provided in Rule 6.
    ii. Special Representative CNS Account: The term ``Special 
Representative CNS Account'' means the Account of the Special 
Representative that it uses in connection with its continuous net 
settlement system.
    iii. Special Representative SFT Account: The term ``Special 
Representative SFT Account'' means the Account of the Special 
Representative that it uses in connection with its securities financing 
transaction service.
    In addition, DTC is proposing to remove ``Special Representative'' 
from the list of definitions in Section 2 of Rule 1, because it would 
be redundant once the definition is inserted into Section 1 of Rule 1 
pursuant to the proposed rule change.
(2) Rule 6
    Pursuant to the proposed rule change, DTC would replace references 
to the ``Account of the Special Representative'' with ``Special 
Representative CNS Account,'' to (i) clearly differentiate the Account 
that NSCC uses in connection with CNS from the proposed Special 
Representative SFT Account, and (ii) clearly delineate the transfer and 
delivery instructions that NSCC as the Special Representative submits 
to DTC in connection with the CNS system and the DVP instructions and 
SFT PD payment orders that NSCC as the Special Representative would 
submit to DTC in connection with the NSCC SFT Service.
    Under current Rule 6, the scope of NSCC's authority as Special 
Representative to instruct DTC with respect to an Account of a 
Participant that is a member of NSCC is limited to transfers of 
securities from the Account of the Participant to the Account of the 
Special Representative (which would be renamed ``Special Representative 
CNS Account,'' as proposed above). Pursuant to the proposed rule 
change, DTC would amend Rule 6 to provide that NSCC, as the Special 
Representative, may submit to DTC, on behalf of the Participant, 
instructions for ``the Delivery Versus Payment of Securities from the 
Account of a Participant to the Special Representative SFT Account,'' 
and for ``an amount of money to be credited to the Account of a 
Participant and debited from the Special Representative SFT Account, in 
connection with a transaction in Securities, in accordance with Rule 
9(A) and as specified in the Procedures.''
B. Amendments to the Settlement Guide
    (1) In the ``Settlement Transactions'' subsection of the ``About 
Settlement'' section, DTC is proposing to add ``Price Differentials (as 
defined in the NSCC Rules)'' to the description of payment orders.
    (2) In the ``Important Terms'' subsection of the ``About 
Settlement'' section, DTC is proposing to:
    a. Amend the description of a ``payment order'' to be consistent 
with the amended description in the ``Settlement Transactions'' 
subsection. Specifically, DTC would replace the sentence ``A 
transaction in which a Participant charges another Participant for 
changes in value for outstanding stock loans or option contract 
premiums'' with ``The payment order service provides Participants with 
a mechanism for settling amounts of money related to securities 
transactions that are effected separately through DTC. Participants use 
payment orders to collect option contract premiums (premium payment 
order), mark-to-market open contracts such as stock loans (securities 
payment order), and Price Differentials (SFT PD payment order).''
    b. Insert the term ``SFT Price Differential (``SFT PD'') payment 
order'' with the following description: ``A payment order through which 
the amount of a Price Differential (as defined in the NSCC Rules) is 
(i) debited from the account of a Participant and credited to the NSCC 
SFT Account, or (ii) is debited from the NSCC SFT Account and credited 
to the account of a Participant.''
    c. Insert the term ``NSCC Securities Financing Transaction Service 
(SFT) Service'' with the following description: ``A securities 
financing transaction clearing service offered by NSCC.''
    (3) After the ``NSCC ACATS Settlement Accounting Operation--
Processing at DTC'' section of the Settlement Guide, DTC is proposing 
to insert a new section titled ``NSCC Securities Financing Transactions 
(SFT) Service.'' The new section would include the following 
subsections: ``About the Product,'' which would briefly describe the 
NSCC SFT Service; ``Initial Transfer of SFT Securities at DTC,'' which 
would describe the process for the DVP instructions for the initial 
transfer of securities versus payment for an SFT; ``NSCC Instructions 
to DTC,'' which would describe the pairs of DVP instructions and SFT PD 
payment orders that NSCC would submit to DTC in connection with SFT 
activity at NSCC; and ``NSCC SFT Account Look-Ahead Processing,'' which 
would describe the modified look-ahead process and inform Participants 
that transactions to and from the NSCC SFT Account would not be subject 
to RAD and that reclaims from the NSCC SFT Account would be blocked.
    (4) In the subsection titled ``Settlement Processing Schedule'' of 
the ``End-of-Day Settlement Process'' section, DTC is proposing to:
    a. In the 3:00 p.m. ``Cutoff Time ET'' row, under ``Cutoff for,'' 
insert a third item in the bulleted list that reads: ``SFT Transactions 
cannot be entered after 3:00 p.m.''
    b. In the 3:10 p.m. ``Cutoff Time ET'' row, under ``Cutoff for,'' 
insert ``/SFT'' after ``CNS'' in the second bulleted paragraph to 
reflect that recycling NSCC SFT instructions would be dropped at that 
time.
    (5) In the section ``Look-Ahead Processing,'' DTC proposes to 
correct the first sentence to reflect that DTC's current look-ahead 
process runs on two-minute intervals, not on fifteen-minute intervals.
    (6) In the subsection ``Optional Memo Segregation Indicators'' of 
the ``Memo Segregation'' section, DTC is proposing to make a conforming 
change in order to reflect that securities positions from deliver 
orders relating to SFT activity at NSCC would be treated the same as 
stock loan positions. Specifically, DTC is proposing to insert the SFT 
reason codes 200 and 201 into (i) the row for Activate Indicator 4 as 
follows: ``Turnaround securities positions, regardless of Memo 
Segregation constraints, for positions received from DOs with reason 
codes 10, 30, 200, and 600, except those with reason codes 10, 20, 200, 
201, 260, 270, 280, or 290,'' and (ii) the row for Activate Indicator 5 
as follows: ``Turnaround securities positions, regardless of Memo 
Segregation constraints, for positions received from: All DOs, except 
those with reason codes 20-29, 40-48, 99, 201, 261-268, 270-278, 290, 
291, 330-338, 340-348, 390, 610-619, 705-707 and CNS receives from the 
``C'' and ``E'' accounts except if the turnaround is a reason code 10, 
20, 200, 201, 260, 270, 280, or 290.''

[[Page 22975]]

    (7) In order to provide clarification around the payment order 
service and to differentiate between PPOs and SPOs on the one hand and 
SFT PD payment orders on the other hand, DTC is proposing to amend the 
``Payment Orders'' section by:
    a. Amending the ``About the Product'' subsection to insert a 
general description of the payment order service that would state: ``A 
payment order authorizes DTC to credit the payee Participant's 
settlement account with the specified amount and to debit the payor 
Participant's settlement account for the same amount. All payment 
orders must satisfy the payor Participant's risk management controls 
before being processed.''
    b. Amending the ``How the Product Works'' subsection by (i) 
inserting ``Premium Payment Order (PPO) and Securities Payment Order 
(SPO)'' as a new heading for the description of PPOs and SPOs, (ii) 
deleting the sentence ``Either type of payment order authorizes DTC to 
credit the payee Participant's settlement account with the specified 
amount and to debit the payor Participant's settlement account for the 
same amount,'' from the first paragraph, (iii) changing a reference to 
``the Payment Order Service'' to ``PPOs and SPOs,'' (iv) inserting 
``SFT Price Differential (SFT PD) Payment Order'' as a new heading, and 
(v) inserting the sentence ``For a description of SFT Price 
Differential payment orders, please see NSCC Securities Financing 
Transactions (SFT) Service'' under the SFT Price Differential Payment 
Order (SFT PD) heading.
    (8) In order to reflect that a Participant would not be able to use 
the ``Pend Hold'' function for a DVP to the NSCC SFT Account, DTC is 
proposing to insert ``with the exception of DOs to and from the NSCC 
SFT Account'' into the description of Pend Hold function in the ``Pend 
Hold'' subsection.\28\
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    \28\ A Pend Hold allows a Participant that initiated a DO or 
pledge transaction to hold (i.e., exclude from processing) the 
transaction if it is pending for insufficient position. Since a DVP 
to the NSCC SFT Account is instructed by NSCC as the Special 
Representative, a Pend Hold is not relevant.
---------------------------------------------------------------------------

    (9) In Annex A, DTC is proposing to insert the following new reason 
codes into the ``Memo Segregation Supplement/DO Reason Code Description 
Reference'' section: 200 (SFT Stock Loan) and 201 (SFT Stock Loan 
Return). These new settlement reason codes would be established at DTC 
to support on-leg and off-leg settlement of SFTs.
C. Amendments to the Fee Guide
    Pursuant to the proposed rule change, DTC would amend the Fee Guide 
to insert an SFT Price Differential delivery or receipt fee of $0.005 
per item delivered or received.
Implementation Date
    DTC will implement the proposed changes when DTC and NSCC receive 
all necessary regulatory approvals for this proposed rule change and 
the NSCC Proposed Rules. DTC will announce the implementation date of 
the proposed rule change in an Important Notice posted on its website.
    As proposed, a legend would be added to the Rules,\29\ Settlement 
Guide, and Fee Guide stating there are changes that have been approved 
but have not yet been implemented. The proposed legend also would 
include that the implementation date would be announced in an Important 
Notice to be issued by DTC. In addition, the proposed legend would 
state that the legend would automatically be removed upon the 
implementation of the proposed changes.
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    \29\ DTC is proposing to add the legend to Rules 1 and 6.
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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 a registered clearing agency. Specifically, DTC believes 
that the proposed rule change is consistent with Sections 17A(b)(3)(F) 
\30\ and 17A(b)(3)(D) of the Act \31\ for the reasons described below.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\32\ DTC is proposing to expand the types of 
instructions that NSCC, as the Special Representative of a Participant 
that is also a member of NSCC, can submit to DTC on behalf of a 
Participant with respect to an Account of the Participant. As noted 
above, the NSCC Proposed Rules would provide that the submission of 
each SFT to NSCC by the Approved SFT Submitter on behalf of the NSCC 
SFT Counterparties would constitute an authorization to NSCC by the 
NSCC SFT Counterparties for NSCC to give instructions regarding the SFT 
to DTC in respect of the relevant Participant Accounts of the NSCC SFT 
Counterparties at DTC. The proposed rule change would provide a basis 
for DTC to accept and rely on those NSCC instructions. Specifically, 
DTC would amend Rule 6 to provide for the additional authority of NSCC, 
as the Special Representative of a Participant, to submit DVP 
instructions and SFT PD payment orders to DTC, on behalf of 
Participant, from the Account of the Participant to the NSCC SFT 
Account. By providing NSCC with the authority to submit these 
instructions on behalf of a Participant, the proposed rule change 
supports the efficient settlement of cleared SFTs, thereby promoting 
the prompt and accurate clearance and settlement of securities 
transactions, consistent with Section 17A(b)(3)(F) of the Act, cited 
above.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Pursuant to the proposed rule change, DTC would establish the SFT 
PD payment order, which would be a payment order for NSCC to instruct 
DTC, on behalf of Participants that are NSCC SFT Counterparties, as 
well as on its own behalf, to credit and debit funds between the NSCC 
SFT Account and the Accounts of the Participants in connection with SFT 
activity at NSCC. By establishing this new type of payment order that 
would utilize the efficiency of the DTC payment order service to settle 
payments relating to cleared SFTs, the proposed rule change is designed 
to promote the prompt and accurate clearance and settlement of payment 
obligations relating to securities transactions, consistent with 
Section 17A(b)(3)(F) of the Act, cited above.
    The proposed rule change would also apply a modified look-ahead 
process to the new NSCC SFT Account. As discussed above, DTC would use 
modified look-ahead processing in an effort to (i) ensure that there 
would not be any net settlement obligation against the NSCC SFT Account 
and (ii) prevent transaction blockage that could occur from unsatisfied 
risk management controls on the NSCC SFT Account. By applying a 
modified look-ahead to the new NSCC SFT Account, DTC believes that the 
proposed rule change is designed to promote efficient processing of DVP 
and SFT PD transactions relating to cleared SFTs. In this way, DTC 
believes that the proposed rule change would promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act, cited above.
    DTC also believes that the proposed rule change to make conforming 
and technical changes to the Rules and the Settlement Guide would 
promote the prompt and accurate clearance and settlement of securities 
transactions. DTC believes that the proposed

[[Page 22976]]

conforming and technical changes would help ensure consistency in the 
Rules and the Settlement Guide and help ensure that the Rules and the 
Settlement Guide remain clear and accurate. Having clear and accurate 
Rules and Settlement Guide would help Participants to better understand 
their rights and obligations regarding DTC settlement services in 
connection with the NSCC SFT Service. DTC believes that when 
Participants better understand their rights and obligations regarding 
DTC settlement services, they can act in accordance with the Rules and 
Procedures. DTC believes that better enabling Participants to comply 
with the Rules and the Settlement Guide would promote the prompt and 
accurate clearance and settlement of securities transactions. As such, 
DTC believes the proposed rule change to make conforming and technical 
changes is consistent with Section 17A(b)(3)(F) of the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act requires, inter alia, that the 
Rules provide for the equitable allocation of reasonable dues, fees, 
and other charges among Participants.\34\ Pursuant to the proposed rule 
change, DTC would establish a fee of $0.005 per item delivered or 
received, which would be charged to the payor and the payee of an SFT 
PD payment order. For the reasons set forth below, DTC believes that 
the proposed fee for SFT PD payment orders would provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
Participants. First, DTC believes that the proposed fee of $0.005 is 
reasonable. DTC recognizes that the fee for SFT PD orders would be 
significantly less than the $0.10 fee for SPOs, which are used by 
Participants in connection with bilateral stock loan transactions. DTC 
is proposing to establish this lower fee for SFT PD payment orders 
because settling payment obligations for cleared SFTs would require a 
higher volume of payment orders than would otherwise be required for 
uncleared SFTs. More specifically, pursuant to the NSCC Proposed Rules, 
NSCC SFT Counterparties would pay and collect Price Differentials at 
the individual transaction level. In the bilateral world, mark-to-
market payments and collections on securities lending transactions are 
typically done at the CUSIP level via SPOs, inclusive of all open 
securities lending transactions of a given participant. Accordingly, it 
is likely that there would be more SFT PD payment orders processed by 
DTC in connection with SFTs than the amount of SPOs DTC would have 
otherwise processed if those SFTs were bilateral, non-cleared 
securities lending transactions. Therefore, as an initial matter, DTC 
is proposing to charge the lower fee $0.005 for SFT PD payment orders 
in an effort to maintain cost efficiency for both the cleared SFT 
activity and the uncleared securities financing transactions of market 
participants. As noted above,\35\ due to the lack of history for 
cleared SFT activity, DTC cannot estimate at this time the average 
number of SFT PD payment orders that would be processed and cannot, 
therefore, quantify a precise fee. However, DTC believes that the 
proposed fee of $0.005 is designed to take into account the imbalance 
between the amount of payment orders that would be required for cleared 
SFTs and the amount required for uncleared SFTs and is therefore 
reasonable. DTC also believes that the proposed fee would be equitably 
allocated because the fee would be charged to payors and payees per 
item delivered or received in accordance with their use of SFT PD 
payment orders and all such payors and payees would be treated equally 
with respect to the fee. Accordingly, DTC believes that the proposed 
rule change establishing a fee for the delivery and receipt of an SFT 
PD payment order is designed to provide for the equitable allocation of 
reasonable dues, fees, and other charges among participants, consistent 
with Section 17A(b)(3)(D) of the Act, cited above.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(D).
    \35\ See supra note 27.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change to expand the 
types of instructions that NSCC, as Special Representative of a 
Participant that is a member of NSCC, can submit to DTC on behalf of 
the Participant with respect to an Account of the Participant would 
have an impact on competition.\36\ The proposed rule change is designed 
to support the use of the NSCC SFT Service by NSCC SFT Counterparties 
by providing a mechanism for NSCC to submit DVP instructions and SFT PD 
payment orders to DTC, on behalf of a Participant that is an NSCC SFT 
Counterparty, for the settlement of the NSCC SFT Counterparty's 
obligations relating to a cleared SFT. The proposed rule change would 
only affect Participants that are NSCC SFT Counterparties and would 
apply to all such Participants equally. Therefore, DTC believes that 
the proposed rule change to expand the types of instructions that NSCC, 
as the Special Representative of Participants that are also members of 
NSCC, can submit to DTC on behalf of a Participant with respect to an 
Account of the Participant would not have an impact on competition.\37\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78q-1(b)(3)(I).
    \37\ Id.
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change to provide for 
SFT PD payment orders and to establish a fee for SFT PD payment orders 
would have an impact on competition.\38\ As discussed above, an SFT PD 
payment order would provide Participants a way to utilize the 
efficiency of the DTC payment order service to settle payments relating 
to their cleared SFT activity. The establishment of the SFT PD payment 
order would only affect Participants that are NSCC SFT Counterparties 
and would apply to all such Participants equally. In addition, the 
proposed fee for SFT PD payment orders would be charged to payors and 
payees per their use of SFT PD payment orders and all such payors and 
payees would be treated equally with respect to the fee. Therefore, DTC 
believes that the proposed rule change to provide for SFT PD payment 
orders and to establish a fee for SFT PD payment orders would not have 
an impact on competition.\39\
---------------------------------------------------------------------------

    \38\ Id.
    \39\ Id.
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule changes to use modified 
look-ahead processing for transactions to and from the NSCC SFT Account 
would have an impact on competition.\40\ The proposed rule changes 
would apply to all DVP and SFT PD transactions to and from the NSCC SFT 
Account, and are designed to promote efficient processing of 
transactions relating to SFTs cleared by NSCC. The proposed rule change 
would only affect Participants that are NSCC SFT Counterparties and 
would apply to all such Participants equally. Therefore, DTC believes 
that the proposed rule change to use modified look-ahead processing for 
transactions to and from the NSCC SFT Account would not have an impact 
on competition.\41\
---------------------------------------------------------------------------

    \40\ Id.
    \41\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change to make 
conforming and technical changes to the Rules and the Settlement Guide 
would have an impact on competition.\42\ Having clear and accurate 
Rules and Settlement Guide would facilitate Participants' understanding 
of the Rules and Settlement Guide and provide

[[Page 22977]]

Participants with increased predictability and certainty regarding 
their obligations regarding DTC settlement services in connection with 
the NSCC SFT Service. Therefore, DTC believes that the proposed rule 
change to make conforming and technical changes to the Rules and the 
Settlement Guide would not have an impact on competition.\43\
---------------------------------------------------------------------------

    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    DTC reserves the right not to respond to any comments received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 [email protected]. Please include 
File Number SR-DTC-2022-002 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-2022-002. 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-2022-002 and should be submitted on 
or before May 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
---------------------------------------------------------------------------

    \44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08169 Filed 4-15-22; 8:45 am]
BILLING CODE 8011-01-P


