
[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89752-89755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28706]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99234; File No. SR-DTC-2023-013]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Modify the DTC Settlement 
Service Guide

December 22, 2023.
    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 December 20, 2023, 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 primarily by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

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

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \3\ consists of amendments to the DTC 
Settlement Service Guide (``Settlement Guide'') \4\ to increase the 
amount of the maximum Net Debit Cap for individual Participants,\5\ as 
described below.
---------------------------------------------------------------------------

    \3\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \4\ Available at https://www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf. The Settlement Guide is a 
Procedure of DTC. Pursuant to the Rules, the term ``Procedures'' 
means the Procedures, service guides, and regulations of DTC adopted 
pursuant to Rule 27, as amended from time to time. See Rule 1, 
Section 1, supra note 3. Procedures are binding on DTC and each 
Participant in the same manner that they are bound by the Rules. See 
Rule 27, supra note 3.
    \5\ Pursuant to Rule 1, supra note 3, the term ``Net Debit Cap'' 
of a Participant means an amount determined by the Corporation in 
the manner specified in the Procedures; provided, however, that the 
maximum Net Debit Cap of the Participant shall be the least of (i) a 
maximum amount applicable to all Participants based on the liquidity 
resources of the Corporation, (ii) the Settling Bank Net Debit Cap 
applicable to such Participant, or (iii) any other amount determined 
by the Corporation, in its sole discretion.
---------------------------------------------------------------------------

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 modify the Settlement Guide to 
increase the amount of the maximum Net Debit Cap for individual 
Participants, as described below.
Background
    Through its settlement services, DTC provides book-entry transfer 
and pledge of interests in Eligible Securities and end-of-day net funds 
settlement. DTC maintains a liquidity structure designed to facilitate 
its maintenance of sufficient financial resources to complete 
settlement each business day notwithstanding the failure to settle of a 
defaulting Participant, or Affiliated Family of Participants,\6\ with 
the largest settlement obligation. In this regard, the Collateral 
Monitor \7\ and Net Debit Cap risk controls are employed by DTC to 
provide that each Delivery Versus Payment \8\ is contingent on the 
Participant that is the Receiver \9\ satisfying its end-of-day net 
settlement obligation, if any.
---------------------------------------------------------------------------

    \6\ Pursuant to Rule 1, supra note 3, the term ``Affiliated 
Family'' means each Participant that controls or is controlled by 
another Participant and each Participant that is under the common 
control of any Person. For purposes of this definition, ``control'' 
means the direct or indirect ownership of more than 50% of the 
voting securities or other voting interests of any Person.
    \7\ Pursuant to Rule 1, supra note 3, the term ``Collateral 
Monitor'' of a Participant, as used with respect to its obligations 
to the Corporation, means, on any Business Day, the record 
maintained by the Corporation for the Participant which records, in 
the manner specified in Procedures, the algebraic sum of (i) the Net 
Credit or Debit Balance of the Participant and (ii) the aggregate 
Collateral Value of the Collateral of the Participant.
    \8\ Pursuant to Rule 1, supra note 3, the term ``Delivery Versus 
Payment'' means a Delivery against a settlement debit to the Account 
of the Receiver, as provided in Rule 9(A) and Rule 9(B) and as 
specified in the Procedures.
    \9\ Pursuant to Rule 1, supra note 3, the term ``Receiver'', as 
used with respect to a Delivery of a Security, means the Person 
which receives the Security.
---------------------------------------------------------------------------

    The Collateral Monitor prevents the completion of transactions that 
would cause a Participant's Net Debit Balance to exceed the value of 
Collateral in its account.\10\ In this regard, the settlement 
obligation of each Participant must be fully collateralized, based on 
the Collateral Monitor, which is DTC's process for measuring the 
sufficiency of the Collateral in a Participant's account to cover the 
Participant's net settlement obligation.\11\ This is designed so if a 
Participant fails to pay for its settlement obligation, DTC will have 
sufficient Collateral to obtain funding for settlement.
---------------------------------------------------------------------------

    \10\ Pursuant to Rule 1, supra note 3, the term ``Collateral'' 
of a Participant, as used with respect to its obligations to the 
Corporation, means, on any Business Day, the sum of (i) the Actual 
Participants Fund Deposit of the Participant, (ii) the Actual 
Preferred Stock Investment of a Participant, (iii) all Net Additions 
of the Participant and (iv) any settlement progress payments 
(``SPP'') wired by the Participant to the account of the Corporation 
at the Federal Reserve Bank of New York in the manner specified in 
the Procedures. A SPP is Collateral that increases a Participant's 
Collateral Monitor, but also reduces a Participant's Net Debit 
Balance. See Settlement Guide, supra note 4, at 73. Instructions for 
submission of a SPP are provided in the Settlement Guide. See 
Settlement Guide, supra note 4, at 69. Pursuant to Rule 1, supra 
note 3, the term ``Net Debit Balance'' of a Participant means the 
amount by which the Gross Debit Balance of the Participant exceeds 
its Gross Credit Balance. Id. The term ``Gross Credit Balance'' of a 
Participant on any Business Day means the aggregate amount of money 
the Corporation credits to all the Accounts in all the Account 
Families of the Participant without accounting for any amount of 
money the Corporation debits or charges thereto. Id. The term 
``Gross Debit Balance'' of a Participant on any Business Day means 
the aggregate amount of money the Corporation debits or charges to 
all the Accounts in all the Account Families of the Participant 
without accounting for any amount of money the Corporation credits 
thereto. Id.
    \11\ See Settlement Guide, supra note 4, at 5 and 72.
---------------------------------------------------------------------------

    The Net Debit Cap limits the Net Debit Balance that each 
Participant can incur to an amount, based upon activity level, which 
would be covered by DTC's liquidity resources. The Net Debit Cap is 
structured so that DTC will have sufficient liquidity to complete 
settlement should any single Participant or Participant family fail to 
settle. The Net Debit Cap limits the Net Debit Balance of an individual 
Participant at any point during DTC's processing day.\12\ The Aggregate 
Affiliated Family Net Debit Cap \13\ limits the sum of Net

[[Page 89753]]

Debit Balances an Affiliated Family of Participants at any point during 
the processing day [sic]. The Net Debit Cap of each Participant and the 
Aggregate Affiliated Family Net Debit Cap of each Affiliated Family of 
Participants are each set to an amount at or below DTC's liquidity 
resources.\14\
---------------------------------------------------------------------------

    \12\ See Settlement Guide, supra note 4, at 6.
    \13\ Pursuant to Rule 1, supra note 3, the term ``Aggregate 
Affiliated Family Net Debit Cap'' means the sum of the Net Debit 
Caps for the Participants that are part of an Affiliated Family in 
the manner specified in the Procedures; provided, however, that the 
maximum Aggregate Affiliated Family Net Debit Cap shall not exceed 
the total available liquidity resources of the DTC.
    \14\ To determine a Participant's Net Debit Cap, DTC records the 
Participant's three highest intraday net debit peaks over a rolling 
70-Business Day period. The Participant's average of these net debit 
peaks is calculated and multiplied by a factor to determine the 
Participant's Net Debit Cap, but not to exceed $1.80 BN. See 
Settlement Guide, supra note 4, at 73. The maximum Net Debit Cap for 
a Participant was increased to $1.80 BN from $1.5 BN in 2001, to 
reduce processing blockages relating to increased trading volumes 
and settlement values. This increase was facilitated by a coinciding 
increase to DTC's liquidity resources. See Securities Exchange Act 
Release No. 44509 (July 3, 2001), 66 FR 36350 (July 11, 2001) (File 
No. SR-DTC-2001-09).
---------------------------------------------------------------------------

    DTC maintains two key liquidity resources that are considered 
``qualifying liquid resources,'' as defined by Rule 17Ad-22(a)(14) 
promulgated under the Act: \15\ specifically, (i) Required Participants 
Fund Deposits across all Participants of $1.15 BN and (ii) a committed 
line of credit facility (``LOC'') of $1.9 BN, to which DTC may pledge 
Securities that are Collateral of the defaulting Participant in order 
to complete settlement.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(14).
---------------------------------------------------------------------------

    Taken together, the Participants Fund and line of credit provide 
DTC with $3.05 BN in total liquidity resources.
Current Net Debit Cap Amounts
    As noted above, the Net Debit Cap for an individual Participant is 
$1.80 BN. DTC has established the maximum Aggregate Affiliated Family 
Net Debit Cap at $2.85 BN, which is below DTC's total available 
liquidity resources maintained by DTC to account for the possibility 
that a defaulting Participant that is part of an Affiliated Family may 
be a lender to the line of credit.
    Together, the Net Debit Cap and Aggregate Affiliated Family Net 
Debit Cap control the total settlement obligation that any Participant 
or Affiliated Family, respectively, may incur. Any transaction that 
would cause a Participant or an Affiliated Family to exceed its Net 
Debit Cap or Aggregate Affiliated Family Net Debit Cap, as applicable, 
will not be processed.\16\ Instead, the transaction will remain in a 
pending status until the Net Debit Balance is reduced sufficiently to 
allow processing.\17\ The Net Debit Balance may be reduced during the 
processing day by, among other things, receipt of a Delivery Versus 
Payment, which generates credits to the Participant's settlement 
account, or by a SPP, which are funds that may be wired to DTC during 
the processing day, in order to avoid a Participant having its receipts 
of Securities blocked by its Net Debit Cap. To reduce transaction 
blockage and the need to make SPPs, Participants have requested that 
DTC raise the maximum Net Debit Cap.
---------------------------------------------------------------------------

    \16\ See Settlement Guide, supra note 4, at 73-74.
    \17\ Id. at 62 and 73. Prior to processing, the transaction must 
also satisfy the Collateral Monitor risk management control and be 
approved by the Receiver via the Receiver Authorized Delivery 
function. Id. at 70-72 and 59-60.
---------------------------------------------------------------------------

Proposed Increase of the Net Debit Cap
    DTC proposes to increase the maximum Net Debit Cap for an 
individual Participant from $1.80 BN to $2.15 BN. (DTC is not proposing 
to change the maximum Aggregate Affiliated Family Net Debit Cap of 
$2.85 BN.) The proposed increase of $350 MM is supported by available 
liquidity resources from the $450 MM Core Fund,\18\ to which all 
Participants contribute, and the $1.90 BN LOC, which is collectively 
$2.35 BN.\19\ Proposing to raise the maximum Net Debit Cap for an 
individual Participant to $2.15 BN and not $2.35 BN allows for a $200 
MM buffer to account for the possibility that a defaulted Participant 
may also be a lender to the LOC.\20\
---------------------------------------------------------------------------

    \18\ The aggregate Participants Fund includes four component 
amounts, as set forth below: the ``Core Fund,'' the ``Base Fund,'' 
the ``Incremental Fund'' and the ``Liquidity Fund.'' The Core Fund 
is set by DTC at an aggregate amount of $450 MM and is comprised of 
the Base Fund and the Incremental Fund. The Base Fund is the sum of 
minimum deposits by all Participants, i.e., the amount that is 
$7,500, times the number of Participants, at any time. The 
Incremental Fund is the balance of the Core Fund up to $450 MM; this 
is the amount that must be ratably allocated among Participants that 
are required to pay more than a minimum deposit, as described in the 
Settlement Guide. The Liquidity Fund component (set at $700 MM) 
applies to Participants whose Affiliated Families have Net Debit 
Caps that exceed $2.15 BN. See Settlement Guide, supra note 4, at 
53-56.
    \19\ The Liquidity Fund (set at $700 MM) is not included because 
that amount only applies to Participants whose Affiliated Families 
have Net Debit Caps that exceed $2.15 BN.
    \20\ The $200 MM buffer is an amount greater than the 
contribution of any lender to the DTC LOC.
---------------------------------------------------------------------------

    The proposed maximum Net Debit Cap increase better aligns the 
maximum Net Debit Cap for an individual Participant with DTC's 
available liquidity resources, as described above.
    DTC expects that increasing the maximum Net Debit Cap would benefit 
Participants generally. An impact study (``Impact Study'') conducted by 
DTC for the period January 3, 2022, through December 30, 2022, showed 
that a number of Participants that are currently capped at a $1.80 BN 
Net Debit Cap would realize an immediate benefit from the proposed Net 
Debit Cap increase. The liquidity needs across legal entities were 
determined by looking at Participants reaching 90% of the current $1.80 
BN maximum Net Debit Cap, identifying the transactions pending under 
Net Debit Cap limits, and any incoming SPPs. By increasing the maximum 
Net Debit Cap, the proposed rule change would help improve transaction 
processing by enabling more transactions to process without the need 
for a Receiving Participant to wait for Delivery Versus Payment credits 
or submit SPPs to reduce its intraday Net Debit Balance. Moreover, any 
Participant that is a Deliverer of a Delivery Versus Payment may see 
less of its Deliveries pend because the Receiver may maintain a higher 
Net Debit Cap. Meanwhile, as described above, the proposed Net Debit 
Cap increase would continue to be supported by adequate DTC liquidity 
resources available to complete system-wide settlement in the event of 
a failure to settle by the largest Participant or Affiliated Family.
Proposed Rule Change
    Pursuant to the proposed rule change, the Settlement Guide will be 
revised to reflect the proposed increase to the Net Debit Cap. 
Specifically, two references to the existing $1.80 BN Net Debit Cap 
will be revised to reflect the proposed $2.15 BN Net Debit Cap.
Effective Date
    DTC would implement the proposed changes no later than 60 Business 
Days after the approval of the proposed rule change by the Commission.
2. Statutory Basis
    Section 17A(b)(3)(F) \21\ of the Act requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. DTC 
believes the proposed rule change is consistent with the section 
17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Impact Study results indicate that by increasing the maximum 
Net Debit Cap, as described above, the proposed rule change would help 
improve transaction processing by enabling more transactions to process 
without the need for a Receiving Participant to wait for Delivery 
Versus Payment-related credits or submit SPPs to reduce its intraday 
Net Debit Balance. Moreover, any Participant that is a Deliverer of a

[[Page 89754]]

Delivery Versus Payment may see less of its deliveries pend because the 
Receiver may maintain a higher Net Debit Cap. Meanwhile, the proposed 
Net Debit Cap increase would continue to be supported by adequate DTC 
liquidity resources available to complete system-wide settlement in the 
event of a failure to settle by the largest Participant or Affiliated 
Family. Therefore, DTC believes the proposed rule change is consistent 
with section 17A(b)(3)(F) of the Act, cited above, by helping to 
promote the prompt and accurate clearance and settlement of securities 
transactions.
    Rule 17Ad-22(e)(7)(i) \22\ promulgated under the Act requires, 
inter alia, that DTC, a covered clearing agency, establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to, as applicable, effectively measure, monitor, and manage 
the liquidity risk that arises in or is borne by the covered clearing 
agency, including measuring, monitoring, and managing its settlement 
and funding flows on an ongoing and timely basis, and its use of 
intraday liquidity by, at a minimum maintaining sufficient liquid 
resources to effect same-day settlement of payment obligations with a 
high degree of confidence under a wide range of foreseeable stress 
scenarios that includes, but is not limited to, the default of the 
participant family that would generate the largest aggregate payment 
obligation for the covered clearing agency in extreme but plausible 
market conditions (i.e., the ``Cover One standard'').
---------------------------------------------------------------------------

    \22\ 17 CFR 240.17Ad-22(e)(7)(i).
---------------------------------------------------------------------------

    DTC's liquidity needs for settlement are driven by protecting DTC 
against the possibility that a Participant may fail to pay its 
settlement obligations on a Business Day. The tools available to DTC 
under its Rules, including the Net Debit Cap, allow it to regularly 
test the sufficiency of liquid resources on an intraday and end-of-day 
basis and adjust to stressed circumstances during a settlement day to 
protect itself and Participants against liquidity exposure under normal 
and stressed market conditions. DTC calculates its liquidity needs per 
Participant (at a legal entity level) and further aggregates these 
amounts at a family level (that is, including all affiliated 
Participants, based on the assumption that all such affiliates may fail 
simultaneously). In this regard, DTC monitors settlement flows and net-
debit obligations daily, and its current available liquidity resources 
are sufficient to satisfy the Cover One standard.
    As described above, the proposed rule change would only increase 
the maximum Net Debit Cap for individual Participants from $1.80 BN to 
$2.15 BN, which is below DTC's available liquidity when considering the 
Core Fund and LOC collectively, and it would not otherwise alter the 
way DTC monitors settlement flows and net-debit obligations. Therefore, 
DTC believes the proposal is consistent with Rule 17Ad-22(e)(7)(i), 
cited above, because the proposed increase would remain aligned with 
DTC's continued maintenance of sufficient liquid resources to satisfy 
its Cover One standard and not change DTC's monitoring of settlement 
flows and net-debit obligations.

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

    DTC does not believe that the proposed rule change would impose a 
burden on competition.\23\ The proposed rule change would increase the 
maximum Net Debit Cap from $1.80 BN to $2.15 BN, and would apply to 
each Participant equally to the extent a Participant's Net Debit 
Balance, barring the effect of the Net Debit Cap control, could exceed 
the existing $1.80 BN.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    DTC believes the proposed rule change may promote competition 
because it alleviates the need for some Participants to wait for 
Delivery Versus Payment credits or submit SPPs for their transactions 
to process.

(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 would 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-submitcomments. 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 to not 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-DTC-2023-013 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-2023-013. 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 (https://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

[[Page 89755]]

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 a.m. and 3 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 (dtcc.com/legal/sec-rule-filings). Do not include personal identifiable information in 
submissions; you should submit only information that you wish to make 
available publicly. We may redact in part or withhold entirely from 
publication submitted material that is obscene or subject to copyright 
protection. All submissions should refer to File Number SR-DTC-2023-013 
and should be submitted on or before January 18, 2024.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).

Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28706 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P


