[Federal Register Volume 77, Number 91 (Thursday, May 10, 2012)]
[Notices]
[Pages 27503-27505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11243]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66919; File No. SR-DTC-2012-02]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change To Amend Rules 
Relating to the Issuance of and Maturity Presentment Processing for 
Money Market Instruments

May 3, 2012.

I. Introduction

    On March 8, 2012, The Depository Trust Company (``DTC'') filed 
proposed rule change SR-DTC-2012-02 with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposed 
rule change was published in the Federal Register on March 26, 2012.\2\ 
The Commission received no comment letters. For the reasons discussed 
below, the Commission is granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 66630 (March 20, 2012), 
77 FR 17534 (March 26, 2012).
---------------------------------------------------------------------------

II. Description

    The Maturity Presentment processing for money market instruments 
(``MMIs'') is initiated automatically by DTC each morning for all of 
the MMIs maturing that day.\3\ The automatic process electronically 
sweeps all maturing positions of MMI CUSIPs from a participant's 
accounts and credits the participant's account with the amount of the 
payments to be received with respect to such presentments. The matured 
MMIs are delivered to the account of the applicable issuing or paying 
agent (``IPA''),\4\ also a DTC

[[Page 27504]]

participant, and the IPA's account is debited for the amount of the 
maturity proceeds. The debited amount will be included in the IPA's net 
settlement amount. Similarly, the credits of participants that 
presented maturing MMIs will be included in those participants' net 
settlement amount.
---------------------------------------------------------------------------

    \3\ The term ``Maturity Presentment'' is defined in Rule 1 of 
DTC's Rules and Procedures as a Delivery Versus Payment of matured 
MMI securities from the account of a presenting participant to the 
designated paying agent account for that issue as provided for in 
Rule 9(C) and as specified in DTC's procedures.
    \4\ Rule 1 of DTC's Rules and Procedures defines the term ``MMI 
Issuing Agent'' generally as a participant acting as an issuing 
agent for an issuer with respect to a particular issue of MMI 
securities of that issuer and an ``MMI Paying Agent'' generally as a 
participant acting as a paying agent for an issuer with respect to a 
particular issue of MMI securities of that issuer. Since MMI Issuing 
Agents and MMI Paying Agents are often a single entity, this filing 
refers to both entities collectively as ``IPAs.''
---------------------------------------------------------------------------

    MMI issuers and IPAs commonly view the primary source of funding 
for payments of MMI maturity presentments as flowing from new issuances 
of MMIs in the same program by that MMI issuer on that day. When the 
MMI issuer issues more new MMIs than the number of MMIs maturing, the 
MMI issuer would have no net funds payment due to the IPA on that day. 
When an issuer has more maturing MMIs than new issuances, it would have 
an obligation to pay to the IPA the net amount of the MMIs maturing 
that day over the new issuance. When net maturity presentments exceed 
issuances on a day, IPAs at their discretion may provide significant 
intraday credit to issuers for the excess. However, the IPA as an agent 
of an issuer is not obligated to fund the presentments at DTC unless it 
receives payment from the issuer.
    The business relationships between IPAs and their MMI issuers play 
a key role in determining if an IPA will execute a refusal to pay at 
DTC with respect to presentment of an MMI issuance for which the IPA 
has not received funds from the MMI issuer. Because maturity 
presentments of an issuer's MMIs for which the IPA acts are processed 
automatically and randomly against the IPA's account, an IPA is 
permitted to refuse to pay for all of an issuer's maturities in an MMI 
program.\5\ An IPA that refuses payment on an MMI maturity must 
communicate its intention to DTC using the DTC Participant Terminal/
Browser Service (PTS/PBS) MMRP function. This function allows the IPA 
to enter a refusal to pay instruction for a particular issuer, referred 
to as an Issuer Failure/Refusal to Pay (``RTP''), up to 3:00 p.m. 
Eastern Time (``ET'') on the date of the relevant maturity presentment. 
Such an instruction causes DTC to reverse all transactions related to 
the relevant maturity presentment. An IPA RTP may have a significant 
market impact on the issuer's reputation and credit standing.
---------------------------------------------------------------------------

    \5\ DTC employs a four-character acronym to designate an 
issuer's MMI program. An issuer can have multiple acronyms. The IPA 
uses the acronym(s) when submitting an instruction of its refusal to 
pay for a given issuer's program(s).
---------------------------------------------------------------------------

    In late 2009, DTC and the Securities Industry and Financial Markets 
Association (``SIFMA'') formed the MMI Blue-Sky Task Force (``Task 
Force'') to address systemic and unique market risks associated with 
the MMI process, including those related to DTC's maturity presentment 
processing. The Task Force, along other money market industry 
members,\6\ determined that DTC's current MMI processing schedule 
permits issuance and other transaction activity that can affect an 
issuer's net funding amount or proceeds after the 3:00 p.m. E.T. 
deadline for RTP instructions.\7\ Accordingly, DTC is amending certain 
provisions in its Settlement Service Guide in order to provide 
increased transparency for IPAs before the 3:00 p.m. RTP deadline, 
which should in turn assist IPAs in making better informed credit 
decisions when an issuer has more maturities than new issuances. The 
rule changes to DTC's Settlement Service Guide, as approved, include:
---------------------------------------------------------------------------

    \6\ The money market industry members include the Commercial 
Paper Issuers Working Group, which is comprised of both bank and 
corporate commercial paper issuers, and the Asset Managers Forum, 
whose membership consists solely of buy-side investors.
    \7\ The Task Force's short-term recommendations focused on 
addressing the credit risk exposure that IPAs face because of a lack 
of transparency around the amount an issuer must fund to cover its 
maturities. The recommendations called for requiring issuers to fund 
maturity presentments by 1:00 p.m. if there is a net debit and for 
establishing new deadlines of 1:30 p.m. for the submission of all 
new valued issuance to DTC and of 2:15 p.m. for receivers of new 
valued issuance to accept delivery. These recommended new deadlines 
were intended to give an IPA sufficient time to calculate its 
exposure and if a funding shortfall exists work with the issuer to 
resolve the deficiency before 3:00 p.m., which is DTC's deadline for 
an IPA to fund the maturities or to issue an RTP. For more 
information, see DTCC Press Release ``DTCC and SIFMA Release Task 
Force Report Identifying Opportunities to Mitigate Systemic and 
Credit Risk in Processing of Money Market Instruments'' (March 31, 
2011), which can be found at www.dtcc.com/news/press/releases/2011/dtcc_sifma_task_force_report.php.
---------------------------------------------------------------------------

    1. Making all MMI issuance and deliver order transactions subject 
to DTC's Receiver Authorized Delivery (``RAD'') function for approval 
regardless of transaction value.\8\
---------------------------------------------------------------------------

    \8\ This change will eliminate the ability for a receiver to 
``force'' a reclaim upon an IPA close to or after the 3:00 p.m. RTP 
cutoff that would alter the amount of funding an issuer needs to 
provide late in the day and would also eliminate matched reclaims 
that currently override participant risk management controls.
---------------------------------------------------------------------------

    2. Adjusting the MMI valued new issuance cut-off time from 3:20 
p.m. E.T. to 2:00 p.m. E.T.
    3. Requiring use of RAD for approval of all MMI issuance and 
deliver order transactions, regardless of value, and establishing a new 
MMI cutoff time of 2:45 p.m. E.T. instead of the current 3:30 p.m. 
E.T.\9\
---------------------------------------------------------------------------

    \9\ If a transaction is not approved in RAD by 2:45 p.m. E.T., 
the transaction will drop and will need to be resubmitted.

DTC will implement the changes described above upon approval of this 
proposed rule change by the Commission.\10\
---------------------------------------------------------------------------

    \10\ In addition to the changes described above, DTC is also 
making unrelated technical changes to its Settlement Service Guide 
in order to conform its rules to its current practices and to a 
previously approved rule filing, SR-DTC-2011-01. Securities Exchange 
Release Act No. 34-63775 (January 26, 2011), 76 FR 5843 (February 2, 
2011).
---------------------------------------------------------------------------

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and to 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions.\11\ The Commission believes that the changes being made 
by this proposed rule change should help IPAs to determine earlier in 
the day if there is a funding shortfall with respect to an issuer and 
in turn help reduce late day reversals of MMI transactions by IPAs. 
Additionally, the changes to the Settlement Service Guide should serve 
to reinforce consistent MMI business practices by implementing earlier 
deadlines for issuances processing and receiver approvals and thereby 
make the processing of MMI issuances and maturities more efficient.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Accordingly, for the reasons stated above the Commission believes 
that the proposed rule change is consistent with DTC's obligation under 
Section 17A of the Act and the rules and regulations thereunder.\12\
---------------------------------------------------------------------------

    \12\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
particularly with the requirements of Section 17A of the Act, and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2012-02) be and hereby 
is approved.


[[Page 27505]]


    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11243 Filed 5-9-12; 8:45 am]
BILLING CODE 8011-01-P