[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62827-62828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24667]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70675; File No. SR-DTC-2013-10]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change To Terminate the Sealed Envelope
Service, Which Is Part of The Depository Trust Company's Custody
Service
October 11, 2013.
I. Introduction
On August 22, 2013, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2013-10 (``Proposed Rule Change'') pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The Proposed Rule Change was published in
the Federal Register on September 5, 2013.\3\ The Commission received
one comment to the Proposed Rule Change.\4\ This order approves the
Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Release No. 34-70291 (Aug. 30, 2013), 78 FR 54696 (Sept. 5,
2013).
\4\ See Comment from Sheila Waddell dated September 2, 2013
(``Waddell Comment''), http://www.sec.gov/comments/sr-dtc-2013-10/dtc201310-1.htm.
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II. Description
DTC filed the Proposed Rule Change to terminate its Sealed Envelope
Service (``Service''), which is part of its Custody Service, as
described below.
A. Sealed Envelope Service
In 2002, DTC launched the Service as an addition to its Custody
Service in response to requests from DTC participants
(``Participants'') to assist in fully outsourcing their vaults to DTC.
The Service is designed to provide physical custody to Participants for
documents or instruments that are not securities, such as loan
agreements, wills, deeds, mortgages, contracts, and option
agreements.\5\
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\5\ The deposit of securities certificates, as well as tangible
assets such as currency, gold coins, or jewelry, is strictly
prohibited by DTC.
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DTC allows for the sealed envelopes containing instruments or
documents that are not securities to be held in custody in one of DTC's
vaults. DTC assigns each sealed envelope a user-CUSIP number for
tracking and record keeping purposes. Participants balance their sealed
envelopes daily with DTC in the same manner as for securities held in
the Custody Service. The depositing Participant is required to list the
contents of the envelope on the outside of the envelope, as DTC does
not open any sealed envelopes or verify the contents therein other than
an examination for dangerous contents.
Proposed Rule Change
DTC has determined to discontinue the Service for multiple reasons.
First, the Service is not widely used, as only 15 Participants
currently use the Service and one of those Participants represents
approximately 85% of the total volume. Second, since DTC does not
verify the content of the envelope submitted by a Participant under the
Service, it cannot confirm that a sealed envelope contains instruments
and document qualifying for the Service.
DTC has stated that all 15 Participants of the Service were
notified of DTC's intention to discontinue the Service and none of the
Participants objected. DTC will work with those Participants to develop
a timeline to return sealed envelopes that it currently has in custody.
III. Comments Received
The Commission received one comment on the Proposed Rule Change.\6\
The commenter supports the Proposed Rule Change and notes that
terminating the Service would mitigate risk, promote transparency and
integrity in the markets, provide seamless clearing and settlement
services, mitigate existing conflicts of interest, and enhance know
your customer and
[[Page 62828]]
customer identification programs.\7\ Furthermore, the commenter states
that the Service places an undue burden and risk on DTC because it has
no way of verifying the contents of a sealed envelope.\8\
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\6\ Waddell Comment, supra note 4.
\7\ See id.
\8\ See id.
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IV. Discussion
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\9\ Section 17A(b)(3)(F) of the Act requires that, among
other things, ``[t]he rules of the clearing agency are designed to
promote the prompt and accurate clearance and settlement of securities
transactions and . . . to assure the safeguarding of securities and
funds which are in the custody or control of the clearing agency or for
which it is responsible.'' \10\
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\9\ 15 U.S.C. 78(s)(b)(2)(C).
\10\ 15 U.S.C. 78q-1(b)(3)(F).
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Here, as described above, DTC's proposed rule change to terminate
the Service should help further safeguard the securities and settlement
process as a whole, as required by Section 17A(b)(3)(F) of the Act,\11\
by eliminating the risk presented by the fact that DTC does not verify
the contents of sealed envelopes placed in its custody. Moreover,
terminating the Service will allow DTC to reallocate resources towards
promoting other clearing and settlement processes.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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V. Conclusion
On the basis of the foregoing, the Commission finds the Proposed
Rule Change is consistent with the requirements of the Act,
particularly with the requirements of Section 17A of the Act,\12\ and
the rules and regulations thereunder.
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\12\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change SR-DTC-2013-10 be, and hereby
is, APPROVED.\14\
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\13\ 15 U.S.C. 78s(b)(2).
\14\ In approving the Proposed Rule Change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\15\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24667 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P