[Federal Register Volume 79, Number 108 (Thursday, June 5, 2014)]
[Notices]
[Pages 32599-32601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13018]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72283; File No. SR-DTC-2014-06]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Modify the Receiver 
Authorized Delivery and Reclaim Processing Value Limits by Transaction

May 30, 2014 
    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 May 22, 2014, The Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I, II and III below, which Items have been 
prepared primarily by DTC. 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. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of changes to the DTC Settlement 
Service Guide (the ``Guide'') \3\ to modify the Receiver Authorized 
Delivery (``RAD'') functionality as more fully described below to 
reduce the intraday uncertainty that may arise from reclaim 
transactions linked to Deliver Orders (``DOs'') and Payment Orders 
(``POs'') \4\ and any potential credit and liquidity risk from such 
reclaims.\5\
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    \3\ The Guide is available at http://www.dtcc.com/~/media/Files/
Downloads/legal/service-guides/Settlement.ashx.
    \4\ A DO is a book-entry movement of a particular security 
between two DTC Participants. A PO is a method for settling funds 
related to transactions and payments not associated with a DO. For 
purposes of this proposed rule change the defined term ``DOs'' 
includes all valued DOs except for DOs of: (i) Money Market 
Instruments and (ii) Institutional Deliveries affirmed through 
Omego, both of which are not impacted by the proposed rule change.
    \5\ Terms not defined herein have the meaning set forth in DTC's 
Rules & Procedures (the ``Rules'').
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DTC 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. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    By this rule filing, DTC seeks to modify the RAD functionality to 
reduce the intraday uncertainty that may arise from reclaim 
transactions linked to DOs and POs and any potential credit and 
liquidity risk from such reclaims, as more fully described below.
    Currently, as set forth in the DTC Settlement Service Guide (the 
``Guide''), all valued DOs and POs in amounts above $7.5 million and 
$500,000, respectively, are subject to the RAD process, which allows a 
receiver of DOs and/or POs (``Receiver'') to review and reject 
transactions that it does not recognize prior to DTC's processing of 
the transactions in accordance with the Rules. In contrast, lower 
valued DOs and POs do not require the Receiver's acceptance prior to 
processing; instead, if the Receiver does not recognize a DO or PO it 
has received, the DO or PO may be returned by the Receiver to the 
original deliverer of the DO or PO (``Deliverer'') in a reclaim 
transaction. While both the reclaim and RAD functionalities allow a 
Receiver to exercise control over which transactions to accept, 
reclaims tend to create uncertainty because transactions may be 
returned late in the day, when the Deliverer may have limited options 
to respond. Because such reclaims are permitted without regard to risk 
management controls, the Deliverer may then incur a greater settlement 
obligation, increasing credit and liquidity risk to the Deliverer and 
to DTC.\6\
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    \6\ DTC's risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in DTC Rule 1), are designed so that 
DTC can effect system-wide settlement notwithstanding the failure to 
settle of its largest Participant or affiliated family of 
Participants. Net Debit Cap limits the net debit balance a 
Participant can incur so that the unpaid settlement obligation of 
the Participant, if any, cannot exceed DTC liquidity resources. The 
Collateral Monitor tests that a Receiver has adequate collateral to 
secure the amount of its net debit balance so that DTC may borrow 
funds to cover that amount for system-wide settlement if the 
Participant defaults.
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    Therefore, pre-settlement matching of transactions through RAD 
without the ability of the Receiver to reclaim those transactions is 
the preferred approach as this would eliminate the uncertainty and 
credit and liquidity implications associated with reclaims. In 2013, 
DTC took an initial step to address this uncertainty by lowering the 
RAD ``threshold'' over which transactions must be matched for DOs and 
POs from $15 million and $1 million, respectively, to the current 
limits mentioned above.\7\ Under the proposed rule change, DTC would 
further change RAD to require Participants to match valued DOs and POs, 
prior to processing the associated deliveries. These matched 
transactions would be processed through DTC subject to risk management 
controls.
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    \7\ Securities Exchange Act Release No. 69985 (Jul. 12, 2013); 
78 FR 42991 (Jul. 18, 2013) (SR-DTC-2013-04).
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    Likewise, under the proposed rule change, each return of a matched 
DO or PO attempted to be made by a Receiver to the Deliverer would no 
longer be processed as a reclaim, but rather would be treated as an 
original instruction that

[[Page 32600]]

would be subject to risk management controls and matching via RAD.
    Pursuant to the proposed rule change, DTC would revise the Guide to 
reflect that: (i) with respect to valued DOs, DTC would lower the 
above-described RAD threshold to $.01 via a three-stage reduction as 
set forth below, and (ii) with respect to POs, DTC would reduce the RAD 
threshold to zero immediately upon implementation of the proposed rule 
change.\8\ In this regard, upon implementation of the rule change DTC 
would initially reduce the RAD threshold for DOs to $100,000. In the 
second increment the RAD threshold for valued DOs would be reduced to 
$20,000. In the third increment the RAD threshold for DOs would be 
reduced to $.01.
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    \8\ As noted in footnote 4 above, Institutional Deliveries 
affirmed through Omgeo are not impacted by the proposed rule change. 
Such Institutional Deliveries are subject to matching via RAD only 
if a Participant makes an election in this regard. When applied, the 
RAD threshold for these Institutional Deliveries is $15 million. DTC 
plans to lower the RAD limit for Institutional Transactions to $.01 
as part of a future proposal.
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    In addition, to further promote finality of settlement, the Guide 
would be revised to remove the provision that New Issues are exempt 
from RAD.
    Also, the Guide would be updated to reflect that certain related 
functions would no longer be accessible through the Participant 
Terminal System (PTS). Any such functions would instead be accessible 
through a DTC Web application known as ``Settlement Web.'' Further, the 
Guide would be clarified via a technical change to specifically state 
that the RAD threshold for Institutional Transactions remains at $15 
million, rather than at the $7.5 million amount currently in effect for 
non-institutional transactions. Finally, the Guide would be revised to 
remove a provision that overvalued deliveries are automatically routed 
to RAD as this section would become redundant upon implementation of 
the proposed rule change since all DOs would be subject to RAD.

Implementation

    The effective date of the proposed rule change, including the 
implementation dates of the incremental reductions described above 
would be announced via a DTC Important Notice.\9\
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    \9\ For purposes of taking into account the incremental 
implementation of the proposed rule change as described above, 
beginning on an implementation date that shall be announced via DTC 
Important Notice (the ``Initial Implementation Date'') DTC would 
lower the RAD limit for non-institutional DOs to $100,000 and POs to 
zero. From a date that is approximately 2 weeks following the 
Initial Implementation Date and that shall be announced by Important 
Notice, until a date that is approximately 6 weeks following the 
Initial Implementation Date and that shall be announced by Important 
Notice, DTC would lower the RAD limit for non-institutional DOs to 
$20,000. From a date that is approximately 6 weeks following the 
Initial Implementation Date and that shall be announced by Important 
Notice, DTC would lower the RAD limit for non-institutional DOs to 
$.01.
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2. Statutory Basis
    The proposed rule change would facilitate intra-day finalization of 
securities and payment deliveries in DTC's system by increasing the 
number of DOs and POs required to be approved by the Receiver via RAD 
prior to DTC processing, and removing the possibility that those 
matched deliveries could be returned to the Deliverer via a reclaim. As 
such, the proposed rule change is consistent with the provisions of 
Section 17A(b)(3)(F) \10\ of the Act which requires that the rules of 
the clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. In 
addition, the proposed rule change is consistent with Rule 17Ad-
22(d)(12) of the Act \11\ which requires that a clearing agency 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to ensure that final settlement occurs 
no later than the end of the settlement day and requires that intraday 
or real-time finality be provided where necessary to reduce risks.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(d)(12).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    All Participants would be subject to the proposed change, and 
therefore DTC does not believe that the proposed rule change would have 
any impact, or impose any burden, on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not yet 
been solicited or received with respect to this filing.

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 No. SR-DTC-2014-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-DTC-2014-06. 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 Web site (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 Web site 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 such filings also will be available 
for inspection and copying at the principal office of DTC and on DTC's 
Web site at http://dtcc.com/legal/sec-rule-filings.aspx. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-DTC-2014-

[[Page 32601]]

06 and should be submitted on or before June 26, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13018 Filed 6-4-14; 8:45 am]
BILLING CODE 8011-01-P