[Federal Register Volume 81, Number 190 (Friday, September 30, 2016)]
[Notices]
[Pages 67406-67408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23615]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78935; File No. SR-DTC-2016-005]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, 
Regarding the Implementation of Functionality To Submit a Cover of 
Protect on Behalf of Another Participant and the Removal of the Option 
To Cover of Protect Directly With Agent

September 26, 2016.
    On July 29, 2016, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2016-005 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 for comment in the Federal Register 
on August 15, 2016.\3\ The Commission did not receive any comment 
letters on the proposed rule change. On September 14, 2016, DTC filed 
Amendment No. 1 to the proposed rule change, as discussed below. The 
Commission is publishing this notice to solicit comments on Amendment 
No. 1 from interested persons and is approving on an accelerated basis 
the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78520 (August 9, 
2016), 81 FR 54170 (August 15, 2016) (SR-DTC-2016-005) (``Notice'').
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I. Description of the Proposed Rule Change and Notice of Filing 
Amendment No. 1

    The proposed rule change by DTC, as modified by Amendment No. 1, 
would update its Procedures \4\ set forth in the Guide to make changes 
to certain options within its Participant Subscription Offer Program 
(``PSOP'') \5\ and Participant Tender Offer Program (``PTOP'') 
functions.\6\ Specifically, DTC proposes to add an option called 
``Cover of Protect on Behalf of Another Participant'' (``CPAP'') to 
both PSOP and PTOP (``PSOP/PTOP'') that would allow a Participant to 
tender subscription rights (``Rights'') or Securities through DTC to an 
agent (``Offer Agent''),\7\ on behalf of another Participant that needs 
to tender such Rights or Securities in order to receive the shares and/
or consideration from (i) a subscription rights offering (a ``Rights 
Offer''); or (ii) a cash tender offer or exchange offer (collectively, 
a ``Tender/Exchange Offer'') (together with Rights Offer, ``Offer''). 
DTC would also eliminate an option called ``Cover of Protect Submitted 
Directly to Agent'' (``CPDA'') from PSOP/PTOP that has allowed a 
Participant to tender Rights or Securities through DTC to be eligible 
to receive the shares and/or consideration from an Offer, when such 
Participant submitted its initial acceptance directly to the Offer 
Agent outside of DTC. In addition, DTC proposes to make ministerial 
changes to the text of the Guide, as more fully described below.\8\
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    \4\ Capitalized terms not otherwise defined herein have the 
meaning set forth in the Rules, By-Laws and Organization Certificate 
of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx and the Reorganizations Service Guide (the 
``Guide''), available at http://www.dtcc.com/~/media/Files/
Downloads/legal/service-guides/Reorganizations.pdf.
    \5\ References in this notice and order to ``PSOP'' refer to 
both the PSOP function within the DTC Participant Terminal System 
(``PTS'') interface and the equivalent ``Rights Subscription'' 
function within the Participant Browser System (``PBS'') interface. 
PSOP is a function that is used by Participants to submit 
instructions including oversubscriptions, submit protects, submit 
cover of protects, submit cover of protects on behalf of another 
Participant, and submit Rights sell instructions on Rights 
Subscription events. PTS and PBS are user interfaces for DTC's 
Settlement and Asset Services functions. PTS is mainframe-based and 
PBS is web-based with a mainframe back-end. Participants may use 
either PTS or PBS, as they are functionally equivalent.
    \6\ References in this notice and order to ``PTOP'' refer to 
both the PTOP function within the PTS interface and the equivalent 
``Voluntary Tenders and Exchanges'' function within the PBS 
interface. PTOP is a function that is used by Participants to submit 
instructions, submit protects, submit cover of protects, submit 
cover of protects on behalf of another Participant, and submit 
withdrawals on various Voluntary Reorganization events.
    \7\ The Offer Agent is the fiscal agent of the offeror, 
typically a bank or trust company that is designated to coordinate 
the process of the Offer.
    \8\ The description of the proposed rule change herein is based 
on the statements prepared by DTC in the Notice. Notice, supra note 
3, 81 FR at 54170-72.
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A. Proposal

    As DTC describes in the Notice, there are times when a Participant 
that submitted a Protect \9\ (the ``Protecting Participant'') may need 
to have another Participant (the ``Covering Participant'')

[[Page 67407]]

Cover the Protect.\10\ Currently, neither PSOP nor PTOP has the 
specific functionality for a Covering Participant to submit a Cover on 
behalf of a Protecting Participant.
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    \9\ DTC states that an investor or its broker (``Investor'') may 
want to accept an Offer but will not have the necessary Rights or 
Securities, as the case may be, before the expiration date of the 
Offer. If permitted by the terms of the Offer, the Investor may 
submit to the Offer Agent the notice of guaranteed delivery for such 
Offer (``Notice of Guaranteed Delivery'') which serves as (i) 
protection of the Investor's acceptance of the Offer (the 
``Protect''), and sets forth the number of shares being subscribed 
to or the amount of Securities being tendered, and (ii) a guarantee 
that the Rights or Securities (the ``Cover'') will be delivered to 
the Offer Agent within the period prescribed by the Offer (the 
``Protect Period''). Notice, supra note 3, 81 FR at 54171.
    \10\ Notice, supra note 3, 81 FR at 54171.
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    In order to address directly a Participant's need to submit a Cover 
of another Participant's Protect, DTC proposes to add the CPAP option 
to PSOP/PTOP. With this enhancement, the Protecting Participant would 
submit a Protect through PSOP/PTOP, and the Covering Participant would 
be able to submit a Cover through PSOP/PTOP by providing the Protecting 
Participant's Protect ID, Protect Sequence Number, and Protect 
Participant ID. DTC explains that this enhanced functionality would 
automate the matching of Covers to corresponding Protects, as well as 
automatically allocate the applicable credits for Securities and/or 
payments directly to the Protecting Participant, rather than to the 
Covering Participant. The CPAP option would eliminate the need for 
Participants to utilize CPDA for the unintended purpose of Covering 
another Participant's Protect.\11\
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    \11\ As DTC explains in the Notice, it is aware that Covering 
Participants frequently utilize the PSOP/PTOP CPDA option in order 
to submit a Cover on behalf of another Participant, which is not the 
intended purpose of the CPDA function. The intended purpose of the 
CPDA function is to enable a Participant that submitted a Protect 
directly to an Offer Agent outside of DTC to later submit the 
corresponding Cover through DTC. Notice, supra note 3, 81 FR at 
54172.
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    In addition, to further reduce the risks, burden, and costs to DTC 
associated with the manual processing of the CPDA option in PSOP/PTOP, 
DTC is proposing to eliminate that option. When a Participant uses CPDA 
to submit a Cover for another Participant's Protect, DTC must manually 
process the Cover and use manual exception processing to match the 
Cover to the corresponding Protect. In addition, DTC must allocate the 
credits for Securities and/or payment from the Offer to the Covering 
Participant. Even when a Participant uses CPDA for its intended 
purpose, which is infrequent, it is a labor intensive process for DTC, 
as it must manually process the Cover and return the allocation to the 
Offer Agent within a narrow timeframe. Therefore, as clarified by 
Amendment No. 1, DTC proposes that, when a Participant submits a 
Protect directly to the Offer Agent (i.e., not through DTC), such 
Participant would need to (a) submit the Cover directly to the Offer 
Agent (i.e., again, not through DTC), or (b) request that DTC process 
the Cover, but not through PSOP/PTOP.

B. Technical Changes

    The proposed rule change would revise the Guide to make ministerial 
updates to reflect current terminology and practices, as set forth 
below. The Guide would be updated to:
     Correct the text of the Guide to accurately reflect names 
of functions accessible through PTS, and to accurately reflect the 
names of the corresponding functions that are accessible through PBS. 
Presently, the Guide assigns PTS functions to PBS, and does not provide 
the names of the corresponding PBS functions.
     Correct the timeframes within which a Participant can 
submit a Notice of Guaranteed Delivery on the expiration date of a 
Rights Offer. Generally, a Participant may submit a Notice of 
Guaranteed Delivery through PSOP/PTOP from 8:00 a.m. to 2:15 p.m., at 
which time the window closes to allow for settlement of cash 
activities. However, DTC would re-open the window from 3:30 p.m. to 
5:00 p.m. on the expiration date of the Offer to allow Participants 
extra time to submit a Notice of Guaranteed Delivery before the Offer 
expires, provided that the Offer Agent agrees to accept deferred 
subscription payments. The text of the Guide incorrectly reflects an 
open window from 8:00 a.m. to 5:00 p.m., which is not the practice. The 
text would be corrected to reflect the correct 8:00 a.m. to 2:15 p.m. 
and 3:30 p.m. to 5:00 p.m. windows.
     Pursuant to Participant requests, expand the availability 
of PTOP for a Participant to submit a Cover of Protect, on the dates 
specified in the notice of an Offer. The current availability is until 
4:15 p.m. or 12:00 p.m., depending on the type of Offer, and the 
proposed rule change, as modified by Amendment No. 1, would revise the 
text to reflect availability until 5:00 p.m. or 1:00 p.m., as 
applicable.
     Remove references to the UNIT Swingovers service. Several 
years ago, the UNIT Swingovers service was discontinued, and instead, 
voluntary unit separations and recombinations \12\ began to be 
processed under the FAST program.\13\
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    \12\ A unit is a Security comprised of more than one class of 
Securities, e.g., common stock and warrants (the components). In a 
voluntary unit separation, the separation and recombination between 
the security component and the security is done by the Participant 
and transfer agent using DTC's Deposit and Withdrawal at Custodian 
system.
    \13\ Securities Exchange Act Release No. 59199 (January 6, 
2009), 74 FR 1266 (January 12, 2009) (SR-DTC-2008-14).
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     Clarify information regarding available reports and 
methods of submission and receipt.
     Replace reference to `NASDAQ' with `FINRA'.
     Replace reference to `AMEX' with `NASDAQ'.
     Add the title of the Guide, delete `Copyright,' and update 
the `Important Legal Information' to align with other DTC service 
guides.
     Correct spelling, grammatical, capitalization, numbering, 
and typographical errors throughout.
     Update other text, including address, phone numbers, Web 
site information, and methods of communication.

C. Notice of Filing of Amendment No. 1

    In Amendment No.1, DTC clarifies that when a Participant submits a 
Protect directly to the Offer Agent (i.e., not through DTC), such 
Participant could still request that DTC process the Cover, but just 
not through PSOP/PTOP. Therefore, Amendment No. 1 proposes to set forth 
in the Guide that, once a Participant has accepted an Offer through the 
Offer Agent via a hard copy Notice of Guaranteed Delivery submitted 
directly to the Offer Agent, a Participant would need to either (a) 
submit the Cover directly to the Offer Agent, or (b) request that DTC 
manually process the Cover, but not through PSOP/PTOP.
Implementation Date
    DTC would announce the effective date via Important Notice upon the 
Commission's approval of the proposed rule change, as modified by 
Amendment No. 1.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \14\ 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 rules and regulations thereunder applicable 
to such organization. The Commission believes the proposal, as modified 
by Amendment No. 1, is consistent with Section 17A(b)(3)(F) of the 
Act,\15\ as described in detail below.
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    \14\ 15 U.S.C. 78s(b)(2)(C).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act \16\ requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. By adding 
the CPAP option, through which a Participant can properly submit a 
Cover through PSOP/PTOP on behalf of another Participant,

[[Page 67408]]

and by removing the CPDA option, the proposed rule change, as modified 
by Amendment No. 1, will establish a process that will streamline Cover 
of Protect transactions, allocations, and recordkeeping for 
Participants. Further, as DTC explains in the Notice, the proposed rule 
change, as modified by Amendment No. 1, will reduce for DTC the risks, 
burdens, and costs associated with its current processing of such 
transactions. Therefore, adding the CPAP option and removing the CPDA 
option will promote the prompt and accurate clearance and settlement of 
securities, consistent with the requirements of the Act, in particular 
Section 17A(b)(3)(F), cited above.
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    \16\ Id.
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    As the proposed rule change pertains to technical changes to the 
Procedures, the Commission finds the technical changes also consistent 
with Section 17A(b)(3)(F) of the Act \17\ because technical updates to 
the Procedures to make them more clear, consistent, and current for 
Participants that rely on the Procedures support the prompt and 
accurate clearance and settlement of securities transactions.
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    \17\ Id.
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III. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1 to File Number SR-DTC-2016-005, 
including whether Amendment No. 1 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-2016-005 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-2016-005. 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 the filing also will be available 
for inspection and copying at the principal office of DTC and on DTCC's 
Web site (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 Number SR-DTC-2016-005 and should be 
submitted on or before October 21, 2016.

IV. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission, pursuant to Section 19(b)(2) of the Act,\18\ finds 
good cause to approve the proposed rule change, as modified by 
Amendment No. 1, prior to the thirtieth day after the date of 
publication of Amendment No. 1 in the Federal Register. In Amendment 
No.1, DTC clarifies that when a Participant submits a Protect directly 
to the Offer Agent, such Participant could still request that DTC 
process the Cover. As such, Amendment No. 1 proposes to set forth in 
the Guide that, once a Participant has accepted an Offer through the 
Offer Agent via a hard copy Notice of Guaranteed Delivery submitted 
directly to the Offer Agent, a Participant would need to either (a) 
submit the Cover directly to the Offer Agent, or (b) request that DTC 
manually process the Cover, but not through PTOP/PSOP.
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    \18\ 15 U.S.C. 78s(b)(2).
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    As discussed more fully above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, will streamline 
DTC's processing of Cover of Protect transactions and reduce for DTC 
the risks, burdens, and costs associated with its current processing of 
such transactions, thereby promoting the prompt and accurate clearance 
and settlement of securities, consistent with Section 17A(b)(3)(F), 
cited above. Accordingly, the Commission finds good cause for approving 
the proposed rule change, as modified by Amendment No. 1, on an 
accelerated basis, pursuant to Section 19(b)(2) of the Act.\19\
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    \19\ Id.
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V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and in particular with the requirements of 
Section 17A of the Act \20\ and the rules and regulations thereunder.
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    \20\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2016-005, as modified by Amendment No. 
1, be, and hereby is, APPROVED on an accelerated basis.\21\
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    \21\ 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-23615 Filed 9-29-16; 8:45 am]
 BILLING CODE 8011-01-P