[Federal Register Volume 82, Number 74 (Wednesday, April 19, 2017)]
[Notices]
[Pages 18504-18507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80454; File No. SR-DTC-2017-006]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify the DTC Rules in Order to Enhance Transparency With Regard to 
Application Criteria and Participation Requirements for Applicants and 
Participants

April 13, 2017.
    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 April 7, 2017, 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 by the clearing

[[Page 18505]]

agency. DTC filed the proposed rule change pursuant to Section 
19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(1) \4\ thereunder. The 
proposed rule change was effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change would amend the Rules, By-Laws and 
Organization Certificate of DTC (``Rules'') \5\ to expressly set forth 
in the Rules (i) the existing applicable minimum financial resource 
requirements that any applicant to become a Participant (``Applicant'') 
that is a U.S. bank, trust company or registered broker-dealer must 
respectively meet in order to qualify to become a Participant and, once 
admitted, continue as a Participant in good standing \6\ and (ii) the 
existing requirement that each Applicant that is a U.S. entity must 
provide a legal opinion as part of its application to become a 
Participant, as discussed below.
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    \5\ Available at http://www.dtcc.com/legal/rules-and-procedures. 
Capitalized terms used herein and not otherwise defined shall have 
the meaning assigned to such terms in the Rules.
    \6\ A U.S. bank or trust company that otherwise meets the 
application criteria and participation requirements established by 
DTC pursuant to the Rules is qualified to become a Participant 
pursuant to Section 1(d) of Rule 3. A U.S. broker dealer that 
otherwise meets the application criteria and participation 
requirements pursuant to the Rules is qualified to become a 
Participant pursuant to Section 1(h)(ii) of Rule 3. See Rule 3, 
supra note 5.
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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
    Pursuant to Rule 2,\7\ DTC has established application criteria and 
participation requirements for Applicants and Participants related to 
financial resources, creditworthiness and operational capability.\8\ 
These requirements are designed to manage the risks a Participant 
presents to DTC or to its membership, while facilitating fair and open 
access by market participants.\9\ The proposed rule change would amend 
the Rules to enhance transparency with respect to certain existing 
application criteria and participation requirements, specifically, (i) 
the minimum financial resource requirements for Applicants and 
Participants that are either U.S. banks, trust companies or registered 
broker-dealers and (ii) the requirement for Applicants that are U.S. 
entities to provide a legal opinion, as discussed below.
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    \7\ Rule 2, supra note 5.
    \8\ See also Disclosure under the Principles for Financial 
Market Infrastructures (``PFMI''), available at http://www.dtcc.com/
~/media/Files/Downloads/legal/policy-and-compliance/
DTC_Disclosure_Framework.pdf at 100-104 (Describing DTC access and 
participation requirements).
    \9\ Rule 17 Ad-22(e)(18) under the Act, provides that each 
covered clearing agency shall establish, implement, maintain and 
enforce written policies and procedures reasonably designed to, as 
applicable, ``establish objective, risk-based, and publicly 
disclosed criteria for participation, which permit fair and open 
access by direct and, where relevant, indirect participants and 
other financial market utilities, require participants to have 
sufficient financial resources and robust operational capacity to 
meet obligations arising from participation in the clearing agency, 
and monitor compliance with such participation requirements on an 
ongoing basis.'' 17 CFR 240.17Ad-22(e)(18). (The Commission adopted 
amendments to Rule 17Ad-22, including the addition of new section 
17Ad-22(e), on September 28, 2016. See Securities Exchange Act 
Release No. 78961 (September 28, 2016), 81 FR 70786 (October 13, 
2016) (S7-03-14). DTC is a ``covered clearing agency'' as defined in 
Rule 17Ad-22(a)(5), and must comply with new section (e) (including 
subsection (e)(18) described above) of Rule 17Ad-22 by April 11, 
2017.)
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Minimum Financial Requirements
    Rule 2 requires each Applicant or Participant to demonstrate that 
it has sufficient financial ability to meet its anticipated obligations 
to DTC.\10\ In this regard, DTC sets financial requirements for 
establishing and continuing participation that are based on the type of 
legal entity and the types of services that the entity will use at DTC. 
Currently, among other requirements, a registered broker dealer must 
have a minimum of $500,000 in excess net capital over its regulatory 
net capital requirement,\11\ and a U.S. bank or trust company must have 
more than $2 million in equity capital \12\ (collectively, ``Minimum 
Financial Requirements''), to become, and continue in good standing as, 
a Participant.\13\ The Minimum Financial Requirements are currently 
disclosed in the PFMI and in a list of DTC application requirements 
that is made available to all Applicants (``Onboarding Requirements''). 
In order to increase transparency with regard to its application and 
participation requirements, DTC proposes to amend the Rules by adding 
the Minimum Financial Requirements for Applicants and Participants that 
are (i) U.S. broker-dealers or (ii) U.S. banks or trust companies to 
Section 1 of the Policy Statement.\14\
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    \10\ Rule 2, supra note 5.
    \11\ For this purpose, the broker dealer's minimum regulatory 
net capital requirement is the greater of (i) the amount imposed on 
it pursuant to Rule 15c3-1 under the Act, 17 CFR 240.15c3-1, and 
(ii) such higher amount imposed by the broker-dealer's designated 
examining authority, as named by the Commission pursuant to Rule 
17d-1 under the Act, 17 CFR 240.17d-1.
    \12\ For this purpose, equity capital has the meaning as defined 
on the form of Consolidated Report of Condition and Income and 
related instructions maintained by the Federal Financial 
Institutions Examination Council (FFIEC), available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_201612_f.pdf and https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_201609_i.pdf, 
respectively.
    \13\ Not including non-U.S. Participants, whose minimum 
financial resource requirements are set forth in the Policy 
Statement on the Admission of Participants (``Policy Statement''), 
See Policy Statement, supra note 5 at 122, most Applicants and 
Participants are (i) U.S. broker dealers or (ii) U.S. banks or trust 
companies. Since U.S. broker dealers and U.S. banks and trust 
companies are subject to standard regulatory capital requirements, 
DTC has determined that setting the Minimum Financial Requirements 
based on applicable regulatory requirements is a practical method 
for determining whether such entities have sufficient financial 
ability to meet their obligations to DTC. For other Applicants and 
Participants, DTC reviews any appropriate financial information or 
reports available with respect to that entity to determine whether 
it maintains sufficient financial ability to meet its obligations 
under the Rules.
    \14\ See Policy Statement, supra note 5 at 121.
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Legal Opinion Requirement
    Each Applicant enters into a Participant's Agreement 
(``Agreement''), pursuant which the Applicant agrees, inter alia, that 
the DTC Rules shall be a part of the terms and conditions of every 
contract or transaction that it may make or have with DTC. DTC requires 
that all Applicants provide an opinion of counsel that provides DTC 
with comfort as to the valid authorization, execution and delivery of 
the Agreement by an Applicant and, as applicable, the enforceability of 
the Agreement under applicable state and federal laws (``Legal Opinion 
Requirement''). Except with respect to

[[Page 18506]]

non-U.S. Applicants,\15\ the Legal Opinion Requirement is not currently 
expressly set forth in the Rules.\16\ To enhance transparency with 
regard to the Legal Opinion Requirement, DTC proposes to amend the 
Rules to add the Legal Opinion Requirement for U.S. Applicants to the 
Policy Statement.
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    \15\ Id at 122.
    \16\ The Legal Opinion Requirement is set forth in the 
Onboarding Requirements.
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Proposed Changes to Rules Text
    Pursuant to the proposed rule change, DTC would (i) amend the text 
of Section 1 of the Policy Statement to add the existing (A) Minimum 
Financial Requirements and (B) Legal Opinion Requirement that pertains 
to U.S. Applicants, as discussed above, and (ii) add a cross-reference 
within Rule 2 to the requirements that would be added to the Policy 
Statement.
Effective Date of Proposed Rule Change
    The proposed rule change would become effective immediately upon 
filing with the Commission.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act, requires, inter alia, that the 
Rules promote the prompt and accurate clearance and settlement of 
securities transactions.\17\ The proposed rule change would provide 
transparency in the Rules regarding existing participation requirements 
that Applicants and Participants must meet for access to DTC's 
services, including but not limited to participation in its settlement 
service, by (i) adding the Minimum Financial Requirements and the Legal 
Opinion Requirement to the Policy Statement and (ii) adding a cross-
reference within Rule 2 to the Policy Statement, as discussed above. 
Collectively, the proposed changes would enhance the transparency and 
clarity of the Rules, which would enable stakeholders to readily 
understand DTC's access requirements. Therefore, by providing 
stakeholders with enhanced transparency and clarity with regard to 
existing participation requirements that Applicants and Participants 
must meet for access to DTC's services, including but not limited to 
participation in its settlement service, DTC believes that the proposed 
rule changes would promote the prompt and accurate clearance and 
settlement of securities transactions consistent with Section 
17A(b)(3)(F) of the Act.
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(d)(2) under the Act requires a clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, require participants 
to have sufficient financial resources and robust operational capacity 
to meet obligations arising from participation in the clearing agency; 
have procedures in place to monitor that participation requirements are 
met on an ongoing basis; and have participation requirements that are 
objective and publicly disclosed, and permit fair and open access.\18\ 
As mentioned above, the proposed rule change would provide transparency 
in the Rules regarding existing DTC participation requirements by (i) 
adding the Minimum Financial Requirements and the Legal Opinion 
Requirement to the Policy Statement and (ii) adding a cross-reference 
within Rule 2 to the Policy Statement, as discussed above. Therefore, 
by providing stakeholders with greater transparency with regard to 
existing participation requirements by providing an additional source 
of public disclosure in this regard through the Policy Statement, DTC 
believes that the proposed rule change is consistent with Rule 17Ad-
22(d)(2) promulgated under the Act cited above.
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    \18\ 17 CFR 240.17Ad-22(d)(2).
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    The proposed rule change is also designed to be consistent with 
Rule 17Ad-22(e)(18) of the Act, which was recently adopted by the 
Commission.\19\ Rule 17Ad-22(e)(18) will require DTC, inter alia, to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to, as applicable, establish objective, 
risk-based, and publicly disclosed criteria for participation, which 
permit fair and open access by direct and, where relevant, indirect 
participants and other financial market utilities, require participants 
to have sufficient financial resources and robust operational capacity 
to meet obligations arising from participation in the clearing agency, 
and monitor compliance with such participation requirements on an 
ongoing basis. As mentioned above, the proposed rule change would 
provide transparency in the Rules regarding existing DTC participation 
requirements by (i) adding the Minimum Financial Requirements and the 
Legal Opinion Requirement to the Policy Statement and (ii) adding a 
cross-reference within Rule 2 to the Policy Statement, as discussed 
above. Therefore, by providing stakeholders with greater transparency 
with regard to existing participation requirements by providing an 
additional source of public disclosure in this regard through the 
Policy Statement, DTC believes that the proposed rule change is 
consistent with Rule 17Ad-22(e)(18) promulgated under the Act cited 
above.
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    \19\ 17 CFR 240.17Ad-22(e)(18). As mentioned above, the 
Commission adopted amendments to Rule 17Ad-22, including the 
addition of new subsection 17Ad-22(e), on September 28, 2016. See 
Securities Exchange Act Release No. 78961 (September 28, 2016), 81 
FR 70786 (October 13, 2016) (S7-03-14). DTC is a ``covered clearing 
agency'' as defined by new Rule 17Ad-22(a)(5) and must comply with 
new subsection (e) of Rule 17Ad-22 by April 11, 2017. Id.
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(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would have any 
impact on competition because the proposed change expressly reflects 
existing application criteria and participation requirements applicable 
to all Applicants and Participants.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not solicited and does not intend to solicit comments 
regarding the proposed rule change. DTC has not received any 
unsolicited written comments from interested parties. To the extent DTC 
receives written comments on the proposed rule change, DTC will forward 
such comments to the Commission.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \20\ of the Act and paragraph (f) of Rule 19b-4 \21\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f).
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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

[[Page 18507]]

     Send an email to [email protected]. Please include 
File Number SR-DTC-2017-006 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-2017-006. 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-2017-006 and 
should be submitted on or before May 10, 2017.

    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. 2017-07875 Filed 4-18-17; 8:45 am]
 BILLING CODE 8011-01-P