[Federal Register Volume 84, Number 163 (Thursday, August 22, 2019)]
[Notices]
[Pages 43839-43842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18056]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86692; File No. SR-DTC-2019-006]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Distributions Service Guide
August 16, 2019.
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 August 13, 2019, 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 agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(4) thereunder.\4\ 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)(4).
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[[Page 43840]]
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ of DTC consists of amendments to the
Distributions Guide to (i) update its U.S. tax withholding service
(``UTW Service'') to transition functions related to the service from
DTC's Participant Terminal System (``PTS'') and its Participant Brower
Service (``PBS'') \6\ to the Corporate Actions Web system (``CA Web'')
and (ii) make ministerial and clarifying changes to text, as discussed
below.
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\5\ Each capitalized term not otherwise defined herein has its
respective meaning as 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 Distributions
Service Guide (the ``Distributions Guide''), available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Service%20Guide%20Distributions.pdf.
\6\ 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. References to a particular
PTS function in this rule filing include the corresponding PBS
function.
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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
The proposed rule change would amend the Distributions Guide to (i)
update the UTW Service to transition functions related to the service
from PTS and PBS to CA Web and (ii) make ministerial and clarifying
changes to text, as discussed below.
Transition of PTS/PBS Reorganizations Functions to CA Web
Beginning in 2012, DTC has filed a series of rule changes to update
DTC's corporate action services by migrating the corporate action
services for Distributions (as defined below) from PTS/PBS to CA Web, a
then new browser user interface.\7\ After a Participant testing phase,
DTC retired PTS/PBS functions for Distributions in 2015, and the use of
CA Web for processing Distributions became mandatory for all
Participants.\8\
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\7\ See Securities Exchange Act Release No. 68114 (October 26,
2012); 77 FR 66497 (November 5, 2012) (SR-DTC-2012-08).
\8\ See Securities Exchange Act Release No. 73864 (December 17,
2014); 79 FR 77063 (December 23, 2014) (SR-DTC-2014-012) (``2014
Rule Filing'').
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In 2016, DTC submitted a rule filing to transition PTS/PBS
functions for redemptions to CA Web, and to update the Redemptions
Service Guide \9\ to add the appropriate references.\10\ After a
Participant testing phase, DTC retired PTS/PBS functions for
redemptions in 2017, and the use of CA Web for processing redemptions
became mandatory for all Participants.
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\9\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Redemptions.pdf.
\10\ See Securities Exchange Act Release No. 79746 (January 5,
2017), 82 FR 3372 (January 11, 2017) (SR-DTC-2016-014).
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Most recently, DTC submitted proposed changes to amend the
Reorganizations Service Guide \11\ for the further transition of
corporate action functions to CA Web.\12\
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\11\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Reorganizations.pdf.
\12\ See Securities Exchange Act Release No. 85986 (May 31,
2019); 84 FR 26466 (June 6, 2019) (SR-DTC-2019-003).
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Pursuant to the proposed rule change, DTC would transition PTS/PBS
functions for the UTW Service to CA Web.
UTW Service Background
DTC offers services for processing corporate action events,
including, but not limited to, the distributions service for the
announcement and processing of cash and stock dividends, principal and
interest, and capital gain distributions (collectively,
``Distributions'').
The U.S. Internal Revenue Code (``Code'') generally requires U.S.
payors such as DTC to deduct and withhold 30 percent from U.S.-source
income paid to a foreign payee, unless lower U.S. withholding tax rates
or exemptions apply under provisions of the Code, regulations, or
applicable tax treaties.\13\
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\13\ See Sections 1441, 1442 and 1443 of the Code and the
regulations promulgated thereunder.
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In its role as a U.S. tax withholding agent, through the UTW
Service, DTC (i) accepts from a foreign Participant instructions
relevant to determining the withholding tax rates, (ii) pays dividends,
interest and other securities distributions to the Participant net of
appropriate taxes, if any, based on the applicable withholding rates,
and (iii) reports and remits the taxes to the IRS. The UTW Service
utilizes the PTS/PBS Elective Dividend Service (``EDS'') function to
solicit and receive the instructions from foreign Participants.
Proposed Rule Change
While most EDS functions were moved to CA Web pursuant to the 2014
ruling, the EDS UTW Service functionality has continued to be offered
through PTS and PBS. To enhance the end-to-end processing of corporate
actions for Participants, DTC is proposing to move the EDS UTW Service
functionality from PTS/PBS to CA Web and amend the section of the
Distributions Guide titled ``U.S. Tax Withholding'' (``UTW Section'')
to remove a reference that states that users of the UTW Service can
access the menu item to use the service through the EDS function on
PTS/PBS, and to instead state that Participants can access the UTW
Service menu item on CA Web. The proposed rule change would simplify
Participants' use of DTC's corporate actions by allowing foreign
Participants to submit instructions relating to tax withholding within
the same systemic platform as they use for other corporate action-
related activity, CA Web.
Pursuant to the proposed rule change, DTC would also make the
following ministerial and clarifying changes to the text of the UTW
Section:
(1) DTC would delete the word ``non-withholding'' from text that
states: ``To the extent allowable under U.S. federal income tax laws,
UTW allows non-withholding qualified intermediaries \14\ to submit
withholding instructions to DTC on U.S. source income payments.'' This
change would make the sentence consistent with existing U.S. tax
practice where in certain circumstances a full-withholding qualified
intermediary does not perform withholding and would instead instruct
DTC to perform withholding on its behalf. Therefore, the distinction
between a full-withholding and non-withholding qualified intermediary
is no longer necessary.
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\14\ A qualified intermediary (``QI'') is any non-U.S.
intermediary (or non-U.S. branch of a U.S. intermediary) that has
entered into a qualified intermediary withholding agreement with the
IRS. See Distributions Guide, supra note 5.
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(2) For the same reason cited in 1 immediately above, DTC would
delete the word ``non-withholding'' from text that states: ``As a U.S.
tax withholding agent, DTC: . . . Informs non-withholding QI users of
the ``instruction window'' during which they must send withholding rate
instructions to the depository; . . . .''
[[Page 43841]]
DTC would also update the copyright date that is set forth in the
``Important Legal Information'' section of the Distributions Guide to
change text that shows the copyright date as ``Copyright (copyright)
1999-2014'' to ``Copyright (copyright) 1999-2019.''
Implementation Timeframe
The proposed rule change would become effective upon filing with
the Commission.
2. Statutory Basis
DTC believes that this proposal is consistent with the requirements
of the Act \15\ as described below.
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\15\ 15 U.S.C. 78q-1.
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Section 17A(b)(3)(F) of the Act requires, inter alia, that the
Rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions.\16\ DTC believes that the
proposed rule change with respect to the migration of the processing
functions described above from PTS/PBS to CA Web is consistent with
this provision of the Act because it would migrate UTW Service
processing to a more flexible interface that utilizes market standard
language and incorporates the entire lifecycle of an event into one
platform. By providing Participants with more efficient access to UTW
Services, DTC believes that the proposed rule change is designed to
promote the prompt and accurate clearance and settlement of securities
transactions relating to Distributions, consistent with Section
17A(b)(3)(F) of the Act.\17\
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\16\ 15 U.S.C. 78q-1(b)(3)(F).
\17\ Id.
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DTC believes that the proposed rule change with respect to the
clarification of the Distributions Guide is consistent with Section
17A(b)(3)(F) of the Act.\18\ DTC believes that the proposed rule change
would enhance the clarity and transparency of the Distributions Guide,
which would allow a Participant to more efficiently conduct its
business in connection with UTW Service processing. Therefore, DTC
believes that the proposed rule change is designed to promote the
prompt and accurate clearance and settlement of securities transactions
related to Distributions, consistent with Section 17A(b)(3)(F) of the
Act.\19\
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\18\ Id.
\19\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule changes with respect to the
migration of UTW Service processing functions from PTS/PBS to CA Web
may have an impact on competition, because it would facilitate a more
efficient process for communicating and processing UTW Service
information. Having a more efficient process could promote competition
by potentially reducing Participants' operating costs. In addition, CA
Web is an existing DTC platform that all Participants are required to
use to access other types of services, including other Distributions
functions, reorganizations and redemptions processing, and so would not
affect the rights and obligations of any Participant. Therefore, DTC
believes that the proposed rule changes with respect to the migration
of functions from PTS/PBS to CA Web may promote competition but would
not create a burden on competition.\20\
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\20\ 15 U.S.C. 78q-1(b)(3)(I).
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DTC believes that the proposed rule changes with respect to
clarifying the Distributions Guide would not have an impact on
competition. The proposed rule changes would enhance the clarity and
transparency of the Distributions Guide to better reflect DTC's UTW
Services and practices. Improving the clarity and transparency of the
Distributions Guide would help Participants to better understand their
rights and obligations regarding DTC services, and so would not affect
the rights and obligations of any Participant or other interested
party.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments relating to this proposed rule change have not
been solicited or received. DTC will notify the Commission of any
written comments received by DTC.
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) of the Act \21\ and paragraph (f) of Rule 19b-4
thereunder.\22\ 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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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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
Send an email to [email protected]. Please include
File Number SR-DTC-2019-006 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-2019-006. 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 website (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 website 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 website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-2019-006 and should be submitted on
or before September 12, 2019.
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\23\ 17 CFR 200.30-3(a)(12).
[[Page 43842]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18056 Filed 8-21-19; 8:45 am]
BILLING CODE 8011-01-P