[Federal Register Volume 84, Number 219 (Wednesday, November 13, 2019)]
[Notices]
[Pages 61670-61673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24600]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87474; File No. SR-DTC-2019-010]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
in Connection With Changes to the Account Structure of Euroclear Bank
at The Depository Trust Company
November 6, 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 October 24, 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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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change \5\ of DTC would make technical amendments
to
[[Page 61671]]
Rule 34 (EB Link) in connection with changes to the account structure
of Euroclear Bank SA/NV (``EB'') at DTC, as described 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 The Depository Trust Company (the
``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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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 proposal would make technical amendments to Rule 34 (EB Link)
in connection with changes to the account structure of EB at DTC, as
described below.
(i) Background
EB was accepted by DTC as a Participant on February 18, 2016. At
the time, the purpose of EB's membership was to establish a free-of-
payment (``FOP'') Account at DTC (``EB CP Account'') \6\ to facilitate
the positioning of securities (``CP Securities'') held at DTC (``EB
Collateral Positioning'') for transfers on the books of EB in
connection with EB collateral management services.\7\ To support EB
Collateral Positioning, DTC filed Rule 34, which was approved by the
Commission on July 19, 2016.\8\
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\6\ Rule 34 provides that the adjectival use of ``CP'' in Rule
34 refers to terms or matters relating and limited to ``Collateral
Positioning'' under Rule 34. See id.
\7\ Prior to the establishment of the EB CP Account, EB had not
been a DTC Participant nor had an Account at DTC.
\8\ See Securities Exchange Act Release No. 78358 (July 19,
2016), 81 FR 48482 (July 25, 2016) (SR-DTC-2016-004) (``Rule 34
Approval Order'').
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Under Rule 34, a DTC Participant that is also a participant of EB
(``CP Participant'') may designate a sub-account at DTC (``CP Sub-
Account'') for use under Rule 34, thereby authorizing EB as its
representative (``CP Representative''), and authorizing DTC to provide
position and transaction information to EB and to accept EB
instructions submitted on behalf of such CP Participant, with respect
to the CP Sub-Account of the CP Participant.\9\
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\9\ In addition, Rule 34 provides that the CP Participant has to
be a user of the DTCC Euroclear Global Collateral Ltd. (``DEGCL'')
Inventory Management Service (``DEGCL IMS''). DEGCL is a United
Kingdom joint venture of The Depository Trust & Clearing
Corporation, the corporate parent of DTC, and Euroclear S.A./N.V.
(``Euroclear''). As noted in the Rule 34 Approval Order, DTC
understands that by providing Participants with a mechanism for EB
Collateral Positioning, Rule 34 indirectly supports the DEGCL IMS
service. DEGCL IMS is operated by EB and other entities in the
Euroclear group, as the service provider to DEGCL, in accordance
with appropriate agreements among them and in compliance with
applicable regulatory requirements. There is no direct relationship
between DTC and DEGCL IMS.
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The CP Participant instructs DTC to deliver securities from the CP
Participant's Securities Account to its CP Sub-Account, in order to
identify the securities that it wishes to make available for EB
Collateral Positioning and collateral transfers on the books of EB
(``EB Collateral Transactions''). After the CP Securities have been
credited to the CP Sub-Account, EB, as CP Representative of the CP
Participant, instructs DTC to make a FOP delivery of the CP Securities
from the CP Sub-Account to the EB CP Account. After CP Securities have
been credited to the EB CP Account, it is then EB's responsibility to
credit them to an account at EB maintained for the CP Participant, as
an EB participant using EB collateral management services (``EB
Collateral Participant''), for EB Collateral Transactions.
Pursuant to Rule 34, EB may also instruct DTC to make a FOP
delivery of CP Securities from the EB CP Account to the Securities
Account of a Participant that EB has designated to DTC as EB's global
custodian (``EB Global Custodian'') in order to liquidate CP
Securities, if a CP Participant that is an EB Collateral Participant
has defaulted on its obligations in respect of any EB Collateral
Transaction (``EB Liquidating Transaction'').
(ii) Proposed Rule Change
EB has now applied to DTC for a delivery-versus-payment (``DVP'')
Account, and its application was approved by DTC on September 20, 2019.
With a DVP Account, EB will be permitted to engage in other
transactions, including DVP transactions, at DTC, in addition to the
FOP deliveries provided for under Rule 34.\10\ EB has also requested
that the new DVP Account (``New EB Account'') become its main
Securities Account, and that the EB CP Account become a sub-account of
the New EB Account.
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\10\ DTC understands that EB performs certain functions of a
clearing agency with respect to U.S. securities for its U.S.
participants pursuant to an exemption from clearing agency
registration approved by the Commission (the ``EB Exemption''). See
Self-Regulatory Organizations; Morgan Guaranty Trust Company of New
York, Brussels Office, as Operator of the Euroclear System; Order
Approving Application for Exemption From Registration as a Clearing
Agency, Securities Exchange Act Release No. 39643 (February 11,
1998), 63 FR 8232 (February 18, 1998); Self-Regulatory
Organizations; Morgan Guaranty Trust Company, Brussels Office, as
Operator of the Euroclear System and Euroclear Bank, S.A.; Order
Approving Application to Modify an Existing Exemption From Clearing
Agency Registration, Securities Exchange Act Release No. 43775
(December 28, 2000), 66 FR 819 (January 4, 2001); and Euroclear Bank
SA/NV; Order of the Commission Approving an Application To Modify an
Existing Exemption From Clearing Agency Registration, Securities
Exchange Act Release No. 79577 (December 16, 2016), 81 FR 93994
(December 22, 2016) (File No. 601-01).
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In light of this development, DTC has reviewed Rule 34 and
determined that, although no substantive changes may be necessary, it
would be preferable to clarify certain provisions of Rule 34 to more
accurately reflect the new EB account structure. Specifically, DTC is
proposing to make minor technical amendments to Rule 34 that would (i)
more clearly differentiate between the EB CP Account and other
Securities Accounts of EB, and (ii) expressly provide EB with the
option to instruct DTC to deliver CP Securities from the EB CP Account
to another Securities Account of EB for EB Liquidating Transactions if
a CP Participant that is an EB Collateral Participant has defaulted on
one of its EB Collateral Transaction obligations.
A. EB Collateral Positioning
Currently, the language of Rule 34 reflects that the EB CP Account
is the only EB Account at DTC.\11\ In particular, Rule 34 defines the
Securities Account established by EB for purposes of Rule 34 as the
``EB Account.'' However, because EB's application to establish a DVP
Account has been approved by DTC, the Securities Account established by
EB for Rule 34 will no longer be the only EB Account. Therefore, to
more clearly differentiate between the EB CP Account and other
Securities Accounts of EB that may be established, including, but not
limited to the New EB Account, DTC is proposing to change the defined
term in Rule 34 from ``EB Account'' to ``EB CP Account.'' In addition,
to conform with that change, DTC is proposing to replace the current
title of Rule 34, ``EB Link,'' with a new title, ``EB Collateral
Positioning,'' and to delete the defined term ``EB Link'' from Rule 34.
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\11\ See supra note 7.
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[[Page 61672]]
B. EB Liquidating Transactions
Rule 34 currently provides that EB may instruct DTC to deliver CP
Securities from the EB CP Account to the EB Global Custodian in
connection with an EB Liquidating Transaction. With its new account
structure, EB may process EB Liquidating Transactions through its own
DVP Securities Accounts, including the New EB Account, and may no
longer require an EB Global Custodian. Therefore, DTC is proposing to
amend Rule 34 to expressly provide EB with the option to deliver CP
Securities from the EB CP Account to another Securities Account of EB
for EB Liquidating Transactions. Specifically, the proposed rule change
would provide that ``EB may, from time to time . . . (iii) in
connection with an EB Liquidating Transaction, instruct the Corporation
to make a Free Delivery of CP Securities from the EB CP Account \12\ to
the Securities Account of the EB Global Custodian or to another
Securities Account of EB, whereupon such Securities shall no longer be
CP Securities [emphasis added].''
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\12\ As noted above, pursuant to the proposed rule change, DTC
would change the defined term ``EB Account'' to ``EB CP Account.''
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In addition, DTC is proposing to make conforming changes to the
definitions of ``CP Securities'' and ``EB Global Custodian.''
2. Statutory Basis
DTC believes that the proposed rule change is consistent with the
requirements of the Act, and the rules and regulations thereunder
applicable to DTC, in particular Section 17A(b)(3)(F) of the Act.\13\
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Act requires, inter alia, that the
rules of the clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions.\14\ The
proposed rule change would make minor technical amendments to Rule 34
in connection with changes requested by EB to its account structure at
DTC in order to (i) clearly differentiate between the EB CP Account and
other Securities Accounts of EB, and (ii) expressly provide EB with the
option, under specific circumstances, to instruct DTC to deliver
securities from the EB CP Account to another Securities Account of EB.
By amending Rule 34 in this manner, the proposed rule change would
enhance the clarity and transparency of Rule 34 so that Participants
may better understand how to use Rule 34 for EB Collateral Positioning,
which would allow Participants to more accurately and efficiently
deploy their securities collateral for EB Collateral Transactions.
Therefore, DTC believes that the proposed rule change is designed to
promote the prompt and accurate clearance and settlement of securities
collateral transactions, consistent with the requirements of the Act,
in particular Section 17A(b)(3)(F), cited above.
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\14\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change would not have an impact
on competition.\15\ The proposed rule change would make minor technical
amendments to Rule 34 in connection with changes requested by EB to its
account structure at DTC by (i) clearly differentiating between the EB
CP Account and other Securities Accounts of EB, and (ii) expressly
providing EB with the option, under specific circumstances, to instruct
DTC to deliver securities from the EB CP Account to another Securities
Account of EB. The proposed rule change would not make any substantive
changes to the rights and obligations of Participants or other
interested parties under Rule 34, and so would not affect such rights
and obligations. Therefore, DTC believes that the proposed rule change
to make technical amendments to Rule 34 would not have an impact on
competition.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(I).
\16\ Id.
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(C) Clearing Agency'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 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 \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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-2019-010 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-2019-010. 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-2019-010 and should be submitted on
or before December 4, 2019.
[[Page 61673]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24600 Filed 11-12-19; 8:45 am]
BILLING CODE 8011-01-P