[Federal Register Volume 86, Number 216 (Friday, November 12, 2021)]
[Notices]
[Pages 62853-62855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24621]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93533; File No. SR-DTC-2021-014]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Provide Settlement Services for 
Transactions Entered Into Under the Proposed Securities Financing 
Transaction Clearing Service of the National Securities Clearing 
Corporation

November 5, 2021.

I. Introduction

    On July 22, 2021, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2021-014 (``Proposed Rule Change'') 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 11, 2021.\3\ The Commission has 
received no comment letters on the Proposed Rule Change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 92572 (August 5, 2021), 
86 FR 44077 (August 11, 2021) (SR-DTC-2021-014) (``Notice'').
---------------------------------------------------------------------------

    On September 2, 2021, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve, 
disapprove, or institute proceedings to determine whether to approve or 
disapprove the Proposed Rule Change.\5\ This order institutes 
proceedings, pursuant to Section 19(b)(2)(B) of the Act,\6\ to 
determine whether to approve or disapprove the Proposed Rule Change.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Securities Exchange Act Release No. 92861 (September 2, 
2021), 86 FR 50570 (September 9, 2021) (SR-DTC-2021-014).
    \6\ 15 U.S.C. 78s(b)(2)(B).

---------------------------------------------------------------------------

[[Page 62854]]

II. Summary of the Proposed Rule Change

    As described in the Notice,\7\ DTC proposes to amend the Rules, the 
Settlement Guide, and the Fee Guide in order to provide Participants 
that are also members of the National Securities Clearing Corporation 
(``NSCC'') with a proposed optional securities financing transaction 
clearing service of NSCC (``NSCC SFT Service''). The proposed NSCC SFT 
Service would provide central clearing for equity securities financing 
transactions, which are, broadly speaking, transactions where the 
parties exchange equity securities against cash and simultaneously 
agree to exchange the same securities and cash, plus or minus a rate 
payment, on a future date (each, an ``SFT'').\8\ SFTs between 
counterparties that are members of NSCC (each, an ``NSCC SFT 
Counterparty'') would be settled through their respective Participant 
accounts at DTC.
---------------------------------------------------------------------------

    \7\ The description of the Proposed Rule Change is based on the 
statements prepared by DTC in the Notice. See Notice, supra note 3. 
Capitalized terms used herein and not otherwise defined herein are 
defined in DTC's Rules, By-Laws and Organization Certificate, 
available at https://www.dtcc.com/~/media/Files/Downloads/legal/
rules/dtc_rules.pdf, and the Notice.
    \8\ On July 22, 2021, NSCC filed a proposed rule change and an 
advance notice to establish the NSCC SFT Service (``NSCC Proposed 
Rules''). See Securities Exchange Act Release No. 92570 (August 5, 
2021), 86 FR 44482 (August 12, 2021) (SR-NSCC-2021-010); Securities 
Exchange Act Release No. 92568 (August 5, 2021), 86 FR 44530 (August 
12, 2021) (SR-NSCC-2021-803).
---------------------------------------------------------------------------

    Pursuant to the proposed rule change, DTC would (i) expand the 
types of instructions that NSCC can submit to DTC on behalf of a 
Participant that are also members of NSCC in connection with the NSCC 
SFT Service, (ii) apply a modified look-ahead process to the new 
account that NSCC would maintain at DTC in connection with the NSCC SFT 
Service (the ``NSCC SFT Account''), and (iii) establish a fee for the 
payments relating to SFT activities at NSCC, and (iv) make clarifying 
and conforming changes.

(i) NSCC Instructions to DTC

    NSCC would use its new NSCC SFT Account in connection with the NSCC 
SFT Service. DTC would allow NSCC to submit instructions to DTC with 
respect to the NSCC SFT Service. NSCC would submit Delivery Versus 
Payment (``DVP'') instructions or payment orders relating to SFT 
activity (``SFT PD Payment Orders'') to DTC in accordance with the NSCC 
Proposed Rules. The DVP instructions or the SFT PD Payment Orders would 
be subject to DTC's risk management controls and the modified look-
ahead.

(ii) Modified Look-Ahead Processing

    The typical look-ahead process utilized by DTC reduces transaction 
blockage by applying the net amount of offsetting receive and deliver 
transactions in the same security rather than the gross amount of the 
receive transaction to a Participant's Net Debit Cap.\9\
---------------------------------------------------------------------------

    \9\ The Net Debit Cap controls the amount of the settlement 
obligation that any Participant or family may incur.
---------------------------------------------------------------------------

    DTC would apply a modified look-ahead processing to the NSCC SFT 
Accounts so that look-ahead matches on other details in addition to 
CUSIP. The modified look-ahead would be satisfied when (i) the pair of 
instructions from NSCC are consistent in terms of the number of subject 
shares and/or dollar amount, CUSIP, and DTCC Reference ID, and (ii) the 
net effect of processing the instructions would not violate the 
respective Net Debit Caps, Collateral Monitor \10\ or other risk 
management system controls of the Participants that are on each side of 
the DVP or SFT PD Payment Order.
---------------------------------------------------------------------------

    \10\ The Collateral Monitor tracks whether each Participant has 
available sufficient collateral value to secure a borrowing to fund 
the amount of the Participant's net settlement obligation, in the 
event that the Participant fails to settle.
---------------------------------------------------------------------------

    In addition, because the modified look-ahead relies on the 
completion of offsetting transactions, transactions to and from the 
NSCC SFT Account would not be subject to either reclaims or Receiver 
Authorized Delivery (``RAD''). Since both reclaims and RAD effectively 
permit one side of the transaction to reject or reverse the 
transaction, allowing such activity would interfere with the ability of 
the modified look-ahead to rely on the completion of the offsetting 
transactions.

(iii) SFT PD Payment Order Fee

    DTC proposes to amend the Fee Guide to establish a fee for SFT PD 
Payment Orders. DTC proposes a fee of $0.005 per item delivered or 
received to be charged to the payor and the payee of an SFT PD Payment 
Order.

III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \11\ to determine whether the Proposed Rule 
Change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the Proposed Rule Change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
and provide the Commission with arguments to support the Commission's 
analysis as to whether to approve or disapprove the Proposed Rule 
Change.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\12\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the Proposed 
Rule Change's consistency with Section 17A of the Act,\13\ and the 
rules thereunder, including the following provisions:
---------------------------------------------------------------------------

    \12\ Id.
    \13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

     Section 17A(b)(3)(F) of the Act,\14\ which requires, among 
other things, that the rules of a clearing agency must be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions; and
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

     Section 17A(b)(3)(D) of the Act \15\ requires that the 
rules of a clearing agency must provide for the equitable allocation of 
reasonable dues, fees, and other charges among Participants.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act,\16\ and 
Section 17A(b)(3)(D) of the Act,\17\ or any other provision of the Act, 
or the rules and regulations thereunder. Although there do not appear 
to be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4(g) under the Act,\18\ 
any request for an opportunity to make an oral presentation.\19\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 15 U.S.C. 78q-1(b)(3)(D).
    \18\ 17 CFR 240.19b-4(g).
    \19\ Section 19(b)(2) of the Act grants to the Commission 
flexibility to determine what type of proceeding--either oral or 
notice and opportunity for written comments--is appropriate for 
consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).

---------------------------------------------------------------------------

[[Page 62855]]

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the Proposed Rule Change should be approved 
or disapproved by December 3, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 17, 2021.
    The Commission asks that commenters address the sufficiency of 
DTC's statements in support of the Proposed Rule Change, which are set 
forth in the Notice,\20\ in addition to any other comments they may 
wish to submit about the Proposed Rule Change.
---------------------------------------------------------------------------

    \20\ See Notice, supra note 3.
---------------------------------------------------------------------------

    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-2021-014 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 Number SR-DTC-2021-014. 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-2021-014 and should be submitted on 
or before December 3, 2021. Rebuttal comments should be submitted by 
December 17, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(31).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-24621 Filed 11-10-21; 8:45 am]
BILLING CODE 8011-01-P