[Federal Register Volume 87, Number 131 (Monday, July 11, 2022)]
[Notices]
[Pages 41153-41156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14633]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95197; File No. SR-DTC-2022-007]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Reorganizations Service Guide
July 5, 2022.
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 June 28, 2022, 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\ consists of amendments to the Guide to
provide Participants with the option to submit voluntary
reorganizations instructions via Application Program Interface
(``API'') and ISO 20022 real-time messaging (collectively, ``Automated
Instruction Messaging'') for Automated Subscription Offer Program
(``ASOP'')-eligible offers (each, an ``ASOP Offer'') \6\ and for
Automated Puts System (``APUT'')-eligible offers (each, an ``APUT
Offer''),\7\ and to make technical and ministerial changes to the
Guide, as discussed more fully below.
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\5\ Each term not otherwise defined herein has its respective
meaning as set forth in the Rules, By-Laws and Organization
Certificate of DTC (the ``Rules'') and the Reorganizations Service
Guide (the ``Guide''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
\6\ When an agent makes a rights offer through ASOP, a
Participant can submit instructions to DTC for transmission to the
agent, surrender its rights to the agent's account at DTC, and have
its DTC account debited for the associated subscription payment.
When the underlying securities are distributed by the agent, DTC
credits the securities to the account of the Participant.
\7\ A Participant can submit instructions to DTC for the
exercise of payment, retainment and relinquishment options on put
options securities for transmission to the agent, surrender its put
securities to the agent's account at DTC and have its DTC account
credited with the payment. APUT allows agents to review and
reconcile all the instructions that were made for an offer.
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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 purpose of the proposed rule change is to amend the Guide to
provide Participants with the option to submit voluntary
reorganizations instructions via Automated Instruction Messaging for
ASOP Offers and APUT Offers, and to make technical and ministerial
[[Page 41154]]
changes to the Guide, as discussed more fully below.
(i) Automated Instruction Messaging
A. Background
When an issuer or agent announces an ASOP Offer, it communicates
the details of the offer to DTC, which announces the ASOP Offer to its
Participants in accordance with the Guide and applicable Rules.
Participants then relay the information to their clients, which, in
turn, relay the information to their clients, and so forth, down to the
investor level. For example, the ASOP Offer information flows from the
issuer/agent to DTC, DTC to Participant, Participant to Investor
Manager client, Investment Manager to its investor clients. Each level
of the chain solicits and compiles instructions from its clients and
submits the instructions back up the chain, until the instructions
reach the Participant level. Each Participant compiles and aggregates
all instructions received from its clients and submits the instructions
to DTC through the PTS PSOP or PBS Rights Subscriptions functions via
nonautomated key entry.\8\ The whole process needs to be completed
before the expiration date and time of the ASOP Offer.\9\
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\8\ PTS (Participant Terminal System) and PBS (Participant
Browser System) are user interfaces for DTC 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. PSOP and Rights Subscriptions
are functions of PTS and PBS, respectively, that are currently 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 subscription events
through ASOP. PUTS and Put Bond Options are functions of PTS and
PBS, respectively, that are currently used by Participants to
exercise put options.
\9\ The process is substantially similar for APUT Offers.
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There are certain potential risks and costs associated with manual
processing, particularly in connection with voluntary reorganizations
instructions. Nonautomated input may increase the likelihood of errors,
which can result in rejected instructions or erroneous elections.
Rejected instructions and erroneous elections can delay the submission
of the instructions for voluntary offers, which typically have to be
submitted within a short timeframe. Further, because information about
a voluntary offer and the compilation and transmission of instructions
flows across different market segments, the lack of automation and
standardization can also lead to errors along the chain.
Therefore, DTC is proposing to provide Participants with the
ability to use Automated Instruction Messaging via ISO 20022 messages
and API functionality for ASOP Offers and APUT Offers.
The functionality for the submission of instructions through
standardized ISO 20022 messaging already exists at DTC. Currently,
Participants have the option to submit instructions using ISO 20022
messaging for Automated Tender Offer Program (``ATOP'')-eligible
voluntary reorganizations offers (each, an ``ATOP Offer'').\10\ ISO
20022 is a standard that provides the financial industry with a common
language to capture business transactions and associated message flows.
The benefits offered by ISO 20022 include, but are not limited to: (i)
greater straight through processing by utilizing a data model that
conforms to market practice and (ii) improved accuracy and less
processing risk due to enhanced data elements.
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\10\ See Guide, supra note 5, at 12. See also Securities
Exchange Act Release No. 92339 (July 7, 2021), 86 FR 36810 (July 13,
2021) (SR-DTC-2021-010) (``ATOP Automated Messaging Filing'').
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DTC already offers API functionality for the submission of certain
instructions to DTC.\11\ For example, Participants can currently engage
with the DTC ClaimConnect service via APIs.\12\ APIs enable the flow of
information between computer applications and provide Participants the
ability to easily access and evaluate customer data as well as provide
Participants with callable endpoints for deleting data resources and
for reading and updating data resource values. Stated another way, APIs
provides enhanced flexibility for Participants, making the process of
accessing from, and transmitting information to, DTC and its downstream
customers more efficient. The flexibility of APIs and its use of modern
programming languages provide benefits that include, but are not
limited to: (i) less frequent maintenance, (ii) client development and
implementation can be quicker to market, and (iii) more efficient
integration channels.
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\11\ The ATOP Automated Messaging Filing also provided for
certain API functionality for ATOP Offers. However, DTC has not yet
implemented this API functionality. Pursuant to the proposed rule
change, the implementation of API functionality for ATOP Offers (as
described in the ATOP Automated Messaging Filing) would be
implemented at the same time as the implementation of API
functionality for ASOP Offers and APUT Offers in Q3 of 2022. This
proposed rule change does not apply to the following ATOP actions:
(1) Withdrawal/Cancellation and (2) Submitting a Cover of Protect on
Behalf of Another Participant, nor (3) to the ASOP action of
Submitting a Cover of Protect on Behalf of Another Participant. DTC
anticipates that Automated Instruction Messaging for these actions
would be available in Q4 of 2022/Q1 of 2023, subject to regulatory
approval.
\12\ See ClaimConnect Service Guide, p.8, available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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B. Automated Instruction Messaging
Pursuant to the proposed rule change, Automated Instruction
Messaging would be available for the following actions for ASOP Offers:
(i) Accepting an ASOP-Eligible Offer, (ii) Accepting an ASOP-Eligible
Offer via Notice of Guaranteed Delivery, and (iii) Submitting a Cover
of Protect. Automated Instruction Messaging would also be available for
the following action for APUT Offers: Accepting an APUT-Eligible Offer.
Automated Instruction Messaging for the ASOP Offers and APUT Offers
would consist of (i) Automated Instruction Messages for the input of
instructions and (ii) Automated Response Messages for feedback and
status output with respect to submitted instructions. The ISO 20022
Corporate Action Instruction (CAIN) message and the API POST function
are Automated Instruction Messages. The ISO 20022 Corporate Action
Instruction Status Advice (CAIS) message and the API GET function are
Automated Response Messages.
The ISO 20022 Automated Instruction Messages and ISO 20022
Automated Response Messages would be available in Q2 of 2022 for the
actions referenced above. The API Automated Instruction Messages and
API Automated Response Messages would be available in Q3 of 2022 for
the actions referenced above.
As noted above, automating instructions for ASOP Offers and APUT
Offers would streamline the flow of information, reducing the costs,
errors and risks that are associated with nonautomated processing.
Accordingly, pursuant to the proposed rule change, DTC would provide
Participants with the ability to automate and standardize the
submission of instructions for ASOP Offers and APUT Offers through
Automated Instruction Messaging.
(ii) Proposed Rule Changes
Pursuant to the proposed rule change, DTC is proposing to:
1. Add references to ``Automated Instruction Messaging'' or
``Automated Instruction Message,'' as context requires, where other
types of instruction input for ASOP Offers (e.g., PTS PSOP/PBS Rights
Subscription) and/or for APUT Offers (e.g., PTS PUTS/PBS Put Option
Bonds) are referenced.
2. Add references to ``Automated Response Message'' where other
types of responses and/or status reports relating to instructions on
ASOP Offers (e.g.,
[[Page 41155]]
PTS/PBS, CA Web or Participant Daily Activity Statement) are
referenced.
3. Add references to ``a field within Automated Instruction
Messaging'' where a field or comments box on the PTS PSOP/PBS
Subscriptions screen is referenced.
4. Amend the Guide to reflect that when a Participant uses an
Automated Instruction Message, it must check its Automated Response
Message, in order to ensure that its transactions were properly
processed and recorded, and to note that a Participant could
additionally check its Participant Daily Activity Statement and the CA
Web.
5. Amend the Guide to reflect that input errors for Automated
Instruction Messaging entries would be reported via Automated Response
Message.
6. In the ``Automated Instruction Messaging'' Section:
a. Add an asterisk to the title and, as a footnote, insert the
sentence ``API functionality for the referenced ATOP, ASOP, and APUT
actions would be available in Q3 of 2022.''
b. Add a note that ``Withdrawals for Puts (Survivor Options only)
must be performed via PTS/PBS, and cannot be instructed via Automated
Instruction Message.''
c. Insert a list of the actions for ASOP Offers for which Automated
Instruction Messaging is available, which would be: Accepting an ASOP-
Eligible Offer, Accepting an ASOP-Eligible Offer via Notice of
Guaranteed Delivery, and Submitting a Cover of Protect.
d. Insert language to reflect that Automated Instruction Messaging
would be available for the action ``Accepting an APUT-Eligible Offer''
for APUT Offers.
7. In the ``About the Service'' subsection of the ``Puts'' section,
clarify that Participants use the Puts program for APUT-eligible
offers, and that Participants can use PTS/PBS functions or Automated
Instruction Messaging in connection with the Puts program.
8. In the ``Exercising Put Options'' subsection of ``Puts''
section, clarify that Participants should use PTS PUTS/PBS Put Options
Bonds or Automated Instruction Messaging for put options that have an
offer to purchase with no withdrawal privilege, and that they should
use PTS PTOP/PBS Voluntary Tenders and Exchanges or Automated
Instruction Messaging for put options that have an offer to purchase
with a withdrawal privilege.
9. In the ``Subscription Instructions'' subsection of the ``About
DTC's Automated Subscription Offer Program (ASOP)'' section, insert
language to reflect that when a Participant is accepting a right offer
by surrendering rights or by Notice of Guaranteed Delivery,
Participants instructing via PTS PSOP or PBS Rights Subscriptions can
combine up to 12 separate customer reference instructions, and to add
that Participants instructing via Automated Instruction Messaging would
be able to combine up to 99 separate customer reference instructions
into one Automated Instruction Message.
10. In the ``Checklist for Submitting an Acceptance'' subsection of
the ``Accepting an ASOP-Eligible Offer'' section, amend the ``Note:''
to add that when a Participant transmits via Automated Instruction
Messaging, it can combine up to 99 separate customer reference
instructions into one Automated Instruction Message.
11. In the ``Checklist for Submitting a Protect'' section, insert
the following language to address how a Participant needs to
acknowledge the Notice of Guaranteed Delivery when it transmits an
acceptance by Notice of Guaranteed Delivery via Automated Instruction
Messaging: ``Likewise, when you transmit an acceptance via Automated
Instruction Messaging, you will be required to acknowledge the Notice
of Guaranteed Delivery required by the offer identified by the CUSIP
you specify in your acceptance. The message must contain your
acknowledgement. If your message does not contain your acknowledgement,
your acceptance will be rejected. By acknowledging the Notice of
Guaranteed Delivery via Automated Instruction Messaging, you agree that
(i) you have received, and will be bound by the terms of, the Notice of
Guaranteed Delivery required by the offer identified in the acceptance
and (ii) the agreement set forth in the preceding clause (i) may be
enforced against you by the Offeror in such offer.''
12. In the ``Checklist for Submitting a Cover of Protect via PTS
PSOP, or PBS Rights Subscriptions'' section, insert the following
language to address how a Participant needs to acknowledge the
Subscription Form when it transmits a cover of protect via Automated
Instruction Messaging: ``Likewise, when you transmit an instruction to
cover a protect via Automated Instruction Messaging, you will be
required to acknowledge the Subscription Form required by the offer
identified by the CUSIP you specify in your instruction. The message
must contain your acknowledgment. If you do not submit your
acknowledgement, your instruction will be rejected. By submitting the
acknowledgment via Automated Instruction Messaging, you agree that (i)
you have received, and will be bound by the terms of, the Subscription
Form required by the offer identified in your instruction and (ii) the
agreement set forth in the preceding clause (i) may be enforced against
you by the Offeror in such offer.''
13. In the ``Checklist for Submitting Sell Instructions''
subsection of the ``Surrendering Rights for Sale via ASOP'' section,
insert the following language to address how a Participant needs to
acknowledge the Subscription Form when it transmits sell instructions:
``Likewise, when you transmit sell instructions via Automated
Instruction Messaging, you will be required to acknowledge the
Subscription Form required by the offer identified by the CUSIP you
specify in your acceptance. If your message does not contain your
acknowledgment, your acceptance will be rejected. By acknowledging the
Subscription Form via Automated Instruction Messaging, you agree that
(i) you have received, and will be bound by the terms of the
Subscription Form required by the offer identified in the acceptance
and (ii) the agreement set forth in the preceding clause (i) may be
enforced against you by the Offeror in such offer.''
14. Add a reference to ``Automated Instruction Messaging'' to the
following section headings: ``Submitting a Cover of Protect via PTS
PSOP or PBS Rights Subscriptions for an ASOP-Eligible Offer,'' and
``Checklist for Submitting a Cover of Protect via PTS PSOP or PBS
Rights Subscriptions.''
15. Make ministerial changes to correct typos and omissions and to
enhance conformity and readability, including, but not limited to:
a. Deleting footnote 1 as redundant.
b. Adding the name of the corresponding PBS function where the
equivalent PTS function is referenced.
c. Augmenting mentions of PBS and PTS functions with their full
technical names.
d. Inserting references to the CA Web to correctly reflect that a
Participant can check the CA Web, in addition to its Participant Daily
Activity Statement and Automated Response Messages, to ensure that its
transactions were properly processed and recorded.
e. Inserting references to ISO 20022 messaging and the CA Web to
correctly reflect them as sources of ASOP Offer details.
f. Inserting references to ISO 20022 messages to reflect them as
source for a Participant to receive information about its
reorganization account and subaccount activities.
g. Stating that Participants that subscribe to the ISO 20022
Instructions Statement Report (CAST) or Automated Response Messages
would be able to
[[Page 41156]]
verify instructions status on the message.
h. Enhancing clarity and readability.
i. Correcting typographical errors.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\13\
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed rule change would amend the Guide to provide
Participants with the option to use Automated Instruction Messaging for
ASOP Offers and APUT Offers. As discussed above, the use of Automated
Instruction Messaging for ASOP Offers and APUT Offers would provide
greater straight-through processing, improved accuracy, more efficient
integration channels and less processing risk than nonautomated
processing.
DTC believes that the proposed rule change to amend the Guide to
make technical and clarifying changes would enhance the clarity and
transparency of the Guide. By enhancing the clarity and transparency of
the Guide, the proposed rule change would allow Participants to more
efficiently and effectively conduct their business in connection with
processing reorganization events and associated securities
transactions.
Based on the foregoing, DTC believes that the proposed rule change
is designed to promote the prompt and accurate clearance and settlement
of securities transactions, consistent with Section 17A(b)(3)(F) of the
Act, cited above.
(B) Clearing Agency's Statement on Burden on Competition
DTC believes that the proposed rule change to provide Participants
with the option to use Automated Instruction Messaging for ASOP Offers
and APUT Offers would not have any impact on competition. Because
Automated Instruction Messaging would be an optional service that would
be available to all Participants in connection with ASOP Offers and
APUT Offers, DTC does not believe that the proposed rule change would
impose a burden on competition.\14\ In addition, DTC believes that the
proposed rule change to make technical and ministerial changes to the
Guide, would not have any impact on competition because it would merely
enhance the clarity of the procedures relating to ASOP Offers and APUT
Offers. In light of the foregoing, DTC does not believe that the
proposed rule changes would impose a burden on competition.\15\
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\14\ 15 U.S.C. 78q-1(b)(3)(I).
\15\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
DTC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they would be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
[email protected] or 202-551-5777.
DTC reserves the right to not respond to any comments received.
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) \16\ of the Act and paragraph (f) \17\ of Rule 19b-4
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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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-2022-007 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-2022-007. 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-2022-007 and should be submitted on
or before August 1, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14633 Filed 7-8-22; 8:45 am]
BILLING CODE 8011-01-P