[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21557-21564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06576]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99843; File No. SR-DTC-2024-002]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the DTC Corporate Actions Distributions Service Guide and the DTC 
Settlement Service Guide

March 22, 2024.
    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 March 20, 2024, 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 consists of amendments to the DTC 
Corporate Actions Distributions Service Guide (``Distributions Guide'') 
\5\ and the DTC Settlement Service Guide (``Settlement Guide'') \6\ 
(collectively, ``Guides'') \7\ to make technical revisions to the 
Guides in anticipation of the U.S. market transition to a shortened 
standard settlement cycle from the current two business days after 
trade date (``T+2'') to one business day after trade date (``T+1''), as 
described in greater detail below.\8\
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    \5\ Available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Service-Guide-Distributions.pdf.
    \6\ Available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf.
    \7\ The Guides are Procedures of DTC. Pursuant to the Rules, the 
term ``Procedures'' means the Procedures, service guides, and 
regulations of DTC adopted pursuant to Rule 27, as amended from time 
to time. See Rule 1, Section 1, infra note 8. They are binding on 
DTC and each Participant in the same manner that they are bound by 
the Rules. See Rule 27, infra note 8.
    \8\ Each capitalized term not otherwise defined herein has its 
respective meaning as set forth the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules''), available at www.dtcc.com/legal/rules-and-procedures.
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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 DTC Corporate Actions 
Distributions Service Guide (``Distributions Guide'') \9\ and the DTC 
Settlement Service Guide (``Settlement Guide'') \10\ (collectively, 
``Guides'') \11\ to make technical revisions to the Guides in 
anticipation of the U.S. market transition to a shortened standard 
settlement cycle from the current two business days after trade date 
(``T+2'') to one business day after trade date (``T+1''), as described 
below. The proposed rule changes to the Guides would become effective 
on May 28, 2024.\12\
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    \9\ Supra note 5.
    \10\ Supra note 6.
    \11\ Supra note 7.
    \12\ DTC will post a version of the relevant sections of the 
respective Guides reflecting the changes as they would appear upon 
the effectiveness of the subsequent proposed rule change mentioned 
above and will include a note on the cover page of the Guides to 
advise Participants of these changes.
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    The standard settlement cycle for certain securities was last 
changed in 2017, when the Commission adopted the current version of 
Rule 15c6-1(a) \13\ under the Act, which (subject to certain 
exceptions) prohibits any broker-dealer from entering into a contract 
for the purchase or sale of a security that provides for payment and 
delivery later than two business days after the trade date, unless 
otherwise expressly agreed to by the parties at the time of the 
transaction.\14\ The implementation of this change moved the length of 
the settlement cycle from three business days after trade date (T+3) to 
T+2.
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    \13\ 17 CFR 240.15c6-1.
    \14\ See Securities Exchange Act Release No. 80295 (Mar. 22, 
2017), 82 FR 15564 (Mar. 29, 2017).
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    To further reduce market and counterparty risk, decrease clearing 
capital requirements, reduce liquidity demands, and strengthen and 
modernize securities settlement in the U.S. financial markets, the 
financial services industry, in coordination with its regulators, has 
been working on shortening the standard settlement cycle from T+2 to 
T+1. In connection therewith, the Commission has adopted a rule change 
to shorten the standard settlement cycle from T+2 to T+1, with a 
compliance date of May 28, 2024.\15\
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    \15\ See Securities Exchange Act Release No. 96930 (Feb. 15, 
2023), 88 FR 13872 (Mar. 6, 2023) (S7-05-22) (Shortening the 
Securities Transaction Settlement Cycle).
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Effect on DTC
    DTC provides depository and book-entry services pursuant to its 
Rules and Procedures, including, but not limited to, its service guides 
and Operational Arrangements.\16\ DTC services include custody of 
securities certificates and other instruments, and settlement and asset 
services for types of eligible securities including, among others, 
equities, warrants, rights, corporate debt and notes, municipal bonds, 
government securities, asset-backed securities, depositary receipts and 
money market instruments.
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    \16\ Available at www.dtcc.com/legal/rules-and-procedures.
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    DTC, through its nominee, Cede & Co., is the registered holder of 
securities on the books of the issuer or its transfer agent; that is, 
DTC is the direct holder of legal title to the securities on the books 
of the issuer. DTC receives distributions, dividends, and corporate 
actions from the issuer and passes them to its Participants.
    DTC processes transactions for settlement, subject to its risk 
controls, on the same day it receives them. Distributions on securities 
held at DTC on behalf of its Participants pass through DTC and are 
credited to the accounts of Participants on the same day that they are 
paid to DTC. As a result, DTC's Rules and Procedures are not generally 
affected by the industry's move to T+1.
    However, certain provisions in the Distributions Guide and 
Settlement Guide relating to distributions on securities held at DTC 
and settlement timeframes are based on a presumption that transactions 
settle on a two-day settlement cycle (i.e., T+2). This would change as 
the securities industry switches to a standard T+1, as noted above. 
Therefore, DTC proposes to make the below described changes.
Distributions Guide Changes
    DTC would modify the Distributions Guide text relating to (i) the 
DTC interim accounting process and (ii) the impact of the shortened 
settlement cycle

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on the timing of the allocation of stock distributions.
Interim Accounting Process
    Interim accounting is an important part of the entitlement and 
allocation process relating to distributions. During the interim 
accounting period, DTC facilitates the entitlements and allocation 
process systematically for both the buyer and seller of a transaction 
conducted in the marketplace and submitted to NSCC's Continuous Net 
Settlement service (``CNS'').\17\ The interim accounting period is 
defined as the time period during which a trade settling has income or 
a due bill attached to it.\18\ The interim accounting period (also 
referred to as the due bill period) is determined in accordance with 
market rules \19\ and currently extends for the time from the record 
date \20\ plus one day up to the ex-date plus one day.\21\
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    \17\ Securities movements for transactions processed through CNS 
occur free of payment at DTC. See DTC Settlement Service Guide, 
available at www.dtcc.com/-/media/Files/Downloads/legal/service-guides/Settlement.pdf, at 15.
    \18\ In the absence of DTC's interim accounting process, trades 
scheduled to settle after the record date ``with distribution'' 
(those that entitle the receiver to the distribution) would have a 
due bill or income payment attached to detail the entitlement and 
associated obligations between the seller and buyer relating to the 
distribution. The distribution entitlement would then need to be 
handled between the seller and the buyer of the security outside of 
DTC's Distributions Service.
    \19\ E.g., New York Stock Exchange (``NYSE'') Rules 255-259, 
available at www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_Rules.pdf.
    \20\ The record date is the date when an investor must be on the 
issuer's books as a shareholder to receive a distribution.
    \21\ The ex-date is determined in accordance with the applicable 
market procedures. E.g., NYSE Listed Company Manual, Section 703.03 
(part 2) (Stock Split/Stock Rights/Stock Dividend Listing Process), 
available at www.nysemanual.nyse.com/lcm/Help/mapContent.asp?sec=lcm-sections&title=sx-ruling-nyse-policymanual_703.02(part2)&id=chp_1_8_3_4.
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    In order to prepare for the migration to T+1 settlement, DTC would 
modify the interim accounting process to account for the shortened 
period. In this regard, DTC would revise the Distributions Guide to 
state that the interim accounting period would reflect the anticipated 
due bill period that would be recognized by the industry, in light of 
the T+1 settlement cycle, such that the interim accounting period would 
extend from the record date plus one day up to the due bill redemption 
date (typically ex-date for equities and payable date minus one day for 
debt). Proposed changes to the text of the Distributions Guide relating 
to the interim accounting period would be reflected in the text of the 
subsections of the Interim Accounting section of the Distributions 
Guide.
``Overview'' Subsection
    The subsection titled ``Overview'' provides a general description 
of the Interim Accounting process. The proposed rule change would make 
a technical change to remove a typo from a sentence that provides a 
general description for when the interim accounting process relating to 
a distribution begins and ends. The same sentence would also be revised 
to reflect a timing change to the interim account period necessitated 
by the shortening of the settlement cycle.
``Reasons for Interim Accounting'' Subsection
    The subsection titled ``Reasons for Interim Accounting'' describes 
that normally, the registered holder of a security on the close of 
business on the record date is entitled to the distribution. The 
subsection provides examples of common reasons when this does not 
occur. One of these is where an exchange declares a late or irregular 
ex-date for an equity issue. The Distributions Guide describes that for 
equity issues, there are times when the listed exchange would declare 
an ex-date that is not one business day prior to the record date (e.g., 
an ex-date that equals payable date plus one day). The Distributions 
Guide also states that at such times, a buyer is entitled to the 
distribution when the registered holder of an equity issue sells the 
security prior to the ex-date.
    The proposed rule change would amend text in the ``Reasons for 
Interim Accounting'' section to revise the description of the timing 
relating to an exchange's declaration of a late or irregular ex-date 
for an equity issue. In this regard, the text would be revised to 
describe that there are times for equity issues when the listed 
exchange would declare an ex-date that is not ``equal to'' the record 
date, rather than declaring an ex-date that is ``one business day prior 
to'' the record date, as described above.
``Without DTC's Interim Accounting'' Subsection
    The subsection titled ``Without DTC's Interim Accounting'' would be 
revised to correct a typographical error by removing an errant comma.
``Interim Accounting Usage'' Subsection
    Activation of DTC's Interim Accounting process depends on the type 
of distribution. The ``Interim Accounting Usage'' subsection within the 
Distributions Guide provides a table that describes the conditions 
under which interim accounting occurs for types of distributions. The 
proposed rule change would revise this table to adjust timeframes 
relating to activation of Interim Accounting for certain types of 
distributions to account for the shortening of the settlement cycle:
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BILLING CODE 2011-01-C
``Interim Accounting for an Ex-Date Change Due to Unscheduled Closing 
of a Stock Exchange'' Subsection
    Occasionally, there is an unscheduled closing of one or more stock 
exchanges (e.g., a National Day of Mourning, an event causing 
significant market disruption or regional impact, etc.). During an 
unscheduled closing, a listed exchange would typically move ex-dates 
that were scheduled for that date to the next business day that the 
exchange is open, which is usually the record date. Such a move is 
necessary because ex-dates must occur on a business day that the listed 
exchange is open.\22\
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    \22\ See, e.g., FINRA Rule 11140--Transactions in Securities 
``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-Warrants'' available at 
www.finra.org/rules-guidance/rulebooks/finra-rules/11140.
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    When there is an unscheduled closing of a stock exchange and an ex-
date is moved, DTC does not apply the interim accounting process 
described above.\23\ This is because it is DTC's general understanding 
that when there is an unscheduled closure, the intent is for the last 
day of trading with a due bill to be the business day prior to the 
unscheduled closure because there should not be any executed trades in 
the security on the day of closure.\24\
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    \23\ See Securities Exchange Act Release No. 90747 (Dec. 21, 
2020), 85 FR 85249 (Dec. 29, 2020) (SR-DTC-2020-019).
    \24\ Id.
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    Pursuant to the proposed rule change, DTC would modify the text of 
the section of the Distributions Guide that describes DTC's process in 
this regard to reflect the effect of the shortened period on interim 
accounting (i.e., that it is not applied) between trade date and 
settlement date by modifying an example included within the text. The 
text change would revise references to certain dates, including sample 
calendar dates for a hypothetical ex-date and unscheduled closure date, 
as well as text describing how the ex-date falls in relation to a 
hypothetical record date depending on standard practice under the 
timing set forth in the example, as well as in the event an exchange 
changes the ex-date due to an unscheduled closure.
``Allocations'' Subsection
    DTC would adjust descriptions relating to stock distributions in 
the section of the Distributions Guide titled Allocations relating to 
the date on which certain stock distributions, the timing for which are 
tied to the settlement cycle, are allocated. Specifically, the table 
would be revised for affected distribution types, as follows to account 
for the shortening of the settlement cycle:

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[GRAPHIC] [TIFF OMITTED] TN28MR24.028

Settlement Guide Changes
    Moving settlement to the end of trade date would compress certain 
activities and processes required to achieve settlement on T+1. In the 
current T+2 settlement environment, DTC processes certain transactions 
for settlement during the day on settlement date and other transactions 
the night before settlement date (``S-1'') during the so called ``night 
cycle,'' which begins at 8:30 p.m. on S-1.
    Processing transactions during the night cycle allows for earlier 
settlement of certain transactions that are included in the night 
cycle, thereby reducing counterparty risk and, with respect to 
transactions that are cleared through NSCC, enables such transactions 
to be removed from members' marginable portfolios, which in turn 
reduces such members' NSCC margin requirements. DTC uses a process 
called the ``Night Batch Process'' to control the order of processing 
of transactions in the night cycle. During the Night Batch Process, DTC 
evaluates each participant's available positions, transaction priority 
and risk management controls, and identifies the transaction processing 
order that optimizes the number of transactions processed for 
settlement. The Night Batch Process allows DTC to run multiple 
processing scenarios until it identifies an optimal processing 
scenario.
    At approximately 8:30 p.m. on S-1, DTC subjects all transactions 
eligible for processing to the Night Batch Process, which is run in an 
``offline'' batch that is not visible to Participants, allowing DTC to 
run multiple processing scenarios until the optimal processing scenario 
is identified. The results of the Night Batch Process are incorporated 
back into DTC's core processing environment on a transaction-by-
transaction basis. Changing from settling on a standard T+2 to a T+1 
basis would require DTC and Participants to initiate and complete 
certain settlement-related processes sooner relative to the time a 
trade is executed. This would require changes to certain timeframes for 
settlement activities that occur on S-1.
    In this regard, DTC would modify provisions of the Settlement Guide 
relating to certain settlement processing timeframes to accommodate the 
move to T+1.
    First, cutoffs in the settlement processing schedule relating to 
authorization and exemption (``ANE'') of institutional transactions 
would be changed from 6:30 p.m. to 10:45 p.m. The order of where this 
item appears in the list of settlement processing timeframes would also 
be adjusted to reflect that it would occur later in the settlement 
processing schedule than certain items for which timeframes are not 
changing. This change

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accommodates a change to the institutional processing affirmation 
cutoff by the matching utility, DTCC ITP Matching (US) LLC 
(``ITP''),\25\ to 9 p.m. on T from 11:30 a.m. on T+1. This change would 
allow time for affirmed trades processed by ITP to be input into DTC 
for timely settlement processing upon the transition to T+1. A second 
stated time for the cutoff for ANE for 7:30 p.m. on S-1 would be 
removed as it relates to certain operational transaction input 
processes that are no longer used.
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    \25\ DTC also processes book-entry transfers for institutional 
trades of its Participants, affirmed and matched by an applicable 
settlement matching service, including its affiliate, ITP.
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    The start of the night cycle would be moved to a later time to 
accommodate the above-mentioned adjustment relating to night cycle 
processing. This adjustment would allow additional time for input of 
transactions into DTC's night cycle. As mentioned above, the Night 
Batch Process starts at approximately 8:30 p.m. ET on the business day 
prior to settlement date. Pursuant to the proposed rule change, the 
start of the Night Batch Process would be moved to 11:30 p.m. on S-1.
    Considering the proposed time for the start of the Night Batch 
Process, the final cutoff for submission of Deliveries to the Night 
Cycle, or Night Deliver Orders would be moved from 8 p.m. to 11 p.m. on 
S-1.
    Second, the section of the Settlement Guide relating to the ID Net 
Service, which is designed to facilitate more streamlined processing of 
certain transactions between brokers and custodians, would be modified 
to change the time a matching utility (such as ITP) must submit 
affirmed transactions for them to be ID Net eligible. Like the change 
relating to the processing of ANE described above, this change 
accommodates a change to the affirmation cutoff by ITP described above. 
Currently, the Settlement Guide requires such affirmed transactions to 
be submitted to DTC no later than 11:30 a.m. on S-1. The proposed rule 
change would modify this deadline to become 9 p.m. on S-1.
    Finally, the section of the Settlement Guide relating to the Night 
Batch Process would be revised to reflect the above-described change on 
the timing of the start of the Night Batch Process, which would be 
modified from the current time of 8 p.m. on S-1 to 11:30 p.m. on S-1.
Implementation Date
    The proposed rule changes to the Guides would take effect on May 
28, 2024.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \26\ requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. DTC 
believes that the proposed rule change is consistent with this 
provision because it would allow settlement transactions and 
distributions to continue to be processed when the U.S. market standard 
settlement cycle is shortened. Thus, by allowing processing of 
transactions in settlement and the Distributions Service in accordance 
with standard U.S. settlement timeframes (including when the standard 
settlement cycle is shortened), the proposed rule changes would promote 
the prompt and accurate clearance and settlement of securities 
transactions.
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    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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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 rule change consists of 
conforming and technical changes to the texts of the Guides that would 
correspond with the industry's transition to a T+1 settlement cycle.

(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 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) \27\ of the Act and paragraph (f) \28\ 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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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-DTC-2024-002 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-2024-002. 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 (https://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

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printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 10 
a.m. and 3 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 (dtcc.com/legal/sec-rule-filings). Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-DTC-2024-002 and should be submitted on or 
before April 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06576 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P