[Federal Register Volume 89, Number 145 (Monday, July 29, 2024)]
[Notices]
[Pages 60941-60944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16551]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100581; File No. SR-DTC-2024-006]


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

July 23, 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 July 17, 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)

[[Page 60942]]

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 Tax 
Event Announcement Feature section \6\ of the Distributions Guide.\7\ 
The proposed change would modify a requirement relating to the Sub-
Event Type \8\ known as ``1042-S Classifications,'' 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 (``DTC 
Rules''), available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/dtc_rules.pdf, or the DTC Corporate Actions 
Distributions Service Guide (``Distributions Guide''), available at 
https://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Service-Guide-Distributions.pdf.
    \6\ Tax Event Announcements provide Participants with 
information-only announcements regarding taxable events that may 
give rise to tax-related information and/or withholding obligations 
that occur, even in the absence of an actual distribution of 
dividend and interest payments (``Tax Events''). See Distributions 
Guide, supra note 5, at 13-15.
    \7\ The Distributions Guide, supra note 5, is a Procedure of 
DTC. Pursuant to the DTC Rules, the term ``Procedures'' means the 
Procedures, service guides, and regulations of DTC adopted pursuant 
to DTC Rule 27, as amended from time to time. See DTC Rule 1, 
Section 1, supra note 5. They are binding on DTC and each 
Participant in the same manner that they are bound by the DTC Rules. 
See DTC Rule 27, supra note 5.
    \8\ Tax Event Announcements are classified by ``Event Type'' and 
``Sub-Event Type.'' See Distributions Guide, supra note 5, at 13-15.
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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 Tax Event Announcement 
Feature section of the Distributions Guide. The proposed change would 
modify a requirement relating to the Sub-Event Type known as ``1042-S 
Classifications,'' as described below.
1042-S Classifications--Background
    Pursuant to Rule 1.1446-4(b)(4) under the Internal Revenue Code of 
1986, as amended (``Code''),\9\ issuers of publicly traded partnerships 
\10\ are, in effect, required to provide DTC with ``qualified 
notices,'' for the issuer's applicable Eligible Securities held by 
DTC,\11\ that classify a distribution for such securities into multiple 
components for tax withholding and Internal Revenue Service Form 1042-S 
\12\ reporting purposes (``1042-S Classifications''). For example, on a 
$1.00 distribution, the qualified notice may state that $0.60 is 
considered dividend income and $0.40 is income effectively connected 
with the conduct of a trade or business in the United States. DTC 
forwards such qualified notices to Participants, as discussed below.
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    \9\ 26 CFR 1.1446-4(b)(4).
    \10\ Id. (providing definition of publicly traded partnership).
    \11\ Such issuers are required to provide such notices to DTC as 
the registered holder of the subject Eligible Securities via DTC's 
nominee, Cede & Co.
    \12\ See Form 1042-S, available at https://www.irs.gov/pub/irs-pdf/f1042s.pdf.
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    Meanwhile, other issuers may not be required under applicable tax 
law to provide DTC with 1042-S Classifications. For example, a 
regulated investment company may classify a portion of a distribution 
as representing interest-related dividends or as a short-term capital 
gain dividend, but it would not be required to provide a qualified 
notice to DTC pursuant to Rule 1.1446-4(b)(4) under the Code.\13\
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    \13\ 26 CFR 1.1446-4(b)(4).
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    However, DTC accepts 1042-S Classifications voluntarily submitted 
to DTC by issuers using a template provided by DTC.\14\ Regardless of 
whether DTC receives 1042-S Classifications voluntarily or otherwise, 
it will distribute that information to Participants that hold the 
applicable securities.
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    \14\ See Distributions Guide, supra note 5, at 15.
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    The Distributions Guide currently provides that the breakdown of 
the 1042-S Classifications must be provided to DTC prior to the record 
date \15\ of the distribution and should not be subject to change.\16\ 
The information is currently required prior to record date to help 
ensure that DTC has sufficient time to then deliver the corresponding 
information to the Participants in advance of payment of the 
distribution, which may trigger a tax withholding and/or reporting 
obligation for the receiving Participant.
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    \15\ The record date is the date set by an issuer of a security 
by which an investor must own the security to be eligible to receive 
an upcoming distribution. See DTC Operational Arrangements Necessary 
for Securities to Become and Remain Eligible for DTC Services 
(``OA''), available at http://www.dtcc.com/~/media/Files/Downloads/
legal/issue-eligibility/eligibility/operational-arrangements.pdf, at 
26.
    \16\ See Distributions Guide, supra note 5, at 15.
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    The Distributions Guide also currently provides that by providing 
DTC a completed template or qualified notice, the issuer certifies that 
the information provided in the template is not subject to change, but 
that DTC will accept and distribute updated information to Participants 
to the extent an issuer notifies DTC that the issuer made an error in 
the information provided and provides DTC with a corrected template or 
qualified notice, as applicable.\17\
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    \17\ Id.
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Proposed Rule Change
Time Frame for Submission of 1042-S Classification Information
    As mentioned above, to promote timeliness and accuracy of issuer 
information provided to DTC, the Distributions Guide requires the 
breakdown of the 1042-S Classifications be provided prior to the record 
date. However, even if an issuer can provide the information prior to 
record date, it is DTC's understanding that due to the timing of the 
availability of income source information to issuers, issuers may be 
unable to report such information before ex-date,\18\ which, with 
certain exceptions, was set to occur one business day before record 
date in a settlement cycle where settlement occurred two days after 
trade (``T+2'').\19\
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    \18\ The ex-date is the date on which a stock starts trading 
without the benefit of corporate action (i.e., ex-benefit).
    \19\ The ex-date is determined in accordance with the applicable 
market procedures. E.g., NYSE Listed Company Manual, Section 703.02 
(part 2) (Stock Split/Stock Rights/Stock Dividend Listing Process), 
available at https://nyseguide.srorules.com/listed-company-manual/09013e2c855788a0.
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    However, with the recent shortening of the U.S. settlement cycle 
from T+2 to one-day following trade date (``T+1''),\20\ that timeline 
is compressed such that ex-date and record date now will be the same 
date, normally. Therefore, issuers may not be able to submit 1042-S 
Classifications prior to record date.
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    \20\ 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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    Since issuers may not be able to submit 1042-S Classification 
information prior to record date given that ex-date and record date now 
will occur on the same date in a T+1 settlement cycle, DTC proposes to

[[Page 60943]]

amend the Distributions Guide to state that the breakdown of these 
classifications must be provided to DTC ``on or before'' record date.
1042-S Classification Changes and Related Certification
    As described above, the Distributions Guide currently provides that 
the breakdown of the 1042-S Classifications information ``should not be 
subject to change'' \21\ and that information provided in a complete 
and ``certified'' template ``is not subject to change;'' however, the 
Distributions Guide also provides that DTC will accept and distribute 
updated information if updated information is provided to correct an 
error.\22\ DTC proposes to revise these provisions to make technical 
changes, provide more clarity, and better align the language to 
practices, as described below.
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    \21\ See Distributions Guide, supra note 5, at 15.
    \22\ Id.
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    First, DTC would make a technical change for conciseness. In this 
regard, the text that states that 1042-S Classifications provided by 
the issuer ``should not be subject to change'' will be revised to state 
that the classifications ``should be final.''
    Second, text that provides that an issuer ``certifies'' that the 
information provided to DTC in a template ``is not subject to change'' 
would be revised to replace (a) ``certifies'' with ``confirms'' and (b) 
``is not subject to change'' to ``should be final.'' With respect to 
(a), it is DTC's understanding that issuers may not be able to certify 
that information is final until they complete their year-end tax 
filings. The revision of the reference from ``certifies'' to 
``confirms'' would continue to provide DTC with comfort that the issuer 
believes that the 1042-S Classification information is final, without 
requiring a certification with respect to information that could 
change.
    Third, text stating ``DTC will accept and distribute updated 
information to Participants to the extent an Issuer notifies DTC that 
the Issuer entered an error in the applicable template or qualified 
notice provided by it to DTC and the Issuer provides DTC with a 
corrected template or qualified notice, as applicable'' will be revised 
(x) so that the text stating ``notifies DTC that the Issuer entered an 
error in the applicable template or qualified notices provided by it to 
DTC'' will be replaced with ``notifies DTC that the information has 
changed'' and (y) to make a technical change to replace ``a corrected 
template or qualified notice, as applicable'' with ``corrected 
classification information in compliance with applicable tax 
regulations.'' The change described in (x) would account for the 
possibility that information submitted by an issuer may change for a 
reason other than an error, such as a change realized as part of a 
year-end tax process. The change described in (y) reflects that 
reporting requirements relating to1042-S Classifications, and any 
corrections thereto, provided by issuers to DTC stem from issuers' 
reporting obligations under applicable tax regulations.
    Fourth, also to reflect that the requirements for issuers reporting 
1042-S Classifications stem from obligations under applicable tax 
regulations, the sentence stating, ``DTC reserves the right not to 
accept classification information from Issuers that do not abide by 
these requirements'' would be extended to add ``and/or applicable tax 
regulations.''
    Fifth, references to ``Record Date'' and ``Issuer'' would be 
updated to lowercase because they are not defined terms.
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) \23\ of the Act.
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    \23\ 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.\24\ As 
described above, in addition to certain clarifying and technical 
changes, the proposed rule change would update the Distributions Guide 
to provide that (i) the breakdown of 1042-S Classifications must be 
provided to DTC ``on or before'' record date, instead of ``prior to'' 
record date given the new, shortened settlement cycle of T+1; (ii) the 
information provided ``should be final,'' even if provided via a DTC 
template; and (iii) changed information provided to DTC is not limited 
to just erroneous entries.
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    \24\ Id.
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    By revising provisions in the Distributions Guide relating to The 
Tax Event Announcement Feature in this regard, DTC believes that the 
proposed rule change would help facilitate Participants' compliance 
with DTC's time frames for submission of 1042-S Classifications in a 
T+1 settlement cycle and, thus, compliance with U.S. federal tax 
withholding obligations for the subject securities, while also 
continuing to provide DTC with comfort that the 1042-S Classification 
information received is near, if not, final.
    Therefore, by helping to facilitate Participant's ability to 
continue to use DTC's book-entry transfer and settlement services with 
respect to Eligible Securities that are subject to 1042-S 
Classifications, the proposed rule change would help promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with the requirements of the Act, in particular 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 will not impact 
competition. As described above, the proposed rule change merely 
facilitates issuers' and Participants' ability to continue to make use 
of 1042-S Classification reporting through DTC without materially 
altering requirements for submission or use of 1042-S Classification 
information.

(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

[[Page 60944]]

19(b)(3)(A) \25\ of the Act and paragraph (f) \26\ 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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-DTC-2024-006 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-2024-006. 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 (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking). 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 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-2024-006 
and should be submitted on or before August 19, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16551 Filed 7-26-24; 8:45 am]
BILLING CODE 8011-01-P