[Federal Register Volume 90, Number 80 (Monday, April 28, 2025)]
[Notices]
[Pages 17669-17675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-07220]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102908; File No. SR-DTC-2025-007]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change To Amend the Recovery and
Wind-Down Plan To Satisfy the Requirements of Exchange Act Rule 17ad-26
April 22, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 16, 2025, 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.\3\ 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\ Capitalized terms not defined herein are defined in the
Rules, By-Laws and Organization Certificate of DTC (the ``Rules''),
available at www.dtcc.com/-/media/Files/Downloads/legal/rules/dtc_rules.pdf, or in the Recovery & Wind-down Plan of DTC (the
``Recovery & Wind-down Plan,'' ``R&W Plan'' or ``Plan'').
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The R&W Plan was adopted in August 2018, has been amended over time
to reflect changes since its adoption,\4\ and is maintained by DTC for
compliance with Rule 17ad-22(e)(3)(ii) under the Act.\5\ Rule 17ad-
22(e)(3)(ii) requires registered clearing agencies to, in short,
establish, implement and maintain plans for the recovery and orderly
wind-down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The Plan is intended to be used by the Board and DTC management
in the event DTC
[[Page 17670]]
encounters scenarios that could potentially prevent it from being able
to provide its critical services to the marketplace as a going concern.
The R&W Plan is managed by the Office of Recovery & Resolution Planning
(referred to in the Plan as the ``R&R Team'') of DTC's parent company,
the Depository Trust & Clearing Corporation (``DTCC''),\6\ on behalf of
DTC, with review and oversight by the DTCC Executive Committee and the
Board.
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\4\ See Securities Exchange Act Release Nos. 83972 (Aug. 28,
2018), 83 FR 44964 (Sept. 4, 2018) (SR-DTC-2017-021); 83953 (Aug.
27, 2018), 83 FR 44381 (Aug. 30, 2018) (SR-DTC-2017-803); 98330
(Sept. 8, 2023), 88 FR 63169 (Sept. 14, 2023) (SR-DTC-2023-008);
91429 (Mar. 29, 2021), 86 FR 17421 (Apr. 2, 2021) (SR-DTC-2021-004);
and 102756 (Apr. 1, 2025), 90 FR 15019 (Apr. 7, 2025) (SR-DTC-2025-
004).
\5\ 17 CFR 240.17ad-22(e)(3)(ii). DTC is a ``covered clearing
agency'' as defined in Rule 17ad-22(a)(5) under the Act and must
comply with paragraph (e) of Rule 17ad-22. In 2012, DTC was
designated a systemically important financial market utility
(``SIFMU'') by the Financial Stability Oversight Council (``FSOC'').
\6\ DTCC operates on a shared service model with respect to DTC
and its other affiliated clearing agencies, National Securities
Clearing Corporation (``NSCC'') and Fixed Income Clearing
Corporation (``FICC''). Most corporate functions are established and
managed on an enterprise-wide basis pursuant to intercompany
agreements under which it is generally DTCC that provides relevant
services to DTC, NSCC and FICC (collectively, the ``Clearing
Agencies'').
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The R&W Plan is comprised of two primary sections: (i) the
``Recovery Plan,'' which sets out the tools and strategies to enable
DTC to recover, in the event it experiences losses that exceed its
prefunded resources, and (ii) the ``Wind-down Plan,'' which describes
the tools and strategies to be used to conduct an orderly wind-down of
DTC's business in a manner designed to permit the continuation of DTC's
critical services in the event that its recovery efforts are not
successful.
The purpose of the rule proposal is to amend the R&W Plan to
satisfy the requirements of new Exchange Act Rule 17ad-26 \7\ (the
``RWP Rule'' or ``Rule 17ad-26''), which codifies the definitions of
``Recovery'' \8\ and ``Orderly wind-down,'' \9\ and requires that plans
for the recovery and orderly wind-down of a covered clearing agency,
such as DTC, identify and include certain specific elements.\10\ In
addition to incorporating the required elements into the Plan, the rule
proposal would also make other conforming updates and technical
revisions consistent with the RWP Rule, including incorporating key
terms as defined in Rule 17ad-26. DTC believes that by helping to
ensure that the R&W Plan meets the requirements of Rule 17ad-26 and
making necessary amendments and technical revisions that provide
additional clarity, the proposed rule change will help DTC ensure that,
in times of extreme market stress, the Plan can ensure continuity of
DTC's critical services and enable Participants and Pledgees to
maintain access to DTC's services through the transfer of its
membership in the event DTC defaults or the Wind-down Plan is ever
triggered by the Board.
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\7\ See Covered Clearing Agency Resilience and Recovery and
Orderly Wind-down Plan, Exchange Act Release No. 101446 (October 25,
2024), 89 FR 91000 (November 18, 2024) (S7-10-23).
\8\ Id. Pursuant to Rule 17ad-26, ``Recovery'' means the actions
of a covered clearing agency, consistent with its rules, procedures,
and other ex ante contractual arrangements, to address any uncovered
loss, liquidity shortfall, or capital inadequacy, whether arising
from participant default or other causes (such as business,
operational, or other structural weaknesses), including actions to
replenish any depleted prefunded financial resources and liquidity
arrangements, as necessary to maintain the covered clearing agency's
viability as a going concern and to continue its provision of core
services, as identified by the covered clearing agency pursuant to
(a)(1) of this section.''
\9\ Id. Pursuant to Rule 17ad-26, ``Orderly wind-down'' means
the actions of a covered clearing agency to effect the permanent
cessation, sale, or transfer of one or more of its core services, as
identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section, in a manner that would not increase the risk
of significant liquidity, credit, or operational problems spreading
among financial institutions or markets and thereby threaten the
stability of the U.S. financial system.''
\10\ Id. Rule 17ad-26 identifies the elements that a covered
clearing agency's RWP must contain, including: (i) elements related
to planning, including the identification and use of scenarios,
triggers, tools, staffing and services providers, and (ii) testing
and board approval of the plans.
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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
Executive Summary
The R&W Plan was adopted in August 2018, has been amended over time
to reflect changes since its adoption,\11\ and is maintained by DTC for
compliance with Rule 17ad-22(e)(3)(ii) under the Act.\12\ Rule 17ad-
22(e)(3)(ii) requires registered clearing agencies to, in short,
establish, implement and maintain plans for the recovery and orderly
wind-down of the covered clearing agency necessitated by credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The Plan is intended to be used by the Board and DTC management
in the event DTC encounters scenarios that could potentially prevent it
from being able to provide its critical services to the marketplace as
a going concern. The R&W Plan is managed by the R&R Team of DTC's
parent company, DTCC,\13\ on behalf of DTC, with review and oversight
by the DTCC Executive Committee and the Board.
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\11\ Supra note 4.
\12\ Supra note 5.
\13\ Supra note 6.
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The R&W Plan is comprised of two primary sections: (i) the
``Recovery Plan,'' which sets out the tools and strategies to enable
DTC to recover, in the event it experiences losses that exceed its
prefunded resources, and (ii) the ``Wind-down Plan,'' which describes
the tools and strategies to be used to conduct an orderly wind-down of
DTC's business in a manner designed to permit the continuation of DTC's
critical services in the event that its recovery efforts are not
successful.
The purpose of the rule proposal is to amend the R&W Plan to
satisfy the requirements of new Exchange Act Rule 17ad-26,\14\ which
codifies the definitions of ``Recovery'' \15\ and ``Orderly wind-
down,'' \16\ and requires that plans for the recovery and orderly wind-
down of a covered clearing agency, such as DTC, identify and include
certain specific elements.\17\ In addition to incorporating the
required elements into the Plan, the rule proposal would also make
other conforming updates and technical revisions consistent with the
RWP Rule, including incorporating key terms as defined in Rule 17ad-26.
DTC believes that by helping to ensure that the R&W Plan meets the
requirements of Rule 17ad-26 and making necessary amendments and
technical revisions that provide additional clarity, the proposed rule
change will help DTC ensure that, in times of extreme market stress,
the Plan can ensure continuity of DTC's critical services and enable
Participants and Pledgees to maintain access to DTC's services through
the transfer of its membership in the event DTC defaults or the Wind-
down Plan is ever triggered by the Board.
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\14\ Supra note 7.
\15\ Supra note 8.
\16\ Supra note 9.
\17\ Supra note 10.
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Background
As stated above, the R&W Plan is managed by the R&R Team, with
review and oversight by the DTCC Executive Committee and the Board. DTC
completed its most recent review of the Plan in 2024, prior to the
SEC's adoption of Rule 17ad-26.\18\ The proposed rule change reflects
[[Page 17671]]
amendments proposed to the Plan that are intended to address the
requirements of Rule17ad-26, which are described in greater detail
below.
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\18\ Supra note 4.
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Proposed Amendments
A. Proposed Changes To Reflect the Requirements of Rule 17ad-26
DTC is proposing changes to the Plan to reflect the requirements of
Rule 17ad-26. Specifically, DTC proposes to amend the Plan to
incorporate a series of attachments to be added to the end of the Plan
that address the requirements of Rule 17ad-26. The proposed attachments
would address those requirements of the RWP Rule that are not otherwise
covered by the current Plan. DTC would also add a new section to the
Plan, Section 9 (Compliance with SEC Rule 17ad-26: Recovery and Orderly
Wind-down Plans of Covered Clearing Agencies) describing each of the
attachments.
The following are the required elements of Rule 17ad-26 with
descriptions of the proposed new attachments to the Plan or, where
applicable, the relevant section of the Plan in which the element is
already addressed.
Rule 17ad-26(a)(1) (Core Services): This element of the RWP Rule
requires, among other things, that the covered clearing agency identify
and describe its core payment, clearing, and settlement services. DTC's
current Plan already includes the information necessary to satisfy this
aspect of Rule 17ad-26. Therefore, other than the relevant name changes
needed to replace the term ``Critical'' with ``Core,'' consistent with
the RWP Rule \19\ the rule proposal would not amend this portion of the
Plan. Specifically, Section 3 (Critical Services) defines the criteria
for classifying certain of DTC's services as ``critical,'' \20\ and
identifies such critical services and the rationale for their
classification. There is a table (Table 3-B: DTC Critical Services)
that lists each of the services, functions or activities that DTC has
identified as ``critical'' based on the applicability of the
criteria.\21\
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\19\ Supra note 7.
\20\ The criteria that is used to identify an DTC service or
function as critical includes consideration as to whether (1) there
is a lack of alternative providers or products; (2) failure/
disruption of Book-Entry Delivery and Settlement Services (Impact on
Transaction Processing) would result in clients' inability to settle
transactions through book-entry movement of securities held at DTC;
(3) failure/disruption of cash payment processing services could
materially strain the flow of liquidity in the U.S. financial
markets and (4) the service is interconnected with other
participants and processes within the U.S. financial system (for
example, with other FMIs, settlement banks, broker-dealers, and
exchanges).
\21\ The following are DTC's critical services as set forth in
Table 3-B: (DTC Critical Services): (1) Equity, Corporate, and Muni
Debt Transaction Processing, (2) MMIs and Commercial Paper
Processing, (3) Inventory Management, (4) End of Day Net Money
Settlement, (5) Underwriting, (6) Deposits Service, (7) Custody
Deposits, (8) Custody Withdrawals, (9) Cash and Stock Distributions,
(10) Redemptions, (11) Reorganizations, (12) Tax Event
Announcements, (13) U.S. Tax Withholding Service, (14) Legal Notice
System (LENS), and (15) Proxy Services.
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Rule 17ad-26(a)(1)(i) (Staffing): Attachment A-1 of the Plan would
address the requirements of Rule 17ad-26(a)(1)(i), which requires that
DTC include identification of the staffing roles necessary to support
DTC's core services.\22\ Specifically, Attachment A-1 would be in the
form of an Excel spreadsheet and would identify the staffing roles
necessary to support the core services of DTC as identified and
described in the Plan, in the event of a recovery and during an orderly
wind-down. Attachment A-1 would identify the core service and describe
the necessary staffing roles, broken out by the number of managers and
performers required within the relevant department (for example,
Operations, IT). It would also include whether the number of roles is
equal to the current business as usual staffing or less and provide a
rationale as to why.
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\22\ Supra note 7.
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Rule 17ad-26(a)(1)(ii) (Staffing Analysis): Attachment A-2 of the
Plan would address the requirement in Rule 17ad-26(a)(1)(ii) \23\ that
DTC analyze how the staffing roles necessary to support the core
services identified and described in Attachment A-1 would continue in
the event of a recovery and during an orderly wind-down. Specifically,
Attachment A-2 would be an analysis that identifies the potential
challenges of retaining staffing roles during a recovery or wind-down
event and potential ways DTC has identified to address those challenges
so that the core services can continue uninterrupted. The analysis
would acknowledge that retaining staff can be particularly challenging
during recovery or orderly wind-down periods as uncertainties may lead
to employee apprehension. It would also reflect the fact that DTCC
cannot guarantee staff retention, but that DTCC has developed various
tools to mitigate potential challenges, especially the risk of loss of
employees with unique or highly specialized knowledge, skills, or
relationships that are critical to functioning and viability of DTC.
The following are the key tools described in Attachment A-2 that DTC
would consider leveraging based on the unique circumstances of the
recovery and orderly wind-down event or staffing roles, (i) succession
planning, (ii) retention agreements, and (iii) cross-training.
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\23\ Id.
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Rule 17ad-26(a)(2)(i) (Service Providers for Core Services):
Attachment B-1 of the Plan would address the requirements of Rule 17ad-
26(a)(2)(i), which requires DTC to identify and describe any service
providers for core services (``CSPs''),\24\ specifying which core
services each service provider supports. Specifically, Attachment B-1
would be in the form of a table with the following rows of information,
(i) identification of the third-party service provider for core
service(s) (``TCSP''), (ii) a description of service performed by the
TCSP, and (iii) identification of the relevant DTC core service(s)
which the TCSP supports. With respect to the identification and
description of DTC's affiliated service providers of core services,
this element of Rule 17ad-26 is addressed in the current Plan in the
section covering ``Intercompany Arrangements.'' \25\
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\24\ Id. Pursuant to Rule 17ad-26(b) (Definitions), ``Service
provider for core services'' means any person, including an
affiliate or a third party, that, through a written agreement for
services provided to or on behalf of the covered clearing agency, on
an ongoing basis, directly supports the delivery of core services,
as identified by the covered clearing agency pursuant to paragraph
(a)(1) of this section.''
\25\ Section 2.4 of the Plan (Intercompany Arrangements)
describes how each of the DTCC SIFMUs receives the majority of its
shared or corporate support services from DTCC through intercompany
agreements. It describes that services are provided by DTCC, DTCC
Europe Limited, DTCC Enterprise Services India Private Limited, and
DTCC Singapore Pte. Ltd. The services generally cover enterprise-
wide support, including human resources, finance, information
technology, credit and quantitative risk, audit, legal, marketing
and other services.
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Rule 17ad-26(a)(2)(ii) (Ensure Continued Performance of Service
Providers for Core Services): Attachment B-2 of the Plan would cover
the requirements of Rule 17ad-26(a)(2)(ii),\26\ which require covered
clearing agencies to address how the covered clearing agency would
ensure that CSPs would continue to perform in the event of a recovery
and during an orderly wind-down, including consideration of its written
agreements with such service providers and whether the obligations
under those written agreements are subject to alteration or termination
as a result of initiation of the recovery and orderly wind-down plan.
Specifically, Attachment B-2 would be a summary describing, among other
things, that by
[[Page 17672]]
the compliance date of Rule 17ad-26,\27\ DTC would review the written
agreements with TCSPs that govern the services provided to DTC \28\ and
evaluate the terms and conditions covering termination and alteration
of performance in the event of initiation of the Plan, and the ability
of DTC to provide the services to a Transferee in the event of a wind-
down.\29\ Attachment B-2 would further provide that DTC would endeavor
to amend such written agreements, if necessary, to ensure that such
TCSPs would continue to perform as required by Rule 17ad-26.
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\26\ Supra note 7.
\27\ Id. The compliance date in which the proposed rule changes
must be effective is by December 15, 2025.
\28\ See supra note 6. As set forth in Section 8.4.2 of the Plan
(Critical Services and Clearing Agency Link Arrangements), DTC
utilizes a shared service model in which services are centralized in
DTCC, which provides enterprise-wide shared services, staffing,
infrastructure and operational support. As a result, DTC is not
typically the party to the written agreements with TCSPs. Rather,
these are primarily entered into by DTCC with the TCSP agreeing to
provide services to DTCC and/or one or more of its affiliates,
including the Clearing Agencies. Therefore, in general, the TCSP
does not have a basis to terminate or suspend the performance under
the written agreement based on a change in condition in respect of a
Clearing Agency, especially when DTCC continues to satisfy its
payment obligations for the services.
\29\ See supra note 3. As described in Section 8.1 of the Plan
(Introduction and Executive Summary) and in DTC Rule 32(A) (Wind-
down of the Corporation), in the event the Board determines that DTC
will initiate the wind-down Plan, a ``Transferee'' means an entity
to which the Business of the Corporation is transferred pursuant to
the Wind-down Plan, and may include (i) a failover entity
established by DTCC, (ii) a then-existing or newly-established third
party entity, or (iii) a bridge entity formed to operate the
business on an interim basis.
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With respect to DTC's affiliated CSPs, each of the relevant written
agreements is designated in Table 2-A of the Plan (SIFMU Legal Entity
Structure and Intercompany Agreements). In order to confirm DTCC's
commitment to continue to provide services to DTC in a recovery and to
a Transferee in the event of an orderly wind-down, Attachment B-2 would
describe that DTC would work with internal stakeholders to amend the
applicable intercompany agreements to include terms and conditions that
address a recovery and orderly wind-down scenario similar to those
described above covering TCSPs.
Rule 17ad-26(a)(3) (Scenarios): Attachment C of the Plan would
address the requirements of Rule 17ad-26(a)(3) which are that DTC
identify and describe scenarios that may potentially prevent it from
being able to provide its core services as identified in the Plan as a
going concern. Specifically, Attachment C identifies three (3)
scenarios that include uncovered credit losses, uncovered liquidity
shortfalls and general business losses. For example, there is a multi-
Participant default scenario, a scenario involving a significant
internal operational incident, and a third-party failure scenario. For
each scenario, proposed Attachment C would describe, among other
things, (i) the scenario type (e.g., uncovered credit loss, uncovered
liquidity loss, general business loss), (ii) the scenario background in
terms of the cause of the circumstances, and (iii) the severely adverse
market conditions associated with or resulting from the scenario.
Rule 17ad-26(a)(4) (Triggers): This element of the RWP Rule
requires that DTC identify and describe the criteria that could trigger
DTC's implementation of the Plan and the process that DTC uses to
monitor and determine whether the criteria have been met, including
DTC's governance arrangements applicable to such process.\30\ DTC's
current Plan already includes the information necessary to satisfy this
aspect of Rule 17ad-26. Specifically, the rule proposal would take the
existing language in the Plan that describes the criteria for DTC's
entry into the Recovery Phase \31\ and implementation of the Recovery
Plan and move it into a new separate Section of the Plan, Section 5.3
(The Recovery Plan Trigger).\32\ In addition, with respect to the
trigger for an orderly wind-down of DTC, current Section 8.4.3
(Triggers for Implementing Wind-down) as well as DTC Rule 32(A) (Wind-
down of the Corporation), Section 2 (Initiation of the Wind-down Plan)
describe the trigger for implementation of the Wind-down Plan and the
associated governance process by the Board.\33\
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\30\ Supra note 7.
\31\ Supra note 4. Pursuant to Section 5.2.4 of the Plan
(Recovery Corridor and Recovery Phase), the ``Recovery Phase''
relates to the actions taken by DTC to restore its financial
resources and avoid wind-down.
\32\ Section 5.3 (The Recovery Trigger) would state that the
criteria that would trigger DTC's entry into the Recovery Phase and
thus the implementation of the Recovery Plan is the date that it
issues the first Loss Allocation Notice of the second loss
allocation round with respect to a given Event Period. (As provided
in DTC Rule 4, the first Loss Allocation Notice in a second or
subsequent round will specify that a second (or subsequent) round
has commenced).
\33\ Supra note 4. Pursuant to Section 8.4.3 of the Plan
(Triggers for Implementing Wind-down) and as set forth in DTC Rule
32(A) (Wind-down of the Corporation), Section 2 (``Initiation of the
Wind-down Plan''), the trigger for the implementation of the Wind-
down Plan is the Board's determination that the application of the
tools set forth in the Plan to mitigate the adverse impact of credit
losses, liquidity shortfalls, losses from general business risk or
any other losses, have not restored DTC to viability as a going
concern, able to continue to provide its core services to
Participants and Pledgees in a safe and efficient manner, or will
not likely restore DTC to viability as a going concern able to
continue to provide its core services to Participants and Pledgees
in a safe and efficient manner.
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Rule 17ad-26(a)(5) and Rule 17ad-26(a)(6) (Rules, Policies,
Procedures, and Tools): Attachment D of the Plan would address the
requirements of Rule 17ad-26(a)(5) and Rule 17ad-25(a)(6),\34\ which
require covered clearing agencies to (i) identify and describe the
rules, policies, procedures and any other tools or resources on which
the covered clearing agency would rely in a recovery or orderly wind-
down, and (ii) address how such rules, policies, procedures and any
other tools or resources would ensure timely implementation of the
Plan. Specifically, Attachment D would be in the form of a two-part
table that would include the following column headings: (i) ``Tools and
Resources,'' (ii) ``Relevant Rules, Policies and Procedures,'' and
(iii) ``Responsible Body/Personnel'' necessary for their governance and
implementation. Each row of the table would include this information
for each of DTC's loss allocation waterfall tools (Part 1 of the table)
and for each of DTC's liquidity resources (Part 2 of the table).\35\
Because the Plan already includes a table that describes DTC's loss
waterfall tools (Table 5-B) \36\ and a table that describes the DTC
liquidity tools (Table 5-C),\37\ proposed Attachment D would expand
upon the information included in Table 5-B and Table 5-C to incorporate
the additional information set forth above.
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\34\ Supra note 7.
\35\ DTC's liquidity risk management strategy, including the
manner in which DTC would deploy liquidity tools as well as its
intraday use of liquidity, is described in the Clearing Agency
Liquidity Risk Management Framework. See Securities Exchange Act
Release No. 102756 (Apr. 1, 2025), 90 FR 15019 (Apr. 7, 2025) (SR-
DTC-2025-004).
\36\ See supra note 3. The Loss Waterfall tools set out in Table
5-B of the Plan are the ``Corporate Contribution'' and ``Loss
Allocation.'' See also, DTC Rule 4, (Participants Fund and
Participants Investment).
\37\ Liquidity tools identified in Table 5-C of the Plan include
(i) increase the speed of portfolio asset sales, (ii) Credit
Facility, and (iii) Net Credit Reductions.
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Rule 17ad-26(a)(7) (Notification to the Commission): Attachment E
would address the requirements of Rule 17ad-26(a)(7), which requires
covered clearing agencies to inform the Commission as soon as
practicable when the covered clearing agency is considering
implementing a recovery or orderly wind-down.\38\ Specifically, with
respect to notification that DTC is considering implementing a
recovery, proposed Attachment E would state that as set forth in
Section 5.2.4 of the Plan (Recovery Corridor and Recovery
[[Page 17673]]
Phase), DTC would monitor, during a ``Recovery Corridor,'' the early
warning indicators that could indicate that DTC may transition into
recovery.\39\ DTC would notify the SEC \40\ at the time a determination
is made by the Executive Committee that DTC has entered the Recovery
Corridor, which means that either a market event, including a
Participant default or a non-default event, may result in uncovered
losses, liquidity shortfalls or general business losses following end-
of-day settlement. As further described in this section of the Plan,
DTC's entry into the Recovery Corridor indicates that DTC is
considering implementing the Recovery Plan. Therefore, the timing of
this notification would provide the SEC with advance notice that DTC is
considering implementing its Recovery Plan and coincide with DTC's
monitoring of both the adequacy of its resources and the actual and
expected timing of resource replenishment.
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\38\ Supra note 7.
\39\ Supra note 4.
\40\ Attachment E would state that DTC would provide this
notification to its regular supervisory contacts at the SEC, either
verbally and/or in writing.
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With respect to notification that DTC is considering implementing
an orderly wind-down, as set forth in Section 8.2.2 of the Plan (Wind-
down Indicators),\41\ proposed Attachment E would state that DTC would
expect that a significant inability to replenish the Participants Fund
and/or other liquidity resources (principally its Credit Facility)
could lead DTC to remain in the Recovery Phase \42\ for an extended
period or potentially consider wind-down. If the various options set
forth in the Recovery Plan are not deemed feasible or readily
available, DTC would enter wind-down following a Runway Period.\43\ DTC
would notify the SEC \44\ at the time a determination is made by the
Executive Committee that DTC has entered the Runway Period. The length
of the Runway Period would vary based on the severity of the market
stress or other event and the ability of DTC to replenish its resources
in a timely manner. However, in all scenarios, a Runway Period would
occur before DTC would need to implement the Wind-down Plan. Thus,
proposed Attachment E would state that the timing of this notification
would provide the SEC with advance notice of the fact that DTC is
considering implementing the Wind-down Plan. It would note further that
as a result of DTC's prior notification to the SEC that it is
considering implementing the Recovery Plan, the SEC would already be
actively engaged with DTC as it proceeds through each stage of the
Crisis Continuum, including prior to DTC's entry into the Runway
Period.
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\41\ Supra note 4.
\42\ Id. The Recovery Plan describes the recovery phase of the
Crisis Continuum, which would begin on the date that DTC issues the
first Loss Allocation Notice of the second loss allocation round
with respect to a given Event Period. See supra note 3. As provided
for in Rule 4 (Participants Fund and Participants Investment).
\43\ Id. The Wind-down Plan identifies the time period leading
up to a decision to wind-down DTC as the ``Runway Period.''
\44\ Supra note 40.
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Rule 17ad-26(a)(8) (Testing): Attachment F of the Plan would
address the requirements of Rule 17ad-26(a)(8) \45\ that procedures for
testing the ability of a covered clearing agency to implement the
recovery and orderly wind-down plan at least every 12 months be
included in the Plan. Specifically, Attachment F would describe DTC's
procedures for testing its ability to implement the Plan at least every
12 months, including describing the requirement that certain DTC
Participants participate in the testing based on specified criteria
\46\ and, when practicable, other stakeholders.
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\45\ Supra note 7.
\46\ Proposed Attachment F would state that the R&R Team would
identify the Participant(s) required to participate in the
simulation and that considerations for the Participant selection may
include, but are not limited to, (i) account structure, (ii)
affiliated family structure, (iii) business model, (iv) operational
details, and (v) Participant size in terms of trading and settlement
activity.
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Rule 17ad-26(a)(9) (Board Approval): Attachment G to the Plan would
address the requirements of Rule 17ad-26(a)(9), which is that the plans
include procedures requiring review and approval of the plans by the
board of directors at least every 12 months or following material
changes to the covered clearing agency's operations that would
significantly affect the viability or execution of the plans, with
review informed, as appropriate, by the covered clearing agency's
testing of the plans.\47\ Specifically, Attachment G would describe
that the R&R Team provides pertinent information and status updates to
the Executive Committee and the Board of each SIFMU, including DTC,
with regard to changes and enhancements to the R&W Plan. It would state
that approval of the Plan is required at least every 12 months or
following material changes to DTC's operations that would significantly
affect the viability or execution of the Plan. The review by the board
is informed, as appropriate, by the SIFMU's testing of the Plan as
described in Attachment F (Testing) to the Plan. It would further
describe that the board reviews the SIFMU R&W plans through formal and
ad hoc board meetings, receiving any necessary interim updates as
determined by the Executive Committee. It would identify that the
policy and procedures that describe the process for the review and
approval of the SIFMU R&W plans by the board are set forth in the
following: (i) Office of Recovery and Resolution Planning Procedures
and (ii) Office of Recovery and Resolution Planning Policy. In
addition, it would provide that the Charter of the board would be
amended to include the obligation that the board review and approve the
Plan at least every 12 months or following material changes to the DTCC
SIFMUs' operations that would significantly affect the viability or
execution of the Plan(s).
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\47\ Supra note 7.
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B. Proposed Addition of Section 9 (Compliance With Rule 17ad-26)
For purposes of clarity and consolidation of each of the elements
required by 17ad-26 in one section of the Plan, DTC is proposing to
amend the Plan to add a new Section 9 entitled ``Compliance with Rule
17ad-26: Recovery and Orderly Wind-down Plans of Covered Clearing
Agencies.'' This proposed new Section would set forth a description of
each of the attachments that are incorporated into the Plan that
address the required elements of Rule 17ad-26.
C. Other Conforming Updates and Technical Revisions
DTC is also proposing to make other conforming updates and
technical revisions to the Plan for consistency with Rule 17ad-26. For
example, DTC would include the following defined terms included in Rule
17ad-26 for ``Recovery,'' ``Orderly wind-down,'' and ``Service provider
for core services.'' \48\ These technical revisions would also, for
example, replace the name of the defined term ``Critical Services'' in
the Plan to ``Core Services,'' to align with the RWP Rule without
changing the substantive statements being revised. DTC believes the
proposed updates and technical revisions would improve the clarity and
accuracy of the Plan and, therefore, would help facilitate the
execution of Plan, if necessary.
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\48\ Supra note 7, 17ad-26(b) (Definitions).
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D. Implementation Date
The proposed rule changes would become effective on the Compliance
Date of Rule 17ad-26, December 15, 2025,\49\ subject to Commission
approval.
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\49\ Id.
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[[Page 17674]]
2. Statutory Basis
DTC believes that the proposal is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
registered clearing agency. In particular, DTC believes that the
amendments to the R&W Plan are consistent with Section 17A(b)(3)(F) of
the Act,\50\ Rule 17ad-22(e)(3)(ii) under the Act,\51\ and Rule 17ad-26
under the Act,\52\ for the reasons described below.
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\50\ 15 U.S.C. 78q-1(b)(3)(F).
\51\ 17 CFR 240.17ad-22(e)(3)(ii).
\52\ Id. DTC is a ``covered clearing agency'' as defined in Rule
17ad-22(a)(5) under the Act and must comply with paragraph (e) of
Rule 17ad-22. In 2012, DTC was designated a SIFMU.
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Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of DTC be designed to promote the prompt and accurate clearance and
settlement of securities transactions. As described above, the proposed
rule change would update the R&W Plan to address the requirements of
Rule 17ad-26 and make certain technical revisions. By helping to ensure
that the R&W Plan reflects the information required by 17ad-26, and
providing additional clarity through the technical revisions, DTC
believes that the proposed rule change would help it continue to
maintain the Plan in a manner that supports the continuity of DTC's
core services and enable Participants and Pledgees to maintain access
to DTC's core services through the transfer of its membership in the
event DTC defaults or the Wind-down Plan is ever triggered by the
Board. For example, by incorporating the staffing roles necessary to
support DTC's core services and the tools that DTC could invoke to
retain staff in the event of a recovery and during an orderly wind-
down, the proposed rule change would assist DTC in ensuring necessary
staff is maintained to support access to and continuity of DTC's core
services. Similarly, the proposed rule change would identify the
service providers supporting DTC's core services and how DTC would
endeavor to ensure that such service providers for core services would
continue to perform in the event of a recovery and during an orderly
wind-down. This would assist DTC in ensuring necessary core service
providers continue to perform under their contractual arrangements and
thus, supporting access to and continuity of DTC's core services. By
facilitating the continuity of its core clearance and settlement
services, DTC believes the Plan and the proposed rule change would
continue to promote the prompt and accurate clearance and settlement of
securities transactions. Therefore, DTC believes the proposed
amendments to the R&W Plan are consistent with the requirements of
Section 17A(b)(3)(F) of the Act.
Rule 17ad-22(e)(3)(ii) under the Act requires DTC to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by the covered clearing agency, which includes plans for the
recovery and orderly wind-down of the covered clearing agency
necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\53\
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\53\ Id.
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Specifically, the Recovery Plan defines the risk management
activities, stress conditions and indicators, and tools that DTC may
use to address stress scenarios that could eventually prevent it from
being able to provide its core services as a going concern. Through the
framework of the Crisis Continuum, the Recovery Plan addresses measures
that DTC may take to address risks of credit losses and liquidity
shortfalls, and other losses that could arise from a Participant
default. The Recovery Plan also addresses the management of general
business risks and other non-default risks that could lead to losses.
The Wind-down Plan would be triggered by a determination by the Board
that recovery efforts have not been, or are unlikely to be, successful
in returning DTC to viability as a going concern. Once triggered, the
Wind-down Plan sets forth clear mechanisms for the transfer of DTC's
membership and business and is designed to facilitate continued access
to DTC's core services and to minimize market impact of the transfer.
By establishing the framework and strategy for the execution of the
transfer and orderly wind-down of DTC in order to facilitate continuous
access to its critical services, the Wind-down Plan establishes a plan
for the orderly wind-down of DTC.
As described above, the proposed rule change would update the R&W
Plan to reflect information regarding the (i) staffing roles necessary
to support DTC's core services and the tools that DTC could invoke to
retain staff in the event of a recovery and during an orderly wind-
down, (ii) service providers of core services supporting DTC's core
services and how DTC would endeavor to ensure that such service
providers for core services would continue to perform in the event of a
recovery and during an orderly wind-down, (iii) scenarios that may
potentially prevent DTC from being able to provide its core services as
a going concern, (iv) criteria that could trigger DTC's implementation
of the Plan, (v) rules, policies, procedures, tools and resources on
which DTC would rely during a recovery or orderly wind-down and how
these would ensure timely implementation of the Plan, (vi) DTC's
process for notification to the Commission as soon as practicable when
DTC is considering implementing a recovery or orderly wind-down, (vii)
testing of DTC's ability to invoke the Plan, and (viii) review and
approval of the Plans by DTC's Board of Directors. The proposed rule
change would also make certain technical corrections to align with the
RWP Rule. By including the above detailed information in the Plan and
ensuring that material provisions of the Plan are current, clear, and
technically correct, DTC believes that the proposed amendments are
designed to support the maintenance of the Plan for the recovery and
orderly wind-down of the covered clearing agency necessitated by credit
losses, liquidity shortfalls, losses from general business risk, or any
other losses, and, as such, meets the requirements of Rule 17ad-
22(e)(3)(ii) under the Act.\54\ Therefore, the proposed changes would
help DTC to maintain the Plan in a way that continues to be consistent
with the requirements of Rule 17ad-22(e)(3)(ii).
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\54\ Id.
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Rule 17ad-26 requires the plans for recovery and orderly wind-down
of covered clearing agencies, such as DTC, to identify and address
certain information that is pertinent to the Plan.\55\ The proposed
rule change would add the various elements required by Rule 17ad-26
noted in the previous paragraph and described more fully above. By
adding the various required elements, the Plan would contain the
necessary information that would facilitate its implementation if it
ever needed to be invoked. Therefore, the proposed rule changes would
help DTC maintain the Plan in a way that is consistent with Rule 17ad-
26.
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\55\ Supra note 7.
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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, or impose any burden, on competition. DTC does not anticipate
that the proposal would affect its day-to-day operations under normal
circumstances, or the management of a typical Participant default
scenario or
[[Page 17675]]
non-default event. The R&W Plan was developed and documented in order
to satisfy applicable regulatory requirements, as discussed above. The
proposal is intended to enhance and update the Plan to ensure it is
clear and remains current in accordance with applicable rules in the
event it is ever necessary to be implemented. The proposed revisions
would not affect any changes to the overall structure or operation of
the Plan or DTC's recovery and wind-down strategy as set forth under
the current Plan. As such, DTC believes the proposal would not have any
impact, or impose any burden, on competition.
(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, DTC will amend
this filing to publicly file such comments as an Exhibit 2 to this
filing, as required by Form 19b-4 and the General Instructions thereto.
Persons submitting written 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2025-007 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-2025-007. 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 (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
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 (https://dtcc.com/legal/sec-rule-filings.aspx). 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-2025-007 and should be submitted on
or before May 19, 2025.
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\56\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-07220 Filed 4-25-25; 8:45 am]
BILLING CODE 8011-01-P