[Federal Register Volume 78, Number 138 (Thursday, July 18, 2013)]
[Notices]
[Pages 42991-42992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69985; File No. SR-DTC-2013-04]
Self-Regulatory Organizations; the Depository Trust Company;
Order Approving Proposed Rule Change in Connection With the
Modifications to Receiver Authorized Delivery and Reclaim Processing
Value Limits by Transaction
July 12, 2013.
I. Introduction
On May 17, 2013, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change SR-DTC-2013-04 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on June 5, 2013.\3\ The Commission did not receive
any comments on the proposed rule change. This order approves the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Release No. 34-69666 (May 30, 2013), 78 FR 33876 (June 5,
2013).
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II. Description
DTC filed the proposed rule change to modify its Rules & Procedures
(``Rules''), with respect to Receiver Authorized Delivery (``RAD'') and
reclaim transactions, to: (i) Lower limits against which valued Deliver
Orders (``DO'') and Payment Orders (``PO'') \4\ will be required to be
accepted for receipt (i.e., ``matched'' for settlement); (ii) lower
limits for same day reclaim transactions; and (iii) revise the process
for RAD matching of stock loans and returns.
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\4\ A Deliver Order is a book-entry movement of a particular
security between two DTC participants. A Payment Order is a method
for settling funds amounts related to transactions and payments not
associated with a Deliver Order. The defined term ``DO'' as used in
this proposed rule change filing includes all valued Deliver Orders
except for Deliver Orders of: (i) Money market instruments and (ii)
institutional deliveries affirmed through Omgeo, both of which are
not impacted by the proposed rule change.
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Currently DOs and POs valued in amounts above $15 million and $1
million, respectively, are subject to the RAD process, which allows
receivers to review and reject transactions that they do not recognize
prior to processing for delivery. In contrast, lower value DOs and POs
do not require the receiver's acceptance prior to processing in
accordance with DTC's Rules; instead, such transactions may be returned
by the receiver in a reclaim transaction, if the receiver does not
recognize the DO or PO. While both the reclaim and RAD functionalities
allow receiving DTC participants (``Participants'') to exercise control
over which transactions to accept, reclaims tend to create uncertainty
because transactions can be returned late in the day, when the original
deliverer may have limited options to respond. Because such reclaims
are permitted without regard to risk management controls, the
Participant that initiated the original delivery versus payment may
then incur a greater settlement obligation, increasing credit and
liquidity risk to that Participant and to DTC.\5\
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\5\ DTC's risk management controls, including Collateral Monitor
and Net Debit Cap (as defined in DTC Rule 1), are designed so that
DTC can effect system-wide settlement notwithstanding the failure to
settle of its largest Participant or affiliated family of
Participants. Net Debit Cap limits the net debit balance a
Participant can incur so that the unpaid settlement obligation of
the Participant, if any, cannot exceed DTC liquidity resources. The
Collateral Monitor tests that a receiver has adequate collateral to
secure the amount of its net debit balance so that DTC may borrow
funds to cover that amount for system-wide settlement if the
Participant defaults.
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Under the proposal, DTC is changing RAD to require Participants to
match all settlement-related transactions valued greater than $7.5
million for valued DOs and $500,000 for POs, prior to processing.
Matched transactions will be processed through DTC subject to risk
management controls.\6\ According to DTC the rule change will reduce
the intraday uncertainty that may arise from reclaim transactions and
any potential credit and liquidity risk from such reclaims.
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\6\ Each reclaim of a matched transaction that is attempted will
be processed as an original instruction and be subject to risk
management controls and receiver approval (the original deliverer)
via RAD.
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DTC also proposed a further revision to RAD for stock loan and
stock loan return transactions. Currently, Participants may set
bilateral and global limits for transactions subject to RAD which allow
transactions with settlement values that are greater than DTC's default
limits, but less than the Participant's defined bilateral and/or global
limits, to be passively approved.\7\ Any established limits apply to
all transactions with the applicable counterparties (on either a
bilateral or global basis) for all transaction types subject to RAD.
However, stock loan transactions (and stock loan returns) are often
different from ordinary buys and sells, because stock loans are often
agreed upon on a same-day basis (as opposed to T+3 settlement of
purchases and sales). Taking this difference into account, in addition
to the revisions described above, the rule changes will allow receiving
Participants to establish bilateral and global RAD limits for stock
loans and stock loan returns that are different from other transaction
types.\8\
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\7\ A bilateral limit established by a Participant applies to
transactions from a specified deliverer. A global limit established
by a Participant is applied to all valued DOs and POs to the
Participant not otherwise subject to a bilateral limit. Transactions
passively approved under such limits may not be reclaimed.
\8\ The use of a stock lending and return profile will be
voluntary and, absent a profile, the Participant's transactions will
be subject to RAD as applicable to ordinary DOs, including the
established DTC limits as well as Participant established bilateral
and global limits as described above.
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The DTC Settlement Services Guide will be revised to reflect the
changes discussed above, and the effective date of the rule change will
be announced
[[Page 42992]]
through the issuance of a DTC Important Notice.
III. Discussion
Section 19(b)(2)(C) of the Act \9\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. Section 17A(b)(3)(F) of the Act \10\ requires,
among other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions. The Commission finds that the rule change is consistent
with these requirements because it will enhance settlement certainty by
increasing the number of deliveries which will be required to be
approved by a receiving Participant prior to DTC processing, thereby
reducing the intraday uncertainty that may arise from reclaim
transactions and any potential credit and liquidity risk from such
reclaims and facilitating the prompt and accurate clearance and
settlement of securities transactions.
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\9\ 15 U.S.C. 78s(b)(2)(C).
\10\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \11\ and the
rules and regulations thereunder.
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\11\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (File No. SR-DTC-2013-04) be,
and hereby is, approved.\13\
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\12\ 15 U.S.C. 78s(b)(2).
\13\ In approving the proposed rule change, the Commission
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-17209 Filed 7-17-13; 8:45 am]
BILLING CODE 8011-01-P