[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30920-30921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12420]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72224; File No. SR-DTC-2014-04]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change to Effect Changes to the DTC
Settlement Service Guide Relating to the Automated Customer Account
Transfer Service of National Securities Clearing Corporation
May 22, 2014.
I. Introduction
On March 27, 2014, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-DTC-2014-04
(``Proposed Rule Change'') \3\ to implement changes to the DTC
Settlement Service Guide (``Guide'') that conform with proposed changes
to the Automated Customer Account Transfer Service (``ACATS'') of
National Securities Clearing Corporation (``NSCC''),\4\ a DTC
affiliate. The Proposed Rule Change was published for comment in the
Federal Register on April 11, 2014.\5\ The Commission did not receive
comments to the Proposed Rule Change. This order approves the Proposed
Rule Change.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ DTC will announce the implementation of this Proposed Rule
Change via an Important Notice to DTC participants
(``Participants'').
\4\ NSCC filed a corresponding proposed rule change with the
Commission. See Release No. 34-71887 (Mar. 27, 2014), 79 FR 20290
(Apr. 11, 2014) (SR-NSCC-2014-04) (``NSCC Proposal'').
\5\ Release No. 34-71886 (Mar. 27, 2014), 79 FR 20260 (Apr. 11,
2014) (SR-DTC-2014-04).
\6\ Terms not defined herein have the meaning set forth in DTC's
Rules, By-Laws, and Organization Certificate (``Rules''), available
at http://dtcc.com/~/media/Files/Downloads/legal/rules/dtc--
rules.ashx.
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II. Description
A. Current ACATS Process
ACATS is an NSCC service that interfaces with DTC for the delivery
of customer \7\ securities from the account of one Participant (that is
also an NSCC member (``Member'')) to another Participant (that is also
a Member). Under the NSCC Proposal, customer account transfers with
respect to two types of DTC-eligible securities will be processed
through a new NSCC accounting operation (``ACATS Settlement Accounting
Operation'') on an ACATS settlement date. Because of the NSCC Proposal,
conforming changes are required to the Guide.
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\7\ For purposes of the Proposed Rule Change, ``customer''
refers to an accountholder of a Participant whose account is
transferred to another Participant by an ACATS transaction.
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The key provision of the NSCC Proposal impacting DTC is that ACATS
transactions will no longer have an associated incentive charge applied
to them by NSCC as the transactions are processed.\8\ As such, an ACATS
transfer will no longer present a funds settlement risk to NSCC or DTC;
thus, ACATS transfers will be processed by DTC free of payment.
Accordingly, DTC proposes to change the applicable procedures in the
Guide, as described below. Additionally, the Proposed Rule Change
includes clarifications in the Guide with respect to the protection of
customer securities processed through ACATS.
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\8\ See NSCC Proposal, 79 FR 20290.
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B. Proposed DTC Rule Changes
Elimination of Short Cover Charge
An ``ACATS short cover charge'' is a dollar amount guaranteed by
NSCC to DTC for the value of securities delivered from a Participant's
DTC account to NSCC for processing by NSCC through its Continuous Net
Settlement system (``CNS''). Because ACATS transfers will be entirely
free of payment under the NSCC proposal as described above, a provision
in the Guide relating to the processing of ``ACATS short cover
charges'' will be deleted, with related adjustments to references to
the DTC Collateral Monitor.\9\
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\9\ These adjustments reduce a Participant's Collateral Monitor
with respect to its net ACATS short positions at the start of ACATS
settlement date. The Participant then receives credit in its
Collateral Monitor for ACATS deliveries as they occur throughout the
day.
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Elimination of Long Allocation Reversals
At NSCC, under current rules, long allocations of securities made
via CNS may be reversed if the NSCC Member receiving the securities
fails to meet its NSCC money settlement obligation. Because ACATS
transactions will not generate any funds settlement obligations, this
reversal is eliminated. The provision in the Guide describing the NSCC
reversal will be deleted.
Memo Seg Optionality
Memo Seg is a systemic mechanism that allows Participants to
prevent inventory that is not subject to a lien or claim of DTC
(``Minimum Amount'' or ``MA'') from falling below a certain number of
units.\10\ In order to extend the Memo Seg option to securities
received via ACATS transfers, the Guide will be revised to provide that
a Participant may increase its number of units designated for
protection under Memo Seg to reflect ACATS receipts.
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\10\ Memo Seg is offered by DTC to its Participants to support
their control of fully-paid customer securities, although its
effectiveness for that purpose depends entirely on the Participant's
management of its accounts.
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Clarification with Respect to MA Securities
ACATS transfers are not subject to any lien or claims by DTC
because they are transferred free of payment. Upon receipt into a
Participant account, the securities constitute MA securities pursuant
to the Rules.\11\ The Guide currently uses the term ``Deemed MA'' to
reflect this condition. This terminology is no longer necessary
because, under the NSCC Proposal, a funds obligation no longer attaches
to ACATS transactions. Accordingly, the term ``Deemed MA'' will be
deleted from the Guide, and a new section of the Guide will confirm
that ACATS securities received by a Participant will, by virtue of the
ACATS transfer, be credited to the Participant's receiving account as
MA.\12\
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\11\ Securities received through the ACATS Settlement Accounting
Operation are not counted as part of the Participant's Collateral
Monitor, unless and until the receiving Participant, in accordance
with the Rules, designates those securities as Net Additions
(``NA'').
\12\ In this regard, a Participant accepting an ACATS free
delivery automatically designates the subject securities as MA
securities. Therefore, such securities are not counted in the
Collateral Monitor of the Participant. It should be noted that the
Participant may re-designate the securities as NA or deliver them
versus payment in which case these securities will be counted in the
Participant's Collateral Monitor.
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[[Page 30921]]
Other Clarifications
The Guide will be revised to clarify the descriptions of CNS Short
Covers and Long Allocations and their effect on Participant collateral
and the Collateral Monitor.
III. Discussion and Commission Finding
Section 19(b)(2)(C) of the Act \13\ 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 requires that the
rules of a clearing agency be designed to, among other things,
``promote the prompt and accurate clearance and settlement of
securities transactions and . . . to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.'' \14\ Further,
Commission Rule 17Ad-22(d)(12) requires that registered clearing
agencies ``establish, implement, maintain and enforce written policies
and procedures reasonable designed to, as applicable . . . [e]sure that
final settlement occurs no later than the end of the settlement day;
and require that intraday or real-time finality be provided where
necessary to reduce risks.'' \15\
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\13\ 15 U.S.C. 78s(b)(2)(C).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(d)(12).
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The Commission finds that the Proposed Rule Change is consistent
with those requirements because the changes, which will conform to the
changes proposed by NSCC in establishing a new ACATS processing
system,\16\ will enable DTC to complete ACATS transfers free of
payment, thus streamlining DTC's related processes, as described above.
Therefore, the Proposed Rule Change will promote the prompt and
accurate clearance and settlement of ACATS transfers, while supporting
finality of such transfers at DTC on settlement day.
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\16\ See NSCC Proposal, 79 FR 20290.
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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 \17\ and the
rules and regulations thereunder.
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\17\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-DTC-2014-04 be, and it hereby is,
approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12420 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P