[Federal Register Volume 79, Number 241 (Tuesday, December 16, 2014)]
[Notices]
[Pages 74796-74797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29360]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73804; File No. SR-DTC-2014-10)]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change in Connection With the
Modifications To Require Receiver Authorized Delivery Approval for DTC
Processing of Institutional Delivery Transactions
December 10, 2014.
I. Introduction
On October 16, 2014, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2014-10 (``Proposed Rule Change'') 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 November 3, 2014.\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\ Securities Exchange Act Release No. 73443 (Oct. 28, 2014),
79 FR 65268 (Nov. 3, 2014).
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II. Description
DTC filed the Proposed Rule Change to modify the DTC Settlement
Service Guide (``Guide'') to require DTC Participants \4\ to use the
Receiver Authorized Delivery (``RAD'') function to accept any affirmed
institutional delivery transaction (``ID Transaction'') prior to DTC
processing of the delivery. With the Proposed Rule Change, DTC seeks to
reduce uncertainty in the settlement of ID Transactions.
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\4\ 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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Pursuant to a recent rule change,\5\ DTC requires all non-
institutional Deliver Orders and Payment Orders \6\ to be approved
through RAD. RAD enables a receiver of valued deliveries of securities
(``Receiver'') to manage which deliveries to accept, or to reject,
prior to further processing by DTC. With this process, DTC seeks to
establish a consistent internal ``matching'' system for book-entry
deliveries at DTC.
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\5\ Securities Exchange Act Release No. 72576 (Jul. 9, 2014); 79
FR 41335 (Jul. 15, 2014) (SR-DTC-2014-06).
\6\ A Deliver Order is a book-entry movement of a particular
security between two Participants. A Payment Order is a method for
settling funds related to transactions and payments not associated
with a Deliver Order.
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ID Transactions generally have not required RAD approval because
the transactions are externally pre-matched through Omgeo, LLC,\7\
although Participants were permitted to apply RAD voluntarily.\8\
Because RAD was not required, a Receiver could use the same-day reclaim
process to return securities to the original Participant delivering
securities (``Deliverer'') without the acceptance of the Deliverer. DTC
states that this process creates uncertainty for Participants and DTC
as to whether securities will be delivered or reclaimed on the same day
without the prior acceptance of the Receiver or original Deliverer.
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\7\ Omgeo is a leading provider of post-trade, pre-settlement
institutional trade management solutions, processing over one
million trades per day, and servicing approximately 6,500 investment
managers, broker/dealers, and custodians in over 50 countries. See
About DTCC: Omgeo LLC, http://dtcc.com/about/businesses-and-subsidiaries/omgeo.aspx.
\8\ Receivers may optionally set their DTC profile to route ID
Transactions to RAD.
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Pursuant to the Proposed Rule Change, DTC will amend the Guide to
eliminate this uncertainty by requiring the intended Receiver to
approve the ID Transaction in RAD before DTC processes the
transaction.\9\ Same-day reclaims will also be subject to RAD approval
by the original Deliverer, as though the reclaim was its own, separate
transaction. As with any securities delivery, these transactions will
be subject to DTC's risk management controls.\10\
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\9\ For processing efficiency, the proposed change to the Guide
will offer Participants the option to set their system profile to
allow affirmed ID Transactions to be automatically accepted in RAD.
However, Participants will no longer have an option to allow ID
Transactions to bypass RAD.
\10\ DTC risk management controls, including Collateral Monitor
and Net Debit Cap (as defined in DTC Rule 1), are designed so that
DTC may complete system-wide settlement notwithstanding the failure
to settle of its largest Participant or affiliated family of
Participants. The Collateral Monitor tests that a Receiver has
adequate collateral to secure the amount of its net debit balance
and the Net Debit Cap limits the net debit balance of a Participant
so that it cannot exceed DTC liquidity resources for settlement. See
DTC Rules, http://dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.ashx.
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Additionally, with the Proposed Rule Change DTC will make technical
updates to the Guide: (i) update the text for consistency to reflect
that all valued Deliver Orders, Payment Orders, ID Transactions, MMI
transactions, reclaims, pledges, and releases of pledged securities
will be subject to RAD; (ii) update the text for consistency to reflect
that all reclaims will be subject to risk management controls and
remove references to system functions related to reclaims that have
become obsolete; (iii) add an email address to which Settling Banks
seeking to adjust Net Debit Caps may send their requests, in addition
to via mail or overnight delivery to the existing mailing address; (iv)
indicate where Participants may access certain system functions via
Settlement Web either in addition to, or in lieu of, PBS/PTS; (v)
eliminate references to fees relating to the ID Net service, which are
redundant since those fees are also listed in DTC's fee schedule; and
(vi) delete reference to the population of a ``third party'' field on
DTC's system screens for the ID Net service, which is no longer
applicable.
The effective date of the Proposed Rule Change, including the dates
of the implementation phases described above,
[[Page 74797]]
will be announced via a DTC Important Notice.
III. Discussion
Section 19(b)(2)(C) of the Act \11\ 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, among
other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions.\12\ In addition, Rule 17Ad-22(d)(12) of the Act requires
that a clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to ensure 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.\13\
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\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
\13\ 17 CFR 240.17Ad-22(d)(12).
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The Commission finds the Proposed Rule Change consistent with the
Act. More specifically, as the Proposed Rule Change pertains to
requiring acceptance through RAD of any affirmed ID Transaction, the
Commission finds that the Proposed Rule Change is consistent with
Section 17A(b)(3)(F) of the Act \14\ because the change will increase
the number of deliveries that will require Receiver approval prior to
DTC processing. This requirement will reduce the intraday uncertainty
and associated risks that may currently arise from same-day reclaims,
thus facilitating the prompt and accurate clearance and settlement of
securities transactions. The Commission also finds these aspects of the
Proposed Rule Change consistent with Rule 17Ad-22(d)(12) under the Act
\15\ because more transactions will be subject to DTC's risk management
controls, which helps ensure that final settlement occurs no later than
the end of the settlement day.
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\14\ 15 U.S.C. 78q-1(b)(3)(F).
\15\ 17 CFR 240.17Ad-22(d)(12).
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As the Proposed Rule Change pertains to the proposed technical
changes, the Commission finds that the Proposed Rule Change is also
consistent with Section 17A(b)(3)(F) of the Act \16\ because updates to
the Guide to make it more clear, consistent, and current supports the
prompt and accurate clearance and settlement of securities
transactions.
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\16\ 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
Proposed Rule Change 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\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule change SR-DTC-2014-10 be, and hereby is,
approved.\18\
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\18\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29360 Filed 12-15-14; 8:45 am]
BILLING CODE 8011-01-P