80 FR 67467 - Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide Additional Details Regarding the Requirement That Participants Participate in Annual Testing of Business Continuity and Disaster Recovery Plans

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 211 (November 2, 2015)

[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67467-67469]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-27800]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76283; File No. SR-DTC-2015-010]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Provide Additional Details Regarding the Requirement That Participants 
Participate in Annual Testing of Business Continuity and Disaster 
Recovery Plans

October 27, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 23, 2015, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II, which Items have 
been prepared by DTC. DTC filed the proposed rule change pursuant to 
Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ thereunder. 
The proposed rule change was effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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)(6).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of a change to DTC's Rule 2 to 
provide additional details regarding the requirement that Participants 
participate in annual testing of DTC's business continuity and disaster 
recovery plans (``BCP Testing''), as more fully described below.\5\
---------------------------------------------------------------------------

    \5\ Terms not otherwise defined herein have the meaning set 
forth in DTC's rules, available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, DTC 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. DTC 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 DTC's Rule 2 (Participants and 
Pledgees) to provide additional details regarding the requirement that 
DTC Participants participate in DTC's annual BCP Testing. Currently, 
pursuant to DTC's Rule 2, an applicant for membership with DTC must 
demonstrate that it has ``adequate personnel capable of handling 
transactions with the Corporation and adequate physical facilities, 
books and records and procedures to fulfill its anticipated commitments 
to, and to meet the operational requirements of, the Corporation, other 
Participants and Pledgees with necessary promptness and accuracy and to 
conform to any condition and requirement which the Corporation 
reasonably deems necessary for its protection.'' \6\ Once a firm 
becomes a Participant of DTC, DTC Rule 2 provides that Participants may 
be required to fulfill certain operational testing requirements that 
may be imposed by DTC to test and monitor the continuing operational 
capability of the Participants.\7\
---------------------------------------------------------------------------

    \6\ DTC Rule 2, Section 1(b), supra, note 5.
    \7\ DTC Rule 2, Section 1, supra, note 5.
---------------------------------------------------------------------------

    Recently, the Commission promulgated Regulation Systems Compliance 
and Integrity (``Reg. SCI''), which requires DTC to establish standards 
to designate members \8\ and

[[Page 67468]]

requires participation by such designated members in scheduled BCP 
Testing with DTC on an annual basis.\9\ Although DTC already conducts 
annual BCP Testing with certain Participants,\10\ DTC is proposing to 
amend Rule 2 to further describe DTC's requirement with respect to BCP 
Testing.
---------------------------------------------------------------------------

    \8\ 17 CFR 242.1004(a). In adopting Reg. SCI, the Commission 
determined not to require covered entities to notify the Commission 
of its designations or the standards that will be used in 
designating members, recognizing instead that each entity's 
standards, designations, and updates, if applicable, would be part 
of its records and, therefore, available to the Commission and its 
staff upon request. See Securities and Exchange Act Release No. 
73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (File No. 
S7-01-13).
    \9\ 17 CFR 242.1004(a) and (b).
    \10\ DTC Rule 2, Section 1, supra, note 5.
---------------------------------------------------------------------------

    The proposed amendments to Rule 2 would increase transparency 
regarding BCP Testing, and ensure DTC's practice with respect to such 
testing is consistent with Reg. SCI by setting forth DTC's rights to: 
(i) Designate Participants required to participate in BCP Testing using 
established standards; (ii) determine the scope and reporting of such 
BCP Testing; and (iii) require Participants to comply with such BCP 
Testing within specified timeframes. In connection with these proposed 
amendments, DTC would refine the factors that it currently uses to 
designate Participants for BCP Testing. For example, while DTC would 
continue to rely on activity-based thresholds to mandate participation 
with annual BCP Testing, DTC would also take into account additional 
factors when designating firms for BCP Testing, including, but not 
limited to: (i) Significant operational issues of the Participant 
during the past twelve months; and (ii) past performance of the 
Participant with respect to BCP Testing. Participants would be informed 
of the specific standards that would be used by DTC, along with any 
updates or changes to these standards, which would be applied on a 
prospective basis, through established methods of communication between 
DTC and its Participants. Likewise, Participants would be notified in 
advance that they have been designated to participate in BCP Testing 
for the upcoming year, and would be provided details concerning the 
nature of such testing as the particular test plans are determined.
    DTC believes the proposed rule change would have no impact on DTC 
Participants relative to what Participants are currently required to 
do. As described above, DTC already requires certain Participants to 
participate in BCP Testing on an annual basis. The proposed rule change 
would provide further clarity with respect to these requirements for 
consistency with Reg. SCI.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that DTC's rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions and to protect investors and the public 
interest.\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Rule 17Ad-22(d)(2), promulgated under the Act, requires DTC to 
require that its Participants have robust operational capacity to meet 
obligations arising from participation in the clearing agency, to 
monitory that its participation requirements are met on an ongoing 
basis, and to have participation requirements that are objective and 
publicly disclosed.\12\ Rule 17Ad-22(d)(4), promulgated under the Act, 
requires DTC to identify sources of operational risk and minimize them 
through the development of appropriate systems, controls, and 
procedures, and have business continuity plans that allow for timely 
recovery of operations and fulfillment of the clearing agency's 
obligations.\13\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(d)(2).
    \13\ 17 CFR 240.17Ad-22(d)(4).
---------------------------------------------------------------------------

    Rule 1004(a) and (b) of Reg. SCI requires DTC to establish 
standards for the designation of those Participants that DTC reasonably 
determines are, taken as a whole, the minimum necessary for the 
maintenance of fair and orderly markets in the event of the activation 
of its business continuity and disaster recovery plans, and to 
designate Participants pursuant to those standards and require 
participation by such designated Participants in scheduled BCP Testing 
annually.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 242.1004(a) and (b).
---------------------------------------------------------------------------

    By facilitating the testing of how business continuity and disaster 
recovery plans function between DTC and its Participants during an 
emergency, the proposed rule change would facilitate the prompt and 
accurate clearance and settlement of securities transactions and 
protect investors and the public interest consistent with of the Act. 
The proposed rule change would provide additional details to DTC's 
rules regarding the requirement for Participants to take part in its 
BCP Testing annually, strengthening its compliance with Rule 17Ad-
22(d)(2) and (4).\15\ Further, the proposed rule change would foster 
the objectives of the Commission under Reg. SCI by helping to ensure 
resilient and available markets.\16\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(d)(2) and (4).
    \16\ 17 CFR 242.1004(a) and (b).
---------------------------------------------------------------------------

    As such, DTC believes that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act, Rule 17Ad-22(d)(2) and (d)(4), 
promulgated under the Act, and Rule 1004(a) and (b) of Reg. SCI, cited 
above.

(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change would impose any 
burden on competition because the proposed rule change would apply to 
all Participants and only provides additional details regarding an 
existing requirement.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) \17\ of the Act and 
Rule 19b-4(f)(6) thereunder.\18\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires DTC to give the Commission written notice of DTC's intent 
to file the proposed rule change, along with a brief description and 
text of the proposed rule change, at least five business days prior 
to the date of filing of the proposed rule change, or such shorter 
time as designated by the Commission. The Commission deems this 
requirement to have been met.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \20\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    NSCC has asked the Commission to waive the 30-day operative delay 
so that the proposal may become operative immediately upon filing. 
According to NSCC, the proposed rule change does not present any novel 
or controversial issues. Rather, NSCC is merely providing additional 
details regarding BCP Testing requirements or adding provisions that 
are consistent with or required by Reg. SCI. Accordingly, the

[[Page 67469]]

Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will allow NSCC to incorporate changes required under Reg. SCI prior 
to the November 3, 2015 compliance date. Therefore, the Commission 
designates the proposed rule change to be operative upon filing.\21\
---------------------------------------------------------------------------

    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-DTC-2015-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2015-010. 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 Web site (http://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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of DTC and on DTCC's 
Web site (http://dtcc.com/legal/sec-rule-filings.aspx). All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-DTC-2015-010 and should be 
submitted on or before November 23, 2015.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27800 Filed 10-30-15; 8:45 am]
BILLING CODE 8011-01-P