81 FR 79543 - Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow DTC To Automate the Process for Participants To Submit Eligibility Requests for the DTC Custody Service
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 219 (November 14, 2016)
Federal Register Volume 81, Issue 219 (November 14, 2016)
| Page Range | 79543-79546 | |
| FR Document | 2016-27236 |
[Federal Register Volume 81, Number 219 (Monday, November 14, 2016)] [Notices] [Pages 79543-79546] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27236] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79252; File No. SR-DTC-2016-011] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow DTC To Automate the Process for Participants To Submit Eligibility Requests for the DTC Custody Service November 7, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4,\2\ notice is hereby given that on October 28, 2016, 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. DTC filed the proposed rule change pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(4) \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)(4). --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change \5\ would amend the DTC Custody Service Guide (``Custody Guide'') \6\ to allow DTC to (i) enhance the process by which Participants submit requests to make Securities, and assets that are not Securities (``Non-Security Assets''), as applicable, eligible for deposit into the Custody Service (``Custody Eligibility Requests'') and (ii) add functionality for Participants to inquire as to whether a particular issue is eligible for the Custody Service. Upon its implementation, the proposed rule change would enhance efficiencies for Participants and DTC by providing a secure, centralized environment for the submission of Custody Eligibility Requests. --------------------------------------------------------------------------- \5\ Capitalized terms not otherwise defined herein have the respective meanings set forth in the DTC Rules, By-laws and Organization Certificate (``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx. \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/ legal/service-guides/Custody.pdf. --------------------------------------------------------------------------- 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 In order for DTC to accept a Security or a Non-Security Asset, as applicable, for deposit into the Custody Service, DTC requires that the Security or Non-Security Asset be made eligible for the Custody Service pursuant to a Custody Eligibility Request.\7\ The proposed rule change would allow DTC to transfer the existing request method for Custody Eligibility Requests by which Participants submit requests via email, to an Internet-based application (``Application''), as more fully described below (``Enhanced Process'').\8\ Upon implementation, the Enhanced Process would (i) promote a more secure environment by providing for the submission and processing of Custody Eligibility Requests through the Application,\9\ and (ii) enhance efficiencies for DTC by reducing the manual processing of Custody Eligibility requests, as more fully described below. --------------------------------------------------------------------------- \7\ Once the Security or Non-Security Asset subject of the Custody Eligibility Request is made eligible by DTC for deposit into the Custody Service, additional deposits of that Security or Non- Security Asset by the requesting Participant or other Participants may be made without requiring submission of another Custody Eligibility Request. \8\ The Custody Guide provides that Custody Service functions may become accessible via web-based services as announced by DTC via Important Notice from time to time. See Custody Guide, supra note 6 at 4. DTC would announce the proposed rule change via Important Notice. \9\ The Application has been designed to provide a secure, centralized online system managed by DTC, whereas Participant security protocols for the transmission of emails may vary. --------------------------------------------------------------------------- Background The Custody Service enables Participants that hold (i) Securities that (A) are not presently eligible for book-entry services at DTC and/ or (B) would otherwise be eligible for DTC book-entry services but are not registered in the name of DTC's nominee, Cede & Co., and/or (ii) certain Non-Security Assets, to deposit those Securities and/or Non- Security Assets with DTC for safe-keeping, in accordance with requirements set forth in the Custody Guide.\10\ Securities and Non- Security Assets deposited through the Custody Service are maintained in DTC's secure vault in a Participant's name or a Participant's customer's name (i.e., they are not transferred into DTC's nominee name, Cede & Co).\11\ In addition, once a Security is deposited into the Custody Service, DTC may perform limited depository services relating to the Security including physical processing for the Security on a Participant's behalf, such as facilitating the transfer of Security Certificates, and providing services available through the Custody Reorganization Service.\12\ --------------------------------------------------------------------------- \10\ See Custody Guide for the types of Securities and Non- Security Assets eligible for deposit to the Custody Service (``Custody Eligible Security Types''), supra note 6, at 5,12. \11\ Cede & Co. is the holder of record of Securities eligible for DTC's book-entry services. \12\ See Custody Guide, supra note 6, 14-17 (providing Procedures for the Custody Reorganization Service). The limited depository services provided by DTC as described above relate only to securities processing functions and do not apply to Non-Security Assets. --------------------------------------------------------------------------- The proposed rule change would amend the Custody Guide to allow DTC to implement the Enhanced Process by moving the processing of Custody Eligibility Requests to the Application and replacing certain manual processes, as more fully described below. Existing Process In order for an issue to be made eligible for deposit to the Custody Service, a Participant must submit a Custody Eligibility Request to DTC. The Custody Eligibility Request is submitted by email and must include certain data elements (``Data Elements'')[hairsp]\13\ and a [[Page 79544]] copy of the Security Certificate to be deposited or, if the asset to be deposited is a Non-Security Asset, other asset-related documentation evidencing the asset to be deposited. Upon receipt of a Custody Eligibility Request, DTC reviews the Data Elements and the Security Certificate or other asset-related documentation, as applicable, to determine whether the Security or Non-Security Asset is a Custody Eligible Security Type.\14\ If the Security or Non-Security, as applicable, is a Custody Eligible Security Type and otherwise complies with DTC's Rules on eligibility,\15\ DTC will make it eligible for Custody services by adding it to the DTC Custody security master file (``Custody Master File''). For those eligible Securities or Non- Security Assets without an assigned CUSIP, DTC establishes the CUSIP for the Security, or other Non-Security Asset, as applicable, in DTC's system. The validation, CUSIP assignment and communication with the Participant are all manually processed by DTC. Once a Security or Non- Security Asset is made eligible for deposit into the Custody Service, the Participant may deliver the physical Security Certificate or other asset-related documentation, as applicable, either by hand, or via overnight mail, for deposit into DTC's secure vault.\16\ --------------------------------------------------------------------------- \13\ Data Elements include DTC Participant Number (to identify the Participant making the Custody Eligibility Request), CUSIP (if available); Sub-Issue Type (required); description of the Security or Non-Security Asset (``Security Description'') (required); U.S/Non U.S. (This field is required for corporate debt and equity issues. All certificates of deposit and collateralized mortgage obligations must be U.S. issues. For municipal securities, this field is set to U.S. and is not updateable); Issuer Country of Origin (required for corporate debt and equity issue types); State of Incorporation (required for all U.S. issues); Dated Date (required for corporate debt and municipal security types); Accrual Date (required for corporate debt and municipal security types); Certificate Type (required and defaulted to R for Registered, can be updated to Bearer or Interchangeable, as applicable); Maturity Date (required for corporate debt, municipal securities and warrants); Interest Rate (required for corporate debt and municipal security types); Name of Paying Agent (required for corporate debt and municipal security types); and Exercise Price (required for warrants). \14\ See Custody Guide, supra note 10. \15\ See Rule 5, supra note 5. \16\ See Custody Guide, supra note 6 at 10-14 (setting forth Procedures for the deposit of Securities and Non-Security Assets to the Custody Service). --------------------------------------------------------------------------- Enhanced Process Pursuant to the proposed rule change, Custody Eligibility Requests would be submitted by Participants to DTC using the Enhanced Process through the Application. DTC would eliminate the ability to submit Custody Eligibility Requests by email. Participants would continue to provide the same information through the Application that they currently provide through email, including the Data Elements and a copy of the Security Certificate or other asset-related documentation they are seeking to make eligible.\17\ In addition, the Application would offer Participants seeking to make multiple Custody Eligibility Requests the option to submit a spreadsheet containing the Data Elements for all the Securities and Non-Security Assets for which eligibility is being requested as one submission.\18\ --------------------------------------------------------------------------- \17\ If the request does not contain the required Data Elements, and the Security Certificate or other asset-related documentation, as applicable, then the Application would prompt the Participant to resubmit the inquiry with all required Data Elements, and the Security Certificate or other asset-related documentation, as applicable. Today, the Participant is notified in this regard only after DTC has reviewed the email request. \18\ Currently, each Custody Eligibility Request must be submitted individually. This feature would assist Participants performing large conversions, including those moving Custody functions from their own facility to DTC's Custody Service. --------------------------------------------------------------------------- Once the Custody Eligibility Request is submitted, DTC would validate the Data Elements to determine whether the Security or Non- Security Asset, as applicable, is a Custody Eligible Security Type, as DTC does today. DTC would send an automated email to notify the Participant if a Custody Eligibility Request requires further review by DTC prior to adding the Security or Non-Security Asset, as applicable, to the Custody system as eligible for deposit. DTC may require other information it deems necessary to complete its processing of a Custody Eligibility Request. If DTC requires additional information to complete its review of a Custody Eligibility Request, or otherwise identifies an issue that may affect processing of the Custody Eligibility Request (e.g., incorrect Sub-Issue type, an issue regarding compliance with sanctions administered and enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury (``OFAC''), the listing of a Security on the issuer list maintained by OFAC,\19\ etc.), DTC staff would contact the Participant in this regard directly by phone and/or in writing.\20\ --------------------------------------------------------------------------- \19\ See Rule 2, Section 8, and Rule 5, Section 1, supra note 5. \20\ The Custody Guide would state that Participants with questions regarding this process should call the DTC Underwriting Hotline phone number. --------------------------------------------------------------------------- If a Security or Non-Security Asset subject of the Custody Eligibility Request is eligible for deposit in the Custody Service but has not been assigned a CUSIP prior to submission of the Custody Eligibility Request to the Application, DTC would assign a CUSIP as it does today.\21\ DTC would then notify the Participant through an automated email message that the Security or Non-Security Asset is eligible for the Custody Service, and add the Security or Non-Security Asset to the Custody Master File. The Participant may then deliver the physical Security Certificate or, for a Non-Security Asset, other asset-related documentation, as applicable, to DTC for deposit into DTC's secure vault in the same manner that it would today. --------------------------------------------------------------------------- \21\ CUSIPS [sic] assigned by DTC would be viewable on the Application screen. --------------------------------------------------------------------------- Implementation of the Enhanced Process would provide enhanced efficiency and a more secure system for submission and review of Custody Eligibility Requests to Participants and DTC in relation to the current email-based method. First, as described above, the Application would enhance security in transmission of Custody Eligibility Requests by using a secure online system instead of the current email method. Second, use of the Application for this purpose would enhance transparency for Participants with respect to the status of their individual Custody Eligibility Requests.\22\ Third, the migration of the submission of Custody Eligibility Requests from an email-based method to using the Application would enhance processing efficiencies at DTC by providing an automated and centralized means for DTC to receive and manage Eligibility Request Documents. --------------------------------------------------------------------------- \22\ The Application would provide Participants with the ability to view the status of their Custody Eligibility Requests online. --------------------------------------------------------------------------- Eligibility Inquiry Capability The Application would also offer a new inquiry capability (``Custody Eligibility Inquiry Function'') for Participants' use that would allow them to directly view whether a Security or Non-Security Asset is already eligible for deposit into the Custody Service. The Participant would make the inquiry by entering certain search criteria (``Search Criteria''). The Custody Eligibility Inquiry Function, in addition to providing Participants the ability to search by CUSIP and Security Description or Non-Security Asset, would also provide the capability to use other Search Criteria to narrow the search.\23\ If the applicable Security or Non-Security Asset is eligible for the Custody Service, the Participant would know that it can proceed with its deposit without first requesting eligibility. This feature would provide a Participant that needs to verify eligibility of a Security or Non-Security Asset before depositing it a real-time view into whether the Security is already on the Custody Master File [[Page 79545]] without having to inquire with DTC by phone or email. --------------------------------------------------------------------------- \23\ The Search Criteria include CUSIP or partial CUSIP (at least 6 characters), and Security Description (at least 3 characters). Additional Search Criteria would allow the Participant to narrow the results including the Security Interest Rate range, Maturity Date range, Dated Date range and Sub-Issue Type. --------------------------------------------------------------------------- Proposed Rule Changes The Custody Guide does not currently contain a section describing Custody Eligibility Requests and the process for submitting them. Pursuant to the proposed rule change, DTC would amend the text of the Custody Guide to add a section in this regard, and: (i) Provide the Procedures for the Enhanced Process as described above; (ii) provide that (a) if a Participant seeking to make a Security or other asset eligible for the Custody Service does not know whether the Security or asset is currently eligible for deposit in DTC's Custody Service, the Participant should verify the eligibility status using the online Custody Eligibility Inquiry Function through the Application, as defined below and (b) if the Security or asset is not eligible then the Participant must, prior to depositing it at DTC, submit a request to DTC to make the Security or asset eligible for the Custody Service using the Custody Eligibility Application. [sic] (iii) provide the Procedures for the Custody Eligibility Inquiry Function as described above; and (iv) state that Participants must have access to DTC's online web- based portal (``Portal'') and the Application in order to submit Custody Eligibility Requests and make Custody Eligibility Inquiries.\24\ --------------------------------------------------------------------------- \24\ The Custody Guide would provide that Participants that require assistance in accessing the Portal and/or Application should contact their DTC Relationship Manager. --------------------------------------------------------------------------- Implementation The proposed rule change would be implemented in phases whereby Participants using the Custody Service would be migrated to use the Application to submit Custody Eligibility Requests over a period of approximately two months beginning on October 31, 2016 (``Effective Date''). Migration to the Application for all Participants that use the Custody Service would be expected to be completed by the end of December 2016. However, email submission of Custody Eligibility Requests would remain available to Participants as a valid method to submit Custody Eligibility Requests until the later of (i) January 31, 2017 and (ii) 30 calendar days following the date all Participants using the Custody Service have migrated to be able to submit Custody Eligibility Requests using the Custody Eligibility Application (``Final Effective Date'').\25\ On and after the Final Effective Date, DTC would not accept such email requests and Custody Eligibility Requests would be required to be submitted through the Custody Eligibility Application only. The Custody Guide text as proposed would contain a footnote reflecting the above regarding the Final Effective Date and state that the footnote would be deleted as of the Final Effective Date. --------------------------------------------------------------------------- \25\ The Final Effective Date would be announced via a DTC Important Notice. --------------------------------------------------------------------------- 2. Statutory Basis Section 17A(b)(3)(F) of the Act \26\ requires that the rules of the clearing agency be designed, inter alia, in general, to protect investors and the public interest. DTC believes the proposed rule change is consistent with this provision because (i) having Custody Eligibility Requests submitted through the Application would promote efficient and secure delivery and processing of such requests in order to facilitate making Securities and Non-Security Assets, as applicable, eligible for deposit into the Custody Service by Participants on behalf of themselves and their customers, and (ii) the proposed online functionality would facilitate enhanced transparency for Participants in their use of the Custody Service on behalf of themselves and their customers. Thus, by (i) facilitating efficient and secure submission of Custody Eligibility Requests, which in turn would facilitate the ability of Participants to deposit customer assets in DTC's secure vault, and (ii) providing for enhanced transparency to Participants in this regard, the proposed rule change would protect investors and the public interest. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- Rule 17Ad-22(d)(6) promulgated under the Act \27\ requires that each registered clearing agency shall establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable, be cost-effective in meeting the requirements of participants while maintaining safe and secure operations. DTC believes that the proposed rule change is consistent with Rule 17Ad-22(d)(6) because (i) by enhancing the efficiency of the processing of Custody Eligibility Requests without increasing costs to Participants to access the service,\28\ the proposed rule change would be cost-effective in meeting requirements of Participants, and (ii) by processing Custody Eligibility Requests through the Application, a centralized and secure online application, DTC would maintain safe and secure operations with respect to transmission and processing of such requests. --------------------------------------------------------------------------- \27\ 17 CFR 240.17Ad-22(d)(6). \28\ DTC would not charge Participants a fee for access to the Application. --------------------------------------------------------------------------- (B) Clearing Agency's Statement on Burden on Competition DTC does not believe that the proposed rule change would have any adverse impact, or impose any burden, on competition because DTC would not charge a fee for access to the Application and therefore the proposal would not impose additional costs on Participants in this regard. In addition, the process for Participants to register for the Application is identical to that used by Participants to register for DTC web-based services generally.\29\ DTC has discussed the proposal with Participants using the Custody Service and is conducting user testing on the Application prior to implementation on a Participant-by- Participant basis. --------------------------------------------------------------------------- \29\ Participants using DTC web-based services, such as the Application, make use of super access coordinators who are persons at the Participant firm authorized to grant other individuals at the Participant firm to access DTC web-based services on behalf of the Participant. All Participants using the Custody Service currently have appointed super access coordinators. --------------------------------------------------------------------------- (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others DTC has not solicited and does not intend to solicit, comments regarding the proposed rule change. DTC has not received any unsolicited written comments from interested parties. To the extent DTC receives written comments on the proposed rule change, DTC will forward such comments to the Commission. DTC has conducted industry outreach with respect to the proposal including discussions with the Securities Processing Advisory Board (SPAB), whose members account for over 70 percent of the overall Custody Service activity at DTC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) \30\ of the Act and paragraph (f) of Rule 19b-4 \31\ thereunder. 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, [[Page 79546]] or otherwise in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78s(b)(3)(A). \31\ 17 CFR 240.19b-4(f). --------------------------------------------------------------------------- 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 CommentsUse 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-2016-011 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-2016-011. 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-2016-011 and should be submitted on or before December 5, 2016. --------------------------------------------------------------------------- \32\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\32\ Brent J. Fields, Secretary. [FR Doc. 2016-27236 Filed 11-10-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices 79543
ISEGemini–2016–13 and should be Custody Service (‘‘Custody Eligibility manual processing of Custody Eligibility
submitted on or before December 5, Requests’’) and (ii) add functionality for requests, as more fully described below.
2016. Participants to inquire as to whether a
Background
For the Commission, by the Division of particular issue is eligible for the
Trading and Markets, pursuant to delegated Custody Service. Upon its The Custody Service enables
authority.22 implementation, the proposed rule Participants that hold (i) Securities that
Brent J. Fields, change would enhance efficiencies for (A) are not presently eligible for book-
Secretary. Participants and DTC by providing a entry services at DTC and/or (B) would
secure, centralized environment for the otherwise be eligible for DTC book-entry
[FR Doc. 2016–27237 Filed 11–10–16; 8:45 am]
submission of Custody Eligibility services but are not registered in the
BILLING CODE 8011–01–P
Requests. name of DTC’s nominee, Cede & Co.,
and/or (ii) certain Non-Security Assets,
II. Clearing Agency’s Statement of the to deposit those Securities and/or Non-
SECURITIES AND EXCHANGE Purpose of, and Statutory Basis for, the
COMMISSION Security Assets with DTC for safe-
Proposed Rule Change keeping, in accordance with
[Release No. 34–79252; File No. SR–DTC– In its filing with the Commission, the requirements set forth in the Custody
2016–011] clearing agency included statements Guide.10 Securities and Non-Security
concerning the purpose of and basis for Assets deposited through the Custody
Self-Regulatory Organizations; The Service are maintained in DTC’s secure
the proposed rule change and discussed
Depository Trust Company; Notice of vault in a Participant’s name or a
any comments it received on the
Filing and Immediate Effectiveness of Participant’s customer’s name (i.e., they
proposed rule change. The text of these
a Proposed Rule Change To Allow DTC are not transferred into DTC’s nominee
statements may be examined at the
To Automate the Process for name, Cede & Co).11 In addition, once a
places specified in Item IV below. The
Participants To Submit Eligibility Security is deposited into the Custody
clearing agency has prepared
Requests for the DTC Custody Service Service, DTC may perform limited
summaries, set forth in sections A, B,
November 7, 2016. and C below, of the most significant depository services relating to the
Pursuant to Section 19(b)(1) of the aspects of such statements. Security including physical processing
Securities Exchange Act of 1934 for the Security on a Participant’s
(A) Clearing Agency’s Statement of the behalf, such as facilitating the transfer of
(‘‘Act’’) 1 and Rule 19b–4,2 notice is Purpose of, and Statutory Basis for, the
hereby given that on October 28, 2016, Security Certificates, and providing
Proposed Rule Change services available through the Custody
The Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange 1. Purpose Reorganization Service.12
Commission (‘‘Commission’’) the The proposed rule change would
In order for DTC to accept a Security
proposed rule change as described in amend the Custody Guide to allow DTC
or a Non-Security Asset, as applicable,
Items I, II and III below, which Items to implement the Enhanced Process by
for deposit into the Custody Service,
have been prepared by the clearing moving the processing of Custody
DTC requires that the Security or Non-
agency. DTC filed the proposed rule Eligibility Requests to the Application
Security Asset be made eligible for the
change pursuant to Section 19(b)(3)(A) 3 and replacing certain manual processes,
Custody Service pursuant to a Custody
of the Act and Rule 19b–4(f)(4) 4 as more fully described below.
Eligibility Request.7 The proposed rule
thereunder. The proposed rule change change would allow DTC to transfer the Existing Process
was effective upon filing with the existing request method for Custody
Commission. The Commission is In order for an issue to be made
Eligibility Requests by which eligible for deposit to the Custody
publishing this notice to solicit Participants submit requests via email,
comments on the proposed rule change Service, a Participant must submit a
to an Internet-based application Custody Eligibility Request to DTC. The
from interested persons. (‘‘Application’’), as more fully described Custody Eligibility Request is submitted
I. Clearing Agency’s Statement of the below (‘‘Enhanced Process’’).8 Upon by email and must include certain data
Terms of Substance of the Proposed implementation, the Enhanced Process elements (‘‘Data Elements’’) 13 and a
Rule Change would (i) promote a more secure
environment by providing for the 10 See Custody Guide for the types of Securities
The proposed rule change 5 would submission and processing of Custody and Non-Security Assets eligible for deposit to the
amend the DTC Custody Service Guide Eligibility Requests through the Custody Service (‘‘Custody Eligible Security
(‘‘Custody Guide’’) 6 to allow DTC to (i) Application,9 and (ii) enhance Types’’), supra note 6, at 5,12.
enhance the process by which efficiencies for DTC by reducing the
11 Cede & Co. is the holder of record of Securities
Participants submit requests to make eligible for DTC’s book-entry services.
12 See Custody Guide, supra note 6, 14–17
Securities, and assets that are not 7 Once the Security or Non-Security Asset subject
(providing Procedures for the Custody
Securities (‘‘Non-Security Assets’’), as of the Custody Eligibility Request is made eligible Reorganization Service). The limited depository
applicable, eligible for deposit into the by DTC for deposit into the Custody Service, services provided by DTC as described above relate
additional deposits of that Security or Non-Security only to securities processing functions and do not
22 17 Asset by the requesting Participant or other apply to Non-Security Assets.
CFR 200.30–3(a)(12).
1 15
Participants may be made without requiring 13 Data Elements include DTC Participant
U.S.C. 78s(b)(1). submission of another Custody Eligibility Request.
2 17 CFR 240.19b–4. Number (to identify the Participant making the
8 The Custody Guide provides that Custody
Custody Eligibility Request), CUSIP (if available);
mstockstill on DSK3G9T082PROD with NOTICES
3 15 U.S.C. 78s(b)(3)(A).
Service functions may become accessible via web- Sub-Issue Type (required); description of the
4 17 CFR 240.19b–4(f)(4).
based services as announced by DTC via Important Security or Non-Security Asset (‘‘Security
5 Capitalized terms not otherwise defined herein Notice from time to time. See Custody Guide, supra Description’’) (required); U.S/Non U.S. (This field is
have the respective meanings set forth in the DTC note 6 at 4. DTC would announce the proposed rule required for corporate debt and equity issues. All
Rules, By-laws and Organization Certificate change via Important Notice. certificates of deposit and collateralized mortgage
(‘‘Rules’’), available at http://www.dtcc.com/legal/ 9 The Application has been designed to provide obligations must be U.S. issues. For municipal
rules-and-procedures.aspx. a secure, centralized online system managed by securities, this field is set to U.S. and is not
6 Available at http://www.dtcc.com/∼/media/ DTC, whereas Participant security protocols for the updateable); Issuer Country of Origin (required for
Files/Downloads/legal/service-guides/Custody.pdf. transmission of emails may vary. Continued
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copy of the Security Certificate to be addition, the Application would offer the Custody Master File. The Participant
deposited or, if the asset to be deposited Participants seeking to make multiple may then deliver the physical Security
is a Non-Security Asset, other asset- Custody Eligibility Requests the option Certificate or, for a Non-Security Asset,
related documentation evidencing the to submit a spreadsheet containing the other asset-related documentation, as
asset to be deposited. Upon receipt of a Data Elements for all the Securities and applicable, to DTC for deposit into
Custody Eligibility Request, DTC Non-Security Assets for which DTC’s secure vault in the same manner
reviews the Data Elements and the eligibility is being requested as one that it would today.
Security Certificate or other asset- submission.18 Implementation of the Enhanced
related documentation, as applicable, to Once the Custody Eligibility Request Process would provide enhanced
determine whether the Security or Non- is submitted, DTC would validate the efficiency and a more secure system for
Security Asset is a Custody Eligible Data Elements to determine whether the submission and review of Custody
Security Type.14 If the Security or Non- Security or Non-Security Asset, as Eligibility Requests to Participants and
Security, as applicable, is a Custody applicable, is a Custody Eligible DTC in relation to the current email-
Eligible Security Type and otherwise Security Type, as DTC does today. DTC based method. First, as described above,
complies with DTC’s Rules on would send an automated email to the Application would enhance security
eligibility,15 DTC will make it eligible notify the Participant if a Custody in transmission of Custody Eligibility
for Custody services by adding it to the Eligibility Request requires further Requests by using a secure online
DTC Custody security master file review by DTC prior to adding the system instead of the current email
(‘‘Custody Master File’’). For those Security or Non-Security Asset, as method. Second, use of the Application
eligible Securities or Non-Security applicable, to the Custody system as for this purpose would enhance
Assets without an assigned CUSIP, DTC eligible for deposit. DTC may require transparency for Participants with
establishes the CUSIP for the Security, other information it deems necessary to respect to the status of their individual
or other Non-Security Asset, as complete its processing of a Custody Custody Eligibility Requests.22 Third,
applicable, in DTC’s system. The Eligibility Request. If DTC requires the migration of the submission of
validation, CUSIP assignment and additional information to complete its Custody Eligibility Requests from an
communication with the Participant are review of a Custody Eligibility Request, email-based method to using the
all manually processed by DTC. Once a or otherwise identifies an issue that may Application would enhance processing
Security or Non-Security Asset is made affect processing of the Custody efficiencies at DTC by providing an
eligible for deposit into the Custody Eligibility Request (e.g., incorrect Sub- automated and centralized means for
Service, the Participant may deliver the Issue type, an issue regarding DTC to receive and manage Eligibility
physical Security Certificate or other compliance with sanctions administered Request Documents.
asset-related documentation, as and enforced by the Office of Foreign Eligibility Inquiry Capability
applicable, either by hand, or via Assets Control of the U.S. Department of
overnight mail, for deposit into DTC’s the Treasury (‘‘OFAC’’), the listing of a The Application would also offer a
secure vault.16 Security on the issuer list maintained by new inquiry capability (‘‘Custody
OFAC,19 etc.), DTC staff would contact Eligibility Inquiry Function’’) for
Enhanced Process Participants’ use that would allow them
the Participant in this regard directly by
Pursuant to the proposed rule change, phone and/or in writing.20 to directly view whether a Security or
Custody Eligibility Requests would be If a Security or Non-Security Asset Non-Security Asset is already eligible
submitted by Participants to DTC using subject of the Custody Eligibility for deposit into the Custody Service.
the Enhanced Process through the Request is eligible for deposit in the The Participant would make the inquiry
Application. DTC would eliminate the Custody Service but has not been by entering certain search criteria
ability to submit Custody Eligibility assigned a CUSIP prior to submission of (‘‘Search Criteria’’). The Custody
Requests by email. Participants would the Custody Eligibility Request to the Eligibility Inquiry Function, in addition
continue to provide the same Application, DTC would assign a CUSIP to providing Participants the ability to
information through the Application as it does today.21 DTC would then search by CUSIP and Security
that they currently provide through notify the Participant through an Description or Non-Security Asset,
email, including the Data Elements and automated email message that the would also provide the capability to use
a copy of the Security Certificate or Security or Non-Security Asset is other Search Criteria to narrow the
other asset-related documentation they eligible for the Custody Service, and add search.23 If the applicable Security or
are seeking to make eligible.17 In the Security or Non-Security Asset to Non-Security Asset is eligible for the
Custody Service, the Participant would
corporate debt and equity issue types); State of
asset-related documentation, as applicable, then the know that it can proceed with its
Incorporation (required for all U.S. issues); Dated deposit without first requesting
Application would prompt the Participant to
Date (required for corporate debt and municipal
security types); Accrual Date (required for corporate resubmit the inquiry with all required Data eligibility. This feature would provide a
debt and municipal security types); Certificate Type Elements, and the Security Certificate or other Participant that needs to verify
asset-related documentation, as applicable. Today,
(required and defaulted to R for Registered, can be
the Participant is notified in this regard only after
eligibility of a Security or Non-Security
updated to Bearer or Interchangeable, as Asset before depositing it a real-time
applicable); Maturity Date (required for corporate DTC has reviewed the email request.
debt, municipal securities and warrants); Interest 18 Currently, each Custody Eligibility Request view into whether the Security is
Rate (required for corporate debt and municipal must be submitted individually. This feature would already on the Custody Master File
security types); Name of Paying Agent (required for assist Participants performing large conversions,
corporate debt and municipal security types); and including those moving Custody functions from 22 The Application would provide Participants
mstockstill on DSK3G9T082PROD with NOTICES
Exercise Price (required for warrants). their own facility to DTC’s Custody Service.
with the ability to view the status of their Custody
14 See Custody Guide, supra note 10. 19 See Rule 2, Section 8, and Rule 5, Section 1,
Eligibility Requests online.
15 See Rule 5, supra note 5. supra note 5. 23 The Search Criteria include CUSIP or partial
16 See Custody Guide, supra note 6 at 10–14 20 The Custody Guide would state that
CUSIP (at least 6 characters), and Security
(setting forth Procedures for the deposit of Participants with questions regarding this process Description (at least 3 characters). Additional
Securities and Non-Security Assets to the Custody should call the DTC Underwriting Hotline phone Search Criteria would allow the Participant to
Service). number. narrow the results including the Security Interest
17 If the request does not contain the required 21 CUSIPS [sic] assigned by DTC would be Rate range, Maturity Date range, Dated Date range
Data Elements, and the Security Certificate or other viewable on the Application screen. and Sub-Issue Type.
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![Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices 79545
without having to inquire with DTC by Date’’).25 On and after the Final and secure online application, DTC
phone or email. Effective Date, DTC would not accept would maintain safe and secure
such email requests and Custody operations with respect to transmission
Proposed Rule Changes
Eligibility Requests would be required and processing of such requests.
The Custody Guide does not currently to be submitted through the Custody
Eligibility Application only. The (B) Clearing Agency’s Statement on
contain a section describing Custody
Custody Guide text as proposed would Burden on Competition
Eligibility Requests and the process for
submitting them. Pursuant to the contain a footnote reflecting the above DTC does not believe that the
proposed rule change, DTC would regarding the Final Effective Date and proposed rule change would have any
amend the text of the Custody Guide to state that the footnote would be deleted adverse impact, or impose any burden,
add a section in this regard, and: as of the Final Effective Date. on competition because DTC would not
(i) Provide the Procedures for the charge a fee for access to the
2. Statutory Basis
Enhanced Process as described above; Application and therefore the proposal
Section 17A(b)(3)(F) of the Act 26 would not impose additional costs on
(ii) provide that (a) if a Participant requires that the rules of the clearing
seeking to make a Security or other asset Participants in this regard. In addition,
agency be designed, inter alia, in the process for Participants to register
eligible for the Custody Service does not general, to protect investors and the
know whether the Security or asset is for the Application is identical to that
public interest. DTC believes the used by Participants to register for DTC
currently eligible for deposit in DTC’s proposed rule change is consistent with
Custody Service, the Participant should web-based services generally.29 DTC has
this provision because (i) having discussed the proposal with Participants
verify the eligibility status using the Custody Eligibility Requests submitted
online Custody Eligibility Inquiry using the Custody Service and is
through the Application would promote conducting user testing on the
Function through the Application, as efficient and secure delivery and
defined below and (b) if the Security or Application prior to implementation on
processing of such requests in order to a Participant-by-Participant basis.
asset is not eligible then the Participant facilitate making Securities and Non-
must, prior to depositing it at DTC, Security Assets, as applicable, eligible (C) Clearing Agency’s Statement on
submit a request to DTC to make the for deposit into the Custody Service by Comments on the Proposed Rule
Security or asset eligible for the Custody Participants on behalf of themselves and Change Received from Members,
Service using the Custody Eligibility their customers, and (ii) the proposed Participants, or Others
Application. [sic] online functionality would facilitate DTC has not solicited and does not
(iii) provide the Procedures for the enhanced transparency for Participants intend to solicit, comments regarding
Custody Eligibility Inquiry Function as in their use of the Custody Service on the proposed rule change. DTC has not
described above; and behalf of themselves and their received any unsolicited written
(iv) state that Participants must have customers. Thus, by (i) facilitating comments from interested parties. To
access to DTC’s online web-based portal efficient and secure submission of the extent DTC receives written
(‘‘Portal’’) and the Application in order Custody Eligibility Requests, which in comments on the proposed rule change,
to submit Custody Eligibility Requests turn would facilitate the ability of DTC will forward such comments to the
and make Custody Eligibility Participants to deposit customer assets Commission. DTC has conducted
Inquiries.24 in DTC’s secure vault, and (ii) providing industry outreach with respect to the
for enhanced transparency to proposal including discussions with the
Implementation Participants in this regard, the proposed Securities Processing Advisory Board
The proposed rule change would be rule change would protect investors and (SPAB), whose members account for
implemented in phases whereby the public interest. over 70 percent of the overall Custody
Participants using the Custody Service Rule 17Ad–22(d)(6) promulgated
Service activity at DTC.
would be migrated to use the under the Act 27 requires that each
Application to submit Custody registered clearing agency shall III. Date of Effectiveness of the
Eligibility Requests over a period of establish, implement, maintain and Proposed Rule Change and Timing for
approximately two months beginning on enforce written policies and procedures Commission Action
October 31, 2016 (‘‘Effective Date’’). reasonably designed to, as applicable, be The foregoing rule change has become
Migration to the Application for all cost-effective in meeting the effective pursuant to Section
Participants that use the Custody requirements of participants while 19(b)(3)(A) 30 of the Act and paragraph
Service would be expected to be maintaining safe and secure operations. (f) of Rule 19b–4 31 thereunder. At any
DTC believes that the proposed rule
completed by the end of December time within 60 days of the filing of the
change is consistent with Rule 17Ad–
2016. However, email submission of proposed rule change, the Commission
22(d)(6) because (i) by enhancing the
Custody Eligibility Requests would summarily may temporarily suspend
efficiency of the processing of Custody
remain available to Participants as a such rule change if it appears to the
Eligibility Requests without increasing
valid method to submit Custody Commission that such action is
costs to Participants to access the
Eligibility Requests until the later of (i) necessary or appropriate in the public
service,28 the proposed rule change
January 31, 2017 and (ii) 30 calendar interest, for the protection of investors,
would be cost-effective in meeting
days following the date all Participants
requirements of Participants, and (ii) by
using the Custody Service have 29 Participants using DTC web-based services,
processing Custody Eligibility Requests
mstockstill on DSK3G9T082PROD with NOTICES
migrated to be able to submit Custody through the Application, a centralized
such as the Application, make use of super access
Eligibility Requests using the Custody coordinators who are persons at the Participant firm
authorized to grant other individuals at the
Eligibility Application (‘‘Final Effective 25 The Final Effective Date would be announced Participant firm to access DTC web-based services
via a DTC Important Notice. on behalf of the Participant. All Participants using
24 The Custody Guide would provide that 26 15 U.S.C. 78q–1(b)(3)(F). the Custody Service currently have appointed super
Participants that require assistance in accessing the 27 17 CFR 240.17Ad–22(d)(6). access coordinators.
30 15 U.S.C. 78s(b)(3)(A).
Portal and/or Application should contact their DTC 28 DTC would not charge Participants a fee for
Relationship Manager. access to the Application. 31 17 CFR 240.19b–4(f).
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![79546 Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
or otherwise in furtherance of the For the Commission, by the Division of used. To help us process and review
purposes of the Act. Trading and Markets, pursuant to delegated your statement more efficiently, please
authority.32 use only one method. The Commission
IV. Solicitation of Comments Brent J. Fields, will post all statements on the
Interested persons are invited to Secretary. Commission’s Internet Web site at SEC
submit written data, views, and [FR Doc. 2016–27236 Filed 11–10–16; 8:45 am] Web site at (http://www.sec.gov/
arguments concerning the foregoing, BILLING CODE 8011–01–P comments/265-29/265-29.shtml).
including whether the proposed rule Statements also will be available for
change is consistent with the Act. Web site viewing and printing in the
Comments may be submitted by any of SECURITIES AND EXCHANGE Commission’s Public Reference Room,
the following methods: COMMISSION 100 F Street NE., Room 1580,
Washington, DC 20549, on official
Electronic Comments [Release No. 34–79257; File No. 265–29]
business days between the hours of
• Use the Commission’s Internet Equity Market Structure Advisory 10:00 a.m. and 3:00 p.m. All statements
comment form (http://www.sec.gov/ Committee received will be posted without change;
rules/sro.shtml); or we do not edit personal identifying
• Send an email to rule-comments@ AGENCY: Securities and Exchange information from submissions. You
sec.gov. Please include File Number SR– Commission. should submit only information that
DTC–2016–011 on the subject line. ACTION: Notice of meeting. you wish to make available publicly.
Paper Comments FOR FURTHER INFORMATION CONTACT:
SUMMARY: The Securities and Exchange Arisa Tinaves Kettig, Senior Special
• Send paper comments in triplicate Commission Equity Market Structure Counsel, at (202) 551–5676, Division of
to Secretary, Securities and Exchange Advisory Committee is providing notice Trading and Markets, Securities and
Commission, 100 F Street NE., that it will hold a public meeting on Exchange Commission, 100 F Street NE.,
Washington, DC 20549. Tuesday, November 29, 2016, in Multi- Washington, DC 20549–7010.
All submissions should refer to File Purpose Room LL–006 at the SUPPLEMENTARY INFORMATION: In
Number SR–DTC–2016–011. This file Commission’s headquarters, 100 F accordance with Section 10(a) of the
number should be included on the Street NE., Washington, DC. The Federal Advisory Committee Act, 5
subject line if email is used. To help the meeting will begin at 9:30 a.m. (EST) U.S.C.–App. 1, and the regulations
Commission process and review your and will be open to the public. The thereunder, Stephen Luparello,
comments more efficiently, please use public portions of the meeting will be Designated Federal Officer of the
only one method. The Commission will webcast on the Commission’s Web site Committee, has ordered publication of
post all comments on the Commission’s at www.sec.gov. Persons needing special this notice.
Internet Web site (http://www.sec.gov/ accommodations to take part because of
a disability should notify the contact Dated: November 8, 2016.
rules/sro.shtml). Copies of the
person listed below. The public is Brent J. Fields,
submission, all subsequent
amendments, all written statements invited to submit written statements to Committee Management Officer.
with respect to the proposed rule the Committee. The meeting will focus [FR Doc. 2016–27265 Filed 11–10–16; 8:45 am]
change that are filed with the on recommendations and updates from BILLING CODE 8011–01–P
Commission, and all written the four subcommittees.
communications relating to the DATES: The public meeting will be held
proposed rule change between the on Tuesday, November 29, 2016. SECURITIES AND EXCHANGE
Commission and any person, other than Written statements should be received COMMISSION
those that may be withheld from the on or before November 23, 2016. [Release No. 34–79249; File No. SR–Phlx–
public in accordance with the ADDRESSES: The meeting will be held at 2016–86]
provisions of 5 U.S.C. 552, will be the Commission’s headquarters, 100 F
available for Web site viewing and Street NE., Washington, DC. Written Self-Regulatory Organizations;
printing in the Commission’s Public statements may be submitted by any of NASDAQ PHLX LLC; Order Granting
Reference Room, 100 F Street NE., the following methods: Approval of Proposed Rule Change To
Washington, DC 20549 on official Delete or Amend Rule Language
business days between the hours of Electronic Statements Relating to Specialists and Registered
10:00 a.m. and 3:00 p.m. Copies of the • Use the Commission’s Internet Options Traders
filing also will be available for submission form (http://www.sec.gov/ November 7, 2016.
inspection and copying at the principal rules/other.shtml); or
office of DTC and on DTCC’s Web site • Send an email message to rule- I. Introduction
(http://dtcc.com/legal/sec-rule- comments@sec.gov. Please include File On August 12, 2016, NASDAQ PHLX
filings.aspx). All comments received Number 265–29 on the subject line; or LLC (‘‘Exchange’’ or ‘‘Phlx’’) filed with
will be posted without change; the the Securities and Exchange
Paper Statements
Commission does not edit personal Commission (‘‘SEC’’ or ‘‘Commission’’),
identifying information from • Send paper statements in triplicate pursuant to Section 19(b)(1) of the
submissions. You should submit only to Brent J. Fields, Federal Advisory
mstockstill on DSK3G9T082PROD with NOTICES
Securities Exchange Act of 1934
information that you wish to make Committee Management Officer, (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
available publicly. All submissions Securities and Exchange Commission, proposed rule change to delete or
should refer to File Number SR–DTC– 100 F Street NE., Washington, DC amend its rules relating to specialists
2016–011 and should be submitted on 20549–1090. and Registered Options Traders
or before December 5, 2016. All submissions should refer to File No.
265–29. This file number should be 1 15 U.S.C. 78s(b)(1).
32 17 CFR 200.30–3(a)(12). included on the subject line if email is 2 17 CFR 240.19b–4.
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Document Created: 2018-10-24 10:48:57
Document Modified: 2018-10-24 10:48:57
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 81 FR 79543 |
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