82_FR_4443 82 FR 4434 - Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of Proposed Rule Change Relating To Processing of Transactions in Money Market Instruments

82 FR 4434 - Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of Proposed Rule Change Relating To Processing of Transactions in Money Market Instruments

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 9 (January 13, 2017)

Page Range4434-4437
FR Document2017-00626

Federal Register, Volume 82 Issue 9 (Friday, January 13, 2017)
[Federal Register Volume 82, Number 9 (Friday, January 13, 2017)]
[Notices]
[Pages 4434-4437]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00626]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79764; File No. SR-DTC-2016-008]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of Proposed Rule Change Relating To Processing 
of Transactions in Money Market Instruments

January 9, 2017.
    The Depository Trust Company (``DTC'') filed on September 23, 2016 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2016-008 (``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 October 11, 2016.\3\ On, 
November 18, 2016, the Commission extended to January 9, 2017 the date 
by which it shall either approve, disapprove, or institute proceedings 
to determine whether to approve or disapprove the Proposed Rule 
Change.\4\ The Commission did not receive any comments on the Proposed 
Rule Change. For the reasons discussed below, the Commission is 
granting approval of 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. 34-79046 (October 5, 
2016), 81 FR 70200 (October 11, 2016) (SR-DTC-2016-008) 
(``Notice''). DTC also filed the Proposed Rule Change as an advance 
notice with the Commission, pursuant to Section 806(e)(1) of the 
Payment, Clearing, and Settlement Supervision Act of 2010 and Rule 
19b-4(n)(1) under the Act. 12 U.S.C. 5465(e) and 17 CFR 240.19b-
4(n)(1), respectively. The advance notice was published in the 
Federal Register on November 9, 2016. Securities Exchange Act 
Release No. 79224 (November 3, 2016), 81 FR 78884 (November 9, 2016) 
(SR-DTC-2016-802). The Commission did not receive any comments on 
the advance notice.
    \4\ Securities Exchange Act Release No. 34-79351 (November 18, 
2016), 81 FR 85295 (November 25, 2016) (SR-DTC-2016-008)
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I. Description of the Proposed Rule Change

    The Proposed Rule Change is a proposal by DTC to modify (i) the DTC 
Rules, By-laws and Organization Certificate (``Rules''),\5\ (ii) the 
DTC Settlement Service Guide (``Settlement Guide''),\6\ and (iii) the 
DTC Distributions Service Guide (``Distributions Guide''),\7\ in order 
to change the way in which DTC processes transactions in money market 
instruments (``MMI''). The proposal would affect DTC's processing of 
issuances of MMI securities as well as maturity presentments, income 
presentments, principal presentments, and reorganization presentments 
(collectively, ``presentments'' and with issuances of MMI securities, 
``MMI Obligations'').
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    \5\ Available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Settlement.pdf.
    \7\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/
Distributions%20Service%20Guide%20FINAL%20November%202014.pdf.
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    Specifically, DTC proposes to: (i) With respect to delivery of MMI 
securities, require purchasers of the securities (or their custodian, 
if applicable) to acknowledge that they agree to receive the securities 
via DTC's Receiver Authorized Delivery (``RAD'') system before DTC 
processes the transaction; (ii) with respect to cash, require an 
issuing and paying agent (``IPA'') of an MMI issuer to acknowledge its 
funding obligations for MMI presentments before DTC processes the 
transaction, except in limited circumstances where there are no funding 
obligations; \8\ (iii) implement an enhanced process to check certain 
MMI transactions against DTC's risk management controls (referred to as 
``MMI Optimization''); (iv) eliminate the largest provisional net 
credit risk management control; and (v) eliminate DTC's receive versus 
payment net additions control, as described below. In addition, the 
proposal would amend DTC's Distributions Guide to conform to the 
proposed changes.
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    \8\ An affirmative MMI funding acknowledgement by the IPA would 
not be required where the aggregate amount of an issuer's delivery 
of MMI securities that have been approved in RAD exceeds the 
aggregate amount of presentments because payment for those 
securities would fully fund the presentments. In such a case, the 
IPA would be deemed to have provided a funding acknowledgement and 
DTC would process the transactions, subject to risk management 
controls.
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A. Background

    Today, according to DTC, when an issuer issues MMI securities at 
DTC, the IPA for that issuer sends issuance

[[Page 4435]]

instructions to DTC electronically, which results in crediting the 
applicable MMI securities to the DTC account of the IPA. The MMI 
securities are then delivered by DTC to the accounts of the applicable 
DTC participants (``Participants'') that are purchasing the issuance, 
typically as custodians for individual investors, in accordance with 
their purchase amounts. The IPA's delivery instructions may be free of 
payment or, most often, for payment (i.e., delivery versus payment or 
``DVP''). Unlike deliveries free of payment, DVP transactions are 
subject to DTC's risk management controls for both the IPA and the 
receiving Participants, which means they are monitored for Net Debit 
Cap and Collateral Monitor sufficiency.\9\
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    \9\ DVP transfers at DTC are structured so that the completion 
of delivery of securities to a Participant in end-of-day settlement 
is contingent on the receiving Participant satisfying its end-of-day 
net settlement obligation, if any. The risk of Participant failure 
to settle is managed through risk management controls that would 
enable DTC to complete settlement despite the failure to settle of 
the Participant, or affiliated family of Participants, with the 
largest net settlement obligation. The two principal controls are 
the Net Debit Cap and Collateral Monitor. The largest net settlement 
obligation of a Participant or affiliated family of Participants 
cannot exceed DTC liquidity resources, based on the Net Debit Cap, 
and must be fully collateralized, based on the Collateral Monitor.
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    When MMI securities of a particular acronym \10\ mature, the 
current presentment process involves DTC automatically sweeping the 
matured positions from the applicable Participant accounts and debiting 
the settlement account of the applicable IPA for the amount of the 
matured position, with corresponding credits made to the settlement 
accounts of the deliverers. Because presentments are currently 
processed automatically at DTC, IPAs have the option to refuse to pay 
(``RTP'') for maturing MMI Obligations to protect against the 
possibility that an IPA may not be able to fund settlement because it 
has not received funds from the relevant issuer. An IPA that refuses 
payment for a presentment (i.e., refuses to make payment for the 
delivery of matured MMI securities for which it is the designated IPA 
and/or pay interest or dividend income on MMI securities for which it 
is the designated IPA) must notify DTC of its RTP. An IPA may notify 
DTC of an RTP until 3:00 p.m. ET on the date of the affected 
presentment.
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    \10\ MMI of an issuer are designated by DTC using unique four-
character identifiers referred to as acronyms. An MMI issuer can 
have multiple acronyms representing its securities. MMI transactions 
and other functions relating to MMI are done on an ``acronym-by-
acronym'' basis.
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    Under the current Rules, the effect of an RTP is for DTC to reverse 
all processed MMI security deliveries of that MMI acronym, including 
issuances, related funds credits and debits, and presentments, which 
means that the securities would fail to settle. This reversal of 
processed (but not yet settled) transactions could override DTC's risk 
management controls (i.e., Collateral Monitor and Net Debit Cap) and 
could result in a Participant's account having, unexpectedly, a net 
debit balance that exceeds its Net Debit Cap and/or having insufficient 
collateral to secure its settlement obligations throughout the day. 
Thus, RTPs can create uncertainty and pose systemic risk with respect 
to a Participant's and, ultimately, DTC's ability to complete end-of-
day net funds settlement.
    Currently, to mitigate the risks associated with an RTP, the Rules 
and the Settlement Guide provide for the Largest Provisional Net Credit 
control (``LPNC Control''). Under the LPNC Control, DTC withholds from 
each Participant's Net Debit Cap the two largest intraday net MMI 
credits owed to that Participant. The MMI credits withheld are not 
included in the calculation of the Participant's Collateral Monitor or 
its net debit balance. This provides protection in the event that 
processed (but not yet settled) MMI transactions are reversed by DTC as 
a result of an RTP.\11\
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    \11\ See Securities Exchange Act Release No. 71888 (April 7, 
2014), 79 FR 20285 (April 11, 2014) (SR-DTC-2014-02) (clarifying the 
LPNC procedures in the Settlement Guide) and Securities Exchange Act 
Release No. 68983 (February 25, 2013), 78 FR 13924 (March 1, 2013) 
(SR-DTC-2012-10) (updating the Rules related to LPNC).
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    According to DTC, its Rules and procedures relating to settlement 
processing for the MMI program \12\ were designed to limit credit, 
liquidity, and operational risk for DTC and Participants. In connection 
with ongoing efforts by DTC to evaluate the risk associated with the 
processing of MMI Obligations, DTC has determined that the risks 
presented by intra-day reversals of processed MMI Obligations should be 
eliminated to prevent the possibility that a reversal could override 
DTC's risk controls and heighten liquidity and settlement risk. DTC 
also states that eliminating intra-day reversals of processed MMI 
Obligations would enhance intra-day finality and allow for the 
elimination of the LPNC Control, which creates intra-day blockage and 
affects liquidity through the withholding of settlement credits.
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    \12\ The procedures applicable to MMI settlement processing are 
set forth in the Settlement Guide. Supra note 6.
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B. Proposed Changes

    The proposal would eliminate provisions for intra-day reversals of 
processed MMI Obligations based on an IPA's RTP or issuer insolvency of 
which DTC becomes aware, as described below.
    Pursuant to the proposal, DTC would no longer automatically process 
MMI Obligations. DTC's processing of MMI Obligations involves the 
delivery of cash and/or securities. With respect to securities, DTC 
would require purchasers of MMI issuances (or their custodian, if 
applicable) to acknowledge in RAD that they agree to receive the MMI 
securities before DTC processes the transaction. With respect to cash, 
an IPA would make an MMI funding acknowledgment using a new DTC 
platform designed to accept such acknowledgments. When an MMI funding 
acknowledgement is received, DTC would attempt to process transactions 
in the acronym(s) for which the MMI funding acknowledgment pertains.
    If the IPA has provided an MMI funding acknowledgment for the full 
amount of presentments, then all transactions in that acronym would be 
sent to the normal DTC processing system and tested against DTC's risk 
management controls. If the IPA provides an MMI funding acknowledgement 
for only partial funding of the presentments, then DTC would undertake 
the proposed ``MMI Optimization'' process to determine whether risk 
management controls would be satisfied by all deliverers and purchasers 
of the acronym and determine whether all parties would maintain 
adequate positions to complete the applicable transactions. However, as 
long as the issuances that could satisfy deliverer and purchaser risk 
controls for that MMI acronym are equal to or greater than the maturing 
presentments of that acronym, the applicable transactions (i.e., those 
that pass risk controls) could be processed without an IPA's funding 
acknowledgement.
    If DTC does not receive the necessary acknowledgments from both the 
IPA and purchasers for an acronym for which maturing MMI Obligations 
are due on that day and/or DTC is aware, through ordinary business 
channels, that the issuer of an acronym is insolvent (``Acronym Payment 
Failure''), then DTC would not process transactions in the acronym.\13\
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    \13\ DTC would automatically consider an Acronym Payment Failure 
that occurred due to an IPA's failure to provide timely MMI funding 
acknowledgement (i.e., provide the acknowledgment by 3:00 p.m. ET) 
as an RTP.
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    In the event of an Acronym Payment Failure, DTC would: (i) Prevent 
further issuance and maturity activity for the acronym in DTC's system; 
(ii) prevent

[[Page 4436]]

deliveries of MMI securities of the acronym and halt all activity in 
that acronym; (iii) set the collateral value of the MMI securities in 
the acronym to zero for purposes of calculating the Collateral Monitor 
of any affected Participant; and (iv) notify Participants of the 
Acronym Payment Failure via DTC's current notification process. 
Notwithstanding the occurrence of an Acronym Payment Failure, the IPA 
would remain liable for funding pursuant to any MMI funding 
acknowledgment previously provided for that business day.
    A ``Temporary Acronym Payment Failure'' would occur when an IPA 
notifies DTC that it temporarily refuses to pay income presentments, 
and only income presentments, for an acronym, which typically would be 
due to an issuer's inability to fund income presentments on that day. A 
Temporary Acronym Payment Failure would only be initiated if there are 
no maturity presentments, principal presentments, and/or reorganization 
presentments on that business day. DTC would require the issuer and/or 
IPA to resolve such a situation by the next business day.
    In the event of a Temporary Acronym Payment Failure, DTC would: (i) 
Temporarily devalue to zero all of the issuer's MMI securities for 
purposes of calculating the Collateral Monitor, unless and until the 
IPA acknowledges funding with respect to the income payments on the 
following business day; (ii) notify Participants of the delayed 
payment; and (iii) block from DTC's systems all further issuances and 
maturities by that issuer for the remainder of the business day on 
which notification of the Temporary Payment Failure was received by 
DTC. An IPA would not be able to avail itself of a Temporary Acronym 
Payment Failure for the same acronym on consecutive business days.
    The Commission understands that the proposal would not: (i) 
Decrease the total number and value of transactions that would pass 
DTC's risk controls throughout the processing day; or (ii) increase the 
volume of transactions that would fail to settle. The Commission also 
understands that the proposal would reduce blockage caused by DTC. Non-
MMI transactions and fully funded MMI transactions would likely have a 
reduction in blockage because of the elimination of the LPNC Control. 
The elimination of the LPNC Control would no longer withhold billions 
of dollars of settlement credits as it does today, thus permitting MMI 
transactions subject to the LPNC Control to process earlier in the day. 
Moreover, it is expected that the value and volume of MMI transactions 
recycling due to failure to meet DTC's risk management controls during 
the late morning and afternoon periods would be reduced, because of 
such transactions being held outside of DTC's processing system while 
they await the necessary acknowledgments.
    Similar to the LPNC Control, the RVPNA Control is used to prevent a 
Participant from delivering free of value or undervalued any MMI 
securities that were received for payment on the same day.\14\ For 
example, under DTC's current rules, if Participant A delivers MMI 
securities to Participant B for payment, and then Participant B 
delivers the same MMI securities to Participant C free of payment 
(subject to risk management controls), the delivery to Participant C is 
final when the securities are credited to Participant C. DTC would, 
therefore, be unable to reverse the delivery to Participant C and, 
thus, DTC could not reverse the delivery from Participant B to 
Participant A. The RVPNA Control protects DTC against being unable to 
reverse such transactions of MMI Securities in the event of an RTP by 
the IPA. Because DTC would no longer permit the reversal of processed 
MMI transactions, DTC would no longer need the RVPNA Control.
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    \14\ For purposes of RVPNA, MMI securities are considered 
undervalued if they are delivered for less than 10 percent below 
market value.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \15\ 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. The Commission believes the Proposed Rule Change 
is consistent with Section 17A(b)(3)(F) of the Act and Rule 17Ad-
22(d)(12) under the Act,\16\ as described in detail below.
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    \15\ 15 U.S.C. 78s(b)(2)(C).
    \16\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(d)(12).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to protect 
investors and the public interest.\17\
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    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the Proposed Rule Change is consistent 
with promoting prompt and accurate clearance and settlement. First, as 
described above, DTC automatically processes MMI transactions today but 
permits RTPs in order to enable IPAs to protect against the possibility 
that the IPA does not receive the necessary funds from the relevant 
issuer. However, if DTC reverses processed (but not yet settled) MMI 
transactions because of an RTP, the transactions would fail to settle 
and the reversal could override DTC's risk management controls.
    The Proposed Rule Change would eliminate such reversals, failures, 
and possible overrides because the proposal would require, before DTC 
would process an MMI transaction, that (i) purchasers of MMI issuances 
(or their custodian, if applicable) authorize delivery of the MMI 
securities, and (ii) IPAs provide an MMI funding acknowledgement that 
commits the IPA to the acknowledge funds. If DTC does not receive a RAD 
authorization or MMI funding acknowledgement, as applicable, it would 
not process the MMI transaction. However, if a RAD authorization or an 
MMI funding acknowledgment is receive, DTC would no longer permit an 
RTP for what was authorized or acknowledge, thus eliminating the risk 
that the applicable MMI transaction would fail to settle or override 
DTC's risk management controls due to an RTP. Although theses proposed 
changes would establish new requirements before DTC would process such 
MMI transactions, the Commission believes that the benefits of 
eliminating the risk of a potential override of DTC's risk management 
controls from an RTP supports such requirements.
    Second, the Proposed Rule Change would help ensure prompt and 
accurate clearance and settlement securities by employing the proposed 
MMI Optimization. MMI Optimization would, for MMI transactions that 
await funding, continually test the net effect of transactions, across 
multiple MMI issuers, on receiving and delivering Participants' risk 
controls, and then process the transactions once the controls are met. 
As such, MMI Optimization would help maximize processing and facilitate 
more timely settlement of MMI transactions, thus reducing risks that 
transactions may not settle.
    Third, the proposed removal of the LPNC and RVPNA Controls also 
would further promote prompt clearance and settlement. As described 
above, the LPNC Control currently withholds from each Participant the 
two largest intraday net MMI credits out of all of the MMI credits owed 
to that Participant in order to protect DTC from a Participant

[[Page 4437]]

breaching its Net Debit Cap or having insufficient collateral in the 
event of a reversal caused by an RTP. However, withholding the credits 
makes them unavailable to the Participant, which can cause blockage 
(i.e., the failure of a transaction to process because of insufficient 
liquidity) for the Participant. Meanwhile, the RVPNA Control limits a 
Participant's ability to deliver MMI that the Participant is due to 
receive that day. By preventing Participants from delivering certain 
MMI securities, the RVPNA Control also can create blockage.
    Because DTC would no longer process MMI transactions without a 
purchaser's RAD authorization and an IPA's MMI funding acknowledgement, 
as applicable, RTPs and resulting intraday reversals no longer present 
the risk that the LPNC and RVPNA Controls are meant to address. As 
such, DTC would eliminate these controls. This change would make 
available to Participants the intraday credits that were previously 
withheld by those controls, which would decrease intraday liquidity 
blockage for the Participant and enable DTC to process MMI transactions 
earlier. Thus, Participants would have less exposure to intraday 
reversals that increase liquidity and settlement risk and a more 
complete view of their actual intraday net debit and credit balances.
    The Commission also believes that the Proposed Rule Change is 
consistent with protecting investors and the public interest. As 
described above, DTC would no longer automatically process MMI 
presentments. Rather, DTC would require purchasers to authorize 
delivery via RAD and IPAs to provide a funding acknowledgment before 
processing MMI presentments, as applicable. Because these changes would 
eliminate the risk of reversals due to an RTP, the changes would 
mitigate the risk of a potential override of DTC's risk management 
controls. Thus, the Proposed Rule Change would help protect investors 
and the public interest by reducing DTC's exposure to potential 
failures, promoting DTC's safety and soundness, and providing greater 
assurance that transactions will settle despite a Participant default.
    Therefore, for the above reasons, the Commission believes that the 
Proposed Rule Change will help promote the prompt and accurate 
clearance and settlement of securities transactions and help protect 
investors and the public interest, consistent with Section 17A(b)(3)(F) 
of the Act, cited above.

B. Consistency With Rule 17Ad-22(d)(12)

    Rule 17Ad-22(d)(12) under the Act requires DTC to 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.\18\ Through 
this proposal, DTC would no longer process MMI transactions 
automatically but, rather, would first require an IPA's funding 
acknowledgment and a purchaser's RAD authorization, as applicable. 
Where such acknowledgements and authorizations are provided, DTC would 
no longer permit an RTP, thus eliminating the risk of an intraday 
reversal of a processed MMI transaction. Additionally, the proposal 
would eliminate the LPNC and RVPNA Controls, which would help eliminate 
blockage caused by the LPNC Control's withholding of Participants' two 
largest net credits for MMI transactions and the RVPNA Control's 
restriction on delivering certain MMI securities. Each of these 
proposed changes, both individually and collectively, would help ensure 
that final settlement occurs at the end of the day. Therefore, the 
Commission believes that the changes proposed in the Advance Notice are 
consistent with Rule 17Ad-22(d)(12) under the Act.\19\
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    \18\ 17 CFR 240.17Ad-22(d)(12).
    \19\ Id.
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III. 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 \20\ and 
the rules and regulations thereunder.
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    \20\ 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-2016-008 be, and hereby is, Approved 
as of the date of this order or the date of a notice by the Commission 
authorizing DTC to implement DTC's advance notice proposal (SR-DTC-
2016-802) that is consistent with this Proposed Rule Change, whichever 
is later.\21\
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    \21\ In approving the proposed rule change, the Commission 
considered the proposals' 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.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00626 Filed 1-12-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                    4434                               Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Notices

                                                    of the Act 19 and paragraph (f) of Rule                    information that you wish to make                      I. Description of the Proposed Rule
                                                    19b–4 thereunder. At any time within                       available publicly.                                    Change
                                                    60 days of the filing of the proposed rule                   All submissions should refer to File                    The Proposed Rule Change is a
                                                    change, the Commission summarily may                       Number SR–BatsBZX–2016–89 and                          proposal by DTC to modify (i) the DTC
                                                    temporarily suspend such rule change if                    should be submitted on or before                       Rules, By-laws and Organization
                                                    it appears to the Commission that such                     February 3, 2017.                                      Certificate (‘‘Rules’’),5 (ii) the DTC
                                                    action is necessary or appropriate in the                    For the Commission, by the Division of               Settlement Service Guide (‘‘Settlement
                                                    public interest, for the protection of                     Trading and Markets, pursuant to delegated             Guide’’),6 and (iii) the DTC Distributions
                                                    investors, or otherwise in furtherance of                  authority.20                                           Service Guide (‘‘Distributions Guide’’),7
                                                    the purposes of the Act.                                   Eduardo A. Aleman,                                     in order to change the way in which
                                                    IV. Solicitation of Comments                               Assistant Secretary.                                   DTC processes transactions in money
                                                                                                               [FR Doc. 2017–00607 Filed 1–12–17; 8:45 am]            market instruments (‘‘MMI’’). The
                                                      Interested persons are invited to
                                                                                                                                                                      proposal would affect DTC’s processing
                                                    submit written data, views, and                            BILLING CODE 8011–01–P
                                                                                                                                                                      of issuances of MMI securities as well
                                                    arguments concerning the foregoing,
                                                                                                                                                                      as maturity presentments, income
                                                    including whether the proposed rule
                                                                                                               SECURITIES AND EXCHANGE                                presentments, principal presentments,
                                                    change is consistent with the Act.
                                                                                                               COMMISSION                                             and reorganization presentments
                                                    Comments may be submitted by any of
                                                                                                                                                                      (collectively, ‘‘presentments’’ and with
                                                    the following methods:
                                                                                                               [Release No. 34–79764; File No. SR–DTC–                issuances of MMI securities, ‘‘MMI
                                                    Electronic Comments                                        2016–008]                                              Obligations’’).
                                                      • Use the Commission’s Internet                                                                                    Specifically, DTC proposes to: (i)
                                                                                                               Self-Regulatory Organizations; The                     With respect to delivery of MMI
                                                    comment form (http://www.sec.gov/                          Depository Trust Company; Order
                                                    rules/sro.shtml); or                                                                                              securities, require purchasers of the
                                                                                                               Granting Approval of Proposed Rule                     securities (or their custodian, if
                                                      • Send an email to rule-comments@
                                                                                                               Change Relating To Processing of                       applicable) to acknowledge that they
                                                    sec.gov. Please include File Number SR–
                                                                                                               Transactions in Money Market                           agree to receive the securities via DTC’s
                                                    BatsBZX–2016–89 on the subject line.
                                                                                                               Instruments                                            Receiver Authorized Delivery (‘‘RAD’’)
                                                    Paper Comments                                                                                                    system before DTC processes the
                                                                                                               January 9, 2017.
                                                       • Send paper comments in triplicate                        The Depository Trust Company
                                                                                                                                                                      transaction; (ii) with respect to cash,
                                                    to Secretary, Securities and Exchange                                                                             require an issuing and paying agent
                                                                                                               (‘‘DTC’’) filed on September 23, 2016
                                                    Commission, 100 F Street NE.,                                                                                     (‘‘IPA’’) of an MMI issuer to
                                                                                                               with the Securities and Exchange
                                                    Washington, DC 20549–1090.                                                                                        acknowledge its funding obligations for
                                                                                                               Commission (‘‘Commission’’) proposed                   MMI presentments before DTC
                                                    All submissions should refer to File                       rule change SR–DTC–2016–008
                                                    Number SR–BatsBZX–2016–89. This file                                                                              processes the transaction, except in
                                                                                                               (‘‘Proposed Rule Change’’) pursuant to                 limited circumstances where there are
                                                    number should be included on the                           Section 19(b)(1) of the Securities
                                                    subject line if email is used. To help the                                                                        no funding obligations; 8 (iii) implement
                                                                                                               Exchange Act of 1934 (‘‘Act’’) 1 and Rule              an enhanced process to check certain
                                                    Commission process and review your                         19b–4 thereunder.2 The Proposed Rule
                                                    comments more efficiently, please use                                                                             MMI transactions against DTC’s risk
                                                                                                               Change was published for comment in                    management controls (referred to as
                                                    only one method. The Commission will                       the Federal Register on October 11,
                                                    post all comments on the Commission’s                                                                             ‘‘MMI Optimization’’); (iv) eliminate the
                                                                                                               2016.3 On, November 18, 2016, the                      largest provisional net credit risk
                                                    Internet Web site (http://www.sec.gov/                     Commission extended to January 9,
                                                    rules/sro.shtml). Copies of the                                                                                   management control; and (v) eliminate
                                                                                                               2017 the date by which it shall either                 DTC’s receive versus payment net
                                                    submission, all subsequent                                 approve, disapprove, or institute
                                                    amendments, all written statements                                                                                additions control, as described below. In
                                                                                                               proceedings to determine whether to                    addition, the proposal would amend
                                                    with respect to the proposed rule                          approve or disapprove the Proposed
                                                    change that are filed with the                                                                                    DTC’s Distributions Guide to conform to
                                                                                                               Rule Change.4 The Commission did not                   the proposed changes.
                                                    Commission, and all written                                receive any comments on the Proposed
                                                    communications relating to the                             Rule Change. For the reasons discussed                 A. Background
                                                    proposed rule change between the                           below, the Commission is granting                         Today, according to DTC, when an
                                                    Commission and any person, other than                      approval of the Proposed Rule Change.                  issuer issues MMI securities at DTC, the
                                                    those that may be withheld from the                                                                               IPA for that issuer sends issuance
                                                    public in accordance with the                                20 17 CFR 200.30–3(a)(12).
                                                    provisions of 5 U.S.C. 552, will be                          1 15 U.S.C. 78s(b)(1).                                  5 Available at http://www.dtcc.com/legal/rules-
                                                    available for Web site viewing and                           2 17 CFR 240.19b–4.                                  and-procedures.aspx.
                                                    printing in the Commission’s Public                          3 Securities Exchange Act Release No. 34–79046          6 Available at http://www.dtcc.com/∼/media/

                                                    Reference Room, 100 F Street NE.,                          (October 5, 2016), 81 FR 70200 (October 11, 2016)      Files/Downloads/legal/service-guides/
                                                                                                               (SR–DTC–2016–008) (‘‘Notice’’). DTC also filed the     Settlement.pdf.
                                                    Washington, DC 20549, on official                          Proposed Rule Change as an advance notice with            7 Available at http://www.dtcc.com/∼/media/
                                                    business days between the hours of                         the Commission, pursuant to Section 806(e)(1) of       Files/Downloads/legal/service-guides/
                                                    10:00 a.m. and 3:00 p.m. Copies of the                     the Payment, Clearing, and Settlement Supervision      Distributions%20Service%20Guide%20FINAL%20
                                                    filing also will be available for                          Act of 2010 and Rule 19b–4(n)(1) under the Act. 12     November%202014.pdf.
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                               U.S.C. 5465(e) and 17 CFR 240.19b–4(n)(1),                8 An affirmative MMI funding acknowledgement
                                                    inspection and copying at the principal                    respectively. The advance notice was published in      by the IPA would not be required where the
                                                    office of the Exchange. All comments                       the Federal Register on November 9, 2016.              aggregate amount of an issuer’s delivery of MMI
                                                    received will be posted without change;                    Securities Exchange Act Release No. 79224              securities that have been approved in RAD exceeds
                                                    the Commission does not edit personal                      (November 3, 2016), 81 FR 78884 (November 9,           the aggregate amount of presentments because
                                                                                                               2016) (SR–DTC–2016–802). The Commission did            payment for those securities would fully fund the
                                                    identifying information from                               not receive any comments on the advance notice.        presentments. In such a case, the IPA would be
                                                    submissions. You should submit only                          4 Securities Exchange Act Release No. 34–79351       deemed to have provided a funding
                                                                                                               (November 18, 2016), 81 FR 85295 (November 25,         acknowledgement and DTC would process the
                                                      19 15   U.S.C. 78s(b)(3)(A).                             2016) (SR–DTC–2016–008)                                transactions, subject to risk management controls.



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                                                                                     Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Notices                                                 4435

                                                    instructions to DTC electronically,                      that MMI acronym, including issuances,                processed MMI Obligations based on an
                                                    which results in crediting the applicable                related funds credits and debits, and                 IPA’s RTP or issuer insolvency of which
                                                    MMI securities to the DTC account of                     presentments, which means that the                    DTC becomes aware, as described
                                                    the IPA. The MMI securities are then                     securities would fail to settle. This                 below.
                                                    delivered by DTC to the accounts of the                  reversal of processed (but not yet                       Pursuant to the proposal, DTC would
                                                    applicable DTC participants                              settled) transactions could override                  no longer automatically process MMI
                                                    (‘‘Participants’’) that are purchasing the               DTC’s risk management controls (i.e.,                 Obligations. DTC’s processing of MMI
                                                    issuance, typically as custodians for                    Collateral Monitor and Net Debit Cap)                 Obligations involves the delivery of
                                                    individual investors, in accordance with                 and could result in a Participant’s                   cash and/or securities. With respect to
                                                    their purchase amounts. The IPA’s                        account having, unexpectedly, a net                   securities, DTC would require
                                                    delivery instructions may be free of                     debit balance that exceeds its Net Debit              purchasers of MMI issuances (or their
                                                    payment or, most often, for payment                      Cap and/or having insufficient collateral             custodian, if applicable) to acknowledge
                                                    (i.e., delivery versus payment or                        to secure its settlement obligations                  in RAD that they agree to receive the
                                                    ‘‘DVP’’). Unlike deliveries free of                      throughout the day. Thus, RTPs can                    MMI securities before DTC processes
                                                    payment, DVP transactions are subject                    create uncertainty and pose systemic                  the transaction. With respect to cash, an
                                                    to DTC’s risk management controls for                    risk with respect to a Participant’s and,             IPA would make an MMI funding
                                                    both the IPA and the receiving                           ultimately, DTC’s ability to complete                 acknowledgment using a new DTC
                                                    Participants, which means they are                       end-of-day net funds settlement.                      platform designed to accept such
                                                    monitored for Net Debit Cap and                             Currently, to mitigate the risks                   acknowledgments. When an MMI
                                                    Collateral Monitor sufficiency.9                         associated with an RTP, the Rules and                 funding acknowledgement is received,
                                                       When MMI securities of a particular                   the Settlement Guide provide for the                  DTC would attempt to process
                                                    acronym 10 mature, the current                           Largest Provisional Net Credit control                transactions in the acronym(s) for which
                                                    presentment process involves DTC                         (‘‘LPNC Control’’). Under the LPNC                    the MMI funding acknowledgment
                                                    automatically sweeping the matured                       Control, DTC withholds from each                      pertains.
                                                    positions from the applicable                            Participant’s Net Debit Cap the two                      If the IPA has provided an MMI
                                                    Participant accounts and debiting the                    largest intraday net MMI credits owed to              funding acknowledgment for the full
                                                    settlement account of the applicable IPA                 that Participant. The MMI credits                     amount of presentments, then all
                                                    for the amount of the matured position,                  withheld are not included in the                      transactions in that acronym would be
                                                    with corresponding credits made to the                   calculation of the Participant’s                      sent to the normal DTC processing
                                                    settlement accounts of the deliverers.                   Collateral Monitor or its net debit                   system and tested against DTC’s risk
                                                    Because presentments are currently                       balance. This provides protection in the              management controls. If the IPA
                                                    processed automatically at DTC, IPAs                     event that processed (but not yet settled)            provides an MMI funding
                                                    have the option to refuse to pay (‘‘RTP’’)               MMI transactions are reversed by DTC                  acknowledgement for only partial
                                                    for maturing MMI Obligations to protect                  as a result of an RTP.11                              funding of the presentments, then DTC
                                                    against the possibility that an IPA may                     According to DTC, its Rules and                    would undertake the proposed ‘‘MMI
                                                    not be able to fund settlement because                   procedures relating to settlement                     Optimization’’ process to determine
                                                    it has not received funds from the                       processing for the MMI program 12 were                whether risk management controls
                                                    relevant issuer. An IPA that refuses                     designed to limit credit, liquidity, and              would be satisfied by all deliverers and
                                                    payment for a presentment (i.e., refuses                 operational risk for DTC and                          purchasers of the acronym and
                                                    to make payment for the delivery of                      Participants. In connection with                      determine whether all parties would
                                                    matured MMI securities for which it is                   ongoing efforts by DTC to evaluate the                maintain adequate positions to complete
                                                    the designated IPA and/or pay interest                   risk associated with the processing of                the applicable transactions. However, as
                                                    or dividend income on MMI securities                     MMI Obligations, DTC has determined                   long as the issuances that could satisfy
                                                    for which it is the designated IPA) must                 that the risks presented by intra-day                 deliverer and purchaser risk controls for
                                                    notify DTC of its RTP. An IPA may                        reversals of processed MMI Obligations                that MMI acronym are equal to or
                                                    notify DTC of an RTP until 3:00 p.m. ET                  should be eliminated to prevent the                   greater than the maturing presentments
                                                    on the date of the affected presentment.                 possibility that a reversal could override            of that acronym, the applicable
                                                       Under the current Rules, the effect of                DTC’s risk controls and heighten                      transactions (i.e., those that pass risk
                                                    an RTP is for DTC to reverse all                         liquidity and settlement risk. DTC also               controls) could be processed without an
                                                    processed MMI security deliveries of                     states that eliminating intra-day                     IPA’s funding acknowledgement.
                                                                                                             reversals of processed MMI Obligations                   If DTC does not receive the necessary
                                                       9 DVP transfers at DTC are structured so that the     would enhance intra-day finality and                  acknowledgments from both the IPA
                                                    completion of delivery of securities to a Participant    allow for the elimination of the LPNC                 and purchasers for an acronym for
                                                    in end-of-day settlement is contingent on the
                                                    receiving Participant satisfying its end-of-day net
                                                                                                             Control, which creates intra-day                      which maturing MMI Obligations are
                                                    settlement obligation, if any. The risk of Participant   blockage and affects liquidity through                due on that day and/or DTC is aware,
                                                    failure to settle is managed through risk                the withholding of settlement credits.                through ordinary business channels,
                                                    management controls that would enable DTC to                                                                   that the issuer of an acronym is
                                                    complete settlement despite the failure to settle of     B. Proposed Changes                                   insolvent (‘‘Acronym Payment
                                                    the Participant, or affiliated family of Participants,
                                                    with the largest net settlement obligation. The two
                                                                                                               The proposal would eliminate                        Failure’’), then DTC would not process
                                                    principal controls are the Net Debit Cap and             provisions for intra-day reversals of                 transactions in the acronym.13
                                                    Collateral Monitor. The largest net settlement                                                                    In the event of an Acronym Payment
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                    obligation of a Participant or affiliated family of        11 See Securities Exchange Act Release No. 71888
                                                                                                                                                                   Failure, DTC would: (i) Prevent further
                                                    Participants cannot exceed DTC liquidity resources,      (April 7, 2014), 79 FR 20285 (April 11, 2014) (SR–
                                                    based on the Net Debit Cap, and must be fully
                                                                                                                                                                   issuance and maturity activity for the
                                                                                                             DTC–2014–02) (clarifying the LPNC procedures in
                                                    collateralized, based on the Collateral Monitor.         the Settlement Guide) and Securities Exchange Act     acronym in DTC’s system; (ii) prevent
                                                       10 MMI of an issuer are designated by DTC using       Release No. 68983 (February 25, 2013), 78 FR 13924
                                                    unique four-character identifiers referred to as         (March 1, 2013) (SR–DTC–2012–10) (updating the          13 DTC would automatically consider an

                                                    acronyms. An MMI issuer can have multiple                Rules related to LPNC).                               Acronym Payment Failure that occurred due to an
                                                    acronyms representing its securities. MMI                  12 The procedures applicable to MMI settlement      IPA’s failure to provide timely MMI funding
                                                    transactions and other functions relating to MMI are     processing are set forth in the Settlement Guide.     acknowledgement (i.e., provide the
                                                    done on an ‘‘acronym-by-acronym’’ basis.                 Supra note 6.                                         acknowledgment by 3:00 p.m. ET) as an RTP.



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                                                    4436                            Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Notices

                                                    deliveries of MMI securities of the                     transactions recycling due to failure to               clearance and settlement. First, as
                                                    acronym and halt all activity in that                   meet DTC’s risk management controls                    described above, DTC automatically
                                                    acronym; (iii) set the collateral value of              during the late morning and afternoon                  processes MMI transactions today but
                                                    the MMI securities in the acronym to                    periods would be reduced, because of                   permits RTPs in order to enable IPAs to
                                                    zero for purposes of calculating the                    such transactions being held outside of                protect against the possibility that the
                                                    Collateral Monitor of any affected                      DTC’s processing system while they                     IPA does not receive the necessary
                                                    Participant; and (iv) notify Participants               await the necessary acknowledgments.                   funds from the relevant issuer.
                                                    of the Acronym Payment Failure via                         Similar to the LPNC Control, the                    However, if DTC reverses processed (but
                                                    DTC’s current notification process.                     RVPNA Control is used to prevent a                     not yet settled) MMI transactions
                                                    Notwithstanding the occurrence of an                    Participant from delivering free of value              because of an RTP, the transactions
                                                    Acronym Payment Failure, the IPA                        or undervalued any MMI securities that                 would fail to settle and the reversal
                                                    would remain liable for funding                         were received for payment on the same                  could override DTC’s risk management
                                                    pursuant to any MMI funding                             day.14 For example, under DTC’s                        controls.
                                                    acknowledgment previously provided                      current rules, if Participant A delivers                  The Proposed Rule Change would
                                                    for that business day.                                  MMI securities to Participant B for                    eliminate such reversals, failures, and
                                                       A ‘‘Temporary Acronym Payment                        payment, and then Participant B                        possible overrides because the proposal
                                                    Failure’’ would occur when an IPA                       delivers the same MMI securities to                    would require, before DTC would
                                                    notifies DTC that it temporarily refuses                Participant C free of payment (subject to              process an MMI transaction, that (i)
                                                    to pay income presentments, and only                    risk management controls), the delivery                purchasers of MMI issuances (or their
                                                    income presentments, for an acronym,                    to Participant C is final when the                     custodian, if applicable) authorize
                                                    which typically would be due to an                      securities are credited to Participant C.              delivery of the MMI securities, and (ii)
                                                    issuer’s inability to fund income                       DTC would, therefore, be unable to                     IPAs provide an MMI funding
                                                    presentments on that day. A Temporary                   reverse the delivery to Participant C                  acknowledgement that commits the IPA
                                                    Acronym Payment Failure would only                      and, thus, DTC could not reverse the                   to the acknowledge funds. If DTC does
                                                    be initiated if there are no maturity                   delivery from Participant B to                         not receive a RAD authorization or MMI
                                                    presentments, principal presentments,                   Participant A. The RVPNA Control                       funding acknowledgement, as
                                                    and/or reorganization presentments on                   protects DTC against being unable to                   applicable, it would not process the
                                                    that business day. DTC would require                    reverse such transactions of MMI                       MMI transaction. However, if a RAD
                                                    the issuer and/or IPA to resolve such a                 Securities in the event of an RTP by the               authorization or an MMI funding
                                                    situation by the next business day.                     IPA. Because DTC would no longer                       acknowledgment is receive, DTC would
                                                       In the event of a Temporary Acronym                  permit the reversal of processed MMI                   no longer permit an RTP for what was
                                                    Payment Failure, DTC would: (i)                         transactions, DTC would no longer need                 authorized or acknowledge, thus
                                                    Temporarily devalue to zero all of the                  the RVPNA Control.                                     eliminating the risk that the applicable
                                                    issuer’s MMI securities for purposes of                                                                        MMI transaction would fail to settle or
                                                    calculating the Collateral Monitor,                     II. Discussion and Commission
                                                                                                                                                                   override DTC’s risk management
                                                    unless and until the IPA acknowledges                   Findings
                                                                                                                                                                   controls due to an RTP. Although theses
                                                    funding with respect to the income                         Section 19(b)(2)(C) of the Act 15                   proposed changes would establish new
                                                    payments on the following business                      directs the Commission to approve a                    requirements before DTC would process
                                                    day; (ii) notify Participants of the                    proposed rule change of a self-                        such MMI transactions, the Commission
                                                    delayed payment; and (iii) block from                   regulatory organization if it finds that               believes that the benefits of eliminating
                                                    DTC’s systems all further issuances and                 such proposed rule change is consistent                the risk of a potential override of DTC’s
                                                    maturities by that issuer for the                       with the requirements of the Act and                   risk management controls from an RTP
                                                    remainder of the business day on which                  rules and regulations thereunder                       supports such requirements.
                                                    notification of the Temporary Payment                   applicable to such organization. The                      Second, the Proposed Rule Change
                                                    Failure was received by DTC. An IPA                     Commission believes the Proposed Rule                  would help ensure prompt and accurate
                                                    would not be able to avail itself of a                  Change is consistent with Section                      clearance and settlement securities by
                                                    Temporary Acronym Payment Failure                       17A(b)(3)(F) of the Act and Rule 17Ad–                 employing the proposed MMI
                                                    for the same acronym on consecutive                     22(d)(12) under the Act,16 as described                Optimization. MMI Optimization
                                                    business days.                                          in detail below.                                       would, for MMI transactions that await
                                                       The Commission understands that the                                                                         funding, continually test the net effect
                                                    proposal would not: (i) Decrease the                    A. Consistency With Section
                                                                                                                                                                   of transactions, across multiple MMI
                                                    total number and value of transactions                  17A(b)(3)(F) of the Act                                issuers, on receiving and delivering
                                                    that would pass DTC’s risk controls                       Section 17A(b)(3)(F) of the Act                      Participants’ risk controls, and then
                                                    throughout the processing day; or (ii)                  requires, in part, that the rules of a                 process the transactions once the
                                                    increase the volume of transactions that                clearing agency be designed to promote                 controls are met. As such, MMI
                                                    would fail to settle. The Commission                    the prompt and accurate clearance and                  Optimization would help maximize
                                                    also understands that the proposal                      settlement of securities transactions and              processing and facilitate more timely
                                                    would reduce blockage caused by DTC.                    to protect investors and the public                    settlement of MMI transactions, thus
                                                    Non-MMI transactions and fully funded                   interest.17                                            reducing risks that transactions may not
                                                    MMI transactions would likely have a                      The Commission believes that the                     settle.
                                                    reduction in blockage because of the                    Proposed Rule Change is consistent                        Third, the proposed removal of the
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                    elimination of the LPNC Control. The                    with promoting prompt and accurate                     LPNC and RVPNA Controls also would
                                                    elimination of the LPNC Control would                                                                          further promote prompt clearance and
                                                    no longer withhold billions of dollars of                 14 For purposes of RVPNA, MMI securities are
                                                                                                                                                                   settlement. As described above, the
                                                    settlement credits as it does today, thus               considered undervalued if they are delivered for       LPNC Control currently withholds from
                                                                                                            less than 10 percent below market value.
                                                    permitting MMI transactions subject to                    15 15 U.S.C. 78s(b)(2)(C).                           each Participant the two largest intraday
                                                    the LPNC Control to process earlier in                    16 15 U.S.C. 78q–1(b)(3)(F); 17 CFR 240.17Ad–        net MMI credits out of all of the MMI
                                                    the day. Moreover, it is expected that                  22(d)(12).                                             credits owed to that Participant in order
                                                    the value and volume of MMI                               17 15 U.S.C. 78q–1(b)(3)(F).                         to protect DTC from a Participant


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                                                                                    Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Notices                                                       4437

                                                    breaching its Net Debit Cap or having                   B. Consistency With Rule 17Ad–                            For the Commission, by the Division of
                                                    insufficient collateral in the event of a               22(d)(12)                                               Trading and Markets, pursuant to delegated
                                                    reversal caused by an RTP. However,                                                                             authority.22
                                                    withholding the credits makes them                         Rule 17Ad–22(d)(12) under the Act                    Eduardo A. Aleman,
                                                    unavailable to the Participant, which                   requires DTC to establish, implement,                   Assistant Secretary.
                                                    can cause blockage (i.e., the failure of a              maintain and enforce written policies                   [FR Doc. 2017–00626 Filed 1–12–17; 8:45 am]
                                                    transaction to process because of                       and procedures reasonably designed to                   BILLING CODE 8011–01–P
                                                    insufficient liquidity) for the                         ensure that final settlement occurs no
                                                    Participant. Meanwhile, the RVPNA                       later than the end of the settlement day;
                                                    Control limits a Participant’s ability to               and require that intraday or real-time                  SECURITIES AND EXCHANGE
                                                    deliver MMI that the Participant is due                 finality be provided where necessary to                 COMMISSION
                                                    to receive that day. By preventing                      reduce risks.18 Through this proposal,
                                                    Participants from delivering certain                    DTC would no longer process MMI                         [Release No. 34–79762; File No. SR–
                                                                                                            transactions automatically but, rather,                 BatsBZX–2016–90]
                                                    MMI securities, the RVPNA Control also
                                                    can create blockage.                                    would first require an IPA’s funding                    Self-Regulatory Organizations; Bats
                                                       Because DTC would no longer process                  acknowledgment and a purchaser’s RAD                    BZX Exchange, Inc.; Notice of Filing
                                                    MMI transactions without a purchaser’s                  authorization, as applicable. Where                     and Immediate Effectiveness of a
                                                    RAD authorization and an IPA’s MMI                      such acknowledgements and                               Proposed Rule Change To Modify Fees
                                                    funding acknowledgement, as                             authorizations are provided, DTC would                  for Connectivity and Its
                                                    applicable, RTPs and resulting intraday                 no longer permit an RTP, thus                           Communication and Routing Service
                                                    reversals no longer present the risk that               eliminating the risk of an intraday                     Known as Bats Connect
                                                    the LPNC and RVPNA Controls are                         reversal of a processed MMI transaction.
                                                                                                            Additionally, the proposal would                        January 9, 2017.
                                                    meant to address. As such, DTC would
                                                                                                            eliminate the LPNC and RVPNA                               Pursuant to Section 19(b)(1) of the
                                                    eliminate these controls. This change
                                                                                                            Controls, which would help eliminate                    Securities Exchange Act of 1934
                                                    would make available to Participants
                                                                                                            blockage caused by the LPNC Control’s                   (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                    the intraday credits that were previously
                                                                                                            withholding of Participants’ two largest                notice is hereby given that on December
                                                    withheld by those controls, which
                                                                                                            net credits for MMI transactions and the                27, 2016, Bats BZX Exchange, Inc.
                                                    would decrease intraday liquidity
                                                                                                                                                                    (‘‘Exchange’’ or ‘‘BZX’’) filed with the
                                                    blockage for the Participant and enable                 RVPNA Control’s restriction on
                                                                                                                                                                    Securities and Exchange Commission
                                                    DTC to process MMI transactions                         delivering certain MMI securities. Each
                                                                                                                                                                    (‘‘Commission’’) the proposed rule
                                                    earlier. Thus, Participants would have                  of these proposed changes, both
                                                                                                                                                                    change as described in Items I, II, and
                                                    less exposure to intraday reversals that                individually and collectively, would                    III below, which Items have been
                                                    increase liquidity and settlement risk                  help ensure that final settlement occurs                prepared by the Exchange. The
                                                    and a more complete view of their                       at the end of the day. Therefore, the                   Exchange has designated the proposed
                                                    actual intraday net debit and credit                    Commission believes that the changes                    rule change as one establishing or
                                                    balances.                                               proposed in the Advance Notice are                      changing a member due, fee, or other
                                                       The Commission also believes that the                consistent with Rule 17Ad–22(d)(12)                     charge imposed by the Exchange under
                                                    Proposed Rule Change is consistent                      under the Act.19                                        Section 19(b)(3)(A)(ii) of the Act 3 and
                                                    with protecting investors and the public                III. Conclusion                                         Rule 19b–4(f)(2) thereunder,4 which
                                                    interest. As described above, DTC                                                                               renders the proposed rule change
                                                    would no longer automatically process                     On the basis of the foregoing, the                    effective upon filing with the
                                                    MMI presentments. Rather, DTC would                     Commission finds that the Proposed                      Commission. The Commission is
                                                    require purchasers to authorize delivery                Rule Change is consistent with the                      publishing this notice to solicit
                                                    via RAD and IPAs to provide a funding                   requirements of the Act and in                          comments on the proposed rule change
                                                    acknowledgment before processing MMI                    particular with the requirements of                     from interested persons.
                                                    presentments, as applicable. Because                    Section 17A of the Act 20 and the rules                 I. Self-Regulatory Organization’s
                                                    these changes would eliminate the risk                  and regulations thereunder.                             Statement of the Terms of Substance of
                                                    of reversals due to an RTP, the changes                                                                         the Proposed Rule Change
                                                                                                              It is therefore ordered, pursuant to
                                                    would mitigate the risk of a potential
                                                                                                            Section 19(b)(2) of the Act, that                         The Exchange filed a proposal to
                                                    override of DTC’s risk management
                                                                                                            proposed rule change SR–DTC–2016–                       amend the fee schedule applicable to
                                                    controls. Thus, the Proposed Rule
                                                                                                            008 be, and hereby is, Approved as of                   Members 5 and non-members of the
                                                    Change would help protect investors
                                                                                                            the date of this order or the date of a                 Exchange pursuant to BZX Rules 15.1(a)
                                                    and the public interest by reducing
                                                                                                            notice by the Commission authorizing                    and (c) to modify its fees for its equity
                                                    DTC’s exposure to potential failures,
                                                                                                            DTC to implement DTC’s advance                          options platform (‘‘BZX Options’’) for
                                                    promoting DTC’s safety and soundness,
                                                                                                            notice proposal (SR–DTC–2016–802)                       physical ports and for the use of a
                                                    and providing greater assurance that
                                                                                                            that is consistent with this Proposed                   communication and routing service
                                                    transactions will settle despite a
                                                                                                            Rule Change, whichever is later.21                      known as Bats Connect.
                                                    Participant default.
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                       Therefore, for the above reasons, the                                                                          22 17 CFR 200.30–3(a)(12).
                                                    Commission believes that the Proposed                     18 17
                                                                                                                                                                      1 15 U.S.C. 78s(b)(1).
                                                                                                                       CFR 240.17Ad–22(d)(12).
                                                    Rule Change will help promote the                         19 Id.
                                                                                                                                                                      2 17 CFR 240.19b–4.

                                                    prompt and accurate clearance and                         20 15
                                                                                                                                                                      3 15 U.S.C. 78s(b)(3)(A)(ii).
                                                                                                                    U.S.C. 78q–1.                                     4 17 CFR 240.19b–4(f)(2).
                                                    settlement of securities transactions and                 21 In approving the proposed rule change, the           5 The term ‘‘Member’’ is defined as ‘‘any
                                                    help protect investors and the public                   Commission considered the proposals’ impact on          registered broker or dealer that has been admitted
                                                    interest, consistent with Section                       efficiency, competition, and capital formation. 15      to membership in the Exchange.’’ See Exchange
                                                    17A(b)(3)(F) of the Act, cited above.                   U.S.C. 78c(f).                                          Rule 1.5(n).



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Document Created: 2017-01-13 02:45:02
Document Modified: 2017-01-13 02:45:02
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 4434 

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