82 FR 51444 - Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish a Special Segregation Account for a Participant or Pledgee That Is a Derivatives Clearing Organization or Futures Commission Merchant
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 213 (November 6, 2017)
Federal Register Volume 82, Issue 213 (November 6, 2017)
| Page Range | 51444-51447 | |
| FR Document | 2017-24049 |
[Federal Register Volume 82, Number 213 (Monday, November 6, 2017)] [Notices] [Pages 51444-51447] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-24049] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81990; File No. SR-DTC-2017-020] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish a Special Segregation Account for a Participant or Pledgee That Is a Derivatives Clearing Organization or Futures Commission Merchant October 31, 2017. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on October 20, 2017, 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 DTC. DTC filed the proposed rule change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A). \4\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change The proposal would add new Rule 37 (Segregated Accounts for Customer Property) to provide that a Participant \5\ or Pledgee may establish a specifically designated Account to which Eligible Securities may be credited that the Participant or Pledgee wishes to segregate as the property of its customers that trade commodities, options, swaps, and other products (``Customer Property'') subject to the Customer Property Segregation Rules.\6\ Based on this segregation structure and the representations and warranties made by the Participant or Pledgee under the proposed Rule, DTC would, upon the request of the Participant or Pledgee, provide an acknowledgment of the segregation of such Customer Property,\7\ as further described below. --------------------------------------------------------------------------- \5\ Each capitalized term not otherwise defined herein has its respective meaning as set forth in the Rules, By-Laws and Organization Certificate of The Depository Trust Company (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx. \6\ ``Customer Property Segregation Rules'' means the rules and regulations of the Commodity Futures Trading Commission (``CFTC''), relating to the deposit of customer property (including money, securities and other property) held by derivatives clearing organizations (``DCOs'') or futures commission merchants (``FCMs'') for customers that trade commodities, options, swaps and other products. 7 U.S.C. 6d; 17 CFR 1.20-1.30, 22, 30. Under the proposed rule change, only Deposited Securities credited to an appropriately designated Account may constitute ``Customer Property'' for purposes of such Customer Property Segregation Rules; DTC does not, and will not under the proposed rule change, segregate money. \7\ See 7 U.S.C. 6d(a)(2); 7 U.S.C. 6d(f); 17 CFR 1.20(d); 1.20(g); 1.26; 22.5; 30.7. --------------------------------------------------------------------------- II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. DTC has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposal would add new Rule 37 (Segregated Accounts for Customer Property) to provide that a Participant or Pledgee may establish a specifically designated Account to which Eligible Securities may be credited that the Participant or Pledgee wishes to segregate as Customer Property subject to the Customer Property Segregation Rules. Based on this segregation structure and the representations and warranties made by the Participant or Pledgee under the proposed Rule, DTC would, upon the request of the Participant or Pledgee, provide an acknowledgment of the segregation of such Customer Property, as further described below. A. Background a. DTC Omnibus Account Structure DTC maintains omnibus Accounts for its Participants and Pledgees.\8\ That is, it [[Page 51445]] does not distinguish among Accounts that Participants or Pledgees may use for activities that are proprietary or conducted by the Participant or Pledgee for the benefit of customer(s). The Rules expressly provide that ``[a] Participant or Pledgee which utilizes the services of [DTC] for another Person shall, so far as the rights of [DTC], and other Participants and Pledgees are concerned, be liable as principal.'' \9\ --------------------------------------------------------------------------- \8\ DTC holds Eligible Securities collectively on behalf of Participants and reflects the transfer of interests in those Eligible Securities among Participants by computerized book-entry. Eligible Securities Deposited with DTC for book-entry transfer services are registered in the name of its nominee, Cede & Co. (``Cede''), a New York partnership. When the Eligible Securities are registered in the name of Cede, DTC acquires legal title to the Eligible Securities and, when DTC credits interests in these Eligible Securities to the Securities Accounts of Participants, those Participants acquire a beneficial interest in the Eligible Securities and a Security Entitlement with respect to those Eligible Securities is credited to their Accounts. A Security Entitlement is both a package of personal rights against the securities intermediary [in this case, DTC] and an interest in the property held by the securities intermediary. NYUCC Sec. 8-102(14)(i); NYUCC Sec. 8-102(17) and OFF. CMT. 17. A security entitlement is not, however, a specific property interest in any [security] held by the securities intermediary or by the clearing corporation through which the securities intermediary holds the [security]. NYUCC Sec. 8- 102(17) and OFF. CMT. 17. Thus, a Participant does not have a right to any particular security; each Participant has a proportionate interest in the fungible total inventory of the issue held by DTC. Participants, in many cases, are themselves securities intermediaries, maintaining securities accounts for the benefit of their customers, crediting a portion of the amount of any issue of a Security held in their Account(s) to one or more customers, as securities entitlements of their customers against them. That is, their customers are entitlement holders, holding the rights and property interest represented by the amount of the security credited to their account(s) vis a vis the Participant. Some customers of a Participant may also be securities intermediaries, holding on behalf of, and maintaining securities accounts for, their own customers, and so forth. DTC does not know whether a Participant is holding interest in the Securities for itself or on behalf of its customers, as their securities intermediary. This tiered system of intermediaries holding interests in securities for their respective customers is generally described as the ``indirect holding system.'' Id. Any entitlement holder may only assert its rights to a security entitlement against its own securities intermediary; Participants and Pledgees are in contractual privity with DTC; their customers are not and do not have any claim against DTC to the security entitlement of the Participant. Such customers of a Participant would have securities entitlements against the Participant that is acting on their behalf as their ``securities intermediary.'' Such customers only have rights against the Participant, and not against the Participant's securities intermediary; i.e., DTC. See NYUCC Sec. 8-503 OFF. CMT. 2. (``The entitlement holder cannot assert rights directly against other persons, such as other intermediaries [DTC] through whom the intermediary [the Participants] holds the positions . . . .''). Moreover, DTC does not owe any duties to such customers. See NYUCC Sec. 8-115 OFF. CMT. 4. (``[T]his section embodies one of the fundamental principles of the Article 8 indirect holding system rules--that a securities intermediary [DTC] owes duties only to its own entitlement holders [its Participants]''). \9\ Rule 2, section 2, supra note 5. --------------------------------------------------------------------------- The Rules provide for Segregated Accounts that Participants have typically used to separate Securities held for their customers. The characteristics of a Segregated Account are, chiefly, that DTC has no lien on or claim to the Securities credited thereto to secure any obligation of the Participant to DTC.\10\ Participants therefore use Segregated Accounts to separately identify customer property.\11\ --------------------------------------------------------------------------- \10\ Rule 1, section 1, supra note 5. \11\ Participants that are registered broker-dealers use Segregation Accounts as a tool to maintain compliance with their obligations under Rule 15c3-3 of the Act (``Customer Protection Rule''). 17 CFR 240.15c3-3. The Customer Protection Rule requires, among other things, that broker-dealers maintain control of all fully-paid or excess margin Securities they hold for the accounts of customers. Compliance with those obligations by such broker-dealers is external to DTC. See Rule 2, supra note 5. --------------------------------------------------------------------------- The Rules also provide that Securities Pledged to a Pledgee (when credited to the Account of the Pledgee in a Free Pledge or, in a Pledge Versus Payment), are held free of any lien or other interest of DTC.\12\ Thus, the Pledge mechanism is a tool that may be used by a Pledgee to segregate Securities at DTC. --------------------------------------------------------------------------- \12\ Rule 4(A), supra note 5. --------------------------------------------------------------------------- If a Participant or Pledgee holds Segregated or Pledged Securities on behalf of customers, that would be reflected in the accounts maintained by the Participant or Pledgee for its customers. DTC has no knowledge of whether Securities credited in that manner are held by the Participant or Pledgee for customers. It is the sole responsibility of the Participant or Pledgee to maintain appropriate records on its own books to identify customer Securities separately. b. Customer Property Segregation Rules of the CFTC Because DTC is agnostic as to whether, when and how any Participant or Pledgee may be utilizing its Account for the benefit of customers, DTC cannot independently verify that any particular Securities are ``customer securities'' vis-[agrave]-vis the Participant or Pledgee. However, FCMs and DCOs have statutory requirements for the separate identification of Customer Property pursuant to the Customer Property Segregation Rules.\13\ To accommodate this need of certain Participants or Pledgees that are FCMs or DCOs, DTC proposes this rule change, pursuant to which DTC would provide acknowledgment of Customer Property credited to the specified Accounts, in reliance on the representations of the Participant or Pledgee provided in the proposed Rule.\14\ --------------------------------------------------------------------------- \13\ See supra note 6. \14\ DTC is proposing this rule change to provide Participants and Pledgees that may be FCMs or DCOs a mechanism to comply with their obligations under the Customer Property Segregation Rules. --------------------------------------------------------------------------- The Customer Property Segregation Rules require that each FCM and DCO separately account for, and segregate from its own proprietary funds, all money, securities, or other property deposited by futures customers \15\ for trading on designated contract markets.\16\ The Customer Property Segregation Rules also provide that an FCM or DCO may only deposit futures customer property with a bank or trust company, and, additionally, an FCM may deposit with a DCO or another FCM (each, a ``depository'').\17\ FCMs and DCOs are required to obtain a written acknowledgment from the depository in which the depository acknowledges and agrees to requirements and conditions set forth below (``Acknowledgment Letter'').\18\ The Customer Property Segregation Rules prescribe the precise form of Acknowledgment Letter that is required for each the entity type (FCM and DCO) and the type of Customer Property.\19\ --------------------------------------------------------------------------- \15\ ``Futures Customer'' means, with certain exceptions outlined in 17 CFR 1.3(iiii), any person who uses a futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any contract for the purchase of sale of a commodity for future delivery or any option on such contract. See 17 CFR 1.3(iiii). \16\ See 17 CFR 1.20. \17\ 17 CFR 1.20(d); 1.20(g); 1.26; 22.5; 30.7. An FCM may also deposit customer property at a DCO or another FCM. \18\ 17 CFR 1.20, 1.26, 30.7. Although the Acknowledgment Letter requirement may relate to DTC, it is the sole obligation of the FCM or DCO. DTC is not subject to the Customer Property Segregation Rules, including without limitation, with respect to the Acknowledgement Letter. \19\ The Acknowledgment Letter requirements are set forth in 17 CFR l.20(d) and 1.26 (with respect to futures customer funds), 22.5 (with respect to cleared swaps customer collateral) and 30.7(d) (with respect to 30.7 customer funds-applicable to FCMs only). See Appendices A and B to 17 CFR 1.20; Appendix A to 17 CFR 1.26; Appendix E to 17 CFR 30. --------------------------------------------------------------------------- c. CFTC Required Acknowledgment Letter Each Acknowledgment Letter must be executed in the form specified in the Customer Property Segregation Rules with no additions, deletions or modifications permitted.\20\ In the Acknowledgement Letter, the depository is required to acknowledge and agree, among other things: --------------------------------------------------------------------------- \20\ 17 CFR l.20(d)(2), 22.5(a) and 30.7(d)(2). --------------------------------------------------------------------------- (1) That the FCM/DCO has opened or will open the subject account for the purpose of depositing, Customer Property, as required by Customer Property Segregation Rules, including Regulation 1.20, as amended; (2) that the Customer Property held by the depository after being deposited into the subject account will be separately accounted for and segregated on the depository's books from the FCM/DCO's own funds and from any other funds or accounts held by the FCM/DCO in accordance with the Customer Property Segregation Rules; (3) that such Customer Property may not be used by the depository or by the FCM/DCO to secure or guarantee any obligations that the FCM/ DCO might owe the depository, and they may not be used by FCM/DCO to secure or obtain credit from the depository; and (4) that the Customer Property in the subject account shall not be subject to any right of offset or lien for or on account of any indebtedness, obligations or liabilities the FCM/DCO has or may have owing to the depository. An FCM Acknowledgment Letter has additional examination, connectivity, and information requirements.\21\ --------------------------------------------------------------------------- \21\ See Appendix A to 17 CFR 1.20. --------------------------------------------------------------------------- B. The Proposed Rule DTC would, pursuant to the proposed rule change, establish an Account type that a Participant or Pledgee could use to segregate its Customer Property and provide DTC with the representations needed in order for DTC to execute FCM and DCO Acknowledgment Letters for such Accounts, as may be requested. Because DTC does not have independent knowledge of whether a Participant or Pledgee is utilizing an [[Page 51446]] Account for the benefit of customers, in the absence of such representations, DTC would not be able to sign an Acknowledgement Letter. The proposed rule change would add Rule 37 to the Rules, to provide for: (1) The establishment and maintenance by a Participant or Pledgee that is a DCO or FCM (respectively, ``DCO Party'' and ``FCM Party'') of one or more segregated Accounts (respectively, a ``Segregated DCO Account'' or ``Segregated FCM Account'') for the purpose of holding interests in Customer Property; (2) credits to and debits from Segregated DCO Accounts and Segregated FCM Accounts in the manner otherwise provided by in the Rules and Procedures; (3) the representation of each DCO Party to DTC: i. That the only interests in property that such DCO Party shall cause or allow to be credited to its Segregated DCO Account (or Accounts) shall be interests in Deposited Securities that constitute Customer Property; ii. that interests in Customer Property credited to its Segregated DCO Account (or Accounts) shall not be used by such DCO Party to secure or otherwise guarantee any obligations that such DCO Party might owe to DTC; iii. that interests in Customer Property credited to its Segregated DCO Account (or Accounts) shall not be subject to any right of offset or lien for or on account of any indebtedness, obligations or liabilities that such DCO Party may have owing to DTC; and iv. that DTC shall be entitled to rely on the representations of such DCO Party in connection with any acknowledgment that DTC may be required to provide to such DCO Party and/or the CFTC pursuant to the Customer Property Segregation Rules or for any other purpose; (4) the representation of each FCM Party to DTC: i. That the only interests in property that such FCM Party shall cause or allow to be credited to its Segregated FCM Account (or Accounts) shall be interests in Deposited Securities that constitute Customer Property; ii. that interests in Customer Property credited to its Segregated FCM Account (or Accounts) shall not be used by such FCM Party to secure or otherwise guarantee any obligations that such FCM Party might owe to DTC; iii. that interests in Customer Property credited to its Segregated FCM Account (or Accounts) shall not be subject to any right of offset or lien for or on account of any indebtedness, obligations or liabilities that such FCM Party may have owing to DTC; and iv. that DTC shall be entitled to rely on the representations of such FCM Party in connection with any acknowledgment that DTC may be required to provide to such FCM Party and/or the CFTC pursuant to the Customer Property Segregation Rules or for any other purpose; (5) the representation of DTC to each DCO Party that interests in Customer Property credited to the Segregated DCO Account (or Accounts) of such DCO Party: i. May not be used by DTC to secure or guarantee any obligations that such DCO Party might owe to DTC; ii. may not be used by such DCO Party to secure or obtain credit from DTC; and iii. shall not be subject to any right of offset or lien for or on account of any indebtedness, obligations or liabilities such DCO Party may have owing to DTC; provided, however, that this prohibition does not affect the right of DTC to recover funds advanced in the form of cash transfers, lines of credit, repurchase agreements or other liquidity arrangements DTC makes in lieu of liquidating non-cash assets held in the Segregated DCO Account (or Accounts) of such DCO Party or in lieu of converting cash held in the Segregated DCO Account (or Accounts) of such DCO Party to cash in a different currency; (6) the representation of DTC to each FCM Party that interests in Customer Property credited to the Segregated FCM Account (or Accounts) of such FCM Party: i. May not be used by DTC to secure or guarantee any obligations that such FCM Party might owe to DTC; ii. may not be used by such FCM Party to secure or obtain credit from DTC; and iii. shall not be subject to any right of offset or lien for or on account of any indebtedness, obligations or liabilities such FCM Party may have owing to DTC; provided, however, that this prohibition does not affect the right of DTC to recover funds advanced in the form of cash transfers, lines of credit, repurchase agreements or other liquidity arrangements DTC makes in lieu of liquidating non-cash assets held in the Segregated FCM Account (or Accounts) of such FCM Party or in lieu of converting cash held in the Segregated FCM Account (or Accounts) of such FCM Party to cash in a different currency; (7) DTC's disclaimer of liability: i. To any DCO Party or FCM Party as a result of DTC acting on an instruction from such DCO Party or FCM Party to credit to or debit from interests in Customer Property from a Segregated DCO Account or Segregated FCM Account, respectively; ii. to any DCO Party or FCM Party as a result of (x) any loss or liability suffered or incurred by such DCO Party or FCM Party arising out of or relating to the matters subject to proposed Rule 37, unless caused directly by the gross negligence or willful misconduct of DTC or by a violation of Federal securities law by DTC for which there is a private right of action, or (y) any force majeure, market disruption or technical malfunction that prevents DTC from performing its obligations to such DCO Party or FCM Party pursuant to proposed Rule 37; and iii. to any third party (including without limitation any customer of any DCO Party or FCM Party) for any reason; and a provision stating that in the event of a conflict between proposed Rule 37 and the provisions of any other Rule, the provisions of Proposed Rule 37 would govern. Implementation Timeframe The proposed rule change would be implemented 30 days after the date of filing, or such shorter time as the Commission may designate. 2. Statutory Basis DTC believes that the proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder applicable to DTC, in particular section 17A(b)(3)(F) of the Act \22\ and Rule 17Ad-22(e)(21) thereunder.\23\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78q-1(b)(3)(F). \23\ 17 CFR 240.17Ad-22(e)(21). --------------------------------------------------------------------------- Section 17A(b)(3)(F) of the Act requires, inter alia, that the rules of the clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.\24\ The proposed rule change provides a basis on which DTC may provide Acknowledgement Letters, affording the efficiency of DTC book-entry transfers for securities transactions relating to Customer Property. By establishing special segregated Accounts for Participants and Pledgees to use for Customer Property held at DTC, where they otherwise would have the administrative burden of segregating Customer Property at another depository in compliance with the Customer Property Segregation Rules, proposed Rule 37 is designed to promote the prompt and accurate clearance and settlement of securities transactions, consistent with the requirements of the [[Page 51447]] Act, in particular section 17A(b)(3)(F), cited above. --------------------------------------------------------------------------- \24\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- Rule 17Ad-22(e)(21) requires, inter alia, that each covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to be efficient and effective in meeting the requirements of its participants and the markets it serves.\25\ Pursuant to the proposed rule change, the Rules would be updated to establish a framework for DTC to provide Acknowledgement Letters to Participants and Pledgees who are DCOs or FCMs that would allow them to meet their requirements under the Customer Property Segregation Rules, while utilizing the efficiency provided by DTC book-entry transfers, consistent with the requirements of Rule 17Ad-22(e)(21), cited above. --------------------------------------------------------------------------- \25\ 17 CFR 240.17Ad-22(e)(21). --------------------------------------------------------------------------- (B) Clearing Agency's Statement on Burden on Competition DTC does not believe that the proposed rule change would have any impact, or impose any burden, on competition because the proposed Rule and its features would be available to all Participants and Pledgees equally on a non-discriminatory basis. Participants and Pledgees will be charged fees applicable to the maintenance of Accounts and transaction fees that are not different from established published fees. (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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\ --------------------------------------------------------------------------- \26\ 15 U.S.C. 78s(b)(3)(A). \27\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-2017-020 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-DTC-2017-020. 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 20549-1090 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-DTC-2017-020 and should be submitted on or before November 27, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\28\ --------------------------------------------------------------------------- \28\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-24049 Filed 11-3-17; 8:45 am] BILLING CODE 8011-01-P
![51444 Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices
POSTAL SERVICE of the Act 3 and Rule 19b–4(f)(6) (A) Clearing Agency’s Statement of the
thereunder.4 The Commission is Purpose of, and Statutory Basis for, the
Product Change—Priority Mail Express publishing this notice to solicit Proposed Rule Change
and Priority Mail Negotiated Service comments on the proposed rule change
Agreement 1. Purpose
from interested persons.
The proposal would add new Rule 37
AGENCY: Postal ServiceTM. I. Clearing Agency’s Statement of the (Segregated Accounts for Customer
ACTION: Notice. Terms of Substance of the Proposed Property) to provide that a Participant or
Rule Change Pledgee may establish a specifically
SUMMARY: The Postal Service gives designated Account to which Eligible
notice of filing a request with the Postal The proposal would add new Rule 37 Securities may be credited that the
Regulatory Commission to add a (Segregated Accounts for Customer Participant or Pledgee wishes to
domestic shipping services contract to Property) to provide that a Participant 5 segregate as Customer Property subject
the list of Negotiated Service or Pledgee may establish a specifically to the Customer Property Segregation
Agreements in the Mail Classification designated Account to which Eligible Rules. Based on this segregation
Schedule’s Competitive Products List. Securities may be credited that the structure and the representations and
DATES: Date of notice required under 39 Participant or Pledgee wishes to warranties made by the Participant or
U.S.C. 3642(d)(1): November 6, 2017. segregate as the property of its Pledgee under the proposed Rule, DTC
FOR FURTHER INFORMATION CONTACT: customers that trade commodities, would, upon the request of the
Elizabeth A. Reed, 202–268–3179. options, swaps, and other products Participant or Pledgee, provide an
SUPPLEMENTARY INFORMATION: The (‘‘Customer Property’’) subject to the acknowledgment of the segregation of
United States Postal Service® hereby Customer Property Segregation Rules.6 such Customer Property, as further
gives notice that, pursuant to 39 U.S.C. Based on this segregation structure and described below.
3642 and 3632(b)(3), on October 31, the representations and warranties made A. Background
2017, it filed with the Postal Regulatory by the Participant or Pledgee under the a. DTC Omnibus Account Structure
Commission a USPS Request to Add proposed Rule, DTC would, upon the
Priority Mail Express & Priority Mail request of the Participant or Pledgee, DTC maintains omnibus Accounts for
Contract 52 to Competitive Product List. provide an acknowledgment of the its Participants and Pledgees.8 That is, it
Documents are available at segregation of such Customer Property,7 8 DTC holds Eligible Securities collectively on
www.prc.gov, Docket Nos. MC2018–18, as further described below. behalf of Participants and reflects the transfer of
CP2018–40. interests in those Eligible Securities among
II. Clearing Agency’s Statement of the Participants by computerized book-entry. Eligible
Elizabeth A. Reed, Purpose of, and Statutory Basis for, the Securities Deposited with DTC for book-entry
Attorney, Corporate and Postal Business Law. Proposed Rule Change transfer services are registered in the name of its
[FR Doc. 2017–24039 Filed 11–3–17; 8:45 am] nominee, Cede & Co. (‘‘Cede’’), a New York
partnership. When the Eligible Securities are
BILLING CODE 7710–12–P In its filing with the Commission, registered in the name of Cede, DTC acquires legal
DTC included statements concerning title to the Eligible Securities and, when DTC
the purpose of, and basis for, the credits interests in these Eligible Securities to the
Securities Accounts of Participants, those
SECURITIES AND EXCHANGE proposed rule change and discussed any Participants acquire a beneficial interest in the
COMMISSION comments it received on the proposed Eligible Securities and a Security Entitlement with
rule change. The text of these statements respect to those Eligible Securities is credited to
[Release No. 34–81990; File No. SR–DTC– may be examined at the places specified their Accounts. A Security Entitlement is both a
2017–020] package of personal rights against the securities
in Item IV below. DTC has prepared intermediary [in this case, DTC] and an interest in
summaries, set forth in sections A, B, the property held by the securities intermediary.
Self-Regulatory Organizations; The NYUCC § 8–102(14)(i); NYUCC § 8–102(17) and
and C below, of the most significant
Depository Trust Company; Notice of OFF. CMT. 17. A security entitlement is not,
Filing and Immediate Effectiveness of aspects of such statements. however, a specific property interest in any
Proposed Rule Change To Establish a [security] held by the securities intermediary or by
3 15 U.S.C. 78s(b)(3)(A). the clearing corporation through which the
Special Segregation Account for a 4 17 securities intermediary holds the [security]. NYUCC
CFR 240.19b–4(f)(6).
Participant or Pledgee That Is a 5 Each capitalized term not otherwise defined
§ 8–102(17) and OFF. CMT. 17. Thus, a Participant
Derivatives Clearing Organization or herein has its respective meaning as set forth in the
does not have a right to any particular security;
Futures Commission Merchant each Participant has a proportionate interest in the
Rules, By-Laws and Organization Certificate of The fungible total inventory of the issue held by DTC.
Depository Trust Company (the ‘‘Rules’’), available
October 31, 2017. Participants, in many cases, are themselves
at http://www.dtcc.com/legal/rules-and-
securities intermediaries, maintaining securities
Pursuant to section 19(b)(1) of the procedures.aspx.
accounts for the benefit of their customers, crediting
6 ‘‘Customer Property Segregation Rules’’ means
Securities Exchange Act of 1934 a portion of the amount of any issue of a Security
the rules and regulations of the Commodity Futures
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 held in their Account(s) to one or more customers,
Trading Commission (‘‘CFTC’’), relating to the as securities entitlements of their customers against
notice is hereby given that on October deposit of customer property (including money, them. That is, their customers are entitlement
20, 2017, The Depository Trust securities and other property) held by derivatives holders, holding the rights and property interest
Company (‘‘DTC’’) filed with the clearing organizations (‘‘DCOs’’) or futures represented by the amount of the security credited
Securities and Exchange Commission commission merchants (‘‘FCMs’’) for customers that to their account(s) vis a vis the Participant. Some
trade commodities, options, swaps and other
Pmangrum on DSK3GDR082PROD with NOTICES
(‘‘Commission’’) the proposed rule customers of a Participant may also be securities
products. 7 U.S.C. 6d; 17 CFR 1.20–1.30, 22, 30. intermediaries, holding on behalf of, and
change as described in Items I, II and III Under the proposed rule change, only Deposited maintaining securities accounts for, their own
below, which Items have been prepared Securities credited to an appropriately designated customers, and so forth. DTC does not know
by DTC. DTC filed the proposed rule Account may constitute ‘‘Customer Property’’ for whether a Participant is holding interest in the
purposes of such Customer Property Segregation Securities for itself or on behalf of its customers, as
change pursuant to section 19(b)(3)(A)
Rules; DTC does not, and will not under the their securities intermediary.
proposed rule change, segregate money. This tiered system of intermediaries holding
1 15 U.S.C. 78s(b)(1). 7 See 7 U.S.C. 6d(a)(2); 7 U.S.C. 6d(f); 17 CFR interests in securities for their respective customers
2 17 CFR 240.19b–4. 1.20(d); 1.20(g); 1.26; 22.5; 30.7. is generally described as the ‘‘indirect holding
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![Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51445
does not distinguish among Accounts Pledgee for customers. It is the sole Segregation Rules prescribe the precise
that Participants or Pledgees may use for responsibility of the Participant or form of Acknowledgment Letter that is
activities that are proprietary or Pledgee to maintain appropriate records required for each the entity type (FCM
conducted by the Participant or Pledgee on its own books to identify customer and DCO) and the type of Customer
for the benefit of customer(s). The Rules Securities separately. Property.19
expressly provide that ‘‘[a] Participant
b. Customer Property Segregation Rules c. CFTC Required Acknowledgment
or Pledgee which utilizes the services of
of the CFTC Letter
[DTC] for another Person shall, so far as
the rights of [DTC], and other Because DTC is agnostic as to Each Acknowledgment Letter must be
Participants and Pledgees are whether, when and how any Participant executed in the form specified in the
concerned, be liable as principal.’’ 9 or Pledgee may be utilizing its Account Customer Property Segregation Rules
The Rules provide for Segregated for the benefit of customers, DTC cannot with no additions, deletions or
Accounts that Participants have independently verify that any particular modifications permitted.20 In the
typically used to separate Securities Securities are ‘‘customer securities’’ vis- Acknowledgement Letter, the
held for their customers. The à-vis the Participant or Pledgee. depository is required to acknowledge
characteristics of a Segregated Account However, FCMs and DCOs have and agree, among other things:
are, chiefly, that DTC has no lien on or statutory requirements for the separate (1) That the FCM/DCO has opened or
claim to the Securities credited thereto identification of Customer Property will open the subject account for the
to secure any obligation of the pursuant to the Customer Property purpose of depositing, Customer
Participant to DTC.10 Participants Segregation Rules.13 To accommodate Property, as required by Customer
therefore use Segregated Accounts to this need of certain Participants or Property Segregation Rules, including
separately identify customer property.11 Pledgees that are FCMs or DCOs, DTC Regulation 1.20, as amended;
The Rules also provide that Securities proposes this rule change, pursuant to (2) that the Customer Property held by
Pledged to a Pledgee (when credited to which DTC would provide the depository after being deposited into
the Account of the Pledgee in a Free acknowledgment of Customer Property the subject account will be separately
Pledge or, in a Pledge Versus Payment), credited to the specified Accounts, in accounted for and segregated on the
are held free of any lien or other interest reliance on the representations of the depository’s books from the FCM/DCO’s
of DTC.12 Thus, the Pledge mechanism Participant or Pledgee provided in the own funds and from any other funds or
is a tool that may be used by a Pledgee proposed Rule.14 accounts held by the FCM/DCO in
to segregate Securities at DTC. The Customer Property Segregation accordance with the Customer Property
If a Participant or Pledgee holds Rules require that each FCM and DCO Segregation Rules;
Segregated or Pledged Securities on separately account for, and segregate (3) that such Customer Property may
behalf of customers, that would be from its own proprietary funds, all not be used by the depository or by the
reflected in the accounts maintained by money, securities, or other property FCM/DCO to secure or guarantee any
the Participant or Pledgee for its deposited by futures customers 15 for obligations that the FCM/DCO might
customers. DTC has no knowledge of trading on designated contract owe the depository, and they may not be
whether Securities credited in that markets.16 The Customer Property used by FCM/DCO to secure or obtain
manner are held by the Participant or Segregation Rules also provide that an credit from the depository; and
FCM or DCO may only deposit futures (4) that the Customer Property in the
system.’’ Id. Any entitlement holder may only assert customer property with a bank or trust subject account shall not be subject to
its rights to a security entitlement against its own company, and, additionally, an FCM any right of offset or lien for or on
securities intermediary; Participants and Pledgees account of any indebtedness, obligations
are in contractual privity with DTC; their customers
may deposit with a DCO or another
are not and do not have any claim against DTC to FCM (each, a ‘‘depository’’).17 FCMs and or liabilities the FCM/DCO has or may
the security entitlement of the Participant. Such DCOs are required to obtain a written have owing to the depository.
customers of a Participant would have securities acknowledgment from the depository in An FCM Acknowledgment Letter has
entitlements against the Participant that is acting on additional examination, connectivity,
their behalf as their ‘‘securities intermediary.’’ Such
which the depository acknowledges and
customers only have rights against the Participant, agrees to requirements and conditions and information requirements.21
and not against the Participant’s securities set forth below (‘‘Acknowledgment B. The Proposed Rule
intermediary; i.e., DTC. See NYUCC § 8–503 OFF. Letter’’).18 The Customer Property
CMT. 2. (‘‘The entitlement holder cannot assert DTC would, pursuant to the proposed
rights directly against other persons, such as other rule change, establish an Account type
13 See supra note 6.
intermediaries [DTC] through whom the
intermediary [the Participants] holds the positions 14 DTC is proposing this rule change to provide that a Participant or Pledgee could use
. . . .’’). Moreover, DTC does not owe any duties Participants and Pledgees that may be FCMs or to segregate its Customer Property and
to such customers. See NYUCC § 8–115 OFF. CMT. DCOs a mechanism to comply with their obligations provide DTC with the representations
4. (‘‘[T]his section embodies one of the fundamental under the Customer Property Segregation Rules.
needed in order for DTC to execute FCM
principles of the Article 8 indirect holding system 15 ‘‘Futures Customer’’ means, with certain
rules—that a securities intermediary [DTC] owes exceptions outlined in 17 CFR 1.3(iiii), any person and DCO Acknowledgment Letters for
duties only to its own entitlement holders [its who uses a futures commission merchant, such Accounts, as may be requested.
Participants]’’). introducing broker, commodity trading advisor, or Because DTC does not have
9 Rule 2, section 2, supra note 5. commodity pool operator as an agent in connection independent knowledge of whether a
10 Rule 1, section 1, supra note 5. with trading in any contract for the purchase of sale
11 Participants that are registered broker-dealers of a commodity for future delivery or any option Participant or Pledgee is utilizing an
use Segregation Accounts as a tool to maintain on such contract. See 17 CFR 1.3(iiii).
16 See 17 CFR 1.20. 19 The Acknowledgment Letter requirements are
Pmangrum on DSK3GDR082PROD with NOTICES
compliance with their obligations under Rule
15c3–3 of the Act (‘‘Customer Protection Rule’’). 17 17 17 CFR 1.20(d); 1.20(g); 1.26; 22.5; 30.7. An set forth in 17 CFR l.20(d) and 1.26 (with respect
CFR 240.15c3–3. The Customer Protection Rule FCM may also deposit customer property at a DCO to futures customer funds), 22.5 (with respect to
requires, among other things, that broker-dealers or another FCM. cleared swaps customer collateral) and 30.7(d)
maintain control of all fully-paid or excess margin 18 17 CFR 1.20, 1.26, 30.7. Although the (with respect to 30.7 customer funds-applicable to
Securities they hold for the accounts of customers. Acknowledgment Letter requirement may relate to FCMs only). See Appendices A and B to 17 CFR
Compliance with those obligations by such broker- DTC, it is the sole obligation of the FCM or DCO. 1.20; Appendix A to 17 CFR 1.26; Appendix E to
dealers is external to DTC. See Rule 2, supra note DTC is not subject to the Customer Property 17 CFR 30.
5. 20 17 CFR l.20(d)(2), 22.5(a) and 30.7(d)(2).
Segregation Rules, including without limitation,
12 Rule 4(A), supra note 5. with respect to the Acknowledgement Letter. 21 See Appendix A to 17 CFR 1.20.
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![Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51447
Act, in particular section 17A(b)(3)(F), Act 26 and Rule 19b–4(f)(6) will be posted without change. Persons
cited above. thereunder.27 submitting comments are cautioned that
Rule 17Ad–22(e)(21) requires, inter At any time within 60 days of the we do not redact or edit personal
alia, that each covered clearing agency filing of the proposed rule change, the identifying information from comment
establish, implement, maintain and Commission summarily may submissions. You should submit only
enforce written policies and procedures temporarily suspend such rule change if information that you wish to make
reasonably designed to be efficient and it appears to the Commission that such available publicly.
effective in meeting the requirements of action is necessary or appropriate in the All submissions should refer to File
its participants and the markets it public interest, for the protection of Number SR–DTC–2017–020 and should
serves.25 Pursuant to the proposed rule investors, or otherwise in furtherance of be submitted on or before November 27,
change, the Rules would be updated to the purposes of the Act. 2017.
establish a framework for DTC to IV. Solicitation of Comments For the Commission, by the Division of
provide Acknowledgement Letters to Trading and Markets, pursuant to delegated
Interested persons are invited to authority.28
Participants and Pledgees who are DCOs
submit written data, views and
or FCMs that would allow them to meet Eduardo A. Aleman,
arguments concerning the foregoing,
their requirements under the Customer Assistant Secretary.
including whether the proposed rule
Property Segregation Rules, while [FR Doc. 2017–24049 Filed 11–3–17; 8:45 am]
change is consistent with the Act.
utilizing the efficiency provided by DTC
Comments may be submitted by any of BILLING CODE 8011–01–P
book-entry transfers, consistent with the
the following methods:
requirements of Rule 17Ad–22(e)(21),
cited above. Electronic Comments SECURITIES AND EXCHANGE
(B) Clearing Agency’s Statement on • Use the Commission’s Internet COMMISSION
Burden on Competition comment form (http://www.sec.gov/
[Release No. 34–81985; File No. SR–
rules/sro.shtml); or
NYSEArca–2017–127]
DTC does not believe that the • Send an email to rule-comments@
proposed rule change would have any sec.gov. Please include File Number SR– Self-Regulatory Organizations; NYSE
impact, or impose any burden, on DTC–2017–020 on the subject line. Arca, Inc.; Notice of Filing and
competition because the proposed Rule
Paper Comments Immediate Effectiveness of Proposed
and its features would be available to all
• Send paper comments in triplicate Rule Change Regarding Exchange
Participants and Pledgees equally on a
to Secretary, Securities and Exchange Calculation of the Intraday Indicative
non-discriminatory basis. Participants
Commission, 100 F Street NE., Value for Specified Exchange-Traded
and Pledgees will be charged fees
Washington, DC 20549–1090. Products
applicable to the maintenance of
Accounts and transaction fees that are All submissions should refer to File October 31, 2017.
not different from established published Number SR–DTC–2017–020. This file Pursuant to section 19(b)(1) 1 of the
fees. number should be included on the Securities Exchange Act of 1934
subject line if email is used. To help the (‘‘Act’’) 2 and Rule 19b–4 thereunder,3
(C) Clearing Agency’s Statement on
Commission process and review your notice is hereby given that, on October
Comments on the Proposed Rule
comments more efficiently, please use 20, 2017, NYSE Arca, Inc. (‘‘Exchange’’
Change Received From Members,
only one method. The Commission will or ‘‘NYSE Arca’’) filed with the
Participants, or Others
post all comments on the Commission’s Securities and Exchange Commission
DTC has not solicited and does not Internet Web site (http://www.sec.gov/ the proposed rule change as described
intend to solicit comments regarding the rules/sro.shtml). Copies of the in Items I and II below, which Items
proposed rule change. DTC has not submission, all subsequent have been prepared by the self-
received any unsolicited written amendments, all written statements regulatory organization. The
comments from interested parties. To with respect to the proposed rule Commission is publishing this notice to
the extent DTC receives written change that are filed with the solicit comments on the proposed rule
comments on the proposed rule change, Commission, and all written change from interested persons.
DTC will forward such comments to the communications relating to the
Commission. proposed rule change between the I. Self-Regulatory Organization’s
Commission and any person, other than Statement of the Terms of Substance of
III. Date of Effectiveness of the those that may be withheld from the the Proposed Rule Change
Proposed Rule Change and Timing for public in accordance with the The Exchange proposes to modify
Commission Action provisions of 5 U.S.C. 552, will be representations made in proposed rule
Because the foregoing proposed rule available for Web site viewing and changes previously filed with the
change does not: printing in the Commission’s Public Securities and Exchange Commission
(i) Significantly affect the protection Reference Room, 100 F Street NE., (‘‘Commission’’) regarding Exchange
of investors or the public interest; Washington, DC 20549–1090 on official calculation of the ‘‘Intraday Indicative
business days between the hours of Value’’ (or comparable intra-day value)
(ii) impose any significant burden on 10:00 a.m. and 3:00 p.m. Copies of the for specified exchange-traded products.
competition; and
Pmangrum on DSK3GDR082PROD with NOTICES
filing also will be available for The proposed rule change is available
(iii) become operative for 30 days inspection and copying at the principal on the Exchange’s Web site at
from the date on which it was filed, or office of DTC and on DTCC’s Web site www.nyse.com, at the principal office of
such shorter time as the Commission (http://dtcc.com/legal/sec-rule-
may designate, it has become effective filings.aspx). All comments received 28 17 CFR 200.30–3(a)(12).
pursuant to section 19(b)(3)(A) of the 1 15 U.S.C. 78s(b)(1).
26 15 U.S.C. 78s(b)(3)(A). 2 15 U.S.C. 78a.
25 17 CFR 240.17Ad–22(e)(21). 27 17 CFR 240.19b–4(f)(6). 3 17 CFR 240.19b–4.
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Document Created: 2017-11-07 10:30:29
Document Modified: 2017-11-07 10:30:29
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 51444 |
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