83 FR 35044 - Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Amend Rule 35 To Provide for Designated Accounts for Use With Designated Collateral Management Service Providers

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 142 (July 24, 2018)

Page Range35044-35048
FR Document2018-15769

Federal Register, Volume 83 Issue 142 (Tuesday, July 24, 2018)
[Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)]
[Notices]
[Pages 35044-35048]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-15769]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83667; File No. SR-DTC-2018-006]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Amend Rule 35 To Provide 
for Designated Accounts for Use With Designated Collateral Management 
Service Providers

July 18, 2018
    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 July 9, 2018, The Depository Trust Company (``DTC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II and III below, which Items have been 
prepared by the clearing agency. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change of DTC would amend Rule 35 \3\ to permit a 
Participant or Pledgee to designate one or more collateral management 
service providers,\4\ acting on behalf of the Participant or Pledgee, 
to receive reports and information from, and provide certain 
instructions to, DTC with respect to specified Accounts of the 
Participant or Pledgee. In addition, the proposed rule change would 
make ministerial changes to Rule 35, as discussed below.
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    \3\ 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.
    \4\ Collateral management generally involves calculating 
collateral requirements and facilitating the transfer of collateral 
between counterparties. See Securities Exchange Act Release No. 
64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (S7-28-11).
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The proposed rule change of DTC would amend Rule 35 to permit a 
Participant or Pledgee to designate one or more collateral management 
service providers, acting on behalf of the Participant or Pledgee, to 
receive reports and information from, and provide certain instructions 
to, DTC with respect to specified Accounts of the Participant or 
Pledgee. In addition, the proposed rule change would make ministerial 
changes to Rule 35, as discussed below.
A. Background
i. Rule 35
    On May 4, 2017, the Commission approved a DTC rule change that 
added Rule 35.\5\ DTC introduced Rule 35 at the request of DTCC 
Euroclear Global Collateral Ltd. (``DEGCL'') \6\ in accordance with 
DEGCL specifications. The purpose of Rule 35 was to permit a 
Participant to authorize DEGCL to receive certain reports and 
information with respect to Securities held by the Participant at DTC 
in one or more sub-accounts (each, a ``CMS Sub-Account'') so that DEGCL 
might provide collateral management services with respect to such 
Securities.\7\
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    \5\ See Securities Exchange Act Release No. 80598 (May 4, 2017), 
82 FR 21837 (May 10, 2017) (SR-DTC-2017-001).
    \6\ DEGCL is a joint venture of The Depository Trust & Clearing 
Corporation, the corporate parent of DTC, and Euroclear S.A./N.V. 
and was formed for the purpose of offering global information, 
record keeping, and processing services for derivatives collateral 
transactions and other types of financing transactions. DEGCL offers 
service options for the selection of collateral to satisfy the 
collateral obligations of its users (``DEGCL CMS''). One option 
relates exclusively to Securities held at DTC, and is dependent on 
Rule 35. For more information on DEGCL and DEGCL CMS, see Securities 
Exchange Act Release No. 80280 (March 20, 2017), 82 FR 15081 (March 
24, 2017) (SR-DTC-2017-001).
    \7\ Rule 35 provides that by establishing a CMS Sub-Account, a 
Participant authorizes DEGCL to receive from DTC (x) a ``CMS 
Report,'' which provides information regarding Securities credited 
to the CMS Sub-Account of such Participant at the time of the 
report, and (y) ``CMS Delivery Information,'' which provides real-
time information regarding any Delivery or Pledge from, or Delivery 
or Release to, the CMS Sub-Account of such Participant.
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    As DEGCL sought to expand its activities under Rule 35, which would 
have required one or more amendments to the rule, DTC considered 
whether a more comprehensive approach to Rule 35 might better serve the 
collateral management needs of its Participants and Pledgees.
ii. Proposed Rule Changes
    The proposed rule change to amend Rule 35 would apply to any 
collateral management service provider that satisfies the requirements 
of the rule, and to any Account designated by a Participant or Pledgee. 
The amended rule would authorize DTC to provide information to the 
collateral management service provider (as it does for DEGCL currently) 
but, further, to act on instructions of the collateral management 
service provider.
    More specifically, the proposed rule change would:
    (1) Introduce the concept of a ``CMSP,'' a collateral management 
service provider designated to DTC by a Participant or Pledgee to act 
on behalf of the Participant or Pledgee under the proposed rule. The 
concept of a CMSP would replace the singular designation of DEGCL to 
act under this rule; \8\
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    \8\ DTC understands that DEGCL expects to be a CMSP under 
proposed Rule 35 and expects to offer collateral management services 
under the amended rule.
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    (2) Introduce the concept of a ``CMSP Account,'' an Account of a 
Participant or Pledgee that the Participant or Pledgee, respectively, 
has designated as subject to the proposed rule. The scope of a CMSP 
Account would replace the narrower concept of the existing CMS Sub-
Account; \9\
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    \9\ Rule 35 currently requires that a designated Account must be 
a sub-Account, and can only be designated by a Participant, which 
were DEGCL specifications. By expanding the rule to Accounts more 
generally, which could be designated by any Participant or Pledgee, 
the proposed rule would provide a Participant or a Pledgee 
flexibility to choose among CMSPs with different models for 
collateral management services and to structure its Accounts in a 
manner that aligns most efficiently with its collateral management 
needs and the specifications of its designated CMSP(s).
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    (3) Add the concept of a ``CMSP Instruction,'' an instruction of a 
CMSP to DTC for the Delivery, Pledge, or Release of Securities to or 
from a CMSP Account for which the CMSP is designated under the proposed 
rule; and
    (4) Introduce the defined terms ``CMSP Position Report'' and ``CMSP 
Information'' (collectively, ``CMSP

[[Page 35045]]

Reports''). These reports are analogous to the CMS Report and CMS 
Delivery Information, respectively, provided to DEGCL under Rule 35.
B. Proposed Rule
i. CMSP
    Proposed Section 2 of Rule 35 would set forth the requirements to 
be a CMSP.\10\ Proposed Section 2 would provide that a partnership, 
corporation or other organization or entity may become a CMSP for 
purposes of proposed Rule 35 if it satisfies the following 
requirements: (a) It is designated to DTC by one or more Participants 
or Pledgees as a collateral management service provider for purposes of 
Rule 35; (b) it (i) satisfies at least one of the qualifications set 
forth in Section 1(a)-(h) of Rule 3 \11\ or (ii) is organized in a 
country other than the United States, is regulated by a financial 
regulatory authority in the country in which it is organized, and 
demonstrates that it has notified the Commission in writing of its 
intention to operate under Rule 35; \12\ and (c) it establishes a 
connection to DTC in accordance with the reasonable requirements of DTC 
in order to be able to receive position and transaction information and 
to submit instructions to DTC in accordance with the Rules and 
Procedures.\13\
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    \10\ See supra note 8.
    \11\ Sections 1(a)-(h) of Rule 3 provide the qualifications for 
a partnership, corporation or other organization or entity to be 
eligible to become a Participant. Specifically, it must satisfy at 
least one of the following qualifications: ``(a) it is a corporation 
which engages in clearance and settlement activities and which is a 
subsidiary of a national securities exchange or national securities 
association registered under the Exchange Act; (b) it is a member or 
member organization in good standing of a corporation described in 
paragraph (a) above; (c) it is a corporation which is authorized 
pursuant to Article 8 of the Uniform Commercial Code, or other 
similar statutory provision in effect in the jurisdiction in which 
such corporation engages in business, to engage in the business of 
effecting the transfer or pledge of Securities by book-entry and 
which engages in such business; (d) it is a bank or trust company 
which is subject to supervision or regulation pursuant to the 
provisions of Federal or State banking laws or any subsidiary of 
such a bank or trust company or a bank holding company or any 
subsidiary of a bank holding company; (e) it is an insurance company 
subject to supervision or regulation pursuant to the provisions of 
State insurance laws; (f) it is an investment company registered 
under section 8 of the Investment Company Act; (g) it is a pension 
fund or other employee benefit fund; or (h) if it does not qualify 
under paragraphs (a) through (g) above, it is (i) a financial 
institution which demonstrates to the Board of Directors that its 
business and capabilities are such that it could reasonably expect 
material benefit from direct access to the Corporation's services or 
(ii) a broker-dealer registered under the Exchange Act.'' Supra note 
3.
    \12\ In order to protect DTC, its Participants and Pledgees, a 
collateral management service provider that wishes to act under 
proposed Rule 35 would need to be subject to regulatory oversight 
comparable to a Participant, as provided in proposed Section 2(b)(i) 
of Rule 35, or, if the entity is organized in a country other than 
the United States (a ``non-U.S. entity''), it would need to be 
regulated by a financial regulatory authority in the country in 
which it is organized, as provided in proposed Section 2(b)(ii) of 
Rule 35. Further, the proposed rule change would require that, in 
order to be eligible to become a CMSP, the non-U.S. entity must 
notify the Commission in writing of its intention to operate under 
proposed Rule 35. While DTC reserves the right to request 
documentation and/or information relating to a collateral management 
service provider's compliance with the requirements of proposed 
Section 2 of Rule 35, it would be the sole responsibility of the 
Participant or Pledgee to evaluate and choose an appropriate 
collateral management service provider that, at a minimum, satisfies 
the requirements. Under proposed Section 2 of Rule 35, the 
designating Participant or Pledgee would remain liable as principal 
for the actions of its designated CMSP(s) on its behalf, and would 
indemnify DTC for any loss, liability, or expense as a result of any 
claim arising from (i) any act or omission of the CMSP, (ii) the 
provision of CMSP Reports to the CMSP by DTC, or (iii) DTC's 
compliance with instructions of the CMSP.
    \13\ See infra note 15.
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    Proposed Section 2 of Rule 35 would also provide that DTC may 
decline to accept an entity as a CMSP if it would present material risk 
to DTC, its Participants and Pledgees, or impose material costs to DTC. 
For illustrative purposes only, some examples of circumstances in which 
DTC might reject a collateral management service provider as a CMSP may 
include, without limitation, circumstances in which DTC reasonably 
believes that acceptance of the collateral management service provider 
as a CMSP would (i) subject DTC to additional legal or regulatory 
regimes, to which it is not otherwise subject; (ii) expose DTC to 
additional technology risk; or (iii) cause DTC to be in violation of 
applicable law or regulation.
ii. CMSP Accounts
    The proposed rule change would amend Rule 35 to allow either a 
Participant or a Pledgee to designate any Account as a CMSP Account. 
The key feature of a CMSP Account is that it allows the designated CMSP 
access and authority to provide instruction to DTC (as further 
described below) for the Delivery, Pledge, or Release of Securities on 
behalf of a Participant or Pledgee, as applicable. The proposed rule 
change would specify that, with respect to a CMSP Account, a 
Participant or Pledgee would retain the right to instruct DTC as 
otherwise provided in the Rules and Procedures.
    Pursuant to proposed Section 3 of Rule 35, a Participant or Pledgee 
would be able to designate one or more CMSP Accounts and, concurrently, 
designate one or more CMSPs with respect to each CMSP Account. The 
designation of a CMSP with respect to a CMSP Account by a Participant 
or Pledgee would constitute:
    (1) The appointment of the CMSP by the Participant or Pledgee of 
the CMSP to act on its behalf under Rule 35;
    (2) the authorization of the appointed CMSP by the Participant or 
Pledgee to receive CMSP Reports and to provide CMSP Instructions;
    (3) the authorization of DTC by the Participant or Pledgee to act 
in accordance with any CMSP Instruction of such CMSP; and
    (4) the representation and warranty of the Participant or Pledgee 
that it is duly authorized to instruct DTC to provide CMSP Reports to 
the CMSP and to act in accordance with any CMSP Instruction.
    With the exception of references to Pledgees and to the new concept 
of CMSP Instruction, these authorizations, representations, and 
warranties would substantially track Rule 35, as previously adopted.
    In addition, the proposed rule change would not substantially alter 
the liability and indemnification provisions in Rule 35. The proposed 
rule change would provide that each Participant and Pledgee that 
designates a CMSP with respect to a CMSP Account would indemnify DTC, 
and any nominee of DTC, against any loss, liability or expense as a 
result of any claim arising from the compliance of DTC with CMSP 
Instructions, except to the extent such loss, liability, or expense is 
caused directly by the DTC's gross negligence or willful misconduct.
iii. CMSP Reports
    As discussed above, Rule 35 currently provides a mechanism for a 
Participant to authorize DEGCL to receive position and transaction 
information from DTC, in the form of CMS Reports and CMS Delivery 
Information.\14\ The proposed rule change would permit a Participant or 
Pledgee to designate a CMSP that would be authorized to receive CMSP 
Reports and give CMSP Instructions with respect to CMSP Accounts for 
which the CMSP is designated. The CMSP Position Report and CMSP 
Information are analogous to the reports provided to DEGCL under 
existing Rule 35 (defined as the CMS Report and CMS Delivery 
Information, respectively).\15\
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    \14\ See supra note 7.
    \15\ The proposed rule change would not alter the provision in 
Rule 35 that states that DTC will provide the CMSP Reports ``through 
such dedicated communications channels, satisfactory to [DTC] in its 
sole discretion, as [DTC] shall afford for this purpose.'' 
Typically, DTC would have infrastructure and operations that it 
would use to transmit information to, or receive information from, 
CMSPs under proposed Rule 35. DTC would consider requests from CMSPs 
for alternative methods of connectivity, taking into account factors 
that may include, but are not limited to, operational feasibility, 
user demand, and cost. In such a situation, the applicable CMSP 
would be responsible for all development, integration, 
implementation, and additional operating costs related to such 
alternate method of transmission.

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[[Page 35046]]

    Existing Rule 35 defines ``CMS Delivery Information'' to mean, 
``with respect to CMS Securities and any Delivery or Pledge thereof 
from, or Delivery or Release thereof to, a CMS Sub-Account, a copy of 
any Delivery, Pledge, or Release message sent to the CMS Participant by 
DTC, including the following information: (x) the CUSIP, ISIN, or other 
identification number of such CMS Securities, and (y) the number of 
shares or other units or principal amount of such CMS Securities.'' 
This definition was drafted to align with DEGCL specifications. 
Pursuant to the proposed rule change, the definition would be drafted 
in more general terms to provide flexibility for the different 
collateral management service offerings of CMSPs (in addition to 
DEGCL). Pursuant to the proposed rule change, ``CMSP Information'' 
would mean, ``with respect to a CMSP Account of a Participant or 
Pledgee, a copy of any message sent to the Participant or Pledgee by 
the Corporation.'' These messages would include, but would not be 
limited to, the Delivery, Pledge, and Release messages referenced in 
the definition of CMS Delivery Information in existing Rule 35.
    Similarly, existing Rule 35 defines ``CMS Report'' to mean, ``with 
respect to a CMS Participant and its CMS Sub-Account, the following 
information identifying the CMS Securities that are, at the time of 
such report, credited to such CMS Sub-Account: (i) The CUSIP, ISIN, or 
other identification number of the CMS Securities, and (ii) the number 
of shares or other units or principal amount of the CMS Securities.'' 
This definition was drafted to align with DEGCL specifications. 
Pursuant to the proposed rule change, ``(i) the CUSIP, ISIN, or other 
identification number of the CMS Securities, and (ii) the number of 
shares or other units or principal amount of the CMS Securities'' would 
be deleted from the definition.
    Finally, similar to existing Rule 35, proposed Rule 35 would 
provide that DTC would have no liability to any Participant or Pledgee 
as a result of providing one or more CMSP Reports to any CMSP pursuant 
to proposed Section 5 of Rule 35.
iv. CMSP Instructions
    The proposed rule change would further amend Rule 35 to provide 
that a CMSP designated by a Participant or Pledgee with respect to a 
CMSP Account would be authorized to instruct DTC, on behalf of the 
Participant or Pledgee, for the Delivery, Pledge, or Release of 
Securities credited to such CMSP Account, as applicable.\16\ CMSP 
Instructions would be subject to the terms and conditions of the Rules 
and the Procedures applicable to Deliveries, Pledges, and Releases of 
Securities generally, including risk management controls.\17\ The 
purpose of this proposed change is to streamline collateral processing 
by CMSPs by allowing them to receive information directly from DTC and 
to take direct action on that information through CMSP Instructions, on 
behalf of Participants and Pledgees.
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    \16\ For a CMSP Account of a Participant, that would include 
Delivery or Pledge. For a CMSP Account of a Pledgee, that would 
include Delivery or Release.
    \17\ DTC risk management controls, including Collateral Monitor 
and Net Debit Cap (as defined in Rule 1, Section 1 of the Rules), 
are designed so that DTC may complete system-wide settlement 
notwithstanding the failure to settle of its largest Participant or 
Affiliated Family of Participants. The Collateral Monitor tests 
whether a Participant has sufficient collateral for DTC to pledge or 
liquidate if that Participant were to fail to meet its settlement 
obligation. Pursuant to these controls under applicable DTC Rules 
and Procedures, DTC would not process any Delivery or Pledge 
instruction order from a CMSP Account that would cause the 
Participant to exceed its Net Debit Cap or to have insufficient DTC 
Collateral to secure its obligations to DTC. Deliveries would be 
processed in the same order and with the same priority as otherwise 
provided in the Rules and Procedures (i.e., such Deliveries and 
Pledges would not take precedence over any other type of Delivery or 
Pledge in the DTC system).
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    Pursuant to the proposed rule change, the right of any CMSP to 
instruct DTC with respect to a CMSP Account would not preclude 
instructions by the Participant or Pledgee itself, or CMSP Instructions 
by another CMSP, with respect to the same CMSP Account. Furthermore, 
Rule 35 would provide that DTC has no liability (i) to a Participant or 
Pledgee for acting in accordance with, or relying upon, CMSP 
Instructions, or (ii) to any CMSP as a result of DTC acting in 
accordance with, or relying upon, instructions of any other Person, 
including, but not limited to, the Participant or Pledgee or any other 
designated CMSP.
C. Proposed Rule Changes
    In connection with the foregoing, DTC proposes to make the 
following changes (including ministerial changes) to Rule 35.
    Title. DTC is proposing to replace the current title ``CMS 
Reporting'' with ``CMSP Reports and Instructions,'' to reflect the 
amended substance of the proposed rule.
    Section 1. For stylistic consistency, DTC is proposing to insert 
the title ``Certain Defined Terms'' for Section 1. For the reasons 
explained above, DTC is further proposing to (i) delete the definitions 
of CMS, CMS Participant, CMS Representative, CMS Securities, DEGCL, and 
DTCC; (ii) add definitions for CMSP, CMSP Account, CMSP Instruction, 
and CMSP Reports; (iii) replace the defined term ``CMS Delivery 
Information'' with ``CMSP Information'' and simplify the definition by 
referring to ``a copy of any message sent to the Participant or 
Pledgee'' with respect to a CMSP Account, instead of ``a copy of any 
Delivery, Pledge, or Release message sent to the CMS Participant by 
DTC, including the following information: (x) the CUSIP, ISIN, or other 
identification number of such CMS Securities, and (y) the number of 
shares or other units or principal amount of such CMS Securities''; and 
(iv) replace the defined term ``CMS Report'' with ``CMSP Position 
Report'' and simplify the definition by removing the DEGCL 
specifications of ``(i) the CUSIP, ISIN, or other identification number 
of the CMS Securities, and (ii) the number of shares or other units or 
principal amount of the CMS Securities.''
    Proposed Section 2 (New). DTC is proposing to insert a new proposed 
Section 2, titled ``Qualification as a CMSP.'' As discussed above, 
Section 2 would set forth the requirements that an entity must satisfy 
to become a CMSP.
    Section 2 (Proposed Section 3). DTC is proposing to renumber 
Section 2 to Section 3, and to change the title of proposed Section 3 
to ``CMSP Accounts.'' DTC is further proposing to modify subsection (a) 
to delete DEGCL CMS-specific terms and to reflect that (i) a 
Participant or Pledgee can designate one or more CMSP Accounts, as well 
as designate one or more CMSPs for each CMSP Account, and (ii) the 
designation of a CMSP with respect to a CMSP Account by a Participant 
or Pledgee would constitute: (1) The appointment of the CMSP by the 
Participant or Pledgee of the CMSP to act on its behalf under Proposed 
Rule 35; (2) the authorization of the appointed CMSP by the Participant 
or Pledgee to receive CMSP Reports and to provide CMSP Instructions; 
(3) the authorization of DTC by the Participant or Pledgee to act in 
accordance with any CMSP Instructions of such CMSP; and (4) the 
representation and warranty of the Participant or Pledgee that it is 
duly authorized to instruct DTC to provide

[[Page 35047]]

CMSP Reports to the CMSP and to act in accordance with CMSP 
Instructions. DTC is further proposing to modify subsection (b) to 
remove CMS-specific references, to reflect the inclusion of Pledgees, 
CMSPs, and CMSP Instruction in the proposed rule, and to make 
ministerial changes. Additionally, DTC proposes to remove subsection 
(c) as it would be no longer relevant because it relates exclusively to 
DEGCL.
    Section 3 (Proposed Section 4). DTC is proposing to renumber 
Section 3 as Section 4, and to change the title of the section to 
``Instructions on a CMSP Account.'' DTC is further proposing to (i) 
modify subsection (a) to remove provisions relating to the transfer of 
Securities to a CMS Sub-Account, and to insert a provision stating that 
a Participant or Pledgee retains its right to instruct DTC with respect 
to its CMSP Account, and (ii) modify subsection (b) to remove 
provisions relating to the transfer of Securities to a CMS Sub-Account, 
and to insert a provision specifying that a CMSP may instruct the 
Delivery, Pledge, or Release of Securities to or from a CMSP Account 
for which it is designated pursuant to proposed Section 3 of Rule 35. 
Further, DTC proposes to insert proposed subsection (c) that would 
state that all Deliveries, Pledges, and Releases to or from a CMSP 
Account would be subject to the terms and conditions of the Rules and 
Procedures applicable to Deliveries, Pledges, and Releases of 
Securities generally.
    Section 4. DTC proposes to delete this section, as it relates to 
DEGCL specifications for a CMS Report and would no longer be relevant.
    Section 5. DTC is proposing to replace the current title of ``CMS 
Delivery Information'' with ``CMSP Reports.'' DTC is further proposing 
to insert proposed subsection (a) to provide for the provision of CMSP 
Position Reports and CMSP Information to each CMSP for each CMSP 
Account for which it is designated. DTC additionally proposes to delete 
the following language, because it relates to DEGCL-specific 
requirements: ``CMS Delivery Information. The Corporation shall, for 
purposes of CMS, provide CMS Delivery Information to the CMS 
Representative, in real-time, with respect to (i) each Delivery or 
Pledge from, and (ii) Delivery or Release to, any CMS Sub-Account.'' 
Further, DTC proposes to incorporate the remaining language of Section 
5, modified to conform with the defined terms of the proposed rule 
change, into proposed subsection (b).
    Section 6. DTC is proposing to modify the section to (i) add 
references to CMSPs, Pledgees, CMSP Reports, and CMSP Instructions, 
(ii) remove references to CMS Participant, CMS Report, Delivery 
Information, and CMS Representative, and (iii) update a cross-reference 
relating to CMSP Reports. DTC is further proposing to add disclaimers 
of liability to (i) a Participant or Pledgee for acting in accordance 
with, or relying upon, CMSP Instructions, or (ii) any CMSP as a result 
of DTC acting in accordance with, or relying upon, instructions of any 
other Person, including, but not limited to, the Participant or Pledgee 
or any other designated CMSP, with respect to a CMSP Account.
    For additional clarity, DTC is also proposing to make ministerial 
changes to (i) update articles, pronouns, and determiners, and (ii) 
modify language for stylistic conformity within the proposed rule.
Implementation Timeframe
    DTC will implement the proposed rule change two Business Days after 
approval of this filing by the Commission. Participants would be 
advised of the implementation date of this proposed rule change through 
the issuance of a DTC Important Notice.
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.\18\
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Act \19\ requires, inter alia, that the 
Rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions. By amending Rule 35 (i) to 
expand its application to CMSPs generally, and (ii) to provide that 
Pledgees, in addition to Participants, may designate an Account under 
Rule 35, the proposed rule change would provide any Participant or 
Pledgee the opportunity to choose one or more CMSPs that align most 
efficiently with its specific collateral management needs and to 
structure its Accounts accordingly. In addition, by amending Rule 35 to 
permit any Participant or Pledgee to designate one or more CMSPs to 
provide CMSP Instructions to DTC with respect to a CMSP Account, the 
proposed rule change would reduce the number of actions that a 
Participant or Pledgee that has a CMSP would need to take in order to 
effect the settlement of collateral transactions at DTC, thereby adding 
efficiency by providing straight-through submission and processing of 
settlement instructions by a CMSP without further actions by the 
Participant or Pledgee. Further, for enhanced clarity, the proposed 
rule change would make ministerial changes to Rule 35 so the processes 
relating to CMSPs are clear and consistent. Therefore, by (i) providing 
Participants and Pledgees the opportunity to choose a CMSP that aligns 
most efficiently with its needs, (ii) providing streamlined submission 
and processing of settlement instructions by a CMSP on behalf of the 
Participant or Pledgee, and (iii) providing a clear and consistent rule 
relating to CMSPs, the proposed rule change is designed to improve 
efficiency in the processing and settlement of collateral transactions, 
thereby promoting the prompt and accurate clearance and settlement of 
securities transactions, consistent with the requirements of the Act, 
in particular Section 17A(b)(3)(F).
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    \19\ Id.
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    Rule 17Ad-22(e)(21) promulgated under the Act requires, inter alia, 
that each covered clearing agency shall 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.\20\ By amending Rule 35 to permit a 
Participant or Pledgee to designate one or more CMSPs to provide CMSP 
Instructions to DTC with respect to a CMSP Account, the proposed rule 
change would provide (i) an efficient mechanism for a Participant or 
Pledgee to designate collateral management service providers for its 
Account at DTC, and (ii) flexibility to a Participant or Pledgee to 
structure its Accounts in a manner that is most effective for the 
collateral management needs of that Participant or Pledgee and for the 
specifications of its designated CMSP(s), and is therefore designed to 
be efficient and effective in meeting the requirements of Participants, 
consistent with the requirements of the Act, in particular Rule 17Ad-
22(e)(21).
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    \20\ 17 CFR 240.17Ad-22(e)(21).
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(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change to amend Rule 35 to (i) 
expand its application to CMSPs generally, (ii) provide that Pledgees, 
in addition to Participants, may designate an Account under Rule 35, 
and (iii) provide for CMSP Instructions to DTC with respect to a CMSP 
Account, would have an impact on competition by potentially promoting 
competition, and would not

[[Page 35048]]

impose a burden on competition.\21\ By removing provisions particular 
to DEGCL only, and providing that any Participant or Pledgee can 
designate a CMSP for a CMSP Account, the proposed rule change would (i) 
offer collateral management service providers (in addition to DEGCL) 
the opportunity to provide collateral management services to 
Participants and Pledgees under proposed Rule 35, and (ii) provide any 
Participant or Pledgee the opportunity to choose from among competing 
collateral management service providers. In addition, by providing that 
a Participant or Pledgee can designate one or more CMSPs to provide 
CMSP Instructions to DTC with respect to a CMSP Account for which it is 
designated, the proposed rule change would provide CMSPs the 
opportunity to include direct messaging to DTC as part of their 
services to Participants or Pledgees. Therefore, DTC believes that the 
proposed rule change would not impose a burden on competition but may 
promote competition.
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    \21\ 15 U.S.C. 78q-1(b)(3)(I).
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    DTC does not believe that the proposed ministerial changes to Rule 
35 would have any impact on competition because these clarifications 
would merely make changes for accuracy and consistency and therefore 
would not affect the rights and obligations of any Participant or 
Pledgee or other interested party.

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

    Written comments relating to the proposed rule change have not been 
solicited or received. DTC will notify the Commission of any written 
comments received by DTC.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-DTC-2018-006 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2018-006. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(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-2018-006 and should be submitted on 
or before August 14, 2018.

    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. 2018-15769 Filed 7-23-18; 8:45 am]
BILLING CODE 8011-01-P


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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 Citation83 FR 35044 

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