83 FR 37541 - Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make Clarifying Changes and Updates to the DTC Underwriting Service Guide

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 148 (August 1, 2018)

[Federal Register Volume 83, Number 148 (Wednesday, August 1, 2018)]
[Notices]
[Pages 37541-37544]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-16418]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83712; File No. SR-DTC-2018-004]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Clarifying Changes and Updates to the DTC Underwriting Service 
Guide

July 26, 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 20, 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. DTC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4) 
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)(4).
---------------------------------------------------------------------------

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

    The proposed rule change of DTC \5\ consists of modifications to 
the DTC Underwriting Service Guide (``Underwriting Guide'') \6\ to (i) 
promote consistency with respect to processes and requirements 
described in other Procedures that are related to those set forth in 
the Underwriting Guide, (ii) make clarifying and technical changes and 
(iii) provide enhanced readability and transparency for users of DTC's 
underwriting service (``Underwriting Service''), as described below.
---------------------------------------------------------------------------

    \5\ Capitalized terms not defined herein are defined in the 
Rules, By-Laws and Organization Certificate of DTC (the ``Rules''), 
available at www.dtcc.com/~/media/Files/Downloads/legal/rules/
dtc_rules.pdf, and the DTC Operational Arrangements for Securities 
to Become and Remain Eligible for DTC Services (``OA''), available 
at http://www.dtcc.com/~/media/Files/Downloads/legal/issue-
eligibility/eligibility/operational-arrangements.pdf.
    \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Underwriting-Service-Guide.pdf. The 
Underwriting Guide and the OA constitute Procedures of DTC. Pursuant 
to the Rules, the term ``Procedures'' means the Procedures, service 
guides, and regulations of DTC adopted pursuant to Rule 27, as 
amended from time to time. See Rule 1, Section 1, supra note 5. 
DTC's Procedures are filed with the Commission. They are binding on 
DTC and each Participant in the same manner as they are bound by the 
Rules. See Rule 27, supra note 5. The OA is also binding on each 
Issuer and Agent of an Eligible Security. See OA at 5, supra note 5. 
DTC also maintains service guides that constitute Procedures 
relating to other services it offers, including the ``Canadian-Link 
Service Guide,'' ``Custody Service Guide'' (defined below as 
``Custody Guide''), ``Deposits Service Guide,'' ``Distributions 
Service Guide,'' ``Redemptions Service Guide,'' ``Reorganizations 
Service Guide'' and ``Settlement Service Guide.'' Available at 
http://www.dtcc.com/legal/rules-and-procedures?subsidiary=DTC&pgs=1.
---------------------------------------------------------------------------

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 consists of proposed modifications to the 
Underwriting Guide to (i) promote consistency with respect to processes 
and requirements described in other Procedures that are related to 
those set forth in the Underwriting Guide, (ii) make clarifying and 
technical changes and (iii) provide enhanced readability and 
transparency for users of DTC's Underwriting Service, as described 
below.
Background
    Eligible Securities \7\ may be introduced into DTC as new issuances 
(``New Issues'') through the Underwriting Service, in connection with a 
Participant, or a correspondent working though a Participant's Account, 
submitting an eligibility request.\8\ In addition to the process for 
New Issues, there are separate eligibility processes for (i) older 
issues (``Older Issues''), i.e., those already available in the market 
but not previously made eligible for deposit at DTC \9\ and (ii) 
Eligible Securities in

[[Page 37542]]

the MMI Program.\10\ Other issues of Securities may be added through 
corporate actions with respect to existing Eligible Securities, 
including events such as name changes, mergers and spinoffs, which are 
also reviewed for continuing eligibility.\11\
---------------------------------------------------------------------------

    \7\ Generally, Eligible Securities must have been issued in a 
transaction: (i) Registered with the Commission pursuant to the 
Securities Act; (ii) exempt from registration pursuant to a 
Securities Act exemption without transfer or ownership restrictions; 
or (iii) pursuant to Rule 144A, 17 CFR 230.144A, or Regulation S, 17 
CFR 230.901-230.905, under the Securities Act. See OA, supra note 5 
at 2-3.
    \8\ See OA, supra note 5 at 1-2.
    \9\ Id.
    \10\ Id. at 3.
    \11\ Id. at 1.
---------------------------------------------------------------------------

    The Underwriting Service also supports other DTC functions and 
services relating to the underwriting function, including the IPO 
Tracking system,\12\ eligibility processing for the DTC custody service 
(``Custody Service''),\13\ and the security holder tracking service 
(``Security Holder Tracking Service'').\14\
---------------------------------------------------------------------------

    \12\ The IPO Tracking system allows a Participant that is the 
lead underwriter of an issue to track certain Deliveries of equity 
Securities during the period known as the underwriting stabilization 
period (``Stabilization Period''). See Underwriting Guide, supra 
note 6 at 3. The Stabilization Period is the duration of time 
immediately after the Closing of an issue during which the lead 
manager of an underwriting may purchase Securities in the open 
market in order to stop a decline in the price of the Securities. 
Id. at 5.
    \13\ See Custody Service Guide (``Custody Guide''), available at 
http://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Custody.pdf, at 17-18. In 2016, DTC's Custody Service Procedures 
were revised pursuant to a rule change (``Custody Rule Filing'') 
that amended the text of the Custody Guide with respect to making 
Securities eligible for the Custody Service. See Securities Exchange 
Act Release No. 34-79252 (November 7, 2016), 81 FR 79543 (November 
14, 2016) (SR-DTC-2016-011). As described more fully below, the 
proposed change would conform the Custody Service section of the 
Underwriting Guide for consistency to the provisions set forth in 
the Custody Rule Filing.
    \14\ The Security Holder Tracking Service facilitates the 
ability of an issuer or a third party administrator designated by 
the issuer to track the number of beneficial holders of an issue. 
See Underwriting Guide, supra note 6 at 22-23.
---------------------------------------------------------------------------

    The proposed rule change would make modifications to the 
Underwriting Guide to (i) promote consistency with respect to processes 
and requirements described in other Procedures that are related to 
those set forth in the Underwriting Guide, specifically the OA \15\ and 
the Custody Guide,\16\ (ii) make clarifying and technical changes and 
(iii) provide enhanced readability and transparency for users of DTC's 
Underwriting Service, as described in the sections below. These would 
include (1) the modification of applicable text of the Underwriting 
Guide relating to (a) the section currently titled ``Introduction,'' 
(b) a section on the closing of an initial issue (``Closing''), (c) MMI 
Securities, (d) New Issue Eligibility, (e) Older Issues, (f) the 
Custody Service and (g) packaging inquires; (2) technical changes; and 
(3) the deletion of a section titled ``Processing Inquiries,'' as 
described below.
---------------------------------------------------------------------------

    \15\ Supra note 5.
    \16\ Supra note 13.
---------------------------------------------------------------------------

Proposed Changes to the Underwriting Guide
Introduction/Overview Section
    The text of the Introduction section of the Underwriting Guide 
contains four subsections, titled, respectively, ``Overview,'' ``About 
Underwriting,'' ``Preparing to Use the Products,'' and ``Understanding 
Relevant Dates.'' Pursuant to the proposed rule change, to enhance 
readability and improve the overall flow of this section, the (i) title 
of the section would be changed from ``Introduction'' to ``Overview,'' 
and (ii) subsection titles mentioned above would be deleted and the 
four subsections would be consolidated into one section under the new 
``Overview'' title.
    In addition, the text of the consolidated section would be revised 
for enhanced clarity of the description of the Underwriting Service and 
overall readability for Participants.
    References to the DTC Participant Terminal System (``PTS'') and 
other systems that Participants may use in connection with the 
Underwriting Service would be deleted from this section, because, as 
proposed and discussed below, other sections of the Underwriting Guide 
would include information on systems applicable to the aspect of the 
Underwriting Service covered by the respective sections, obviating the 
necessity of including such systems-related information in the 
Overview.
    Also, because DTC's Securities eligibility Procedures are primarily 
contained in the OA, a cross-reference to, and a brief description of, 
the OA would be added under the Overview section to promote a more 
comprehensive understanding by readers with respect to the DTC 
requirements to make Securities eligible for DTC services. Also, to 
reduce repetition between the Underwriting Guide and the OA, (i) a 
description of eligibility criteria for Securities would be deleted 
from this section of the Underwriting Guide and (ii) a table of 
requirements and relevant dates included in the Understanding Relevant 
Dates subsection would be deleted and, as discussed below, would be 
replaced with a cross-reference in the Closing section to the 
requirements and dates as set forth in Exhibit B \17\ of the OA.
---------------------------------------------------------------------------

    \17\ See OA, supra note 5 at 60.
---------------------------------------------------------------------------

Closing
    In order to provide for enhanced clarity, readability and flow of 
the text in the Underwriting Guide with respect to Closing processing, 
the proposed rule change would (i) revise text describing the function 
of the DTC Closing area and (ii) consolidate the Closing section into 
one section from two subsections that are titled ``About the Product'' 
and ``How the Product Works,'' respectively, and eliminate the 
respective titles of the subsections. The proposed rule change would 
also update information for Participants to contact the DTC Closing 
desk.
    Also, as mentioned above, to reduce repetition of the content of 
the Underwriting Guide versus the OA, a table of requirements and 
relevant dates included in the Understanding Relevant Dates subsection 
of the Introduction to the Underwriting Guide would be deleted and 
would be replaced with a cross-reference to these requirements and 
dates as set forth in Exhibit B \18\ of the OA. The cross-reference 
would be positioned at the end of the Closing section as the referenced 
information in the OA includes key dates that must be met in relation 
to the closing date for an issue. In this regard, the proposed rule 
change would also remove a reference in the Closing section to 
deadlines for notifications that must be made to DTC with respect to 
the processing of the distribution of Securities on closing date, 
because the applicable timeframes are covered within the Exhibit B to 
the OA, cited above.
---------------------------------------------------------------------------

    \18\ Id.
---------------------------------------------------------------------------

MMI Program
    In order to provide enhanced clarity and readability in the 
Underwriting Guide with respect to Procedures for processing 
eligibility requests for the MMI Program, the proposed rule change 
would (i) revise the text of the description of the MMI Program and its 
eligibility process, (ii) revise information relating to systems used 
to access MMI Program eligibility services and include a reference to 
DTC's web-based underwriting application, (iii) remove a descriptive 
sentence relating to functionality for issuances and deliveries by an 
Issuing and Paying Agent (``IPA'') in the MMI Program, because it is 
not relevant to the eligibility process covered by the Underwriting 
Guide, but rather to issuances and deliveries of MMI Securities that 
are conducted through DTC's settlement service in accordance with the 
Rules \19\ and the Settlement Service Guide,\20\ and (iv) update a

[[Page 37543]]

reference relating to documentation that must be submitted in 
connection with an MMI Program eligibility request, to remove an 
outdated reference to an ``Issuer Program Eligibility Form'' signed by 
the IPA, and instead add a list of required program-level details which 
would be submitted in place of the form in an online format through the 
MMI Program web-based application.
---------------------------------------------------------------------------

    \19\ See Rule 9(A), Rule 9(B) and Rule 9(C), supra note 5.
    \20\ See Settlement Service Guide, available at http://
www.dtcc.com/~/media/Files/Downloads/legal/service-guides/
Settlement.pdf.
---------------------------------------------------------------------------

New Issue Eligibility
    The provisions governing DTC's Securities eligibility processes for 
New Issues are primarily contained in the Rules and the OA; however the 
Underwriting Guide does contain text intended to provide information 
that enhances transparency for Participants regarding applicable 
Procedures.
    In order to provide enhanced clarity in the Underwriting Guide with 
respect to Procedures for processing eligibility requests for New 
Issues and promote enhanced consistency of the content of the 
Underwriting Guide with the provisions of the OA, the proposed rule 
change would (i) eliminate details in the text describing the New Issue 
eligibility Procedures and requirements that are repetitive or 
inconsistent with text contained in the OA, including with respect to 
(a) the documentation requirements for eligibility requests and (b) 
types of issues that require additional documentation or special 
processing, (ii) replace outdated references to the DTC website with a 
link to the OA for Procedures relating to eligibility and related 
requirements, and (iii) update references with respect to systems used 
for access to New Issue-related services to (a) delete references to 
PTS and PTS functions and (b) add a reference to UW Source, because, in 
accordance with the OA, UW Source is the system that Participants are 
required to use to access eligibility services.\21\
---------------------------------------------------------------------------

    \21\ See OA, supra note 5 at 2.
---------------------------------------------------------------------------

Older Issue Eligibility
    As mentioned above, the provisions governing DTC's Securities 
eligibility processes for Older Issues are primarily contained in the 
Rules and the OA; however the Underwriting Guide also contains 
information in this regard.
    In order to provide consistency of the content of the Underwriting 
Guide with the provisions of the OA, the proposed rule change would 
rename the section relating to Older Issues from ``Older Issue 
Eligibility'' to ``Secondary Market (Older Issue) Eligibility'' for 
clarity and to reflect that Older Issues are issues that are on the 
secondary market when they are made eligible at DTC (as opposed to New 
Issues that are the subject of initial offerings), and insert a link to 
the OA for Procedures relating to eligibility and related requirements.
Custody Service
    In order to provide enhanced clarity and transparency in the 
Underwriting Guide with respect to Procedures for processing 
eligibility requests for the Custody Service, the proposed rule change 
would (i) change the Custody Service section from being a subsection of 
the Older Issue Eligibility section to its own section of the 
Underwriting Guide, because the Custody Service, while administered by 
the same area within DTC that administers eligibility processing for 
Older Issues and New Issues, is a separate function with different 
eligibility requirements,\22\ (ii) update the text for enhanced 
readability and consistency of content, including with respect to 
systems requirements, with applicable Procedures set forth in the 
Custody Guide,\23\ (iii) add a link to the Custody Guide for cross-
reference purposes, and (iv) add a link to the DTCC website that 
provides additional information regarding the Custody Service.
---------------------------------------------------------------------------

    \22\ Compare Custody Guide, supra note 13 at 11-16 (describing 
the Custody Service function and eligibility requirements), with OA, 
supra note 5 at 1-9 (describing DTC's eligibility requirements for 
Securities to be made eligible for DTC's book-entry services, 
including New Issues and Older Issues).
    \23\ See Custody Guide, supra note 13 at 15-16. In 2016, DTC's 
Custody Service Procedures were revised pursuant to the Custody Rule 
Filing, which amended the applicable text of the Custody Guide. See 
Securities Exchange Act Release No. 34-79252 (November 7, 2016), 81 
FR 79543 (November 14, 2016) (SR-DTC-2016-011). The proposed change 
would conform the Custody Service section of the Underwriting Guide 
for consistency to the provisions set forth in the Custody Rule 
Filing.
---------------------------------------------------------------------------

Packaging Inquiries
    The proposed rule change would modify the text of the section 
titled ``Packaging Inquiries'' (i) for readability, (ii) to eliminate 
content that is repetitive of related content in the OA section named 
``Possession and Inspection,'' \24\ (iii) to add a link to the OA for 
additional information and (iv) to provide an updated link to the DTC 
form of letter of securities possession, which must be executed by a 
lead underwriter in order for DTC to process a distribution of an issue 
by book-entry on closing date if a Security certificate has not been 
provided to DTC within required timeframes.\25\
---------------------------------------------------------------------------

    \24\ See OA, supra note 5 at 15.
    \25\ See Underwriting Guide, supra note 6 at 18-19.
---------------------------------------------------------------------------

Processing Inquiries
    The proposed rule change would remove the section titled 
``Processing Inquiries'' from the Underwriting Guide. This section 
contains information relating to internal processes for data entry and 
billing information that is not necessary to be included in a 
Procedure. In addition, this section refers to special forms for the 
processing of eligibility of retail certificates of deposit, unit 
investment trusts and municipal and corporate products, which forms are 
obsolete because eligibility requests for all Security types, other 
than Securities in the MMI Program, must be submitted through UW 
Source.\26\
---------------------------------------------------------------------------

    \26\ See OA, supra note 5 at 1-2.
---------------------------------------------------------------------------

Other Proposed Changes
    The proposed rule change would make technical changes to (i) add to 
the front of the Underwriting Guide a title page with DTC's name and 
the title ``Underwriting Service Guide,'' (ii) update (a) the address 
of DTC's internet site and (b) the copyright date of the Underwriting 
Guide, (iii) delete outdated contact information within the ``Important 
Legal Information'' included at the beginning of the Underwriting Guide 
and (iv) add a link to a user guide relating to the IPO Tracking system 
that is referenced in the ``IPO Tracking System'' section of the 
Underwriting Guide.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \27\ requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. DTC 
believes that the proposed rule change is consistent with this 
provision of the Act because by amending the text of the Underwriting 
Guide to (i) promote consistency with respect to processes and 
requirements described in other Procedures that are related to those 
set forth in the Underwriting Guide, specifically the OA and Custody 
Guide, (ii) make clarifying changes, (iii) provide enhanced readability 
and transparency for users of DTC's Underwriting Service, and (iv) make 
other technical changes, the proposed rule change would provide 
Participants with an enhanced understanding with respect to the DTC 
Procedures relating to making Securities eligible for DTC services, as 
described above. Therefore, by providing Participants with enhanced 
understanding of DTC eligibility requirements and processing in this 
regard, and therefore facilitating their ability to request that 
Securities be made eligible for DTC services, DTC believes that the 
proposed rule change

[[Page 37544]]

would promote the prompt and accurate clearance and settlement of 
securities transactions consistent with the Act.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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

    DTC does not believe that the proposed rule change would have any 
impact on competition. The proposed rule change would merely clarify 
and provide enhanced transparency with respect to the DTC Underwriting 
Service by amending the text of the Underwriting Guide (i) for enhanced 
readability, transparency and flow of content, (ii) to update (a) 
details on existing processes and (b) contact information, (iii) for 
enhanced consistency with respect to processes and requirements 
described in other Procedures that are related to those set forth in 
the Underwriting Guide, specifically the OA and Custody Guide and (iv) 
to make other technical changes, as described above, which amendments 
would not significantly affect the rights and obligations of users of 
DTC's services, and would not disproportionally impact any users.

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

    DTC has not received or solicited any written comments relating to 
this proposal. 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \28\ and paragraph (f) of Rule 19b-4 
thereunder.\29\ 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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic 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-2018-004 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-2018-004. 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-2018-004 and should be submitted on 
or before August 22, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16418 Filed 7-31-18; 8:45 am]
 BILLING CODE 8011-01-P