83 FR 6629 - Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Restore the Timeframe for Processing Credit Post-Payable Adjustments

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 31 (February 14, 2018)

Page Range		6629-6630
FR Document		2018-02978
Federal Register, Volume 83 Issue 31 (Wednesday, February 14, 2018)
[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)]
[Notices]
[Pages 6629-6630]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-02978]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82663; File No. SR-DTC-2017-023]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Restore the Timeframe for 
Processing Credit Post-Payable Adjustments

February 8, 2018.
    On December 21, 2017, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2017-023, pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on January 8, 2018.\3\ The Commission did not 
receive any comment letters on the proposed rule change. For the 
reasons discussed below, the Commission approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82433 (January 2, 2018), 
83 FR 927 (January 8, 2017) (SR-DTC-2017-023) (``Notice'').
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

    The proposed rule change would modify DTC's Distributions Service 
Guide (``Guide'') \4\ to (i) increase the timeframe for accepting a 
request from an issuer or its agent (``Paying Agent'') for a post-
payable adjustment (``PPA'') that results in a credit payment, and (ii) 
make technical changes to the Guide, as more fully described below.
---------------------------------------------------------------------------

    \4\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Distributions-Service-Guide-FINAL-January-
2017.pdf.
---------------------------------------------------------------------------

A. Current PPA Process

    On a daily basis, DTC collects and allocates distributions on 
securities held by DTC.\5\ The distributions are commonly referred to 
as principle and income payments, and they include dividend, interest, 
principal, redemption, and maturity payments, as applicable.\6\ 
Occasionally, an error can occur with a principal or income payment due 
to an error on the part of the Paying Agent, trustee, issuer, or a 
change in the principle factor or rate.\7\ When an error occurs, Paying 
Agents can request that DTC issue a PPA. A PPA can result in a debit 
(``Debit PPA'')

[[Page 6630]]

or credit (``Credit PPA'') to the affected DTC participant 
(``Participant'').\8\
---------------------------------------------------------------------------

    \5\ Notice, 83 FR at 927.
    \6\ Id.
    \7\ Id.
    \8\ Id.
---------------------------------------------------------------------------

    Upon the receipt of a PPA, affected Participants would need to make 
adjustments to their affected customers' accounts for any misapplied 
principal or income and any associated interest.\9\ In addition, 
affected Participants may need to process adjustments against any 
customer that traded the security after the initial payment had 
occurred.\10\
---------------------------------------------------------------------------

    \9\ Id.
    \10\ Id.
---------------------------------------------------------------------------

    Currently, DTC does not accept a request for a PPA, regardless of 
whether it would be a Debit PPA or a Credit PPA, beyond 90 calendar 
days after the initial payment date.\11\ If a Paying Agent wants to 
make a PPA beyond 90 days, the adjustment cannot be processed through 
DTC.\12\ Instead, the Paying Agent must request from DTC a listing of 
all affected Participants and positions.\13\ Then, using that list, the 
Paying Agent must contact each affected Participant to make direct 
adjustments and/or payment arrangements outside of DTC.\14\
---------------------------------------------------------------------------

    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

B. Proposed Timeline for Credit PPAs

    DTC proposes to extend the 90-day cutoff for PPA Credits to one 
year.\15\ DTC states that the new timeline for Credit PPAs would allow 
Paying Agents more time to correct allocations to Participants 
efficiently through DTC, rather than requiring the Paying Agent to make 
the Credit PPAs bilaterally with each Participant, outside of DTC.\16\ 
DTC states that this efficiency would allow Participants, their 
customers, and end investors to receive their credits more quickly.\17\
---------------------------------------------------------------------------

    \15\ Id.
    \16\ Id.
    \17\ Id.
---------------------------------------------------------------------------

    The proposed rule change would not alter the timeline for Debit 
PPAs. DTC states that Debit PPAs create significant credit risk 
exposure for Participants, customers, and investors as more time 
passes.\18\ DTC states that Participants have difficulty recovering 
debited funds from their customers that may no longer have an account, 
may not have available funds, or may no longer service the end 
investor.\19\ Therefore, DTC would preserve the 90-day cutoff for Debit 
PPAs.
---------------------------------------------------------------------------

    \18\ Id. at 927-28.
    \19\ Id. at 928.
---------------------------------------------------------------------------

C. Proposed Technical Changes to the Guide

    DTC also proposes some technical changes to the Guide. 
Specifically, DTC would modify the Guide to (i) remove an inaccurate 
statement that PPA adjustments appear on Participant statements--such 
adjustments do not appear on Participant statements; (ii) add the word 
``principal'' to the list of payments that may be subject to a PPA--for 
consistency with the term ``P&I;'' and (iii) remove an incorrect 
reference to CMO/ABS securities.\20\
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \21\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission finds that this proposal is 
consistent with Act, specifically Section 17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2)(C).
    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of the clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\23\ By extending 
the cutoff period from 90 days to one year for the processing of Credit 
PPAs through DTC, DTC would be providing centralized processing for 
Credit PPAs for a longer period. Enabling Paying Agents to avail 
themselves of such central processing for a longer period would help 
the Paying Agents avoid the manual process of bilaterally processing 
the Credit PPAs outside of DTC after 90 days. In doing so, the proposal 
would enable Paying Agents to correct errors in Credit PPAs more 
efficiently and effectively over a longer period. Therefore, the 
Commission finds the proposed extension from 90 days to one year for 
Credit PPAs to be processed by DTC would help promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------

    \23\ Id.
    \24\ Id.
---------------------------------------------------------------------------

    The Commission also finds that DTC's technical changes to the Guide 
would promote the prompt and accurate clearance and settlement of 
securities transactions, consistent with Section 17A(b)(3)(F) of the 
Act.\25\ Clarifying terms and descriptions in the Guide would help make 
the Guide more accurate and clear. Maintaining an accurate and clear 
Guide would enable Participants and other stakeholders to better 
understand their respective rights and obligations. Accordingly, the 
Commission finds that the proposed change to make technical changes to 
the Guide would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with the requirements 
of Section 17A(b)(3)(F) of the Act.\26\
---------------------------------------------------------------------------

    \25\ Id.
    \26\ Id.
---------------------------------------------------------------------------

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, in particular 
the requirements of Section 17A of the Act \27\ and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2017-023 be, and hereby is, 
approved.\28\
---------------------------------------------------------------------------

    \28\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02978 Filed 2-13-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices 6629

competitors are free to modify their own Paper Comments SECURITIES AND EXCHANGE
fees and credits in response, and COMMISSION
because market participants may readily • Send paper comments in triplicate
adjust their order routing practices, the to Secretary, Securities and Exchange
[Release No. 34–82663; File No. SR–DTC–
Exchange believes that the degree to Commission, 100 F Street NE, 2017–023]
which fee changes in this market may Washington, DC 20549–1090.
impose any burden on competition is All submissions should refer to File Self-Regulatory Organizations; The
extremely limited. As a result of all of Number SR–NYSEArca–2018–10. This Depository Trust Company; Order
these considerations, the Exchange does file number should be included on the Approving Proposed Rule Change To
not believe that the proposed changes Restore the Timeframe for Processing
subject line if email is used. To help the
will impair the ability of ETP Holders or Credit Post-Payable Adjustments
Commission process and review your
competing order execution venues to
maintain their competitive standing in comments more efficiently, please use February 8, 2018.
the financial markets. only one method. The Commission will On December 21, 2017, The
post all comments on the Commission’s Depository Trust Company (‘‘DTC’’)
C. Self-Regulatory Organization’s internet website (http://www.sec.gov/ filed with the Securities and Exchange
Statement on Comments on the rules/sro.shtml). Copies of the Commission (‘‘Commission’’) proposed
Proposed Rule Change Received From submission, all subsequent rule change SR–DTC–2017–023,
Members, Participants, or Others amendments, all written statements pursuant to Section 19(b)(1) of the
No written comments were solicited with respect to the proposed rule Securities Exchange Act of 1934
or received with respect to the proposed change that are filed with the (‘‘Act’’) 1 and Rule 19b–4 thereunder.2
rule change. Commission, and all written The proposed rule change was
communications relating to the published for comment in the Federal
III. Date of Effectiveness of the Register on January 8, 2018.3 The
Proposed Rule Change and Timing for proposed rule change between the
Commission and any person, other than Commission did not receive any
Commission Action comment letters on the proposed rule
those that may be withheld from the
The foregoing rule change is effective public in accordance with the change. For the reasons discussed
upon filing pursuant to Section below, the Commission approves the
provisions of 5 U.S.C. 552, will be
19(b)(3)(A) 11 of the Act and proposed rule change.
available for website viewing and
subparagraph (f)(2) of Rule 19b–4 12
printing in the Commission’s Public I. Description of the Proposed Rule
thereunder, because it establishes a due,
Reference Room, 100 F Street NE, Change
fee, or other charge imposed by the
Exchange. Washington, DC 20549 on official The proposed rule change would
At any time within 60 days of the business days between the hours of modify DTC’s Distributions Service
filing of such proposed rule change, the 10:00 a.m. and 3:00 p.m. Copies of the Guide (‘‘Guide’’) 4 to (i) increase the
Commission summarily may filing also will be available for timeframe for accepting a request from
temporarily suspend such rule change if inspection and copying at the principal an issuer or its agent (‘‘Paying Agent’’)
it appears to the Commission that such office of the Exchange. All comments for a post-payable adjustment (‘‘PPA’’)
action is necessary or appropriate in the received will be posted without change. that results in a credit payment, and (ii)
public interest, for the protection of Persons submitting comments are make technical changes to the Guide, as
investors, or otherwise in furtherance of cautioned that we do not redact or edit more fully described below.
the purposes of the Act. If the personal identifying information from A. Current PPA Process
Commission takes such action, the comment submissions. You should
Commission shall institute proceedings submit only information that you wish On a daily basis, DTC collects and
under Section 19(b)(2)(B) 13 of the Act to to make available publicly. All allocates distributions on securities held
determine whether the proposed rule submissions should refer to File by DTC.5 The distributions are
change should be approved or Number SR–NYSEArca-2018–10 and commonly referred to as principle and
disapproved. should be submitted on or before March income payments, and they include
dividend, interest, principal,
IV. Solicitation of Comments 7, 2018.
redemption, and maturity payments, as
Interested persons are invited to For the Commission, by the Division of applicable.6 Occasionally, an error can
submit written data, views, and Trading and Markets, pursuant to delegated occur with a principal or income
arguments concerning the foregoing, authority.14 payment due to an error on the part of
including whether the proposed rule Eduardo A. Aleman, the Paying Agent, trustee, issuer, or a
change is consistent with the Act. Assistant Secretary. change in the principle factor or rate.7
Comments may be submitted by any of [FR Doc. 2018–02976 Filed 2–13–18; 8:45 am] When an error occurs, Paying Agents
the following methods: BILLING CODE 8011–01–P
can request that DTC issue a PPA. A
PPA can result in a debit (‘‘Debit PPA’’)
Electronic Comments
• Use the Commission’s internet 1 15 U.S.C. 78s(b)(1).
comment form (http://www.sec.gov/ 2 17 CFR 240.19b–4.
rules/sro.shtml); or 3 Securities Exchange Act Release No. 82433
daltland on DSKBBV9HB2PROD with NOTICES

• Send an email to rule-comments@ (January 2, 2018), 83 FR 927 (January 8, 2017) (SR–
DTC–2017–023) (‘‘Notice’’).
sec.gov. Please include File Number SR– 4 Available at http://www.dtcc.com/∼/media/
NYSEArca–2018–10 on the subject line. Files/Downloads/legal/service-guides/Distributions-
Service-Guide-FINAL-January-2017.pdf.
11 15 U.S.C. 78s(b)(3)(A). 5 Notice, 83 FR at 927.
12 17 CFR 240.19b–4(f)(2). 6 Id.
13 15 U.S.C. 78s(b)(2)(B). 14 17 CFR 200.30–3(a)(12). 7 Id.

VerDate Sep<11>2014 22:07 Feb 13, 2018 Jkt 244001 PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 E:\FR\FM\14FEN1.SGM 14FEN1
Document Created: 2018-02-14 03:59:13
Document Modified: 2018-02-14 03:59:13
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		83 FR 6629