[Federal Register Volume 75, Number 162 (Monday, August 23, 2010)]
[Notices]
[Pages 51866-51867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20816]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62727; File No. SR-DTC-2010-09]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change To Revise its Procedures Regarding
Securities Delivered to or From Participant Accounts Through the
Automated Customer Account Transfer Service of National Securities
Clearing Corporation
August 16, 2010.
I. Introduction
On June 4, 2010, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') proposed rule
change SR-DTC-2010-09 pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'').\1\ The proposed rule change was
published for comment in the Federal Register on July 2, 2010.\2\ No
comment letters were received on the proposal. This order approves the
proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 62384 (June 25, 2010),
75 FR 38581 (July 2, 2010).
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II. Description
DTC is modifying certain provisions of its Settlement Services
Guide (``Guide'') in connection with concurrent rule changes being made
by the National Securities Clearing Corporation (``NSCC'') concerning
Automated Customer Account Transfer Service (``ACATS'') transfers
processed through the Continuous Net Settlement (``CNS'') system.\3\
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\3\ SR-NSCC-2010-05. Securities Exchange Act Release Nos. 62385
(June 25, 2010), 75 FR 38579 (July 2, 2010) and 62384 (June 25,
2010), 75 FR 38581 (July 2, 2010).
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NSCC's ACATS system enables members to effect automated transfers
of customer accounts among themselves.\4\ For ACATS transfers processed
through NSCC's CNS system,\5\ long and short positions are passed
against Members' positions at DTC. Available securities are delivered
from short Members' DTC accounts and allocated to long Members' DTC
accounts by book-entry transfer.
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\4\ ACATS complements a Financial Industry Regulatory Authority
(``FINRA'') rule requiring FINRA members to use automated clearing
agency customer account transfer services and to effect customer
account transfers within specified time frames.
\5\ CNS is an ongoing accounting system which nets today's
Settling Trades with yesterday's Closing Positions to produce a net
short or long position for a particular security for a particular
Member. NSCC is the contra party for all positions. The positions
are then passed against the Member's Designated Depository positions
and available securities are allocated by book-entry transfer. This
allocation of securities is accomplished through an evening cycle
followed by a day cycle. Positions which remain open after the
evening cycle may be changed as a result of trades accepted for
settlement that day. CNS allocates deliveries in both the night and
day cycles using an algorithm based on priority groups in descending
order, age of position within a priority group, and random numbers
within age groups.
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An NSCC Member to which a customer's securities account is to be
transferred through ACATS (``Receiving Member'') initiates the transfer
process by submitting a request to NSCC. For the transfer to be
processed, the request must be accepted by the NSCC Member from which
the customer's securities are being transferred (``Delivering
Member''). After a Delivering Member accepts a customer account
transfer request and all other preconditions of NSCC's rules for
processing ACATS transfer are met, all CNS-eligible securities in the
customer's account, except securities that the Receiving Member
notifies NSCC should not be transferred, are entered into NSCC's CNS
accounting
[[Page 51867]]
operation on the day before settlement date.\6\
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\6\ NSCC Rule 50 (Automated Customer Account Transfer Service).
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DTC is modifying its Guide in several ways to clarify that
securities moving through NSCC's ACATS system are not subject to a lien
by DTC when they are debited from a delivering Participant's DTC
account or when they are credited to a receiving Participant's DTC
account.\7\ DTC believes its clarifications will help NSCC Members and
DTC Participants meet their legal obligations to maintain possession or
control of certain customer securities and will concurrently protect
the interests of NSCC and DTC.\8\
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\7\ As part of NSCC's companion rule filing, NSCC will amend its
Rules to provide that any deliveries and receives in a particular
security processed through CNS will be designated by NSCC to satisfy
a Member's ACATS receive or deliver obligation prior to satisfaction
of other CNS-related obligations in the same security for that
Member. This will allow NSCC to track the completion status of CNS
ACATS deliveries and facilitate NSCC's ability to notify DTC of
which CNS deliveries are ACATS transfers.
\8\ Commission Rule 15c3-3 provides that a broker-dealer shall
promptly obtain and shall thereafter maintain the physical
possession or control of all fully-paid securities and excess margin
securities, in each case, carried by a broker-dealer for the account
of customers.
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DTC is modifying the CNS section of the Guide to clarify that when
a Participant holds securities in its account in a no-lien location \9\
and those securities are part of an ACATS transfer through CNS, DTC
does not have any lien on such securities to satisfy the Participant's
CNS ACATS delivery obligation. DTC is also clarifying within the Guide
that ACATS deliveries from CNS are deemed to be designated by the
receiving Participant as ``Minimum Amount Securities'', and therefore
not subject to any lien by DTC, when they are credited to the receiving
Participant's account.\10\ Additional clarification will be made to
explain that an ACATS transfer is deemed null and void and the
underlying securities may be used to satisfy settlement obligations to
NSCC if NSCC determines that a Delivering Member and a Receiving Member
defaulted on their settlement obligations to NSCC and the Delivering
Member also failed to meet its ACATS delivery obligation.
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\9\ For example, when the securities are designated as ``Minimum
Amount Securities'' and not as ``Net Additions''.
\10\ DTC Rules 1 and Rule 4(A) respectively define ``Minimum
Amount Securities'' and explain the implications of this designation
in protecting such securities from any lien or other claim of DTC.
Because Minimum Amount Securities are not subject to any lien or
other claim by DTC, such securities are not counted as part of the
Participant's Collateral Monitor. A receiving Participant can
designate such securities as ``Net Additions''.
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DTC intends to implement these changes during the third quarter of
2010 and will advise Participants of the specific implementation date
through DTC Important Notices.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act \11\ and the rules and regulations
thereunder applicable to DTC. In particular, the Commission believes
that the amendments DTC is making to its Guide regarding securities
delivered to or from Participant accounts through ACATS are consistent
with DTC's obligations under Section 17A(b)(3)(F),\12\ which requires,
among other things, that the rules of a clearing agency are designed to
remove impediments to and help perfect the mechanism of a national
system for the prompt and accurate clearance and settlement of
securities transactions.
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\11\ 15 U.S.C. 78q-1.
\12\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \13\ and the
rules and regulations thereunder.
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\13\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (File No. SR-DTC-2010-09) be,
and hereby is, approved.\15\
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\14\ 15 U.S.C. 78s(b)(2).
\15\ In approving the proposed rule change, the Commission
considered the proposal's 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.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20816 Filed 8-20-10; 8:45 am]
BILLING CODE 8010-01-P