78 FR 204 pgs. 62827-62828 - Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Terminate the Sealed Envelope Service, Which Is Part of The Depository Trust Company's Custody Service
Type: NOTICEVolume: 78Number: 204Pages: 62827 - 62828
Pages: 62827, 62828Docket number: [Release No. 34-70675; File No. SR-DTC-2013-10]
FR document: [FR Doc. 2013-24667 Filed 10-21-13; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70675; File No. SR-DTC-2013-10]
Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Terminate the Sealed Envelope Service, Which Is Part of The Depository Trust Company's Custody Service
October 11, 2013.
I. Introduction
On August 22, 2013, The Depository Trust Company ("DTC") filed with the Securities and Exchange Commission ("Commission") proposed rule change SR-DTC-2013-10 ("Proposed Rule Change") pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act")1and Rule 19b-4 thereunder.2The Proposed Rule Change was published in the Federal Register on September 5, 2013.3The Commission received one comment to the Proposed Rule Change.4This order approves the Proposed Rule Change.
Footnotes:
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 Release No. 34-70291 (Aug. 30, 2013), 78 FR 54696 (Sept. 5, 2013).
4 See Comment from Sheila Waddell dated September 2, 2013 ("Waddell Comment"), http://www.sec.gov/comments/sr-dtc-2013-10/dtc201310-1.htm.
II. Description
DTC filed the Proposed Rule Change to terminate its Sealed Envelope Service ("Service"), which is part of its Custody Service, as described below.
A. Sealed Envelope Service
In 2002, DTC launched the Service as an addition to its Custody Service in response to requests from DTC participants ("Participants") to assist in fully outsourcing their vaults to DTC. The Service is designed to provide physical custody to Participants for documents or instruments that are not securities, such as loan agreements, wills, deeds, mortgages, contracts, and option agreements.5
Footnotes:
5 The deposit of securities certificates, as well as tangible assets such as currency, gold coins, or jewelry, is strictly prohibited by DTC.
DTC allows for the sealed envelopes containing instruments or documents that are not securities to be held in custody in one of DTC's vaults. DTC assigns each sealed envelope a user-CUSIP number for tracking and record keeping purposes. Participants balance their sealed envelopes daily with DTC in the same manner as for securities held in the Custody Service. The depositing Participant is required to list the contents of the envelope on the outside of the envelope, as DTC does not open any sealed envelopes or verify the contents therein other than an examination for dangerous contents.
Proposed Rule Change
DTC has determined to discontinue the Service for multiple reasons. First, the Service is not widely used, as only 15 Participants currently use the Service and one of those Participants represents approximately 85% of the total volume. Second, since DTC does not verify the content of the envelope submitted by a Participant under the Service, it cannot confirm that a sealed envelope contains instruments and document qualifying for the Service.
DTC has stated that all 15 Participants of the Service were notified of DTC's intention to discontinue the Service and none of the Participants objected. DTC will work with those Participants to develop a timeline to return sealed envelopes that it currently has in custody.
III. Comments Received
[top] The Commission received one comment on the Proposed Rule Change.6The commenter supports the Proposed Rule Change and notes that terminating the Service would mitigate risk, promote transparency and integrity in the markets, provide seamless clearing and settlement services, mitigate existing conflicts of interest, and enhance know your customer and
Footnotes:
6 Waddell Comment, supra note 4.
7 See id.
8 See id.
IV. Discussion
Section 19(b)(2)(C) of the Act 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 the rules and regulations thereunder applicable to such organization.9Section 17A(b)(3)(F) of the Act requires that, among other things, "[t]he rules of the clearing agency are designed to promote the prompt and accurate clearance and settlement of securities transactions and . . . to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible."10
Footnotes:
9 15 U.S.C. 78(s)(b)(2)(C).
10 15 U.S.C. 78q-1(b)(3)(F).
Here, as described above, DTC's proposed rule change to terminate the Service should help further safeguard the securities and settlement process as a whole, as required by Section 17A(b)(3)(F) of the Act,11by eliminating the risk presented by the fact that DTC does not verify the contents of sealed envelopes placed in its custody. Moreover, terminating the Service will allow DTC to reallocate resources towards promoting other clearing and settlement processes.
Footnotes:
11 15 U.S.C. 78q-1(b)(3)(F).
V. Conclusion
On the basis of the foregoing, the Commission finds the Proposed Rule Change is consistent with the requirements of the Act, particularly with the requirements of Section 17A of the Act,12and the rules and regulations thereunder.
Footnotes:
12 15 U.S.C. 78q-1.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,13that the proposed rule change SR-DTC-2013-10 be, and herebyis, APPROVED.14
Footnotes:
13 15 U.S.C. 78s(b)(2).
14 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).
15 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.15
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24667 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P