I. Introduction

On December 17, 2009, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-DTC-2009-17 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 January 5, 2010.^[2] No comment letters were received on the proposal. This order approves the proposal.

II. Description

European Central Counterparty Limited (“EuroCCP”) is a clearing house recognized by the United Kingdom and regulated by the Financial Services Authority (“FSA”). It provides central counterparty clearance and settlement services to its participants for their securities transactions executed on or through European trading venues. Several of the trading platforms EuroCCP services asked EuroCCP to clear and settle trades in U.S. equities, Exchange Traded Funds (“ETFs”), and American Depositary Receipts (“ADRs”)(collectively, “U.S. Securities”) that are executed on or through them.^[3] Trades in these securities will be routed to EuroCCP through existing interfaces with the trading platforms and will be novated and netted in accordance with EuroCCP's Rules and Procedures. DTC will notify Participants by Important Notice of the effective date of the service. EuroCCP will employ its current trade day netting methodology to produce each day for each of its participants in the EuroCCP U.S. Program a single settlement obligation for each U.S. Security.^[4]

Under the EuroCCP U.S. Program, EuroCCP will use DTC's settlement services for these netted securities obligations by opening and operating an account at DTC. Each EuroCCP participant in the EuroCCP U.S. Program will be required to appoint a DTC participant U.S. settlement agent to settle obligations on its behalf.^[5] EuroCCP will be subject to the same net debit cap ^[6] and collateral monitor (“Risk Management Controls”) ^[7] as any other DTC participant.

DTC is modifying its Settlement Service Guide in three ways to maximize settlement efficiencies for DTC participants acting as U.S. settlement agents in the EuroCCP U.S. Program. First, reclaims to EuroCCP's account will not be “matched”. A reclaim is an instruction from a participant to DTC to return a delivery. It is generally used in the event of an error where a participant does not recognize the delivery. DTC's systems attempt to identify a corresponding original transaction for every reclaim presented for processing. If DTC's systems identify a corresponding original transaction, the reclaim is processed.^[8]

Under DTC's existing Settlement Service Guide procedures, a matched reclaim for less than $15 million is not subject to DTC's risk management controls. As a result a matched reclaim to EuroCCP for less than $15 million would not be subject to DTC's risk management controls for EuroCCP's account and could create a debit in the EuroCCP account that could exceed EuroCCP's liquidity resources and cause EuroCCP to be unable to complete settlement with DTC. To avoid this outcome, DTC is changing its procedures so that all reclaims to the EuroCCP account, including matched reclaims under $15 million, will be subject to DTC's risk management controls. Consequently, all reclaims violating EuroCCP's net debit cap or collateral monitor will recycle until the reclaim can settle without violating the risk management controls or until the reclaim drops at the recycle cutoff.^[9] This is how DTC currently treats reclaims that are over $15 million dollars.

Second, DTC is modifying its Settlement Service Guide so that pending valued transactions and pending free transactions to or from the EuroCCP account will fail to settle or “drop” ^[10] at 3:10 p.m.^[11] This cutoff time will allow EuroCCP to close its business day.

Third, the Receiver Authorized Delivery (“RAD”) cutoff time will be 3:30 p.m. for both valued transactions and free delivery transactions.^[12] DTC's current RAD deadline for valued transactions is 3:30 p.m., and the RAD deadline for free delivery transactions is 6:30 p.m. To allow EuroCCP to halt transaction processing in the EuroCCP account and end its processing day, DTC will require a synchronized RAD cutoff time of 3:30 p.m.

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act ^[13] and the rules and regulations thereunder applicable to DTC. In particular, the Commission believes that the amendments DTC is making to its rules in connection to it providing settlement services to EuroCCP for U.S. Securities traded on European trading venues are consistent with DTC's obligations under ( printed page 9988) Section 17A(b)(3)(F),^[14] which requires, among other things, that the rules of a clearing agency are designed to provide for the safekeeping of securities and funds under its possession or control or for which it is responsible.

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 ^[15] and the rules and regulations thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[16] that the proposed rule change (File No. SR-DTC-2009-17) be, and hereby is, approved.^[17]