July 9, 2014.
On May 30, 2014, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-DTC-2014-06 (“Proposed Rule Change”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Start Printed Page 41336(“Act”) 
and Rule 19b-4 thereunder.
The Proposed Rule Change was published for comment in the Federal Register on June 5, 2014.
The Commission did not receive any comments on the Proposed Rule Change. This order approves the Proposed Rule Change.
DTC filed the Proposed Rule Change to modify its Rules, By-Laws, and Organization Certificate (“Rules”) to lower limits against which valued Deliver Orders (“DOs”) and Payment Orders (“POs”) 
will be required to be accepted for receipt (i.e., “matched” for settlement) via DTC's Receiver Authorized Delivery (“RAD”) process. With the Proposed Rule Change, DTC seeks to reduce the intraday uncertainty that may arise from reclaim transactions linked to DOs and POs and any potential credit and liquidity risk from such transactions.
Currently, as set forth in the DTC Settlement Service Guide (“Guide”), valued DOs and POs, excluding DOs of MMIs and ID transactions, in amounts above $7.5 million and $500,000, respectively, are subject to the RAD process, which allows a receiver of DOs and/or POs (“Receiver”) to review and reject transactions that it does not recognize prior to DTC's processing of the transaction.
In contrast, lower valued DOs and POs do not require the Receiver's acceptance prior to processing. Instead, if the Receiver does not recognize a DO or PO it has received, the DO or PO may be returned by the Receiver to the original deliverer of the DO or PO (“Deliverer”) in a reclaim transaction (“Reclaim”). While both the Reclaim and RAD functionalities allow a Receiver to exercise control over which transactions to accept, Reclaims tend to create uncertainty because transactions may be returned late in the day, when the Deliverer may have limited options to respond. Because Reclaims are permitted without regard to DTC's risk management controls, a Deliverer that is subject to a Reclaim may incur a greater settlement obligation than otherwise anticipated, increasing credit and liquidity risk to the Deliverer and to DTC.
Pursuant to the Proposed Rule Change, DTC will revise the Guide to reflect that: (i) With respect to valued DOs, DTC will lower the RAD threshold to $.01 via a three-phase reduction as described below, and (ii) with respect to POs, DTC will reduce the RAD threshold to zero immediately upon implementation of the Proposed Rule Change. As such, in the first phase of implementation of the Proposed Rule Change, DTC will reduce the RAD threshold for DOs to $100,000. In the second phase, the RAD threshold for valued DOs will be reduced to $20,000. In the third phase, the RAD threshold for DOs will be reduced to $.01. In addition, to further promote finality of settlement, new issues will no longer be exempt from RAD.
Also, the Guide will be updated to reflect that certain DO and PO functions will no longer be accessible through DTC's Participant Terminal System. Instead, such functions will be accessible through a DTC web application known as “Settlement Web.” Further, the Guide will be updated via a technical change to clarify that the RAD threshold for institutional transactions remains at $15 million, rather than at the $7.5 million amount currently in effect for non-institutional transactions. Finally, the Guide will be revised to remove a provision that overvalued deliveries are automatically routed to RAD, as this section will become redundant upon implementation of the Proposed Rule Change since all DOs will be subject to RAD.
The effective date of the Proposed Rule Change, including the dates of the implementation phases described above, will be announced via a DTC Important Notice.
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 rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.
In addition, Rule 17Ad-22(d)(12) of the Act requires that a clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to ensure that final settlement occurs no later than the end of the settlement day and require that intraday or real-time finality be provided where necessary to reduce risks.
The Commission finds the Proposed Rule Change is consistent with the Act. More specifically, as the Proposed Rule Change pertains to the lower RAD threshold for non-institutional transactions, the resulting limit on Reclaim transactions, and the removal of the new issue exemption, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act 
because it will increase the number of deliveries that will require Receiver approval prior to DTC processing, which reduces the intraday uncertainty and associated risks that may arise from Reclaims, thus facilitating the prompt and accurate clearance and settlement of securities transactions. The Commission also finds these aspects of the Proposed Rule Change consistent with Rule 17Ad-22(d)(12) of the Act 
because more Start Printed Page 41337transactions will be subject to DTC's risk management controls, which helps ensure that final settlement occurs no later than the end of the settlement day.
Additionally, the Commission finds the Proposed Rule Change, as it pertains to changes to DTC's Participant Terminal System and Settlement Web services, the RAD threshold for institutional transactions, and overvalued deliveries, consistent with both Section 17A(b)(3)(F) of the Act 
and Rule 17Ad-22(d)(12) of the Act 
because specifying the application through which Participants may access certain settlement functions, clarifying the RAD threshold of institutional transactions, and eliminating redundant provisions promotes the prompt and accurate clearance and settlement of securities transactions and improves DTC's written policies and procedures that are designed to ensure final settlement no later than the end of the settlement day.
On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 
and the rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that proposed rule change SR-DTC-2014-06 be, and hereby is, approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Kevin M. O'Neill,
[FR Doc. 2014-16502 Filed 7-14-14; 8:45 am]
BILLING CODE 8011-01-P