[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44077-44084]
[FR Doc No: 2021-17077]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92572; File No. SR-DTC-2021-014]

Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change To Provide Settlement
Services for Transactions Entered Into Under the Proposed Securities
Financing Transaction Clearing Service of the National Securities
Clearing Corporation

August 5, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 22, 2021, The Depository Trust Company (``DTC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II and III below, which Items have been
prepared by the clearing agency. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The proposed rule change of DTC would amend the Rules, the
Settlement Guide, and the Fee Guide \3\ in order to provide
Participants that are also members of the National Securities Clearing
Corporation (``NSCC'') with settlement services in connection with a
proposed optional securities financing transaction clearing service of
NSCC (``NSCC SFT Service'').
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    \3\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth in DTC's rules, including, but not
limited to, the Rules, By-Laws and Organization Certificate of DTC
(``Rules''), the DTC Settlement Service Guide (``Settlement
Guide''), and the Guide to the 2020 DTC Fee Schedule (``Fee
Guide''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend the Rules, the Settlement
Guide, and the Fee Guide in order to provide Participants that are also
members of NSCC with settlement services in connection the NSCC SFT
Service. The proposed NSCC SFT Service would provide central clearing
for equity securities financing transactions, which are, broadly
speaking, transactions where the parties exchange equity securities
against cash and simultaneously agree to exchange the same securities
and cash, plus or minus a rate payment, on a future date (each, an
``SFT'').\4\ SFTs between

counterparties that are members of NSCC (each, an ``NSCC SFT
Counterparty'') \5\ would be settled through their respective
Participant Accounts at DTC.\6\
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    \4\ On July 22, 2021, NSCC filed a proposed rule change and an
advance notice to establish the NSCC SFT Service (``NSCC Proposed
Rules''). See SR-NSCC-2021-010 and SR-NSCC-2021-803, which were
filed with Commission and the Board of Governors of the Federal
Reserve System, respectively, but have not been published in the
Federal Register. Copies of the proposed rule change and the advance
notice are available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
    \5\ DTC understands that the NSCC SFT Service would offer the
clearance of SFT transactions between a buy-side entity (a
``Sponsored Member'') and the member of NSCC that sponsored that
entity for the NSCC SFT Service (``Sponsoring Member''). This
proposed rule change by DTC does not relate to Sponsoring Members,
Sponsored Members, or their SFT transactions at NSCC. All SFT
transactions between a Sponsored Member and its Sponsoring Member
would settle on the books of the Sponsoring Member. These SFT
transactions and the related activity would occur outside of DTC and
would not settle at DTC. The term ``NSCC SFT Counterparty,'' as used
in this filing, does not refer to Sponsored Members or Sponsoring
Members.
    \6\ DTC understands that, pursuant to the NSCC Proposed Rules,
NSCC would establish a new membership category for agent clearing
members (each, an ``Agent CM''), where members of NSCC would be
permitted to submit SFTs to NSCC for novation on behalf of their
customers. All SFTs settling at DTC would be processed by DTC
without regard to whether a Participant is acting as Agent CM under
the NSCC Proposed Rules or is acting on its own behalf. DTC would
not establish any SFT or Agent CM Participant membership type, or
any special SFT or Agent CM Participant accounts, at DTC.
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    Pursuant to the proposed rule change, DTC would (i) expand the
types of instructions that NSCC, as the representative (``Special
Representative'') of each Participant that is also a member of NSCC,
can submit to DTC on behalf of a Participant with respect to an Account
of the Participant, (ii) establish a new type of payment order for the
crediting and debiting of payment amounts relating to SFT activity at
NSCC (``SFT Price Differential'' or ``SFT PD'') \7\ to and from the
Accounts of the Participants that are NSCC SFT Counterparties, (iii)
apply a modified look-ahead process to the new Account that NSCC would
maintain at DTC in connection with the NSCC SFT Service (the ``NSCC SFT
Account'' or ``Special Representative SFT Account''),\8\ and (iv)
establish a fee for the payor and payee of an SFT Price Differential
payment order. Finally, DTC is proposing to make clarifying and
conforming changes, as discussed below.
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    \7\ DTC understands that the Proposed NSCC Rules would define
such credit/debit amount as a ``Price Differential,'' which would
include, but would not be limited to, mark-to-market payments and
payments relating to offsetting SFT obligations.
    \8\ The NSCC SFT Account, which would appear in the Rules as the
``Special Representative SFT Account,'' would be Account No. 881.
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(i) Overview of Proposed Rule Change
    DTC understands that, pursuant to the Proposed NSCC Rules and
consistent with the manner in which NSCC accepts cash market
transactions, SFTs would be submitted to NSCC by an Approved SFT
Submitter \9\ already matched as between the pre-novation NSCC SFT
Counterparties (i.e., on a locked in basis).\10\ Once the SFT
instruction is processed by NSCC, NSCC would submit Delivery Versus
Payment (``DVP'') instructions or SFT PD payment orders to DTC in
accordance with the NSCC Proposed Rules. Pursuant to the NSCC Proposed
Rules and the proposed rule change, NSCC would typically only submit
pairs of instructions to DTC, as follows: (i) One instruction on its
own behalf, with respect to the NSCC SFT Account, and (ii) one
instruction on behalf of a Participant, as its Special Representative,
with respect to the DTC Account of the Participant.\11\ Accordingly,
these DVP and SFT PD transactions between Participants that are NSCC
SFT Counterparties to an SFT would pass through the NSCC SFT Account.
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    \9\ DTC understands that the Proposed NSCC Rules would define
the term ``Approved SFT Submitter'' as a provider of transaction
data on an SFT that the parties to the SFT have selected and NSCC
has approved.
    \10\ DTC understands that the NSCC Proposed Rules would provide
that the obligations reflected in the transaction data on an SFT
would be deemed to have been confirmed and acknowledged by each NSCC
SFT Counterparty designated by the Approved SFT Submitter as a party
thereto and to have been adopted by such NSCC SFT Counterparty and,
for the purposes of determining the rights and obligations between
NSCC and such NSCC SFT Counterparty under the NSCC Proposed Rules,
would be valid and binding upon such NSCC SFT Counterparty.
    \11\ The NSCC Proposed Rules would provide that the submission
of each SFT to NSCC constitutes an authorization to NSCC by the NSCC
SFT Counterparties for NSCC to give instruction regarding the SFT to
DTC in respect of the relevant Participant Accounts of the NSCC SFT
Counterparties at DTC.
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A. NSCC Instructions to DTC
(1) NSCC as the Special Representative of Participants That Are Members
of NSCC
    Pursuant to Rule 6, NSCC is the Special Representative of each
Participant that is also a Member of NSCC. Currently, as the Special
Representative of the Participant, NSCC may instruct DTC, on behalf of
the Participant, to make a transfer of securities from the Account of
the Participant to an Account that NSCC maintains at DTC in connection
with its Continuous Net Settlement (``CNS'') System \12\ (the ``Special
Representative CNS Account'').\13\ The purpose of these transfers is to
settle the CNS obligations of a member of NSCC to NSCC through the
member's Participant Account at DTC.
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    \12\ See e.g., Rule 11 of the NSCC Rules & Procedures, available
at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \13\ The Special Representative CNS Account is Account No. 888.
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    The NSCC SFT Service would operate separately from the NSCC CNS
system, and NSCC would use its new NSCC SFT Account, and not the NSCC
CNS Account, in connection with the NSCC SFT Service. In order to
efficiently provide Participants with settlement services for SFTs
cleared through the NSCC SFT Service and settled at DTC, DTC is
proposing to leverage the status of NSCC as the Special Representative
of Participants that are members of NSCC. Pursuant to the proposed rule
change, Rule 6 would provide NSCC, as the Special Representative of a
Participant, with the additional authority to submit instructions to
DTC with respect to DVP and SFT PD transactions from the Account of the
Participant to the NSCC SFT Account.\14\
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    \14\ See supra notes 10 and 11.
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(2) DVP Instructions
    As noted above, pursuant to the proposed rule change, NSCC would
submit pairs of instructions to DTC as follows: (i) One instruction on
its own behalf, with respect to the NSCC SFT Account, and (ii) one
instruction on behalf of a Participant as its Special Representative,
with respect to the DTC Account of the Participant. Accordingly, in
order to effectuate a DVP transaction between Participants that are
NSCC SFT Counterparties to an SFT, NSCC would send DTC a pair of DVP
instructions: (i) One instruction, as the Special Representative of the
Participant that is an NSCC SFT Counterparty, to deliver the subject
securities versus payment from the Account of the delivering
Participant to the NSCC SFT Account, and (ii) one instruction, on
NSCC's own behalf, to deliver the subject securities versus payment
from the NSCC SFT Account to the Account of the receiving Participant
that is the other NSCC SFT Counterparty. As explained in more detail
below, if the pair of instructions satisfy DTC risk management controls
\15\ and the modified look-ahead, DTC would process the deliveries. If
risk management controls and the modified look-ahead are not satisfied,
the

instructions would recycle \16\ and, if not completed, would drop at
the end of the day.
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    \15\ DTC uses its risk management controls, the Collateral
Monitor and Net Debit Cap, to manage its credit risk. These two
controls work together to protect the DTC settlement system in the
event of Participant default. The Collateral Monitor requires net
debit settlement obligations, as they accrue intraday, to be fully
collateralized; the Net Debit Cap limits the amount of any
Participant's net debit settlement obligation to an amount that can
be satisfied with DTC liquidity resources (the Participants Fund and
the committed line of credit from a consortium of lenders). See
Settlement Guide, supra note 3, at 64-67.
    \16\ For a description of Recycle Processing, see Settlement
Guide, supra note 3, at 56.
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    There is only one situation where NSCC would only send a single DVP
instruction to DTC.\17\ Specifically, pursuant to the NSCC Proposed
Rules, the initial transfer of the securities that are the subject of
the SFT versus the payment amount would be initiated at DTC by the
Participant that is the delivering NSCC SFT Counterparty. Therefore,
pursuant to the proposed rule change, the Participant that is the
delivering NSCC SFT Counterparty would submit the DVP instruction to
DTC to deliver the subject securities versus the payment amount from
the Account of the Participant to the NSCC SFT Account. Provided that
the SFT had already been submitted to NSCC by an Approved SFT Submitter
on that business day,\18\ NSCC would submit a DVP instruction to DTC to
deliver the subject securities versus the payment amount from the NSCC
SFT Account to the Account of the Participant that is the receiving
NSCC SFT Counterparty. If the Participant instruction and the NSCC
instruction satisfy DTC risk management controls and the modified look-
ahead, DTC would process the deliveries. If risk management controls
and the modified look-ahead are not satisfied, the instructions would
recycle and, if not completed, would drop at the end of the day.
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    \17\ This paragraph does not apply to a ``Bilaterally Initiated
SFT,'' which is described in the NSCC Proposed Rules as an SFT that
was submitted to NSCC after the initial transfer of securities
versus payment had already occurred. DTC is agnostic to whether an
NSCC SFT instruction relates to a Bilaterally Initiated SFT or a
typical SFT.
    \18\ If the SFT was not submitted to NSCC on that business day,
the Participant DVP instruction would be rejected.
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(3) Price Differential Payment Orders
    Pursuant to the proposed rule change, NSCC would also submit SFT PD
payment orders to DTC on behalf of itself and on behalf of DTC
Participants, as their Special Representative, in connection with SFT
activity at NSCC.
    DTC Rule 9(A) provides that a Participant may submit to DTC an
instruction to (i) credit the Account of the Participant with an amount
of funds and debit the Account of another Participant the same amount
of funds, or (ii) debit the Account of the Participant with an amount
of funds and credit the Account of another Participant the same amount
of funds (each, a ``payment order'').\19\ The Settlement Guide
describes the DTC payment order service as providing Participants with
a method for settling money payments for securities transactions that
were processed separately.\20\ Currently, Participants use payment
orders to collect option contract premiums (a ``premium payment order''
or ``PPO'') and mark-to-market open contracts such as stock loans (a
``securities payment order'' or ``SPO''). Payment orders are subject to
DTC risk management controls.
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    \19\ See Rule 9(A), supra note 3.
    \20\ See Settlement Guide, supra note 3, at 3.
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    Pursuant to the proposed rule change, DTC would enhance the DTC
payment order service by adding the SFT PD payment order. The SFT PD
payment order would offer an efficient way for NSCC to instruct DTC, on
behalf of a Participant or on its own behalf, to credit and debit funds
between the NSCC SFT Account and the Accounts of the Participants that
are NSCC SFT Counterparties. DTC understands that the amount of each
SFT PD would be calculated and instructed by NSCC in accordance with
the instructions of an Approved SFT Submitter.
    In order to effectuate the payments between Participants that are
NSCC SFT Counterparties in connection with SFT activity at NSCC, NSCC
would submit a pair of SFT PD payment orders to DTC: (i) One
instruction, on NSCC's own behalf, to debit the payment amount from the
Account of the payor Participant and credit the payment amount to the
NSCC SFT Account, and (ii) one instruction, as the Special
Representative of the payee Participant, to debit the payment amount
from the NSCC SFT Account and credit the payment amount to the Account
of the payee Participant. If the pair of instructions satisfy DTC risk
management controls and the modified look-ahead, DTC would process the
transaction. If the pair of SFT PD payment orders do not satisfy DTC
risk management controls and the modified look-ahead, the instructions
would recycle and, if they are not completed, would drop at the end of
the day.
B. Modified Look-Ahead Processing
    The typical look-ahead process utilized by DTC reduces transaction
blockage by applying the net amount of offsetting receive and deliver
transactions in the same security rather than the gross amount of the
receive transaction to a Participant's Net Debit Cap. The look-ahead
process calculates and processes submitted transactions in the same
CUSIP that, when processed simultaneously, would not violate the risk
management controls of the involved Participants. Specifically, the
look-ahead process identifies a receive transaction pending due to a
net debit cap insufficiency and determines whether an offsetting
delivery transaction pending because of a quantity deficiency in the
same security would permit both transactions to be completed in
compliance with DTC risk management controls.\21\
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    \21\ See Settlement Guide, supra note 3, at 45. See also supra
note 15.
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    As noted above, the NSCC SFT Account is intended to be a pass-
through account for DVP and SFT PD transactions between Participants
that are NSCC SFT Counterparties. DTC understands that because NSCC, as
the central counterparty, would substitute itself as the counterparty
for each SFT, it is essential to NSCC that there not be any net
settlement obligation against the NSCC SFT Account intraday or at the
end of any day. It is essential to NSCC that its obligations to DTC
with respect to all completed DVP and SFT PD transactions to which the
NSCC SFT Account was a party should be netted to zero with respect to
both securities and funds. In an effort to help ensure that there would
not be any net settlement obligation against the NSCC SFT Account, and
to prevent transaction blockage due to risk management controls on the
NSCC SFT Account, DTC is proposing to use a modified look-ahead process
for the instructions it receives from NSCC in connection with the NSCC
SFT Account.
    Pursuant to the proposed rule change, upon receipt of a pair of DVP
instructions or SFT PD payment orders from NSCC, DTC would only
complete the transaction if the modified look-ahead is satisfied. The
modified look-ahead would be satisfied when (i) the pair of
instructions from NSCC are consistent in terms of the number of subject
shares and/or dollar amount, CUSIP, and DTCC Reference ID,\22\ and (ii)
the net effect of processing the instructions would not violate the
respective Net Debit Caps, Collateral Monitor or other risk management
system controls of the Participants that are on each side of the DVP or
SFT PD transaction.\23\ If the modified look-ahead is not satisfied,
then the pair of instructions would recycle until the

look-ahead is satisfied or until the 3:10 p.m. cutoff time, when all
recycling valued transactions at DTC are dropped.\24\
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    \22\ The DTCC Reference ID is the fourteen-digit UTC Loan ID
that NSCC assigns to each SFT transaction.
    \23\ DTC uses the same modified look-ahead (except for the DTCC
Reference ID) for DVP transactions to and from the OCC Market Loan
Program Account, which is maintained by The Options Clearing
Corporation (``OCC'') at DTC in connection with the OCC Market Loan
Program. See Securities Exchange Act Release No. 59298 (January 26,
2009), 74 FR 5692 (January 30, 2009) (SR-DTC-2008-15).
    \24\ DTC would also set the Net Debit Cap of the NSCC SFT
Account to one dollar ($1), which would help ensure that no DVP or
SFT PD to or from the NSCC SFT Account would be completed unless an
offsetting DVP or SFT PD is also completed. The OCC Market Loan
Program Account is similarly risk managed to help ensure that no
receives are completed to the OCC Market Loan Program Account unless
an offsetting delivery is also completed. See Securities Exchange
Act Release No. 59298 (January 26, 2009), 74 FR 5692 (January 30,
2009) (SR-DTC-2008-15).
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    In addition, because the modified look-ahead relies on the
completion of offsetting transactions, transactions to and from the
NSCC SFT Account would not be subject to either reclaims or Receiver
Authorized Delivery (``RAD'').\25\ Since both reclaims and RAD
effectively permit one side of the transaction to reject or reverse the
transaction, allowing such activity would interfere with the ability of
the modified look-ahead to rely on the completion of the offsetting
transactions. DTC believes that Participants would not be affected by
the exclusion of reclaims and RAD because the NSCC SFT instructions
would be based on instructions that were matched and submitted to NSCC
on a locked-in basis by an Approved SFT Submitter on behalf of the NSCC
SFT Counterparties. Therefore, the Participants that are NSCC SFT
Counterparties to an SFT would have already agreed to the transactions
to and from the NSCC SFT Account relating to their Participant Account,
and, as such, the reclaim and RAD functions would not be necessary.\26\
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    \25\ A reclaim is the return of a deliver order, payment order,
institutional delivery transaction or MMI transaction received by a
Participant. RAD is a control mechanism that allows a Participant to
review transactions prior to completion of processing. See
Settlement Guide, supra note 3, at 6.
    \26\ See supra notes 10 and 11.
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C. SFT Price Differential Fee
    DTC is proposing to amend the Fee Guide to establish a fee for SFT
PD payment orders. DTC is proposing a fee of $0.005 per item delivered
or received, to be charged to the payor and to the payee of an SFT PD
payment order.
    DTC recognizes that the fee for SFT PD payment orders would be
significantly less than the $0.10 fee for SPO payment orders, which are
used by Participants in connection with their noncleared stock loan
transactions. DTC is proposing to establish this lower fee for SFT PD
payment orders because settling payment obligations for cleared SFTs
would require a higher volume of payment orders than would otherwise be
required for settling payment obligation for uncleared SFTs. More
specifically, pursuant to the NSCC Proposed Rules, NSCC SFT
Counterparties would pay and collect Price Differentials at the
individual transaction level. In the bilateral world, mark-to-market
payments and collections on securities lending transactions are
typically done at the CUSIP level via SPOs, inclusive of all open
securities lending transactions of a given participant. Accordingly, it
is likely that there would be more SFT PD payment orders processed by
DTC in connection with SFTs than the amount of SPOs DTC would have
otherwise processed if those SFTs were bilateral, non-cleared
securities lending transactions. Therefore, as an initial matter,\27\
DTC is proposing to charge the lower fee $0.005 for SFT PD payment
orders in an effort to maintain cost efficiency for both the cleared
SFT activity and the uncleared securities financing transactions of
market participants.''
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    \27\ DTC understands that since NSCC would be offering central
clearing for overnight SFTs for the first time, NSCC is not able at
this time to anticipate the size and composition of the SFT
portfolios and activity. Therefore, DTC is not yet able to estimate
the volume of SFT PD payment orders that it would process after the
NSCC SFT Service is implemented. Once the NSCC SFT Service is
implemented and historical data is available, DTC may, if
circumstances warrant, review the amount of the SFT PD payment order
fee.
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(ii) Proposed Rule Change
A. Amendments to the Rules
(1) Rule 1
    In order to clearly differentiate between the Special
Representative CNS Account and the NSCC SFT Account in Rule 6, DTC is
proposing to insert the following definitions into Section 1 of Rule 1:

    i. Special Representative: The term ``Special Representative''
has the meaning provided in Rule 6.
    ii. Special Representative CNS Account: The term ``Special
Representative CNS Account'' means the Account of the Special
Representative that it uses in connection with its continuous net
settlement system.
    iii. Special Representative SFT Account: The term ``Special
Representative SFT Account'' means the Account of the Special
Representative that it uses in connection with its securities
financing transaction service.

    In addition, DTC is proposing to remove ``Special Representative''
from the list of definitions in Section 2 of Rule 1, because it would
be redundant once the definition is inserted into Section 1 of Rule 1
pursuant to the proposed rule change.
(2) Rule 6
    Pursuant to the proposed rule change, DTC would replace references
to the ``Account of the Special Representative'' with ``Special
Representative CNS Account,'' to (i) clearly differentiate the Account
that NSCC uses in connection with CNS from the proposed Special
Representative SFT Account, and (ii) clearly delineate the transfer and
delivery instructions that NSCC as the Special Representative submits
to DTC in connection with the CNS system and the DVP instructions and
SFT PD payment orders that NSCC as the Special Representative would
submit to DTC in connection with the NSCC SFT Service.
    Under current Rule 6, the scope of NSCC's authority as Special
Representative to instruct DTC with respect to an Account of a
Participant that is a member of NSCC is limited to transfers of
securities from the Account of the Participant to the Account of the
Special Representative (which would be renamed ``Special Representative
CNS Account,'' as proposed above). Pursuant to the proposed rule
change, DTC would amend Rule 6 to provide that NSCC, as the Special
Representative, may submit to DTC, on behalf of the Participant,
instructions for ``the Delivery Versus Payment of Securities from the
Account of a Participant to the Special Representative SFT Account,''
and for ``an amount of money to be credited to the Account of a
Participant and debited from the Special Representative SFT Account, in
connection with a transaction in Securities, in accordance with Rule
9(A) and as specified in the Procedures.''
B. Amendments to the Settlement Guide
    (1) In the ``Settlement Transactions'' subsection of the ``About
Settlement'' section, DTC is proposing to add ``Price Differentials (as
defined in the NSCC Rules)'' to the description of payment orders.
    (2) In the ``Important Terms'' subsection of the ``About
Settlement'' section, DTC is proposing to:
    a. Amend the description of a ``payment order'' to be consistent
with the amended description in the ``Settlement Transactions''
subsection. Specifically, DTC would replace the sentence ``A
transaction in which a Participant charges another Participant for
changes in value for outstanding stock loans or option contract
premiums'' with ``The payment order service provides Participants with
a mechanism for settling amounts of money related to securities
transactions that are effected separately through

DTC. Participants use payment orders to collect option contract
premiums (premium payment order), mark-to-market open contracts such as
stock loans (securities payment order), and Price Differentials (SFT PD
payment order).''
    b. Insert the term ``SFT Price Differential (``SFT PD'') payment
order'' with the following description: ``A payment order through which
the amount of a Price Differential (as defined in the NSCC Rules) is
(i) debited from the account of a Participant and credited to the NSCC
SFT Account, or (ii) is debited from the NSCC SFT Account and credited
to the account of a Participant.''
    c. Insert the term ``NSCC Securities Financing Transaction Service
(SFT) Service'' with the following description: ``A securities
financing transaction clearing service offered by NSCC.''
    (3) After the ``NSCC ACATS Settlement Accounting Operation--
Processing at DTC'' section of the Settlement Guide, DTC is proposing
to insert a new section titled ``NSCC Securities Financing Transactions
(SFT) Service.'' The new section would include the following
subsections: ``About the Product,'' which would briefly describe the
NSCC SFT Service; ``Initial Transfer of SFT Securities at DTC,'' which
would describe the process for the DVP instructions for the initial
transfer of securities versus payment for an SFT; ``NSCC Instructions
to DTC,'' which would describe the pairs of DVP instructions and SFT PD
payment orders that NSCC would submit to DTC in connection with SFT
activity at NSCC; and ``NSCC SFT Account Look-Ahead Processing,'' which
would describe the modified look-ahead process and inform Participants
that transactions to and from the NSCC SFT Account would not be subject
to RAD and that reclaims from the NSCC SFT Account would be blocked.
    (4) In the subsection titled ``Settlement Processing Schedule'' of
the ``End-of-Day Settlement Process'' section, DTC is proposing to:
    a. In the 3:00 p.m. ``Cutoff Time ET'' row, under ``Cutoff for,''
insert a third item in the bulleted list that reads: ``SFT Transactions
cannot be entered after 3:00 p.m.''
    b. In the 3:10 p.m. ``Cutoff Time ET'' row, under ``Cutoff for,''
insert ``/SFT'' after ``CNS'' in the second bulleted paragraph to
reflect that recycling NSCC SFT instructions would be dropped at that
time.
    (5) In the section ``Look-Ahead Processing,'' DTC proposes to
correct the first sentence to reflect that DTC's current look-ahead
process runs on two-minute intervals, not on fifteen-minute intervals.
    (6) In the subsection ``Optional Memo Segregation Indicators'' of
the ``Memo Segregation'' section, DTC is proposing to make a conforming
change in order to reflect that securities positions from deliver
orders relating to SFT activity at NSCC would be treated the same as
stock loan positions. Specifically, DTC is proposing to insert the SFT
reason codes 200 and 201 into (i) the row for Activate Indicator 4 as
follows: ``Turnaround securities positions, regardless of Memo
Segregation constraints, for positions received from DOs with reason
codes 10, 30, 200, and 600, except those with reason codes 10, 20, 200,
201, 260, 270, 280, or 290,'' and (ii) the row for Activate Indicator 5
as follows: ``Turnaround securities positions, regardless of Memo
Segregation constraints, for positions received from: All DOs, except
those with reason codes 20-29, 40-48, 99, 201, 261-268, 270-278, 290,
291, 330-338, 340-348, 390, 610-619, 705-707 and CNS receives from the
``C'' and ``E'' accounts except if the turnaround is a reason code 10,
20, 200, 201, 260, 270, 280, or 290.''
    (7) In order to provide clarification around the payment order
service and to differentiate between PPOs and SPOs on the one hand and
SFT PD payment orders on the other hand, DTC is proposing to amend the
``Payment Orders'' section by:
    a. Amending the ``About the Product'' subsection to insert a
general description of the payment order service that would state: ``A
payment order authorizes DTC to credit the payee Participant's
settlement account with the specified amount and to debit the payor
Participant's settlement account for the same amount. All payment
orders must satisfy the payor Participant's risk management controls
before being processed.''
    b. Amending the ``How the Product Works'' subsection by (i)
inserting ``Premium Payment Order (PPO) and Securities Payment Order
(SPO)'' as a new heading for the description of PPOs and SPOs, (ii)
deleting the sentence ``Either type of payment order authorizes DTC to
credit the payee Participant's settlement account with the specified
amount and to debit the payor Participant's settlement account for the
same amount,'' from the first paragraph, (iii) changing a reference to
``the Payment Order Service'' to ``PPOs and SPOs,'' (iv) inserting
``SFT Price Differential (SFT PD) Payment Order'' as a new heading, and
(v) inserting the sentence ``For a description of SFT Price
Differential payment orders, please see NSCC Securities Financing
Transactions (SFT) Service'' under the SFT Price Differential Payment
Order (SFT PD) heading.
    (8) In order to reflect that a Participant would not be able to use
the ``Pend Hold'' function for a DVP to the NSCC SFT Account, DTC is
proposing to insert ``with the exception of DOs to and from the NSCC
SFT Account'' into the description of Pend Hold function in the ``Pend
Hold'' subsection.\28\
---------------------------------------------------------------------------

    \28\ A Pend Hold allows a Participant that initiated a DO or
pledge transaction to hold (i.e., exclude from processing) the
transaction if it is pending for insufficient position. Since a DVP
to the NSCC SFT Account is instructed by NSCC as the Special
Representative, a Pend Hold is not relevant.
---------------------------------------------------------------------------

    (9) In Annex A, DTC is proposing to insert the following new reason
codes into the ``Memo Segregation Supplement/DO Reason Code Description
Reference'' section: 200 (SFT Stock Loan) and 201 (SFT Stock Loan
Return). These new settlement reason codes would be established at DTC
to support on-leg and off-leg settlement of SFTs.
C. Amendments to the Fee Guide
    Pursuant to the proposed rule change, DTC would amend the Fee Guide
to insert an SFT Price Differential delivery or receipt fee of $0.005
per item delivered or received.
Implementation Date
    DTC will implement the proposed changes when DTC and NSCC receive
all necessary regulatory approvals for this proposed rule change and
NSCC's proposed rule changes. DTC will announce the implementation date
of the proposed rule change in an Important Notice posted on its
website.
    As proposed, a legend would be added to the Rules,\29\ Settlement
Guide, and Fee Guide stating there are changes that have been approved
but have not yet been implemented. The proposed legend also would
include that the implementation date would be announced in an Important
Notice to be issued by DTC. In addition, the proposed legend would
state that the legend would automatically be removed upon the
implementation of the proposed changes.
---------------------------------------------------------------------------

    \29\ DTC is proposing to add the legend to Rules 1 and 6.
---------------------------------------------------------------------------

2. Statutory Basis
    DTC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Specifically, DTC believes
that the

proposed rule change is consistent with Sections 17A(b)(3)(F) \30\ and
17A(b)(3)(D) of the Act \31\ for the reasons described below.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\32\ DTC is proposing to expand the types of
instructions that NSCC, as the Special Representative of a Participant
that is also a member of NSCC, can submit to DTC on behalf of a
Participant with respect to an Account of the Participant. As noted
above, the NSCC Proposed Rules would provide that the submission of
each SFT to NSCC by the Approved SFT Submitter on behalf of the NSCC
SFT Counterparties would constitute an authorization to NSCC by the
NSCC SFT Counterparties for NSCC to give instructions regarding the SFT
to DTC in respect of the relevant Participant Accounts of the NSCC SFT
Counterparties at DTC. The proposed rule change would provide a basis
for DTC to accept and rely on those NSCC instructions. Specifically,
DTC would amend Rule 6 to provide for the additional authority of NSCC,
as the Special Representative of a Participant, to submit DVP
instructions and SFT PD payment orders to DTC, on behalf of
Participant, from the Account of the Participant to the NSCC SFT
Account. By providing NSCC with the authority to submit these
instructions on behalf of a Participant, the proposed rule change
supports the efficient settlement of cleared SFTs, thereby promoting
the prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act, cited
above.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Pursuant to the proposed rule change, DTC would establish the SFT
PD payment order, which would be a payment order for NSCC to instruct
DTC, on behalf of Participants that are NSCC SFT Counterparties, as
well as on its own behalf, to credit and debit funds between the NSCC
SFT Account and the Accounts of the Participants in connection with SFT
activity at NSCC. By establishing this new type of payment order that
would utilize the efficiency of the DTC payment order service to settle
payments relating to cleared SFTs, the proposed rule change is designed
to promote the prompt and accurate clearance and settlement of payment
obligations relating to securities transactions, consistent with
Section 17A(b)(3)(F) of the Act, cited above.
    The proposed rule change would also apply a modified look-ahead
process to the new NSCC SFT Account. As discussed above, DTC would use
modified look-ahead processing in an effort to (i) ensure that there
would not be any net settlement obligation against the NSCC SFT Account
and (ii) prevent transaction blockage that could occur from unsatisfied
risk management controls on the NSCC SFT Account. By applying a
modified look-ahead to the new NSCC SFT Account, DTC believes that the
proposed rule change is designed to promote efficient processing of DVP
and SFT PD transactions relating to cleared SFTs. In this way, DTC
believes that the proposed rule change would promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act, cited above.
    DTC also believes that the proposed rule change to make conforming
and technical changes to the Rules and the Settlement Guide would
promote the prompt and accurate clearance and settlement of securities
transactions. DTC believes that the proposed conforming and technical
changes would help ensure consistency in the Rules and the Settlement
Guide and help ensure that the Rules and the Settlement Guide remain
clear and accurate. Having clear and accurate Rules and Settlement
Guide would help Participants to better understand their rights and
obligations regarding DTC settlement services in connection with the
NSCC SFT Service. DTC believes that when Participants better understand
their rights and obligations regarding DTC settlement services, they
can act in accordance with the Rules and Procedures. DTC believes that
better enabling Participants to comply with the Rules and the
Settlement Guide would promote the prompt and accurate clearance and
settlement of securities transactions. As such, DTC believes the
proposed rule change to make conforming and technical changes is
consistent with Section 17A(b)(3)(F) of the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

    Section 17A(b)(3)(D) of the Act requires, inter alia, that the
Rules provide for the equitable allocation of reasonable dues, fees,
and other charges among Participants.\34\ Pursuant to the proposed rule
change, DTC would establish a fee of $0.005 per item delivered or
received, which would be charged to the payor and the payee of an SFT
PD payment order. For the reasons set forth below, DTC believes that
the proposed fee for SFT PD payment orders would provide for the
equitable allocation of reasonable dues, fees, and other charges among
Participants. First, DTC believes that the proposed fee of $0.005 is
reasonable. DTC recognizes that the fee for SFT PD orders would be
significantly less than the $0.10 fee for SPOs, which are used by
Participants in connection with bilateral stock loan transactions. DTC
is proposing to establish this lower fee for SFT PD payment orders
because settling payment obligations for cleared SFTs would require a
higher volume of payment orders than would otherwise be required for
uncleared SFTs. More specifically, pursuant to the NSCC Proposed Rules,
NSCC SFT Counterparties would pay and collect Price Differentials at
the individual transaction level. In the bilateral world, mark-to-
market payments and collections on securities lending transactions are
typically done at the CUSIP level via SPOs, inclusive of all open
securities lending transactions of a given participant. Accordingly, it
is likely that there would be more SFT PD payment orders processed by
DTC in connection with SFTs than the amount of SPOs DTC would have
otherwise processed if those SFTs were bilateral, non-cleared
securities lending transactions. Therefore, as an initial matter, DTC
is proposing to charge the lower fee $0.005 for SFT PD payment orders
in an effort to maintain cost efficiency for both the cleared SFT
activity and the uncleared securities financing transactions of market
participants. As noted above,\35\ due to the lack of history for
cleared SFT activity, DTC cannot estimate at this time the average
number of SFT PD payment orders that would be processed and cannot,
therefore, quantify a precise fee. However, DTC believes that the
proposed fee of $0.005 is designed to take into account the imbalance
between the amount of payment orders that would be required for cleared
SFTs and the amount required for uncleared SFTs and is therefore
reasonable. DTC also believes that the proposed fee would be equitably
allocated because the fee would be charged to payors and payees per
item delivered or received in accordance with their use of SFT PD
payment orders and all such payors and payees would be treated equally
with respect to the fee. Accordingly, DTC believes that the proposed
rule change establishing a fee for the delivery and receipt of an SFT
PD payment order is designed to provide for the equitable

allocation of reasonable dues, fees, and other charges among
participants, consistent with Section 17A(b)(3)(D) of the Act, cited
above.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(D).
    \35\ See supra note 27.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    DTC does not believe that the proposed rule change to expand the
types of instructions that NSCC, as Special Representative of a
Participant that is a member of NSCC, can submit to DTC on behalf of
the Participant with respect to an Account of the Participant would
have an impact on competition.\36\ The proposed rule change is designed
to support the use of the NSCC SFT Service by NSCC SFT Counterparties
by providing a mechanism for NSCC to submit DVP instructions and SFT PD
payment orders to DTC, on behalf of a Participant that is an NSCC SFT
Counterparty, for the settlement of the NSCC SFT Counterparty's
obligations relating to a cleared SFT. The proposed rule change would
only affect Participants that are NSCC SFT Counterparties and would
apply to all such Participants equally. Therefore, DTC believes that
the proposed rule change to expand the types of instructions that NSCC,
as the Special Representative of Participants that are also members of
NSCC, can submit to DTC on behalf of a Participant with respect to an
Account of the Participant would not have an impact on competition.\37\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78q-1(b)(3)(I).
    \37\ Id.
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change to provide for
SFT PD payment orders and to establish a fee for SFT PD payment orders
would have an impact on competition.\38\ As discussed above, an SFT PD
payment order would provide Participants a way to utilize the
efficiency of the DTC payment order service to settle payments relating
to their cleared SFT activity. The establishment of the SFT PD payment
order would only affect Participants that are NSCC SFT Counterparties
and would apply to all such Participants equally. In addition, the
proposed fee for SFT PD payment orders would be charged to payors and
payees per their use of SFT PD payment orders and all such payors and
payees would be treated equally with respect to the fee. Therefore, DTC
believes that the proposed rule change to provide for SFT PD payment
orders and to establish a fee for SFT PD payment orders would not have
an impact on competition.\39\
---------------------------------------------------------------------------

    \38\ Id.
    \39\ Id.
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule changes to use modified
look-ahead processing for transactions to and from the NSCC SFT Account
would have an impact on competition.\40\ The proposed rule changes
would apply to all DVP and SFT PD transactions to and from the NSCC SFT
Account, and are designed to promote efficient processing of
transactions relating to SFTs cleared by NSCC. The proposed rule change
would only affect Participants that are NSCC SFT Counterparties and
would apply to all such Participants equally. Therefore, DTC believes
that the proposed rule change to use modified look-ahead processing for
transactions to and from the NSCC SFT Account would not have an impact
on competition.\41\
---------------------------------------------------------------------------

    \40\ Id.
    \41\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    DTC does not believe that the proposed rule change to make
conforming and technical changes to the Rules and the Settlement Guide
would have an impact on competition.\42\ Having clear and accurate
Rules and Settlement Guide would facilitate Participants' understanding
of the Rules and Settlement Guide and provide Participants with
increased predictability and certainty regarding their obligations
regarding DTC settlement services in connection with the NSCC SFT
Service. Therefore, DTC believes that the proposed rule change to make
conforming and technical changes to the Rules and the Settlement Guide
would not have an impact on competition.\43\
---------------------------------------------------------------------------

    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    DTC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
    All prospective commenters should follow the Commission's
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<EMAIL_ADDRESS>or<PHONE_NUMBER>.
    DTC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-DTC-2021-014 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-DTC-2021-014. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the

Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of DTC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-2021-014 and should be submitted on
or before September 1, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------

    \44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17077 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P


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

Commission Determination
    90. The tariff provision for the Midwest ISO ancillary services
market has been included in Appendix C and is available on the
Commission's Web site.\150\ The effective date of the tariff sheet with
the required tariff provision for the Midwest ISO ancillary services
market should match the start date of the Midwest ISO ancillary
services market accepted by the Commission.
---------------------------------------------------------------------------

    \150\ http://www.ferc.gov/industries/electric/gen-info/
mbr.tariff.asp.
---------------------------------------------------------------------------

F. Clarifications of the Commission's Regulations

    91. In Order No. 697-A, the Commission found that based on its
further consideration of the regulations, several provisions should be
changed to provide additional clarity.\151\
---------------------------------------------------------------------------

    \151\ Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 527.
---------------------------------------------------------------------------

Triggering Events for Change in Status Filings
Background
    92. In Order No. 697, the Commission adopted a regulation requiring
sellers to timely report to the Commission any change in status that
would reflect a departure from the characteristics the Commission
relied upon in granting market-based rate authority. In particular,
Sec.  35.42 specifies that a change in status includes, but is not
limited to, ``ownership or control of generation capacity that results
in net increases of 100 MW or more.'' \152\
---------------------------------------------------------------------------

    \152\ Id. P 528.
---------------------------------------------------------------------------

    93. Upon further consideration, in Order No. 697-A, the Commission
clarified that a change in status also includes long-term firm capacity
purchases that result in net increases of 100 MW or more. The
Commission explained that this is consistent with a seller's obligation
to include long-term firm capacity purchases in determining uncommitted
capacity, which is used in the indicative screens.\153\ The Commission
stated that revision to the regulation is appropriate because the
Commission's April 14 Order, reaffirmed in Order No. 697, stated that
uncommitted capacity is determined ``by adding the total nameplate or
seasonal capacity of generation owned or controlled through contract
and firm purchases, less operating reserves, native load commitments
and long-term firm sales.'' \154\ Thus, the Commission explained that
long-term firm capacity purchases that result in net increases of 100
MW or more are a ``departure from the characteristics the Commission
relied upon in granting market-based rate authority.'' Accordingly, the
Commission revised Sec.  35.42(a)(1) so that a change in status
includes, but is not limited to, ``ownership or control of generation
capacity and long-term firm purchases of generation capacity that
result in net increases of 100 MW or more.'' The Commission stated that
because sellers may not have been on notice that this was the
Commission's intent, it will not hold any sellers responsible for
failure to report such changes in status prior to the effective date of
this order, which will be 30 days after issuance in the Federal
Register.\155\
---------------------------------------------------------------------------

    \153\ Id. P 530 (citing April 14 Order, 107 FERC ] 61,018 at P
95, 100).
    \154\ Id. (citing Order No. 697, FERC Stats. & Regs. ] 31,252 at
P 38) (footnote omitted).
    \155\ Id. P 531.
---------------------------------------------------------------------------

Requests for Rehearing
    94. EPSA requests that the Commission clarify Order No. 697-A's
inclusion of long-term capacity purchases as a trigger for changes in
status filings.
    95. EPSA argues that although the Commission intended to provide
additional clarity, the Commission's new reference to ``long-term firm
capacity purchases'' is more confusing than illuminating. It argues
that capacity purchases, which are distinct from energy purchases, are
found primarily in RTOs/ISOs with forward capacity markets, and less
frequently, in bilateral transactions with load serving entities that
require additional capacity for planning purchases. EPSA asserts that
the April 14 Order, on which the Commission relies, appears to be both
broader in one respect than the new Sec.  35.42(a)(1) requirement, and
narrower in another. First, according to EPSA, the relevant portion of
the April 14 Order appears to address long-term energy and capacity
transactions, both of which fall into the ambit of firm purchases of
generation, while Order No. 697-A appears to focus solely on long-term
firm capacity purchases. Second, EPSA argues that the April 14 Order
appears to require the element of control in the calculation of
uncommitted capacity, while the modification to Sec.  35.42(a)(1)
promulgated in Order No. 697-A appears to place all `` `long-term firm
purchases of generation capacity' '' into the calculation, regardless
of control.\156\
---------------------------------------------------------------------------

    \156\ ESPA Rehearing Request at 28 (citing Order No. 697-A, FERC
Stats. & Regs. ] 31,268 at P 530-31).
---------------------------------------------------------------------------

    96. EPSA argues that to the extent the Commission intended to
include all long-term firm energy purchases in cumulating generation
increases, or to include all long-term firm capacity and energy
purchases regardless of control, this aspect of Order No. 697-A appears
inconsistent with the Commission's prior orders. Specifically, EPSA
asserts that in the Order No. 652 rehearing order, the Commission
clarified that `` `to the extent * * * a contract for a fixed quantity
delivered energy does not confer control, it need not be reported [as a
change in status].' '' \157\ EPSA also states that more recently, the
Commission concluded that the sale of a firm liquidated damages (LD)
energy product under the EEI Master Power Purchase and Sale Agreement
`` `would not reflect a departure from the characteristics the
Commission relied

upon in granting market-based rate authority and therefore would not
necessitate the filing of a change in status report' '' because the
product `` `by itself gives the purchaser only a right to receive
energy and thus no rights that would allow the purchaser to control
generation capacity.' '' \158\
---------------------------------------------------------------------------

    \157\ Id. at 29 (quoting Reporting Requirement for Changes in
Status for Public Utilities with Market-Based Rate Authority, 111
FERC ] 61,413, at P 12 (2005) (rehearing of Order No. 652).
    \158\ Id. (quoting Integrys Energy Group, Inc., 123 FERC ]
61,034, at P 11 (2008) (Integrys)).
---------------------------------------------------------------------------

    97. EPSA therefore requests guidance with respect to the following
questions in order to facilitate full compliance with the Commission's
change in status reporting regulations: (1) Does the change articulated
in Order No. 697-A require sellers to include only long-term firm
capacity purchases in their cumulative generation count for change-in-
status purposes, or are they to include long-term firm energy purchases
as well? (2) If sellers are to include only long-term firm capacity
purchases in their cumulative generation count, did the Commission
intend this terminology to encompass transactions in addition to the
traditional capacity purchases as outlined above? (3) If sellers are to
include long-term firm energy purchases in their cumulative generation
counts for change-in-status purchases, are they to include all long-
term firm energy purchases or only those that confer some element of
control, as implied by the Commission's April 14 Order, its order on
rehearing of Order No. 652, and in the recent Integrys decision? and
(4) If only contracts that confer control are to be included (whether
capacity only, or energy and capacity), are entities with market-based
rates permitted to exclude from their calculation those long-term firm
energy contracts that contain either liquidated damage provisions or
other provisions that permit the seller to retain a complete and
unrestricted right to choose a generating resource or a monetized
replacement resource? \159\
---------------------------------------------------------------------------

    \159\ Id. at 29-30.
---------------------------------------------------------------------------

    98. EPSA submits that how the Commission addresses these questions
will not only impact change in status reporting, but will also have
significant bearing on the data sellers assemble and analyze in their
updated market power analyses to the extent ``long-term firm
purchases'' and ``long-term firm sales'' (as listed on the Commission's
standard screen format for the pivotal supplier analysis) are no longer
limited to transactions which confer control, or alternatively are
limited to capacity purchases and sales only.\160\
---------------------------------------------------------------------------

    \160\ Id. at 30.
---------------------------------------------------------------------------

Commission Determination
    99. In response to the first question posed by EPSA regarding
whether Order No. 697-A requires sellers to include long-term energy
purchases in addition to long-term firm capacity purchases in their
cumulative generation count for change-in-status purposes, we find that
to the extent a contract for a fixed quantity of delivered energy does
not confer control, it need not be reported.\161\ Consistent with the
Commission's determination in Integrys that the sale of a ``Firm (LD)''
product, as defined in the EEI Master Power Purchase & Sale Agreement,
by itself gives the purchaser only a right to receive energy and thus
no rights that would allow the purchaser to control generation
capacity, we reiterate that the sale of the Firm (LD) product would not
reflect a departure from the characteristics the Commission relied upon
in granting market-based rate authority and therefore would not
necessitate the filing of a change in status report.\162\ We note that
in reaching this determination, the Commission relied on the
representations of Integrys Energy Group, Inc. that the purchaser under
a Firm (LD) product has no ability to withhold energy from the market
or otherwise use the product as part of a capacity withholding
strategy.\163\ For example, the Commission relied on the fact that the
purchaser cannot force the seller to back down the output of any
generator, and the fact that if the purchaser refuses to receive
delivery, that refusal does not keep the power from entering the market
because the seller has the right to resell the Firm (LD) product, as
well as to receive damages from the purchaser. However, to the extent a
long-term energy purchase would allow the purchaser to control
generation capacity, it needs to be reported. A determination of
whether a long-term firm energy purchase confers control over
generation capacity to the purchaser must be based on a review of the
totality of the circumstances on a fact-specific basis. Therefore,
sellers who are uncertain as to whether they must include long-term
energy purchases in their cumulative generation count because the facts
and circumstances surrounding their long-term energy purchase(s) differ
from the facts relied on by the Commission in the Integrys order will
need to obtain guidance from the Commission by making a filing at the
Commission. Sellers will need to provide information on the facts,
terms and circumstances concerning the long-term energy purchase(s) in
their filing. The Commission will evaluate each such filing on a case-
by-case basis and will make a determination based on those specific
facts and circumstances.
---------------------------------------------------------------------------

    \161\ Integrys, 123 FERC ] 61,034 at P 11 (regarding energy only
contracts in Reporting Requirement for Changes in Status for Public
Utilities with Market-Based Rate Authority, 111 FERC ] 61,413, at P
12 (2005) (rehearing of Order No. 652) the Commission concluded that
`` `to the extent * * * a contract for a fixed quantity of delivered
energy does not confer control, it need not be reported.' '').
    \162\ Id.
    \163\ Id. P 7.
---------------------------------------------------------------------------

    100. With regard to EPSA's second question concerning whether
sellers are to include only long-term firm capacity purchases in their
cumulative generation count, and whether the Commission intended this
terminology to encompass transactions in addition to traditional
capacity purchases, we clarify that as the Commission explained in
Integrys, where a purchase ``does not result in a transfer of control
of generation capacity to the purchaser'' it does not have to be
reported by the purchaser in a change in status report under the
Commission's regulations.\164\ However, we note that the Commission's
finding in Integrys was limited to the facts described by the Integrys
group, and was dependent on the specific terms and conditions for a
Firm (LD) product, as defined by the EEI Master Power Purchase and Sale
Agreement. Thus, as the Commission explained in Integrys, different or
additional facts, terms, or conditions could change the Commission's
analysis of whether other types of transactions transfer control of
generation capacity to the purchaser.\165\
---------------------------------------------------------------------------

    \164\ See id.
    \165\ Id.
---------------------------------------------------------------------------

    101. With regard to EPSA's third question (if sellers are to
include long-term firm energy purchases in their cumulative generation
counts for change in status purchases, are they to include all long-
term firm energy purchases or only those that confer some element of
control), we clarify that, as stated above, only long-term firm energy
purchases that confer some element of control must be included in a
seller's cumulative generation counts for change in status
reports.\166\ A long-term firm energy purchase by itself gives the
purchaser only a right to receive energy and thus no rights that would
allow the purchaser to control generation capacity.\167\ As explained
above, a determination of whether a long-term firm energy purchase
confers control

over generation capacity must be based on a review of the totality of
the circumstances on a fact-specific basis.
---------------------------------------------------------------------------

    \166\ Id. (citing Reporting Requirement for Changes in Status
for Public Utilities with Market-Based Rate Authority, 111 FERC ]
61,413 at P 12).
    \167\ Id.
---------------------------------------------------------------------------

    102. EPSA's fourth question (if only contracts that confer control
are to be included in their cumulative generation count (whether
capacity only, or energy and capacity), are entities with market-based
rates permitted to exclude from their calculation those long-term firm
energy contracts that contain either liquidated damage provisions or
other provisions that permit the seller to retain a complete and
unrestricted right to choose a generating resource or a monetized
replacement resource) requires a fact-specific determination. As the
Commission explained in Integrys, different or additional facts, terms,
or conditions could change the Commission's analysis. Thus, whether
long-term firm energy contracts that contain either liquidated damage
provisions or other provisions that permit the seller to retain a
complete and unrestricted right to choose a generating resource result
in a transfer control of generation capacity to the purchaser is an
issue to be determined on a case-by-case basis.\168\ We will not make a
generic finding on whether contracts with such provisions are exempt
from being included in a market-based rate seller's cumulative MW total
for change in status reports.\169\
---------------------------------------------------------------------------

    \168\ Id. Although EPSA also asked this question in connection
with contractual provisions that permit the seller to retain a
complete and unrestricted right to choose a ``monetized replacement
resource,'' EPSA does not define the term ``monetized replacement
resource'' in its rehearing request. As a result, we do not include
that term in our response above.
    \169\ Reporting Requirement for Changes in Status for Public
Utilities with Market-Based Rate Authority, 111 FERC ] 61,413, at P
12 (2005).
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III. Information Collection Statement

    103. The Office of Management and Budget (OMB) regulations require
that OMB approve certain information collection requirements imposed by
an agency.\170\ The Final Rule's revisions to the information
collection requirements for market-based rate sellers were approved
under OMB Control Nos. 1902-0234. While this order clarifies aspects of
the existing information collection requirements for the market-based
rate program, it does not add to these requirements. Accordingly, a
copy of this order will be sent to OMB for informational purposes only.
---------------------------------------------------------------------------

    \170\ 5 CFR 1320.11.
---------------------------------------------------------------------------

IV. Document Availability

    104. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    105. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
    106. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. E-mail the Public Reference Room at
<EMAIL_ADDRESS>
V. Effective Date

    107. Changes to Order No. 697-A adopted in this order on rehearing
will become effective January 29, 2009.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

0
In consideration of the foregoing, the Commission amends part 35
Chapter I, Title 18, Code of Federal Regulations, as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.

0
2. In Sec.  35.36, paragraph (a)(9) is revised to read as follows:

Sec.  35.36  Generally.

    (a) * * *
    (9) Affiliate of a specified company means:
    (i) Any person that directly or indirectly owns, controls, or holds
with power to vote, 10 percent or more of the outstanding voting
securities of the specified company;
    (ii) Any company 10 percent or more of whose outstanding voting
securities are owned, controlled, or held with power to vote, directly
or indirectly, by the specified company;
    (iii) Any person or class of persons that the Commission
determines, after appropriate notice and opportunity for hearing, to
stand in such relation to the specified company that there is liable to
be an absence of arm's-length bargaining in transactions between them
as to make it necessary or appropriate in the public interest or for
the protection of investors or consumers that the person be treated as
an affiliate; and
    (iv) Any person that is under common control with the specified
company.
    (v) For purposes of paragraph (a)(9), owning, controlling or
holding with power to vote, less than 10 percent of the outstanding
voting securities of a specified company creates a rebuttable
presumption of lack of control.
* * * * *

0
3. In Sec.  35.37, paragraph (e)(3) is revised to read as follows:

Sec.  35.37  Market power analysis required.

    (e) * * *
    (3) Physical coal supply sources and ownership or control over who
may access transportation of coal supplies.
* * * * *

    Note: The following appendix will not be published in the Code
of Federal Regulations.

Appendix C to Order No. 697-A

Required Provisions of the Market-Based Rate Tariff

Compliance With Commission Regulations

    Seller shall comply with the provisions of 18 CFR Part 35,
Subpart H, as applicable, and with any conditions the Commission
imposes in its orders concerning seller's market-based rate
authority, including orders in which the Commission authorizes
seller to engage in affiliate sales under this tariff or otherwise
restricts or limits the seller's market-based rate authority.
Failure to comply with the applicable provisions of 18 CFR Part 35,
Subpart H, and with any orders of the Commission concerning seller's
market-based rate authority, will constitute a violation of this
tariff.

Limitations and Exemptions Regarding Market-Based Rate Authority

    [Seller should list all limitations (including markets where
seller does not have market-based rate authority) on its market-
based rate authority and any exemptions from or waivers granted of
Commission regulations and include relevant cites to Commission
orders].

Seller Category

    Seller Category: Seller is a [insert Category 1 or Category 2]
seller, as defined in 18 CFR 35.36(a).

Include All of the Following Provisions That Are Applicable

Mitigated Sales

    Sales of energy and capacity are permissible under this tariff
in all balancing authority areas where the Seller has been granted
market-based rate authority. Sales of energy and capacity under this
tariff are also permissible at the metered boundary between the
Seller's mitigated balancing authority area and a balancing
authority area where the Seller has been granted market-based rate
authority provided: (i) Legal title of the power sold transfers at
the metered boundary of the balancing authority area; (ii) if the
Seller wants to sell at the metered boundary of a mitigated
balancing authority area at market-based rates, then neither it nor
its affiliates can sell into that mitigated balancing authority area
from the outside. Seller must retain, for a period of five years
from the date of the sale, all data and information related to the
sale that demonstrates compliance with items (i) and (ii) above.

Ancillary Services

RTO/ISO Specific--Include All Services the Seller Is Offering

    PJM: Seller offers regulation and frequency response service,
energy imbalance service, and operating reserve service (which
includes spinning, 10-minute, and 30-minute reserves) for sale into
the market administered by PJM Interconnection, L.L.C. (``PJM'')
and, where the PJM Open Access Transmission Tariff permits, the
self-supply of these services to purchasers for a bilateral sale
that is used to satisfy the ancillary services requirements of the
PJM Office of Interconnection.
    New York: Seller offers regulation and frequency response
service, and operating reserve service (which include 10-minute non-
synchronous, 30-minute operating reserves, 10-minute spinning
reserves, and 10-minute non-spinning reserves) for sale to
purchasers in the market administered by the New York Independent
System Operator, Inc.
    New England: Seller offers regulation and frequency response
service (automatic generator control), operating reserve service
(which includes 10-minute spinning reserve, 10-minute non-spinning
reserve, and 30-minute operating reserve service) to purchasers
within the markets administered by the ISO New England, Inc.
    California: Seller offers regulation service, spinning reserve
service, and non-spinning reserve service to the California
Independent System Operator Corporation (``CAISO'') and to others
that are self-supplying ancillary services to the CAISO.
    Midwest ISO: Seller offers regulation service and operating
reserve service (which include a 10-minute spinning reserve and 10-
minute supplemental reserve) for sale to the Midwest Independent
Transmission System Operator, Inc. (Midwest ISO) and to others that
are self-supplying ancillary services to Midwest ISO.

Third Party Provider

    Third-party Ancillary Services: Seller offers [include all of
the following that the seller is offering: Regulation Service,
Energy Imbalance Service, Spinning Reserves, and Supplemental
Reserves]. Sales will not include the following: (1) Sales to an RTO
or an ISO, i.e., where that entity has no ability to self-supply
ancillary services but instead depends on third parties; (2) sales
to a traditional, franchised public utility affiliated with the
third-party supplier, or sales where the underlying transmission
service is on the system of the public utility affiliated with the
third-party supplier; and (3) sales to a public utility that is
purchasing ancillary services to satisfy its own open access
transmission tariff requirements to offer ancillary services to its
own customers.

[FR Doc. E8-30757 Filed 12-29-08; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register: October 10, 2007 (Volume 72, Number 195)]
[Notices]
[Page 57556-57557]
[DOCID:fr10oc07-50]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 12858-000; FFP Project 16, LLC]

Notice of Application Accepted for Filing and Soliciting Motions
To Intervene, Protests, and Comments

October 2, 2007.
    Take notice that the following hydroelectric application has been
filed with the Commission and is available for public inspection:
    a. Type of Application: Preliminary Permit.
    b. Project No.: 12858-000.
    c. Date filed: July 25, 2007.
    d. Applicant: FFP Project 16, LLC.
    e. Name of Project: Forty Eight Mile Point Project.

    f. Location: The project would be located on the Mississippi River
in St. James and St. John The Baptist Parishes. The project uses no dam
or impoundment.
    g. Filed Pursuant to: Federal Power Act, 16 U.S.C. 791(a)-825(r)
    h. Applicant Contact: Mr. Dan Irvin, FFP Project 16, LLC, 69 Bridge
Street, Manchester, MA 01944, phone<PHONE_NUMBER>.
    i. FERC Contact: Robert Bell,<PHONE_NUMBER>.
    j. Deadline for filing comments, protests, and motions to
intervene: 60 days from the issuance date of this notice.
    All documents (original and eight copies) should be filed with:
Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426. Comments, protests, and
interventions may be filed electronically via the Internet in lieu of
paper; see 18 CFR 385.2001(a)(1)(iii) and the instructions on the
Commission's Web site under the ``e-Filing'' link. The Commission
strongly encourages electronic filings. Please include the project
number (P-12858-000) on any comments or motions filed.
    The Commission's Rules of Practice and Procedure require all
intervenors filing documents with the Commission to serve a copy of
that document on each person in the official service list for the
project. Further, if an intervenor files comments or documents with the
Commission relating to the merits of an issue that may affect the
responsibilities of a particular resource agency, they must also serve
a copy of the document on that resource agency.
    k. Description of Project: The proposed project consists of: (1)
2,950 proposed 20 kilowatt Free Flow generating units having a total
installed capacity of 59 megawatts, (2) a proposed transmission line;
and (3) appurtenant facilities. The FFP Project 16, LLC, project would
have an average annual generation of 258.42 gigawatt-hours and be sold
to a local utility.
    l. Locations of Applications: A copy of the application is
available for inspection and reproduction at the Commission in the
Public Reference Room, located at 888 First Street, NE., Room 2A,
Washington DC 20426, or by calling<PHONE_NUMBER>. This filing may also
be viewed on the Commission's Web site at http://www.ferc.gov using the

``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. For
assistance, call toll-free 1-866-208-3676 or e-mail
<EMAIL_ADDRESS>For TTY, call<PHONE_NUMBER>. A copy is

also available for inspection and reproduction at the address in item h
above.
    m. Individuals desiring to be included on the Commission's mailing
list should so indicate by writing to the Secretary of the Commission.
    n. Competing Preliminary Permit--Anyone desiring to file a
competing application for preliminary permit for a proposed project
must submit the competing application itself, or a notice of intent to
file such an application, to the Commission on or before the specified
comment date for the particular application (see 18 CFR 4.36).
Submission of a timely notice of intent allows an interested person to
file the competing preliminary permit application no later than 30 days
after the specified comment date for the particular application. A
competing preliminary permit application must conform with 18 CFR 4.30
and 4.36.
    o. Competing Development Application--Any qualified development
applicant desiring to file a competing development application must
submit to the Commission, on or before a specified comment date for the
particular application, either a competing development application or a
notice of intent to file such an application. Submission of a timely
notice of intent to file a development application allows an interested
person to file the competing application no later than 120 days after
the specified comment date for the particular application. A competing
license application must conform with18 CFR 4.30 and 4.36.
    p. Notice of Intent--A notice of intent must specify the exact
name, business address, and telephone number of the prospective
applicant, and must include an unequivocal statement of intent to
submit, if such an application may be filed, either a preliminary
permit application or a development application (specify which type of
application). A notice of intent must be served on the applicant(s)
named in this public notice.
    q. Proposed Scope of Studies under Permit--A preliminary permit, if
issued, does not authorize construction. The term of the proposed
preliminary permit would be 36 months. The work proposed under the
preliminary permit would include economic analysis, preparation of
preliminary engineering plans, and a study of environmental impacts.
Based on the results of these studies, the Applicant would decide
whether to proceed with the preparation of a development application to
construct and operate the project.
    r. Comments, Protests, or Motions to Intervene--Anyone may submit
comments, a protest, or a motion to intervene in accordance with the
requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211,
.214. In determining the appropriate action to take, the Commission
will consider all protests or other comments filed, but only those who
file a motion to intervene in accordance with the Commission's Rules
may become a party to the proceeding. Any comments, protests, or
motions to intervene must be received on or before the specified
comment date for the particular application.
    Comments, protests and interventions may be filed electronically
via the Internet in lieu of paper. See 18 CFR 385.2001 (a)(1)(iii) and
the instructions on the Commission's Web site under ``e-filing'' link.
The Commission strongly encourages electronic filing.
    s. Filing and Service of Responsive Documents--Any filings must
bear in all capital letters the title ``COMMENTS'', ``COMPETING
APPLICATION'', ``RECOMMENDATIONS FOR TERMS AND CONDITIONS'',
``PROTEST'', OR ``MOTION TO INTERVENE'', as applicable, and the Project
Number of the particular application to which the filing refers. Any of
the above-named documents must be filed by providing the original and
the number of copies provided by the Commission's regulations to: The
Secretary, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426. A copy of any motion to intervene must also be
served upon each representative of the Applicant specified in the
particular application.
    t. Agency Comments--Federal, state, and local agencies are invited
to file comments on the described application. A copy of the
application may be obtained by agencies directly from the Applicant. If
an agency does not file comments within the time specified for filing
comments, it will be presumed to have no comments. One copy of an
agency's comments must also be sent to the Applicant's representatives.

Kimberly D. Bose,
Secretary.
[FR Doc. E7-19900 Filed 10-9-07; 8:45 am]

BILLING CODE 6717-01-P