[Federal Register: November 23, 2005 (Volume 70, Number 225)]
[Notices]
[Page 70902-70907]
[DOCID:fr23no05-148]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52784; File No. SR-DTC-2005-08]

Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Approval of a Proposed Rule Change Relating to the New
Canadian Link Service

November 16, 2005.

I. Introduction

    On July 27, 2005, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') proposed rule
change SR-DTC-2005-08 pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'').\1\ On August 30, 2005, DTC amended the
proposed rule change. Notice of the proposal was published in the
Federal Register on September 26, 2005.\2\ No comment letters were
received. For the reasons discussed below, the Commission is granting
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 52471, (September 19,
2005), 70 FR 56196.
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II. Description

    The proposed rule change will allow participants of DTC and
participants of The Canadian Depository for Securities Limited
(``CDS'') (i) to clear and settle securities transactions in Canadian
dollars and (ii) to transfer or receive Canadian dollars without any

corresponding delivery or receipt of securities.

1. Overview of the Canadian-Link Service

    The proposed rule change creates a new DTC service, the Canadian-
Link Service, that will facilitate the clearance and settlement of
valued securities transactions and the transfer of funds denominated in
Canadian dollars between DTC's Participants using the Canadian-Link
Service (``Canadian-Link Participants'') and CDS Participants and
between Canadian-Link Participants and other Canadian-Link
Participants. Currently, DTC processes transactions in U.S. dollars
only. The Canadian-Link Service will:
    (1) Create a new link between DTC and CDS to leverage the existing
CDS infrastructure for clearing and settling valued securities
transactions and transferring funds in Canadian dollars so that DTC
will not have to replicate this infrastructure;
    (2) Apply enhanced DTC risk management controls to the transactions
processed for Canadian-Link Participants through the Canadian-Link
Service and will also subject DTC to CDS risk management controls,
which are similar in most respects to DTC risk management controls; and
    (3) Permit DTC Participants to concentrate their securities
positions at DTC and not bifurcate inventory between DTC and CDS or a
Canadian custodian.
    At the present time, CDS maintains a number of links with DTC and
the National Securities Clearing Corporation (``NSCC''). These links
include:
    (1) The American and Canadian Connection for Efficient Securities
Settlement (``ACCESS'') Service which enables CDS Participants to clear
and settle transactions with DTC Participants through omnibus accounts
maintained by CDS with DTC and NSCC.\3\ CDS Participants that use the
ACCESS Service are not participants or members of DTC or NSCC and CDS
does not maintain or sponsor individual accounts at DTC or NSCC for
such CDS Participants.
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    \3\ CDS has advised DTC that it has decided to terminate the
ACCESS Service and to transfer its users to the New York Link
Service. However, the ACCESS Service will continue to be available
to DTC Participants for free deliveries of securities to and from
CDS Participants.
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    (2) The New York Link Service which enables CDS Participants to
clear and settle transactions with DTC Participants through sponsored
accounts maintained by CDS with DTC and NSCC. Through such sponsored
accounts, CDS Participants may clear and settle transactions on a trade
for trade basis or on a continuous net settlement basis through the
facilities of DTC and NSCC.
    (3) The DTC Direct Link Service which enables CDS Participants to
clear and settle transactions with DTC Participants through sponsored
accounts maintained by CDS with DTC. Through such sponsored accounts,
CDS Participants may clear and settle their transactions on a trade for
trade basis through the facilities of DTC.
    At the present time, DTC maintains no comparable links with CDS
although DTC Participants may use the ACCESS Service of CDS for free
deliveries of securities to and from CDS Participants. With the
implementation of the Canadian-Link Service by DTC, Canadian-Link
Participants will have the same ability to clear and settle valued
securities transactions with CDS Participants and other Canadian-Link
Participants in Canadian dollars that CDS Participants now have to
clear and settle valued securities transactions with DTC Participants
in U.S. dollars. As noted above, this will be accomplished using the
existing CDS infrastructure for processing transactions in Canadian
dollars together with enhanced DTC risk management controls.

2. The DTC Omnibus Account

    DTC, as a participant of CDS, will maintain at CDS a ledger
consisting of a series of accounts, including a securities account to
record securities held by CDS for DTC and securities to be delivered by
DTC to CDS and a funds account to record the net amount of money owing
from time to time intraday between DTC and CDS. Such ledger and the
accounts included in the ledger are referred to collectively as the
``DTC Omnibus Account.''
    The DTC Omnibus Account will be subject to all CDS risk management
controls, including the full collateralization of securities
transactions, subject to appropriate haircuts, and limits on allowable
net debits. DTC will be the account party on the DTC Omnibus Account.
As a participant of CDS, DTC will be liable to CDS with respect to
transactions processed for Canadian-Link Participants through the DTC
Omnibus Account. Such obligations of DTC to CDS will in turn be matched
by the obligations of Canadian-Link Participants to DTC with respect to
such transactions. As an operational matter, DTC will act as a conduit
between Canadian-Link Participants and CDS by transmitting to CDS
information and instructions received from Canadian-Link Participants
and by transmitting to Canadian-Link Participants information and
instructions received from CDS. CDS and Canadian-Link Participants will
not have a direct relationship with each other.
    The DTC Omnibus Account will have its own (i) collateral
requirements and controls and net debit requirements and controls, (ii)
settlement obligations, and (iii) line of credit from a Canadian bank
that is a CDS Participant to secure the settlement obligations of DTC
to CDS. In accordance with the Rules and Procedures of CDS, DTC will be
a member of a credit ring with certain other CDS Participants.\4\
Although DTC will take instructions from Canadian-Link Participants
with respect to their transactions with CDS Participants through the
Canadian-Link Service, DTC will at all times maintain control over the
securities and funds credited to the DTC Omnibus Account.
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    \4\ CDS has advised DTC that (i) DTC will be required to be a
member of the Non-Contributing Receivers Credit Ring for Canadian
Dollar Settlements, (ii) the only claims that could be made against
DTC as a member of this credit ring involve very unusual events, and
(iii) no claim has ever been made by CDS against any member of this
credit ring.
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    Transactions will be processed in the CDS system on each day that
CDS is open for business (``CDS Business Day'') whether or not such day
is a day that DTC is open for business (``DTC Business Day'').

3. Transactions Processed Through the Canadian-Link Service

    Transactions between Canadian-Link Participants and CDS
Participants will be processed through the DTC Omnibus Account in
accordance with the Rules and Procedures of CDS. Canadian-Link
Participants will be able (i) to deliver securities to or receive
securities from CDS Participants against payment in Canadian dollars
and (ii) to transfer funds to or receive funds from CDS Participants in
Canadian dollars without any corresponding delivery or receipt of
securities.
    Transactions between Canadian-Link Participants and other Canadian-
Link Participants will be processed through accounts at DTC in
accordance with the Rules and Procedures of DTC. Canadian-Link
Participants will be able to (i) deliver securities to or receive
securities from other Canadian-Link Participants against payment in
Canadian dollars and (ii) transfer funds to or receive funds from other
Canadian-Link Participants in Canadian dollars without any
corresponding delivery or receipt of securities.

    For both transactions between Canadian-Link Participants and CDS
Participants processed through the DTC Omnibus Account and transactions
between Canadian-Link Participants and other Canadian-Link Participants
processed through accounts at DTC, there will be a single end-of-day
Canadian dollar money settlement between DTC and its Canadian-Link
Participants (``Canadian-Link Money Settlement''). For the transactions
between Canadian-Link Participants and CDS Participants processed
through the DTC Omnibus Account, there will be a separate end-of-day
Canadian dollar money settlement between CDS and DTC.

4. Eligibility of Participants and Securities

    All DTC Participants will be eligible to be Canadian-Link
Participants and use the Canadian-Link Service, provided that they
comply with (i) the Rules and Procedures of DTC, (ii) the Rules and
Procedures of CDS, and (iii) all agreements between DTC and CDS
relating to the participation of DTC in CDS. (Such agreements together
with the Rules and Procedures of CDS will be referred to as the
``Canadian-Link Documents'').
    DTC will determine what securities will be eligible for the
Canadian-Link Service (``Canadian-Link Securities''). Some securities
may be eligible for all purposes of the Canadian-Link Service and some
securities may be eligible only for limited purposes (e.g., clearance
and settlement through the facilities of CDS but only custody and asset
servicing through the facilities of DTC). In no case will a security be
eligible for the Canadian-Link Service if the issuer is on an OFAC list
of specially designated nationals and blocked persons or is
incorporated in a jurisdiction on an OFAC list of sanctioned countries.
As is the case with securities processed through the facilities of DTC,
it will be DTC rather than CDS that will monitor such compliance with
OFAC regulations.

5. Enhanced DTC Risk Management Controls

    Each Canadian-Link Participant will be required to make an
additional required cash deposit to the DTC Participants Fund
(``Canadian-Link Required Participants Fund Deposit''). The amount of
the Canadian-Link Required Participants Fund Deposit will be determined
by a formula that will be fixed by DTC and will be set forth in DTC's
procedures. For all purposes of the Rules and Procedures of DTC, the
Canadian-Link Required Participants Fund Deposit of a Canadian-Link
Participant will be considered a part of the Required Participants Fund
Deposit of such Participant and will secure all of the obligations of
such Participant to DTC, including transactions processed for such
Participant through the Canadian-Link Service and other transactions
processed by DTC for such Participant.
    Each Canadian-Link Participant will be assigned a net debit cap on
the transactions that may be processed for such Participant through the
Canadian-Link Service (``Canadian-Link Net Debit Cap''). The Canadian-
Link Net Debit Cap of a Canadian-Link Participant will be determined by
a formula that will be fixed by DTC and will be set forth in DTC's
procedures. Under existing DTC Rules, which will not be affected by new
DTC Rule 30, which governs the Canadian-Link Service, each DTC
Participant is assigned a Net Debit Cap on the transactions that may be
processed for such Participant through the facilities of DTC (i.e., a
limit on the negative funds balance that may from time to time be
incurred with respect to its Canadian-Link funds transactions). The
Canadian-Link Net Debit Cap of a Canadian-Link Participant and not its
Net Debit Cap will apply to the transactions of such Participant
processed through the Canadian-Link Service, including both
transactions with CDS Participants processed for such Participant
through the DTC Omnibus Account and transactions with other Canadian-
Link Participants processed for such Participant through accounts at
DTC. The Net Debit Cap of a Canadian-Link Participant and not its
Canadian-Link Net Debit Cap will apply to all other transactions
processed by DTC for such Participant.
    Each Canadian-Link Participant will have a single Collateral
Monitor with respect to transactions processed for such Participant
through the Canadian-Link Service and other transactions processed by
DTC for such Participant. For purposes of the Canadian-Link Service,
the Collateral Monitor of a Canadian-Link Participant will be adjusted
as follows:
    (1) Canadian dollar net credits from transactions processed for
such Participant through the Canadian-Link Service will be converted
into U.S. dollar equivalents and added to U.S. dollar net credits from
other transactions processed by DTC for such Participant;
    (2) Canadian dollar net debits from transactions processed for such
Participant through the Canadian-Link Service will be converted into
U.S. dollar equivalents and added to U.S. dollar net debits from other
transactions processed by DTC for such Participant;
    (3) The Collateral Value of Canadian-Link Securities delivered by
such Participant to CDS Participants through the DTC Omnibus Account
and the Collateral Value of Canadian-Link Securities delivered by such
Participant to other Canadian-Link Participants through accounts at DTC
will be converted into U.S. dollar equivalents and deducted from the
Collateral Value of the collateral of such Participant; and
    (4) Collateral Value in U.S. dollars will be given for Canadian-
Link Securities received by such Participant from other Canadian-Link
Participants but no Collateral Value will be given for Canadian-Link
Securities received by such Participant from CDS Participants unless
and until such securities are credited to an account of such
Participant at DTC.

6. Instructions for Transactions Processed Through the Canadian-Link
Service

    A Canadian-Link Participant may give DTC an instruction to clear
and settle a securities transaction or to effect a funds transaction
between such Participant and a CDS Participant as follows:
    (1) An instruction from a Canadian-Link Participant to DTC to clear
and settle a delivery of Canadian-Link Securities to a CDS Participant
will constitute an instruction for DTC (i) to report or to confirm as
appropriate the details of the transaction to CDS for processing in the
CDS system and (ii) to transfer the securities subject to such
instruction from an account of such Participant at DTC to the DTC
Omnibus Account for the purpose of making such delivery on the
settlement date;
    (2) An instruction from a Canadian-Link Participant to DTC to clear
and settle a receipt of Canadian-Link Securities from a CDS Participant
will constitute an instruction for DTC (i) to report or to confirm as
appropriate the details of the transaction to CDS for processing in the
CDS system and (ii) to transfer subject to CDS risk management controls
the securities subject to such instruction from the DTC Omnibus Account
to an account of such Participant at DTC on the settlement date;
    (3) An instruction from a Canadian-Link Participant to DTC with
respect to a payment of Canadian dollars to a CDS Participant without
any corresponding receipt of Canadian-Link Securities will constitute
an instruction for DTC to report or confirm as appropriate the details
of the transaction to CDS for processing in the CDS system; and

    (4) An instruction from a Canadian-Link Participant to DTC with
respect to a receipt of Canadian dollars from a CDS Participant without
any corresponding delivery of Canadian-Link Securities will constitute
an instruction for DTC to report or confirm as appropriate the details
of the transaction to CDS for processing in the CDS system.
    A Canadian-Link Participant may give DTC an instruction to clear
and settle a securities transaction or effect a funds transaction with
another Canadian-Link Participant as follows:
    (1) An instruction from a Canadian-Link Participant to DTC to clear
and settle a delivery of Canadian-Link Securities to another Canadian-
Link Participant will constitute an instruction for DTC (i) to match
the details of such transaction and (ii) if such details match, to
debit the securities from an account of the delivering Participant at
DTC and to credit the securities to an account of the receiving
Participant at DTC and (iii) credit the delivering Participant and to
debit the receiving Participant the contract price of the securities in
Canadian-Link Money Settlement;
    (2) An instruction from a Canadian-Link Participant to DTC to clear
and settle a receipt of Canadian-Link Securities from another Canadian-
Link Participant will constitute an instruction for DTC (i) to match
the details of such transaction and (ii) if such details match, to
credit the securities to an account of the receiving Participant at DTC
and to debit the securities from an account of the delivering
Participant at DTC, and (iii) to debit the receiving Participant and to
credit the delivering Participant the contract price of the securities
in Canadian-Link Money Settlement;
    (3) An instruction from a Canadian-Link Participant to DTC with
respect to the payment of Canadian dollars to another Canadian-Link
Participant without any corresponding receipt of Canadian-Link
Securities will constitute an instruction for DTC (i) to match the
details of such transaction and (ii) if such details match, to debit
the paying Participant and to credit the receiving Participant the
appropriate amount of funds in Canadian-Link Money Settlement;
    (4) An instruction from a Canadian-Link Participant to DTC with
respect to the receipt of Canadian dollars from another Canadian-Link
Participant without any corresponding delivery of Canadian-Link
Securities will constitute an instruction for DTC (i) to match the
details of such transaction and (ii) if such details match, to credit
the paying Participant and to debit the receiving Participant the
appropriate amount of funds in Canadian-Link Money Settlement.
    All valued securities transactions processed through the Canadian-
Link Service will be settled trade for trade on a delivery against
payment basis.

7. The Settlement of Transactions Processed Through the Canadian-Link
Service

    On each CDS Business Day, CDS will give DTC a recap of all
transactions processed for DTC through the DTC Omnibus Account on such
CDS Business Day and the net amount of money that CDS owes DTC or that
DTC owes CDS with respect to such transactions. In turn, DTC will give
each Canadian-Link Participant a recap of the transactions processed
for such Participant through the Canadian-Link Service on such CDS
Business Day, including transactions with CDS Participants processed
for such Participant through the DTC Omnibus Account and transactions
with other Canadian-Link Participants processed for such Participant
through accounts at DTC, and the net amount of money that DTC owes such
Participant or that such Participant owes DTC with respect to such
transactions. Then, in the following order, (i) Canadian-Link
Participants with net settlement debits will pay DTC the amounts of
such net settlement debits, (ii) DTC will pay CDS the amount of any net
settlement debit owing to CDS or CDS will pay DTC the amount of any net
settlement credit owing to DTC, and (iii) DTC will pay Canadian-Link
Participants with net settlement credits the amounts of such net
settlement credits. However, the amount of any net settlement credit
owing to a Canadian-Link Participant with respect to transactions
processed for such Participant through the Canadian-Link Service may be
withheld and applied to any obligation of such Participant to DTC or to
any obligation of DTC to another registered clearing agency with
respect to such Participant. DTC will not be required to make any
payment to Canadian-Link Participants with net settlement credits
unless and until DTC receives payment from all Canadian-Link
Participants with net settlement debits and payment of any net amount
of money that CDS owes DTC.
    If a Canadian-Link Participant fails to pay any Canadian dollar net
settlement debit with respect to the transactions processed for such
Participant through the Canadian-Link Service. DTC may apply the DTC
Participants Fund to cover any shortfall in its settlement obligations
to CDS. If the day of such default is a DTC Business Day, DTC may
either:
    (1) Declare such Participant to be a Defaulting Participant, in
which case DTC will have all of its rights and remedies under the Rules
and Procedures of DTC, including the right to sell or to pledge (i) all
securities credited to the DTC Omnibus Account at CDS for delivery to
the Defaulting Participant, which securities are owned by DTC until
they are paid for by the Participant, (ii) all securities provisionally
credited to an account of the Defaulting Participant at DTC against
payment, which securities are owned by DTC until they are paid for by
the Participant, and (iii) all securities which are designated as
additional Collateral by the Defaulting Participant pursuant to the
Rules and Procedures of DTC; or
    (2) Translate the amount of such Canadian dollar net settlement
debit into a U.S. dollar amount that will be added to or subtracted
from, as the case may be, the U.S. dollar net settlement debit or
credit of such Participant with respect to other transactions processed
for such Participant through the facilities of DTC on that day and if
as a result of this process such Participant has a net-net settlement
debit with respect to all transactions processed for such Participant
and fails to pay such net-net settlement debit to DTC, DTC may declare
such Participant to be a Defaulting Participant and will have all of
its rights and remedies under the Rules and Procedures of DTC,
including the rights and remedies described above.
    If the day of such default is not a DTC Business Day and as a
result the amount of such Canadian dollar net settlement debit cannot
be included in the calculation of the settlement obligations of such
Participant with respect to other transactions processed by DTC for
such Participant on that day, DTC will deem such Participant to be a
Defaulting Participant, and DTC will have all of its rights and
remedies under the Rules and Procedures of DTC, including the rights
and remedies described above. Any amounts withdrawn from the DTC
Participants Fund to cover a shortfall in the settlement obligations of
DTC to CDS will be restored to the Participants Fund (i) from any
payments subsequently received by DTC from the Defaulting Participant
and (ii) from any amounts derived by DTC from the operation of its
failure to settle procedures and loss allocation rules.

8. Additional Matters

    As a member of CDS, DTC must observe and comply with the Canadian-

Link Documents. Each Canadian-Link Participant, in order to use the
Canadian-Link Service, acknowledges that (i) all transactions processed
for such Participant though the facilities of CDS are subject to the
Canadian-Link Documents, (ii) the Canadian-Link Documents may include
grants of security interests in and liens on securities and funds in
the CDS system in which such Participant has an interest, (iii) there
are other provisions of the Canadian-Link Documents that could also
affect the interest of such Participant in such securities and funds,
and (iv) in the event of any conflict between the Rules and Procedures
of DTC, which are a contract between DTC and DTC Participants, and the
Canadian-Link Documents, which are a contract between DTC and CDS, the
requirements of the Canadian-Link Documents will prevail.

9. Fees

    DTC is proposing to charge its Canadian-Link Participants the
following fees. The fee schedule is set forth in section 23 of the
Canadian-Link Service Guide.\5\ All fees will be collected in U.S.
dollars through the existing U.S. dollar settlement system and will be
uniquely identified on the DTC U.S. dollar settlement statement bill.
The proposed fees are as follows:
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    \5\ Section 23 of the Canadian-Link Service Guide is attached as
Exhibit 2 to DTC's filed proposed rule change.
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(1) Deliver Order Fees
    DTC will charge $2.00 U.S. per submitted Canadian dollar delivery/
receive, recall transaction resulting from the automatic recall
process, cancel instruction, and modify instruction. DTC will not
charge for hold instructions of Canadian dollar deliveries/receives, DK
instructions, confirm instructions, or end-of-day sweep transactions.
(2) Payment Order Fees
    DTC will charge $2.00 U.S. per submitted Canadian dollar payment
order delivery/receive, cancel instruction, and modify instruction. DTC
will not charge for hold instructions of Canadian dollar payment order
deliveries/receives, DK instructions, or confirm instructions.
(3) Asset Servicing/Custody Fees
    DTC will charge for asset servicing and custody services on all
Canadian and U.S. securities at the existing DTC Asset Servicing/
Custody fees.

III. Discussion

    Section 17A of the Act sets forth the regulatory framework for the
national system for clearance and settlement of securities transactions
and provides the requirements a clearing agency must meet in order to
be registered with the Commission. Although the proposed rule change
concerns the linkage of DTC and CDS to facilitate the clearance,
settlement, and custody of Canadian securities and payments of Canadian
dollars by DTC participants, it is consistent with the general purpose
of section 17A to promote the perfection of a system for the prompt and
accurate clearance and settlement of securities transactions.
Furthermore, the proposed rule change is consistent with DTC's other
cross border services that link CDS with DTC to facilitate the
clearance and settlement of transactions executed by CDS participants
in U.S. dollars.
    Section 17A(a)(1)(D) of the Act provides in general that the
linking of clearance and settlement facilities and the development of
uniform standards and procedures for clearance and settlement reduces
unnecessary costs and increases the protection of investors and persons
facilitating transactions by and acting on behalf of investors.\6\ The
Canadian-Link Service will take advantage of existing connectivity
between DTC and CDS to increase efficiencies and to reduce costs for
DTC participants and ultimately investors with respect to the clearance
and settlement of Canadian dollar transactions. Additionally, new DTC
Rule 30 will establish detailed procedures for the Canadian-Link
Service that will provide certainty and reliability with respect to
these transactions and will apply to all Canadian-Link Participants. As
a result, the proposed rule change is consistent with the directives in
sections 17A(a)(1)(D) because it should reduce unnecessary costs by
providing increased efficiencies for DTC participants and because it
should create uniform standards for the clearance and settlement of
securities transactions by establishing procedures for Canadian dollar
transactions processed through DTC.
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    \6\ 15 U.S.C. 78q-1(a)(1)(D).
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    Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible. Most DTC participants currently clear and
settle their Canadian securities transactions in Canadian dollars by
using a custodian bank in Canada as a settlement agent at CDS. The
proposed rule change is designed to streamline the clearance and
settlement process of Canadian dollar transactions for DTC participants
by centralizing the process at DTC and by establishing rules and
procedures for Canadian Link Participants. By leveraging the existing
linkage between DTC and CDS, by using the existing rules and procedures
of DTC and CDS, and by establishing new rules and procedures for the
Canadian-Link Service, DTC has put in place sufficient procedures so
that it should be able to assure the safeguarding of securities and
funds which are in its custody or control or for which it is
responsible.
    The Commission also considered whether the fact that under the
proposal DTC will be required to become a member of a clearing agency
that is neither registered with nor regulated by the Commission (i.e.,
CDS) would be inconsistent with DTC's statutory obligations under
section 17A or would present unacceptable risks to DTC or its
participants. As a member of CDS and as an intermediary for its
Canadian-Link Participants, DTC will be subject to CDS's rules and
procedures and will bear the initial financial burden if CDS or a
Canadian-Link Participant fails to meet its settlement obligations.
Also, DTC will be required to be a member of CDS's Non-Contributing
Receivers Credit Ring. Accordingly, the Commission has focused part of
its review of DTC's proposal on CDS itself and on DTC's risk management
procedures related to the Canadian-Link Service.
    CDS is the sole central securities depository organized in the
Canadian market and is regulated in Canada at the Federal and
provincial level. CDS has been a member of DTC since 1979. As a
participant of DTC, CDS is required to meet DTC's financial and capital
requirements and is subject to DTC's risk management evaluation and
review.\7\ As a result, DTC has previously evaluated and is familiar
with CDS's financial and organizational soundness. CDS conducts its
clearance and settlement services pursuant to a published rulebook and
has risk management procedures in place that are similar to and in some
cases more conservative than DTC's risk management procedures. For
example, CDS requires that all positions be fully collateralized with a
bank line of credit, and it has limited membership

categories and credit rings so that a participant will not share in a
financial loss related to a service in which it does not participate.
Furthermore, DTC provided the Commission with the materials it used to
analyze the risks associated with the Canadian-Link Service and
represented that in its risk analysis it found neither any unacceptable
risk related to DTC becoming a member in CDS nor any other cause for
concern regarding the proposed rule change. Accordingly, the Commission
finds that neither DTC nor its participants should be exposed to any
undue risks or burdens as a result of DTC's membership in CDS or DTC's
offering the Canadian-Link Service.
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    \7\ CDS has also been a member of NSCC since 1984 and is subject
to NSCC's risk management evaluation and review.
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    Based on the DTC's history with CDS, the regulatory oversight and
risk management framework of CDS's operations, and the risk analysis
DTC performed with respect to the proposed rule change, the Commission
is satisfied that DTC has taken adequate steps to design the Canadian-
Link Service so that it can be offered by DTC in a manner that enables
DTC to assure the safeguarding of securities and funds which are in its
custody or control or for which it is responsible.

IV. Conclusion

    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 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 the proposed rule change (File No. SR-DTC-2005-08) be and hereby
is approved.

    For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6458 Filed 11-22-05; 8:45 am]

BILLING CODE 8010-01-P