[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78897-78904]
[FR Doc No: 2020-26787]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90546; File No. SR-DTC-2020-014]

Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change,
as Modified by Amendment No. 1, To Amend the Guide to the DTC Fee
Schedule

December 1, 2020.
    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 November 16, 2020, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change. On November 30, 2020, DTC filed Amendment No. 1 to the
proposed rule change, which revised a portion of the rule text and
corresponding description in the notice relating to DTC's current
policy regarding the issuance of rebates to Participants. DTC filed the
proposed rule change, as modified by Amendment No. 1, pursuant to
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\
The proposed rule change, as modified by Amendment No. 1, is described
in Items I, II, and III below, which Items have been prepared primarily
by DTC. The Commission is publishing this notice to solicit comments on
the proposed rule change, as modified by Amendment No. 1, from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change, as Modified by Amendment No. 1

    The proposed rule change, as modified by Amendment No. 1,\5\

consists of amendments to the Guide to the DTC Fee Schedule \6\ (``Fee
Guide'') to (i) revise and/or consolidate certain Fees charged to
Participants for certain settlement services,\7\ (ii) modify the
existing Participants Fund Maintenance Fee (``Maintenance Fee'') and
(iii) include a description of DTC's current policy regarding the
issuance of rebates to Participants, as described below.
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    \5\ Each capitalized term not otherwise defined herein has its
respective meaning as set forth the Rules, By-Laws and Organization
Certificate of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/fee-guides/dtcfeeguide.pdf.
    \7\ Pursuant to Rule 2, Section 1, each Participant shall pay to
DTC the compensation due it for services rendered to the Participant
based on DTC's fee schedules. See Rule 2, supra note 5.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change, as Modified by Amendment No. 1

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the proposed rule
change, as modified by Amendment No. 1, and discussed any comments it
received on the proposed rule change, as modified by Amendment No. 1.
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, as Modified by Amendment No. 1

1. Purpose
    The proposed rule change, as modified by Amendment No. 1, would
amend the Fee Guide to (i) revise and/or consolidate certain Fees
charged to Participants for certain settlement services, (ii) modify
the Maintenance Fee and (iii) include a description of DTC's policy
regarding the issuance of rebates to Participants, as described below.
Overview
    DTC is a central securities depository, and as such, provides a
central location in which Eligible Securities \8\ may be immobilized,
or through which Securities may be dematerialized, and interests, in
the form of Security Entitlements,\9\ in those Securities reflected in
Accounts maintained for Participants.\10\ DTC also provides for end-of-
day net funds settlement relating to these Deliveries.\11\
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    \8\ Pursuant to Rule 5, Section 1, an Eligible Security shall
only be a Security accepted by the Corporation, in its sole
discretion, as an Eligible Security. The Corporation shall accept a
Security as an Eligible Security only (a) upon a determination by
the Corporation that it has the operational capability and can
obtain information regarding the Security necessary to permit it to
provide its services to Participants and Pledgees when such Security
is Deposited and (b) upon such inquiry, or based upon such criteria,
as the Corporation may, in its sole discretion, determine from time
to time. See Rule 5, supra note 5. See also, DTC Operational
Arrangements Necessary for Securities to Become and Remain Eligible
for DTC Services (``OA''), available at http://www.dtcc.com/~/media/
Files/Downloads/legal/issue-eligibility/eligibility/operational-
arrangements.pdf.
    \9\ Pursuant to Rule 1, the term ``Security Entitlement'' has
the meaning given to the term ``security entitlement'' in Section 8-
102 of the New York Uniform Commercial Code. The interest of a
Participant or Pledgee in a Security credited to its Account is a
Security Entitlement. See Rule 1, supra note 5.
    \10\ See also DTC Disclosure Framework for Covered Clearing
Agencies and Financial Market Infrastructures, available at https://www.dtcc.com/-/media/Files/Downloads/legal/policy-and-compliance/DTC_Disclosure_Framework.pdf, at 5.
    \11\ See Rule 9(A), Rule 9(B), Rule 9(C) and Rule 9(D), supra
note 5, and Settlement Service Guide (``Settlement Guide''),
available at http://www.dtcc.com/~/media/Files/Downloads/legal/
service-guides/Settlement.pdf, at 17-30.
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    DTC operates a ``low cost'' pricing model and has in place
procedures to control costs and to regularly review pricing levels
against costs of operation. It reviews pricing levels against its costs
of operation typically during the annual budget process. The budget is
approved annually by the Board. DTC's fees are cost-based plus a
markup, as approved by the Board or management (pursuant to authority
delegated by the Board), as applicable. This markup of ``low margin''
is applied to recover development costs and operating expenses, and to
accumulate capital sufficient to meet regulatory and economic
requirements.
    After evaluation of DTC's short- and long-term financial position
in consideration of expected Participant activity, revenues, cost of
funding, market volatility, and the financial markets more broadly, DTC
has determined that it would be able to reduce the overall amount it
collects from Participants through fees relating to its settlement
services and still cover its costs and maintain the appropriate low
margin above costs. In this regard, the proposed rule change, as
modified by Amendment No. 1, would amend the Settlement Services
section \12\ of the Fee Guide to reduce and/or consolidate fees, as
described below.
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    \12\ See Fee Guide, supra note 6, at 19-21.
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    In addition, DTC proposes to (i) amend the Maintenance Fee \13\ and
(ii) add a description of DTC's current policy regarding the issuance
of fee rebates to Participants.
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    \13\ DTC has provided confidential info to the Commission in
connection with this proposed rule change to support the proposed
fee changes.
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Fee Revisions and Consolidations for Certain Settlement Services
Fee Reduction for Deliver Orders and Consolidation of Reclaim Fees With
the Deliver Order Fees
    A Participant may submit an instruction (``Deliver Order'') to DTC
to make a Delivery \14\ of Eligible Securities via book-entry to
another Participant's account.\15\ DTC reduces the Deliverer's \16\
position and increases the Receiver's \17\ position without the need to
move physical certificates. Deliveries can be made Delivery Versus
Payment \18\ or as a Free Delivery,\19\ depending on the applicable
Participant's delivery instructions provided in the Deliver Order.
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    \14\ Pursuant to Rule 1, the term Delivery, as used with respect
to a Security held in the form of a Security Entitlement on the
books of DTC, means debiting the Security from an Account of the
Deliverer and crediting the Security to an Account of the Receiver.
A Delivery may be a Delivery Versus Payment or a Free Delivery, or
both collectively, as the context may require. See Rule 1, supra
note 5.
    \15\ See Rule 9(B), supra note 5.
    \16\ Pursuant to Rule 1, the term ``Deliverer'', as used with
respect to a Delivery of a Security, means the Person which Delivers
the Security. See Rule 1, supra note 5.
    \17\ Pursuant to Rule 1, the term ``Receiver'', as used with
respect to a Delivery of a Security, means the Person which receives
the Security. See id.
    \18\ Pursuant to Rule 1, the term ``Delivery Versus Payment''
means a Delivery against a settlement debit to the Account of the
Receiver, as provided in Rule 9(A) and Rule 9(B) and as specified in
the Procedures. See Rule 1, supra note 5.
    \19\ Pursuant to Rule 1, the term ``Free Delivery'' means a
Delivery free of any payment by the Receiver through the facilities
of the Corporation, as provided in Rule 9(B) and as specified in the
Procedures. See id.
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    A Participant is charged a fee, named in the Fee Guide as ``Day
Deliver Order (excluding stock loans),'' (``Day Deliver Order Fee'') of
45 cents for a Deliver Order, except the charge is 17 cents for Deliver
Orders submitted by the Participant for processing in the night
cycle.\20\ The latter fee, named the ``Night

Deliver Order'' fee \21\ (``Night Deliver Order Fee''), is lower than
the former because it is designed to encourage earlier submission of
transactions by Participants, which results in more efficient
settlement processing by increasing the volume of transactions
processed in the night-cycle, which, in turn, enhances intraday
settlement processing.\22\
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    \20\ See Fee Guide, supra note 6, at 19. On the night before
settlement day (``S-1'') DTC commences ``night cycle'' processing.
During the night cycle, DTC operates a process (``Night Batch
Process'') that utilizes a settlement processing algorithm capable
of evaluating each Participant's transaction obligations, available
positions, transaction priorities and risk management controls.
Specifically, at approximately 8:30 p.m. on S-1, DTC subjects all
transactions eligible for processing to the Night Batch Process. The
Night Batch Process runs ``off-line'' (i.e., is not visible to
Participants), allowing DTC to run multiple processing scenarios
until the optimal processing scenario is identified. Once the
optimal scenario is identified, the results are incorporated back
into DTC's core processing environment on a transaction-by-
transaction basis prior to the start of daytime processing.
Transactions that have satisfied DTC's risk controls will be staged
for settlement. However, as was the case prior to this change, if a
transaction cannot satisfy DTC's control functions initially, then
it will recycle throughout the day, continuously attempting to
satisfy the controls until approximately 3:10 p.m. for valued
transactions and until 6:35 p.m. for free transactions. See
Settlement Guide, supra note 11 at 5 and 68.
    \21\ See id.
    \22\ See Securities Exchange Act Release No. 84768 (December 10,
2018), 83 FR 64401 (December 14, 2018) (File No. SR-DTC-2018-011).
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    The Receiver of the Delivery is charged 11 cents, regardless of
time, per receive. This fee is named in the Fee Guide as ``Receive,
regardless of time (excluding reclaims and stock loans and returns)''
\23\ (``Receive Fee''). The Participant may reclaim a Delivery that it
receives, meaning it enters an instruction for the Delivered Security
to be returned to the original Deliverer. The Deliverer and Receiver of
a reclaim are each charged 26 cents, referred to in the Fee Guide under
the name ``Reclaims'' (``Reclaim Fee'').
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    \23\ See Fee Guide, supra note 6, at 19.
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    Pursuant to the proposed rule change, as modified by Amendment No.
1, DTC would reduce the Day Deliver Order Fee from 45 cents to 40
cents. The proposed fee reflects an amount that would facilitate DTC's
ability, as discussed above, to reduce the overall fees DTC collects
from Participants relating to its settlement services and still cover
its costs and maintain the appropriate low margin above costs.
    In addition, DTC would eliminate the Reclaim Fee and consolidate
charges for reclaims into the Day Deliver Order Fee, Night Deliver
Order Fee and Receive Fee, as applicable for the given reclaim
activity. The fees as consolidated would replace the Reclaim Fee of 26
cents that, as mentioned above, is currently charged to the Deliverer
and Receiver of a reclaim. As such, a Participant submitting reclaim
instructions would incur the proposed Day Deliver Order Fee of 40
cents, except during the night cycle where it would incur the Night
Deliver Order Fee of 17 cents. All receives relating to reclaims would
cause the Receiver to be charged a Receive Fee of 11 cents per reclaim
received. The proposed consolidation of the Reclaim Fee with the other
fees relating to Deliver Orders and receives as described above, would
promote consistency and transparency within the Fee Guide by causing
Deliveries and receives to be charged for at one fee amount for each
Delivery and one fee amount for each receive, regardless of whether the
related Delivery was instructed as an original Deliver Order or as a
reclaim.
    In light of the consolidation of the Reclaim Fee into the Day
Deliver Order Fee, Night Deliver Order Fee and Receive Fee, as
applicable for the given reclaim activity, the Fee Guide would be
revised such that the three latter fees would be renamed to reflect the
inclusion of reclaims and the Reclaim Fee would be removed.
    As a result of the above described proposed changes, the Fee Guide
entries for the Day Deliver Order Fee, Night Deliver Order Fee and
Receive Fee would be revised and the Reclaim Fee would be deleted, as
follows (Bold, italicized text indicates additions, Bold, strikethrough
text indicates deletions):
[GRAPHIC] [TIFF OMITTED] TN07DE20.025

    For clarity regarding the changes relating to the consolidation of
the Reclaim Fee into other fees as described above, the following chart
compares the charges Participants incur for a given reclaim pursuant to
the current Fee Guide and the charge that would be incurred pursuant to
the proposed rule change, as modified by Amendment No. 1.

----------------------------------------------------------------------------------------------------------------
                                                                         Proposed fee under
            Reclaim               Current fee name     Current fee     which reclaim would be     Proposed fee
                                                          amount         charged (proposed)          amount
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Daytime Reclaim Delivery         Reclaims.........  26 cents.........  Day deliver order       40 cents.
 Instruction.                                                           (including reclaims;
                                                                        excluding stock
                                                                        loans).
Night Delivery Reclaim           Reclaims.........  26 cents.........  Night deliver order     17 cents.
 Instruction.                                                           (including reclaims).
Reclaim Receive (Regardless of   Reclaims.........  26 cents.........  Receive, regardless of  11 cents.
 Time).                                                                 time (including
                                                                        reclaims; excluding
                                                                        stock loans and
                                                                        returns).
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    As a result of its review of pricing levels against costs of
operation, DTC believes that the proposed fee changes would enable DTC
to offset its cost and expense while generating a low margin.
Fee Reduction for Deliveries and Receives of Securities to and From CNS
and Consolidation of Existing Fee for ACATS Deliveries and Receives
With the Reduced Fee
    Another important use of DTC book-entry transfer services is the
interface of DTC with its affiliate National Securities Clearing
Corporation (``NSCC'') for the processing of trades that are cleared
and settled in the NSCC Continuous Net Settlement (``CNS'') system and
are processed as Free Deliveries at DTC.\24\ DTC also processes Free
Deliveries as instructed by NSCC to DTC relating to NSCC's Automated
Customer Account Transfer Service (``ACATS'').\25\
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    \24\ See Settlement Guide, supra note 11, at 15-17.
    \25\ See id. at 17.
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    A Participant is charged 16 cents for the Delivery of a Security to
the NSCC CNS account at DTC (``CNS Account'') on the Participant's
behalf.\26\ Likewise, the receiving Participant of a Security from the
CNS Account is charged 16 cents for the Delivery of the Securities from
the CNS Account to its account.\27\ This fee is named in the Fee Guide
as ``Delivery to/from CNS.'' \28\
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    \26\ See Fee Guide, supra note 6, at 19.
    \27\ Id.
    \28\ Id.
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    Separately, a Participant is charged 12 cents if it is Delivering
or Receiving a Delivery from ACATS.\29\ This fee is named in the Fee
Guide as ``Delivery to/from CNS ACAT.'' This fee would be consolidated
into a modified Delivery to/from CNS ACAT fee, as described below.
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    \29\ Id.
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    Specifically, pursuant to the proposed rule change, as modified by
Amendment No. 1, DTC would reduce the Delivery to/from CNS fee from 16
cents to 7 cents. In addition, the Delivery to/from CNS ACAT fee would
be consolidated into the proposed reduced Delivery to/from CNS fee, and
thus would reduce the charge for ACATS-related deliveries and receives
from 12 cents to 7 cents. This proposed fee change reflects an amount
that would facilitate DTC's ability, as discussed above, to reduce the
overall fees DTC collects from Participants relating to its settlement
services and still cover its costs and maintain the appropriate low
margin above costs.
    As a result of the above described proposed changes, the text of
the Fee Guide relating to these fees would be revised as follows (Bold,
italicized text indicates additions, Bold, strikethrough text indicates
deletions):
[GRAPHIC] [TIFF OMITTED] TN07DE20.026

    As a result of its review of pricing levels against costs of
operation, DTC believes that these proposed fee amounts would enable
DTC to offset its cost and expense while generating a low margin.
Participants Fund Maintenance Fee
    The Maintenance Fee was implemented in 2016 in order to (i)
diversify DTC's revenue sources, mitigating its dependence on revenues
driven by settlement volumes, and (ii) add a stable revenue source that
would contribute to DTC's operating margin by offsetting increasing
costs and expenses.\30\ The fee is charged to all Participants in
proportion to the Participant's Actual Participants Fund Deposit, as
described below.
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    \30\ Securities Exchange Act Release No. 78530 (August 10,
2016), 81 FR 54639 (August 16, 2016) (SR-DTC-2016-006).
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    The Maintenance Fee is calculated monthly, in arrears, as the
product of (A) 0.25 percent and (B) the average of the Participant's
Actual Participants Fund Deposit as of the end of each day, for the
month, multiplied by the number of days in that month and divided by
360. However, by its terms, the fee is waived if the monthly rate of
return on DTC's investment of the Participants Fund is less than 0.25
percent for the month (``Waiver Provision'').
    The Waiver Provision was included for the benefit of Participants.
DTC believed that if its monthly rate of return on the investment of
the

Participants Fund was less than 0.25 percent, then Participants would
likely be experiencing similarly low interest income on their deposits,
including excess reserves, if applicable; in which case, DTC would
waive the fee. Although this approach exposed DTC to the risk of not
receiving revenue from the Maintenance Fee, DTC did not believe that
such an exposure would be common, significant, or long-term.
Proposed Modification to the Maintenance Fee
    Due to the coronavirus global pandemic and overall reaction by the
financial markets, the rate of return on DTC's investment of the
Participants Fund has fallen below 0.25 percent, triggering the Waiver
Provision. However, application of the Waiver Provision in this
instance has proven to be longer and more significant than what DTC
originally contemplated when drafting the provision, resulting in a
drop in DTC's revenues. If unaddressed, DTC's revenue could continue to
deteriorate and negatively impact DTC's long-term financial health.
    To address this issue, DTC is removing the Waiver Provision so that
DTC will be able to generate revenue from the Maintenance Fee even if
DTC's monthly rate of return on the investment of the Participants Fund
is less than 0.25 percent. The ability to generate such revenue under
such circumstances is important in helping DTC offset its costs and
expenses in any economic environment. Additionally, the proposed change
would help provide consistent pricing between DTC and its affiliate
clearing agencies, NSCC and Fixed Income Clearing Corporation
(``FICC''),\31\ as both NSCC and FICC have filed proposed rule changes
concurrently with this filing that would result in the same calculation
of their respective Maintenance Fee.\32\
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    \31\ The Depository Trust & Clearing Corporation is the parent
company of DTC, NSCC, and FICC. DTCC operates on a shared services
model for DTC, NSCC, and FICC. Most corporate functions are
established and managed on an enterprise-wide basis pursuant to
intercompany agreements under which it is generally DTCC that
provides a relevant service to DTC, NSCC, or FICC.
    \32\ See NSCC File No. SR-NSCC-2020-018 and FICC File No. SR-
FICC-2020-014 available at https://www.dtcc.com/legal/sec-rule-filings.
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    To effectuate the proposed change described above, the Maintenance
Fee entry in the Settlement Services section of the DTC Fee Guide \33\
would be updated to remove the Waiver Provision.
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    \33\ See Fee Guide, supra note 6 at 21.
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Rebate Policy
    DTC is also proposing to amend the Fee Guide to include a
description of its current policy regarding the issuance of rebates to
Participants. DTC views its practice of providing a rebate to its
Participants as a corporate function, and not related to its operation
as a self-regulatory organization. A DTC rebate is essentially a return
of the revenue that DTC collects through the fees it charges
Participants for its services (as set forth in the Fee Guide). Rebates
are not related to the amounts Participants deposit with DTC as their
Participants Fund Deposit. The determination to provide a rebate is
made at the corporation-level, based on a number of factors and
considerations, as described below, and is not a separate determination
made for each individual Participant.
    Following the financial recession of 2008, DTC ceased providing
such discounts in connection with the implementation of a financial
strategy to strengthen its financial position and health. As a result
of that strategy and improved financial markets, in 2019, DTC
determined to reinstitute its practice of discounting Participants'
invoices, in the form of a rebate, based on its financial performance.
In connection with this decision, DTC is proposing to include a
description of its current rebate practice in the Fee Guide. This
proposed change would not change DTC's rebate practice but would
provide Participants with transparency into this practice and the
governance around rebates.
    First, the proposed language would describe that DTC may provide
Participants with a rebate of excess net income, and would define
excess net income as income of either DTC or income related to one
business line of DTC after application of expenses, capitalization
costs, and applicable regulatory requirements. The language would also
state that a rebate is discretionary, and DTC is not obligated to
provide a rebate.
    Second, the proposed language would state that a rebate would be
approved by the Board. The proposed language would also state that, in
determining if a rebate is appropriate, the Board would consider, one
or more of the following, as appropriate: DTC's regulatory capital
requirements,\34\ anticipated expenses, investment needs, anticipated
future expenses with respect to improvement or maintenance of DTC's
operations, cash balances, financial projections, and appropriate level
of shareholders' equity.
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    \34\ DTC manages its general business risk by holding sufficient
liquid net assets funded by equity to cover potential general
business losses so it can continue operations and services as going
concerns if those losses materialize, in compliance with the
requirements of Rule 17Ad-22(e)(15). 17 CFR 240.17Ad-22(e)(15). DTC
maintains a Clearing Agency Policy on Capital Requirements which
defines the amount of capital it must maintain for this purpose and
sets forth the manner in which this amount is calculated. See
Securities Exchange Act Release No. 89361 (July 21, 2020), 85 FR
45263 (July 27, 2020) (SR-DTC-2020-010) (amending original filing).
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    Third, the proposed language would state that, if it determined to
issue a rebate, the Board would set a rebate period and a rebate
payment date, both of which are used to determine which Participants
are eligible for a rebate. The proposed language would state that
Participants that maintain their membership during all or a portion of
the rebate period and on the rebate payment date are eligible for a
rebate.
    Finally, the proposed language would describe how rebates are
applied to the invoices of eligible Participants. The proposed language
would state that rebates are applied to all eligible Participants, on a
pro-rata basis, based on such Participants' gross fees paid to DTC
within the applicable rebate period, excluding pass-through fees and
interest earned on Participants Fund Deposits. The proposed language
would also state that rebates are applied to eligible Participants'
invoices on the rebate payment date as either a reduction in fees or,
if fees owed are lower than the allocated rebate amount, a payment of
such difference. The proposed language would also note that rebate
amounts may be adjusted for miscellaneous charges and discounts.
Participant Impact
    The proposed rule change, as modified by Amendment No. 1, is
expected to increase DTC's annual revenue by approximately $12.7
million.
    In general, DTC anticipates that the proposal would result in fee
decreases for approximately 63% of impacted affiliated families of
Participants and fee increases for approximately 37% of impacted
affiliated families of Participants. Of the impacted affiliated
families of Participants that may have their fees decrease, 25% of
impacted affiliated families of Participants would have a decrease of
less than $1,000, 49% of impacted affiliated families of Participants
would have a decrease of between $1,000 and $100,000, and 26% of
impacted affiliated families of Participants would have a decrease
greater than $100,000.

Participant Outreach
    DTC has conducted ongoing outreach to each Participant in order to
provide them with notice of the proposed changes and the anticipated
impact for the Participant. As of the date of this filing, no written
comments relating to the proposed changes have been received in
response to this outreach. The Commission will be notified of any
written comments received.
Implementation Timeframe
    DTC would implement this proposal on January 1, 2021. As proposed,
a legend would be added to the Fee Structure stating there are changes
that have become effective upon filing with the Commission but have not
yet been implemented. The proposed legend also would include a date on
which such changes would be implemented and the file number of this
proposal, and state that, once this proposal is implemented, the legend
would automatically be removed from the Fee Structure.
2. Statutory Basis
    DTC believes this proposal is consistent with the requirements of
the Act, and the rules and regulations thereunder applicable to a
registered clearing agency. Specifically, DTC believes the proposed
changes to modify certain settlement service fees and the Maintenance
Fee, as described above, are consistent with Section 17A(b)(3)(D) of
the Act,\35\ for the reasons described below. DTC believes that the
proposed change to include a description of DTC's current policy
regarding the issuance of rebates to Participants is consistent with
Rule 17Ad-22(e)(23)(ii),\36\ as promulgated under the Act, for the
reasons described below.
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    \35\ 15 U.S.C. 78q-1(b)(3)(D).
    \36\ 17 CFR.17Ad-22(e)(23)(ii).
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    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.\37\ For the reasons set forth
below, DTC believes that each of the proposed rule changes, as modified
by Amendment No. 1, described above would provide for the equitable
allocation of reasonable dues, fees, and other charges among
Participants.
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    \37\ 15 U.S.C. 78q-1(b)(3)(D).
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    DTC believes the proposed rule change to (i) reduce the Day Deliver
Order Fee and consolidate the Reclaim Fee into the Day Deliver Order
Fee, Night Deliver Order Fee and Receive Fee, as applicable, and (ii)
reduce the Delivery to/from CNS fee and consolidate the CNS ACAT-
related fee into the Delivery to/from CNS fee as described above, would
provide for the equitable allocation of reasonable fees. Because the
proposed change would not alter how these fees are charged to
Participants, DTC believes that the fees would continue to be equitably
allocated because they would continue to be charged based on volume of
transaction activity for a given Participant. More specifically, as
mentioned above, the Day Deliver Order Fee and the Night Deliver Order
Fee are charged based on a Participant's volume of Deliveries during
the applicable timeframes, as described above. As such, and as is
currently the case, Participants that provide a greater number of
Delivery instructions, or receive a greater number of Deliveries, would
generally be subject to a higher overall charge for Deliveries and/or
Receives, as applicable, based on volume of related transactions.
Conversely, Participants that make fewer Deliveries and or receive few
Deliveries would generally be a smaller overall charge for Deliveries
and receives based on volume.
    Similarly, DTC believes that the Day Deliver Order Fee, Night
Deliver Order Fee, Receive Fee, and the Delivery to/from CNS fee would
continue to be reasonable fees under the proposed change described
above. As described above, the fee amounts as proposed reflect an
amount that would facilitate DTC's ability, as discussed above, to
reduce the overall fees DTC collects from Participants relating to its
settlement services and still cover its costs and maintain an
appropriate low margin above costs. For this reason, DTC believes that
the proposed rule change to (i) reduce the Day Deliver Order Fee and
consolidate the Reclaim Fee into the Day Deliver Order Fee, Night
Deliver Order Fee and Receive Fee as applicable, and (ii) reduce the
Delivery to/from CNS fee and consolidate the ACATS-related fee into the
Delivery to/from CNS fee, as described above, would be reasonable fees
charged by DTC for these services and is consistent with Section
17A(b)(3)(D) of the Act.\38\
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    \38\ Id.
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    DTC believes that the proposed change to the Maintenance Fee is
consistent with this provision of the Act.\39\
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    \39\ Id.
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    As described above, the proposal would modify the Maintenance Fee
to remove the Waiver Provision. Because the proposed change would not
alter how the Maintenance Fee is currently allocated (i.e., charged) to
Participants, DTC believes the fee would continue to be equitably
allocated. More specifically, as mentioned above, the Maintenance Fee
is and would continue to be charged to all Participants in proportion
to the Participant's average monthly Actual Participants Fund Deposits.
As such, and as is currently the case, Participants that make greater
use of DTC's services would generally be subject to a larger
Maintenance Fee because such Participants would typically be required
to maintain larger Participants Fund deposits pursuant to the
Rules.\40\ Conversely, Participants that use DTC's services less would
generally be subject to a smaller Maintenance Fee because such
Participants would typically be required to maintain smaller
Participants Fund deposits pursuant to the Rules.\41\ The described
change would not adjust that allocation. For this reason, DTC believes
the Maintenance Fee would continue to be equitably allocated among
Participants.
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    \40\ See Rule 4, Rules, supra note 5.
    \41\ Id.
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    Similarly, DTC believes that the Maintenance Fee would continue to
be a reasonable fee under the proposed change described above. Although
removal of the Waiver Provision means that Participants could be
assessed a Maintenance Fee at times when they may not otherwise have
been assessed the fee, the removal of the provision would enable DTC to
collect needed revenue from the fee even in a difficult economic
environment. Additionally, the proposed change would help establish
consistent pricing between DTC and its affiliates, NSCC and FICC,
regarding each of their respective Maintenance Fees, as concurrent
proposals by NSCC and FICC would result in the same calculation.\42\
For this reason, DTC believes the Maintenance Fee would continue to be
reasonable.
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    \42\ See supra note 32.
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    Based on the forgoing, DTC believes the proposed rule change
relating to the modification of certain settlement service fees and the
Maintenance Fee, as described above, is consistent with Section
17A(b)(3)(D).\43\
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    \43\ 15 U.S.C. 78q-1(b)(3)(D).
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    Rule 17Ad-22(e)(23)(ii) under the Act requires that DTC establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide sufficient information to enable
participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency.\44\ The proposed change would add to the Fee Guide a

description of DTC's current rebate practice, which, when applicable,
results in a reduction to the amount of fees a Participant owes to DTC.
By updating the Fee Guide with a transparent description of DTC's
rebate practice, the proposed change would provide Participants with
sufficient information to evaluate the fees they may incur by
participating in DTC. Therefore, DTC believes the proposed change would
be consistent with the requirements of Rule 17Ad-22(e)(23)(ii).\45\
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    \44\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \45\ Id.
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(B) Clearing Agency's Statement on Burden on Competition Fee Revisions
and Consolidations for Certain Settlement Services

    DTC believes that the proposed rule change to reduce the Day
Deliver Order Fees and the Delivery to/from CNS fee may promote
competition among its Participants because the effect of the
consolidations, as proposed, would result in a reduction of the
applicable fees, as described above.
    The consolidation of fees, as described above, except for the
consolidation of the Reclaim Fee into the Day Deliver order fee for
applicable activity (reclaims that do not occur in the night cycle),
may promote competition among Participants because the effect of the
consolidations, as proposed, would result in a reduction of the
applicable fees, as described above.
    The proposed change to consolidate the Reclaim Fee into the Day
Deliver Order Fee for applicable activity (reclaims that do not occur
in the night cycle) may present a competitive burden among Participants
because this change could increase the fees of those Participants that
instruct a reclaim in that a Reclaim that would be charged at the
amount of 26 cents under the current Fee Schedule would be charged at
40 cents per reclaim under the proposal. DTC does not believe the
proposed change in and of itself would mean that the burden on
competition among Participants is significant. This is because even
though the amount of the fee increase may seem significant, DTC
believes the increase in fees would similarly affect all Participants
that utilize DTC's services and be reflective of each Participant's
individual activity at DTC, and therefore the burden on competition
would not be significant. Regardless of whether the burden on
competition is deemed significant, DTC believes any burden that is
created by the proposed change would be necessary and appropriate in
furtherance of the purposes of the Act, as permitted by Section
17A(b)(3)(I) of the Act.\46\
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    \46\ 15 U.S.C. 78q-1(b)(3)(I).
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    The burden would be necessary because a Reclaim is a functional
equivalent of a Deliver Order except that it represents a Delivery to
return Securities rather than representing the original Delivery of
Securities, and therefore should be charged at the same rate as a
Deliver Order. The burden would be appropriate because a reclaim is the
functional equivalent of a Delivery and DTC believes a reclaim should
now be priced the same as other Deliveries given the capability of a
Receiver via the Receiver Authorized Delivery (``RAD'') functionality
to return Deliveries prior to processing and a reduced need for
Receivers to rely on reclaims to return Deliveries to its Account, as
described below. In this regard, RAD enables a Receiver of valued
deliveries of securities to manage which deliveries to accept, or to
reject, prior to further processing by DTC.\47\ Specifically, whereas
prior to a series of earlier rule changes, transactions below an
established dollar value could bypass the RAD control, today all valued
transactions are subject to RAD, whereby a Participant can prevent any
such Deliveries to its account.\48\ Therefore, a Receiver is able to
approve all Deliveries to its account through RAD and there is less
likelihood that a Participant would need to rely on reclaims to remedy
an errant instruction by a counterparty to make a Delivery to its
account.
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    \47\ See Settlement Guide, supra note 11 at 5 and 54.
    \48\ See Securities Exchange Act Release Nos. 72576 (July 9,
2014), 79 FR 41355 (July 15, 2014) (SR-DTC-2014-06); and 73804
(December 10, 2014), 79 FR 74796 (December 16, 2014) (SR-DTC-2014-
010).
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Maintenance Fee
    DTC does not believe that the proposed change to the Maintenance
Fee would have an impact on competition among its Participants. As
described above, the Maintenance Fee is charged ratably based on
Participants' use of DTC's services, as reflected in Participants'
Actual Participant Fund Deposits. Thus, the fee is designed to be
reflective of each Participant's individual activity at DTC.
Nevertheless, if removal of the Waiver Position, and the resulting
imposition of the Maintenance Fee at a time when a Participant would
not have otherwise been assessed the fee, would create a competitive
burden for a Participant, DTC believes such a burden would not be
significant, given that the amount assessed would be the same but for
application of the Waiver Provision. Moreover, DTC believes that any
such burden would be necessary and appropriate in furtherance of the
purposes of the Act, as permitted by Section 17A(b)(3)(I) of the
Act.\49\
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    \49\ 15 U.S.C. 78q-1(b)(3)(I).
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    The burden would be necessary because it is essential that DTC
offset some of its costs and expenses with stable revenue generated
from the Maintenance Fee, regardless of the economic environment. As
described above, not doing so could adversely affect DTC's financial
health. The burden would be appropriate because, as described above,
the Maintenance Fee is calculated, using a balanced formula, to assess
a fee that is reflective of the Participant's use of DTC's services, so
that DTC can defray some of its costs and expenses in providing those
services.
Rebate Policy
    DTC does not believe the proposed change to describe its current
rebate practice would have any impact, or impose any burden, on
competition among its Participants. As described above, this proposed
rule change, as modified by Amendment No. 1, would include a
description of DTC's current rebate practice in the Fee Guide. As
described in the proposed language, under its current practice, rebates
are allocated to eligible Participants pro-rata based on such
Participants' gross fees paid to DTC within the applicable rebate
period. Therefore, the current practice is applied equally to all
eligible Participants. The proposed change to provide Participants with
transparency into this practice would not cause any increase or
decrease in the rebates Participants may receive. Therefore, this
proposed rule change, as modified by Amendment No. 1, would not have
any impact, or impose any burden, on competition among Participants.

(C) Clearing Agency's Statement on Comments on the Proposed Rule
Change, as Modified by Amendment No. 1, Received From Members,
Participants, or Others

    Written comments relating to this proposed rule change as modified
by Amendment No. 1, have not been solicited or received. DTC will
notify the Commission of any written comments received by DTC.

III. Date of Effectiveness of the Proposed Rule Change, as Modified by
Amendment No. 1, and Timing for Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \50\ of the Act and paragraph (f) \51\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, as modified by Amendment No. 1, the Commission summarily
may temporarily suspend such rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.
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    \50\ 15 U.S.C. 78s(b)(3)(A).
    \51\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, 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-2020-014 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-2020-014. 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, as modified by
Amendment No. 1, that are filed with the Commission, and all written
communications relating to the proposed rule change, as modified by
Amendment No. 1, 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-2020-014 and should be submitted on
or before December 28, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26787 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P