[Federal Register Volume 80, Number 230 (Tuesday, December 1, 2015)]
[Notices]
[Pages 75387-75417]
[FR Doc No: 2015-30412]

Vol. 80

Tuesday,

No. 230

December 1, 2015

Part IV

Securities and Exchange Commission

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Bloomberg STP LLC; SS&C Technologies, Inc.; Order of the Commission
Approving Applications for an Exemption From Registration as a Clearing
Agency; Notice

Federal Register / Vol. 80 , No. 230 / Tuesday, December 1, 2015 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76514; File Nos. 600-33, 600-34]

Bloomberg STP LLC; SS&C Technologies, Inc.; Order of the
Commission Approving Applications for an Exemption From Registration as
a Clearing Agency

November 24, 2015

I. Introduction

    On March 15, 2013, Bloomberg STP LLC (``BSTP'') filed with the
Securities and Exchange Commission (``Commission'') an application on
Form CA-1 for an exemption from registration as a clearing agency
(``BSTP application'') pursuant to Section 17A of the Securities
Exchange Act of 1934 (``Exchange Act'') and Rule 17Ab2-1 thereunder.
BSTP amended the BSTP application on May 7, 9, and 10, July 11, August
8, September 18, and November 21, 2013, December 19, 2014, and January
22, 2015.\1\ BSTP intends to provide a matching service \2\ and an
electronic trade confirmation (``ETC'') service, and accordingly the
BSTP application seeks an exemption from registration as a clearing
agency. Notice of the BSTP application was published for comment in the
Federal Register on March 5, 2015.\3\
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    \1\ A copy of the BSTP application is available at http://www.sec.gov/rules/other/2015/34-74394-form-ca-1.pdf.
    \2\ The term ``matching service'' as used herein means an
electronic service to centrally match trade information between a
broker-dealer and its institutional customer.
    \3\ See Exchange Act Release No. 34-74394 (Feb. 27, 2015), 80 FR
12048 (Mar. 5, 2015) (``BSTP notice'').
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    On April 15, 2013, SS&C Technologies, Inc. (``SS&C'') filed with
the Commission an application on Form CA-1 for an exemption from
registration as a clearing agency (``SS&C application'') pursuant to
Section 17A of the Exchange Act and Rule 17Ab2-1 thereunder. SS&C
amended the SS&C application on August 12, 2013, December 23, 2014,
March 30, 2015, and November 9, 2015.\4\ SS&C intends to provide a
matching and ETC service, and accordingly the SS&C application seeks an
exemption from registration as a clearing agency.\5\ Notice of the SS&C
application was published for comment in the Federal Register on April
28, 2015.\6\
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    \4\ A copy of the SS&C application is available at http://www.sec.gov/rules/other/2015/34-74794-form-ca-1.pdf. The November 9,
2015 amendment to the SS&C application removed the representation
that SS&C would notify the Commission and seek a volume limit
amendment to its Form CA-1 at least 180 days before it anticipates
its volume for U.S. securities matched to reach one percent of the
U.S. aggregate daily share volume. See infra Part III.B.4.iv.
    In addition, in the November 9, 2015 amendment SS&C replaced a
representation stating that SS&C shall comply with the White Paper
on Sound Practices to Strengthen the Resilience of the U.S.
Financial System before its volume for U.S. securities matched is 1%
of the U.S. aggregate daily share volume with a representation
stating that SS&C understands that in offering its ETC services and
matching services it will be defined as an ``SCI entity'' under
Regulation Systems, Compliance, and Integrity (``Regulation SCI'')
and, as such, that it will operate in compliance with applicable
obligations under Regulation SCI. See infra Part III.B.8.
    \5\ The Commission understands that the applicants included
descriptions of their ETC services in their applications for the
sake of completeness in describing their proposed services, as well
as in connection with FINRA Rule 11860, which contains specific
references to confirmation and affirmation services.
    \6\ See Exchange Act Release No. 34-74794 (Apr. 23, 2015), 80 FR
23618 (Apr. 28, 2015) (``SS&C notice'').
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    In all, the Commission received thirty comment letters in response
to the BSTP and SS&C applications. Among these comment letters, the
Commission received twenty-seven in response to the BSTP application,
including two from BSTP itself, and three comment letters on the SS&C
application, including one from SS&C itself.\7\ After careful review of
these comment letters and the details and information in the BSTP and
SS&C applications (including their representations), the Commission
concludes that it has sufficient information to decide whether BSTP and
SS&C should be granted exemptions. This order grants BSTP and SS&C each
an exemption from registration as a clearing agency to provide matching
and ETC services, subject to certain conditions and limitations
described below.
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    \7\ See letters from James Wallin, Senior Vice President--Fixed
Income, AllianceBernstein (Apr. 9, 2015) (``AllianceBernstein'');
Diane C. Altieri, White Oak Global Advisors, LLC (Mar. 24, 2015)
(``Altieri''); Jon Ambos (Mar. 29, 2015) (``Ambos''); Anonymous
(Mar. 16, 2015) (``Anonymous''); Benjamin Macdonald, President,
Bloomberg STP LLC (August 26, 2015) (``BSTP August letter''); Ben
Macdonald, President, Bloomberg STP LLC (May 21, 2015) (``BSTP May
letter''); M. Subramanian, Capital Market Solutions--Wipro Limited
(Mar. 26, 2015) (``Capital Market Solutions''); Thomas Murphy,
Managing Director, Citigroup Global Markets Inc., and Automated
Trading Desk Financial Services, LLC (Apr. 6, 2015) (``Citi'');
James Connolly, Managing Director, Head of U.S. Broker Dealer
Operations, RBC Capital Markets, LLC (Mar. 16, 2015) (``Connolly'');
Joseph Denci, Vice President COO, Scotia Capital (USA) Inc. (Mar.
31, 2015) (``Denci''); Larry E. Thompson, Vice Chairman and General
Counsel, The Depository Trust & Clearing Corporation (Sept. 14,
2015) (``DTCC September letter''); Larry E. Thompson, Vice Chairman
and General Counsel, The Depository Trust & Clearing Corporation
(June 23, 2015) (``DTCC June letter''); Larry E. Thompson, Vice
Chairman and General Counsel, The Depository Trust and Clearing
Corporation (May 28, 2015) (``DTCC May letter''); Larry E. Thompson,
Vice Chairman and General Counsel, The Depository Trust & Clearing
Corporation (Apr. 6, 2015) (``DTCC April letter''); Frank D. Dore,
Head of Securities Operations, Acadian Asset Management LLC (Apr. 1,
2015) (``Dore''); Peter J. Durant (Mar. 26, 2015) (``Durant'');
David Pearson, Head of Post-Trade Strategy, Fidessa (Apr. 3, 2015)
(``Fidessa''); Bruce James, Managing Director and Chief Operations
Officer, Amherst Pierpont Securities LLC (Mar. 10, 2015)
(``James''); James Lang, Managing Director, Cedar Hill Capital
Partners (Mar. 26, 2015) (``Lang''); Jerome Matthews, Vice
President, Investment Operations, Prudential Fixed Income (Apr. 6,
2015) (``Matthews''); Shawn McCafferty (Mar. 11, 2015)
(``McCafferty''); Barbara Naratil, COO (Mar. 31 and Apr. 6, 2015)
(``Naratil''); Russell H. Stamey, Senior Vice President, The
Northern Trust Co. (Apr. 6, 2015) (``Northern Trust''); Paul
Puskuldjian, Chief Operating Officer, Kinetix Trading Solutions,
Inc. (Mar. 11, 2015) (``Puskuldjian''); Terrence J. Ransford, Senior
Vice President, Northern Trust Securities, Inc. (Mar. 18, 2015)
(``Ransford''); Fredrick Scuteri, Vice President, Head of Trade
Operations, AQR Capital Management, LLC (Mar. 16, 2015)
(``Scuteri''); Timothy W. Cameron, Managing Director, Asset
Management Group--Head, and Elisa Nuottajarvi, Asset Management
Group, The Asset Managers Forum, Securities Industry and Financial
Markets Association (Apr. 2, 2015) (``SIFMA AMF''); David I.
Goldstein, Senior Counsel, SS&C Technologies, Inc. (July 20, 2015)
(``SS&C letter''); Nick Solinger, Head of Product Strategy and Chief
Marketing Officer, Traiana, Inc. (Apr. 6, 2015) (``Traiana'').
Copies of the comment letters are available at http://www.sec.gov/comments/600-33/600-33.shtml and http://www.sec.gov/comments/600-34/600-34.shtml.
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II. Summary of Applicants' Organization and Proposed Services

A. BSTP

    BSTP is a limited liability company organized under the laws of the
State of Delaware and is wholly-owned by Bloomberg L.P. (``BLP'').\8\
BLP is a global business and financial information and news company
headquartered in New York with offices around the world. BLP's
principal product is the BLOOMBERG PROFESSIONAL service, which provides
financial market information, data, news and analytics to banks,
broker-dealers, institutional investors, governmental bodies, and other
business and financial professionals worldwide.
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    \8\ The Commission notes that any proposed changes to either
applicant's organization or its proposed ETC and matching service
will require an amendment to the applicant's Form CA-1.
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    The BSTP application states that BSTP will enter into a Software
License Agreement and a License and Services Agreement with BLP. Under
the terms and conditions of such agreements, BLP will provide BSTP with
software, hardware, administrative, operational, and other support
services, and BSTP will retain ultimate legal responsibility for its
operations. BSTP has also established a board of directors to oversee
its operations, and the BSTP application states that it will establish

an advisory board consisting of industry members and users of the
matching service, including representatives from sell-side firms, buy-
side institutions, and custodians.
    The BSTP application proposes a matching service that will compare
post-trade information from a broker-dealer (the firm) and the broker-
dealer's institutional customer and reconcile such information to
generate an affirmed confirmation, operating as follows according to
the BSTP application:
    1. A customer routes an order to its firm.
    2. The firm executes the order and then sends a notice of execution
(``NOE'') to the customer.
    3. For voice executed trades, the customer affirms to the firm the
trade details contained in the NOE. For trades executed electronically,
the electronic trading platform records the trade in the blotters of
the customer and the firm.
    4. The customer sends to the matching service, the firm, and the
customer's custodian allocation information for the trade.
    5. The firm then submits to the matching service trade data
corresponding to each allocation, including settlement instructions
and, as applicable, commissions, taxes, and fees.
    6. The matching service next compares the customer's allocation
information (containing multiple fields of data) with the firm's trade
data to determine whether the information contained in each field
matches. If all required fields match, the matching service generates a
matched confirmation and sends it to the firm, the customer, and other
entities designated by the customer (e.g., the customer's custodian).
The matching service will typically perform this step in less than one
second.
    7. After the matching service creates the matched confirmation, the
matching service submits it to The Depository Trust Company (``DTC'')
as an ``affirmed confirmation.'' From there, the trade goes into DTC's
settlement process.
    Other than the matching service, the BSTP application states that
BSTP will not perform any other functions of a clearing agency
requiring registration under Section 17A of the Exchange Act, such as
net settlement, maintaining a balance of open positions between buyers
and sellers, marking securities to the market, or handling funds or
securities.

B. SS&C

    SS&C was incorporated in Delaware in 1996 and has headquarters in
Windsor, Connecticut, with offices in 20 locations across the United
States and additional offices in Toronto, Canada, and other locations
throughout the world. SS&C is a global provider of financial services-
related solutions to investment management, banking, and other
financial sector clients. All control and direction over SS&C is vested
in SS&C Technologies Holdings, Inc. (``SS&C Holdings''), SS&C's parent
company and a public holding company listed on NASDAQ (symbol SSNC).
    The SS&C application states that all matching services would be
performed by SS&C's subsidiary, SS&C Technologies Canada Corp. (``SS&C
Canada''). The policies and operations of SS&C Canada are overseen by
its officers and directors, and are subject to control by SS&C
Holdings. SS&C Canada will perform the matching services in
Mississauga, Canada, through its software-enabled service, SSCNet,
which is a global trade network linking investment managers, broker-
dealers, clearing agencies, custodians, and interested parties. Client
support for these services will be rendered through SS&C's offices in
the United States, the United Kingdom, and Australia. SS&C will
coordinate support activity, which includes help desk facilities and
call and issue tracking through a shared client call database, and
relationship management. SS&C and SS&C Canada will maintain an
intercompany agreement setting forth respective services and
obligations.
    In addition, the SS&C application makes the following
representations regarding SS&C's operations: (i) SS&C shall obtain
contractual commitments from its customers permitting it to provide
information to the Ontario Securities Commission, the Commission, and
other third parties; (ii) SS&C shall make available SS&C Canada
employees in Canada or the United States for interview by the
Commission subject to reasonable notice, provided that such action does
not impose unreasonable hardship under applicable immigration law on
such employees; (iii) as set forth in the intercompany agreement, SS&C
shall provide the Commission access to information related to SS&C's
matching system and ETC services, including those documents it receives
from its service provider, SS&C Canada (the ``business activities
information''); (iv) SS&C Canada shall provide on the same business day
to SS&C at its headquarters in Windsor, Connecticut electronically
generated business activities information, in whatever form SS&C shall
specify, including regularly and automatically generated and ad hoc
reports, books and records, correspondence, memoranda, papers, notices,
accounts, and other such records; and (v) SS&C Canada shall send to
SS&C at its headquarters in Windsor, Connecticut, all manually
generated business activities information, in whatever form SS&C shall
specify, no later than the business day on which the record is
generated. Further, SS&C has confirmed with external counsel that
implementation of the intercompany agreement would not violate the
Canadian Personal Information Protection and Electronic Documents Act
or the Ontario Business Records Protection Act.\9\ This would allow for
the disclosure of personal information by SS&C Canada to SS&C.
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    \9\ SS&C has stated that as the draft intercompany agreement is
governed by Connecticut law, and as SS&C's external counsel are not
qualified to practice in Connecticut, in providing these opinions
they have assumed that the provisions of the intercompany agreement
have the same meaning under Connecticut law as they would under
Ontario and Canadian law.
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    Like the BSTP application, the SS&C application proposes to provide
matching and ETC services for broker-dealers and institutional
customers that will allow such entities to streamline communications
and process allocation and post-trade information for fixed-income and
equity trades for depository-eligible U.S. securities. According to the
SS&C application, SS&C's matching service would allow institutional
customers to route an order to a broker, receive an execution notice
from the broker, and enter trade details and allocations so that SS&C's
matching service can generate a matched confirmation and send an
affirmed confirmation to the depository at DTC. SS&C's matching service
will offer both block level matching and detail level matching.
Standing settlement instructions are provided through the Delivery
Instruction Database, which is fully integrated into SSCNet, and
provides a repository for settlement instructions across asset classes,
including foreign exchange and term deposits. SSCNet is also integrated
into the Society for Worldwide Interbank Financial Telecommunication
(``SWIFT'') Network, allowing users to communicate with parties outside
the SSCNet platform. Users can select the output format for batch
communications (SSCNet proprietary, SWIFT, ISITC, or DTC affirmation
format), as well as when the batch should be submitted. Once a
transaction is exported from SSCNet, central time stamping and a full
audit trail are available for all transactions, with transaction
histories maintained online for a minimum of 45

days and accessible in an online archive for up to ten years.
    Other than the matching service, the SS&C application states that
SS&C will not perform any other functions of a clearing agency
requiring registration under Section 17A of the Exchange Act, such as
net settlement, maintaining a balance of open positions between buyers
and sellers, marking securities to the market, or handling funds or
securities.

III. Discussion

A. Statutory Standards

1. Requirements for a National System for Clearance and Settlement
    Section 17A of the Exchange Act directs the Commission to
facilitate the establishment of (i) a national system for the prompt
and accurate clearance and settlement of securities transactions and
(ii) linked or coordinated facilities for clearance and settlement of
securities transactions.\10\ In facilitating the establishment of the
national clearance and settlement system, the Commission must have due
regard for the public interest, the protection of investors, the
safeguarding of securities and funds, and maintenance of fair
competition among brokers and dealers, clearing agencies, and transfer
agents.\11\
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    \10\ See 15 U.S.C. 78q-1(a)(2)(A).
    \11\ See id.
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2. Standard for Approval of an Application for an Exemption From
Registration as a Clearing Agency
    Section 17A(b)(1) of the Exchange Act requires all clearing
agencies to register with the Commission.\12\ It also states that, upon
the Commission's motion or upon a clearing agency's application, the
Commission may conditionally or unconditionally exempt a clearing
agency from any provision of Section 17A of the Exchange Act or the
rules or regulations thereunder if the Commission finds that such
exemption is consistent with the public interest, the protection of
investors, and the purposes of Section 17A, including the prompt and
accurate clearance and settlement of securities and funds.
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    \12\ See 15 U.S.C. 78q-1(b)(1).
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    In the Matching Release,\13\ the Commission concluded that an
entity providing matching services as an intermediary between broker-
dealers and institutional customers is a clearing agency within the
meaning of Section 3(a)(23) of the Exchange Act,\14\ and therefore
subject to the registration requirements of Section 17A of the Exchange
Act.\15\ The Commission also noted that an entity that limited its
clearing agency functions to providing matching services might not have
to be subject to the full range of clearing agency regulation. In
addition, the Commission stated that it anticipated an entity seeking
an exemption from clearing agency registration for matching services
would be required to (i) provide the Commission with information on its
matching service and notice of material changes to its matching
service; (ii) establish an electronic link to a registered clearing
agency that provides for the settlement of its matched trades; (iii)
allow the Commission to inspect its facilities and records; and (iv)
make periodic disclosures to the Commission regarding its
operations.\16\ Accordingly, as noted in the Matching Release, a
clearing agency whose clearing agency functions are limited to
providing a matching service generally would be required to register as
a clearing agency but could apply for an appropriate exemption.\17\
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    \13\ See Exchange Act Release No. 34-39829 (Apr. 6, 1998), 63 FR
17943 (Apr. 13, 1998) (providing interpretive guidance and
requesting comment on the confirmation and affirmation of securities
trades and matching) (``Matching Release'').
    \14\ Section 3(a)(23) defines a ``clearing agency'' as, among
other things:
    [A]ny person who acts as an intermediary in making payments or
deliveries or both in connection with transactions in securities or
who provides facilities for comparison of data respecting the terms
of settlement of securities transactions, to reduce the number of
settlements of securities transactions, or for the allocation of
securities settlement responsibilities.
    See 15 U.S.C. 78c(a)(23).
    \15\ Specifically, the Commission concluded that matching
services constitute comparison of data respecting the terms of
settlement of securities transactions. See Matching Release, supra
note 13, at 17943.
    \16\ See id. at 17947 n.28. In addition, the Commission provided
a temporary exemption from the clearing agency registration
requirements to clearing agencies that provide (1) matching, (2)
trade compression, (3) collateral management, and (4) other non-
central counterparty clearance and settlement services for security-
based swaps. See Exchange Act Release No. 34-64796 (July 1, 2011),
76 FR 39963 (July 7, 2011) (order pursuant to Section 36 of the
Exchange Act granting temporary exemptions from clearing agency
registration requirements under Section 17A(b) of the Exchange Act
for entities providing certain clearing services for security-based
swaps).
    \17\ See Matching Release, supra note 13, at 17947.
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B. Comments Received and Commission Response

    The Commission received thirty comment letters in response to the
BSTP and SS&C notices from twenty-three commenters, including two
comment letters from BSTP and one from SS&C.\18\ Although the
Commission received only three comment letters on the SS&C application,
the comments received in response to both applications are discussed
together below because the matching services proposed in each
application are substantially similar and therefore raise many of the
same issues regardless of which application a particular comment letter
addresses. In addition, a majority of the comments submitted in
response to the BSTP application address the question of whether there
should be multiple providers of matching services, and those comments
are therefore relevant to the Commission's consideration of both the
BSTP and SS&C applications.
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    \18\ See supra note 7.
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    Commenters include individuals and firms representing buy-side and
sell-side market participants, in both front and back-office
capacities, with expertise in equities and fixed income, asset
management, post-trade strategy, and operations. Four of the comment
letters were submitted by the Depository Trust and Clearing Corporation
(``DTCC''),\19\ which is the holding company for three clearing
agencies registered with the Commission, including DTC (the central
securities depository (``CSD'') for the U.S. securities markets), as
well as Omgeo, an exempt clearing agency that currently provides
matching and ETC services for the U.S. equity markets (collectively
``the DTCC complex'').\20\ Excluding BSTP and SS&C, eighteen commenters
expressed explicit support for the BSTP application and three
additional commenters submitted comments on the BSTP application
expressing support for competition in the provision of matching
services.\21\ One commenter expressed views that it

would support additional providers of matching and ETC services if they
met certain criteria.\22\ The remaining commenter, DTCC, endorsed the
approach described in the Matching Release, stating that (i) a firm
limiting its clearing agency activities to matching services should be
eligible for an exemption from registration as a clearing agency and
(ii) this is consistent with the goals of Section 17A of the Exchange
Act, expressed general support for competition in the provision of
matching services,\23\ and raised several concerns with the BSTP and
SS&C applications, as discussed below. In addition, in its letter, SS&C
states that it is in complete agreement with BSTP on matters where
DTCC's concerns are substantially the same between the BSTP and SS&C
applications, such as DTCC's concerns raised regarding the question of
how access to DTC for settlement of matched trades should proceed.\24\
Similarly, DTCC states that it stands by its statements and positions
in the DTCC June letter, submitted in response to the BSTP May letter,
and incorporates those arguments by reference in response to the SS&C
letter.\25\
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    \19\ The DTCC June letter also includes as an attachment an
economic analysis of BSTP's application produced by Cornerstone
Research. See DTCC June Letter at ex. I, available at http://www.sec.gov/comments/600-33/60033-28.pdf (``Cornerstone Report'').
The Cornerstone Report augments many of the comments in the DTCC
comment letters with several specific economic considerations that
are related to those arguments. These comments and considerations
are addressed throughout this order.
    \20\ The other two registered clearing agencies within the DTCC
complex are (i) the National Securities Clearing Corporation
(``NSCC''), which provides central counterparty (``CCP'') services
to its members for the clearing of transactions in a number of cash
market products, including equity securities, bonds, and exchange-
traded products, and (ii) the Fixed Income Clearing Corporation
(``FICC''), which provides CCP services for transactions in U.S.
government and certain mortgage-backed securities.
    \21\ For commenters expressing explicit support for the BSTP
application, see AllianceBernstein, Altieri, Anonymous, Capital
Market Solutions, Connolly, Denci, Dore, Fidessa, James, Lang,
Matthews, McCafferty, Northern Trust, Puskuldjian, Ransford,
Scuteri, SIFMA AMF, and Traiana.
    For commenters to the BSTP application expressing support more
generally for competition in the provision of matching services, see
Ambos, Durant, and Naratil.
    \22\ See Citi; see also infra note 137 and accompanying text
(discussing the specific criteria set forth by the commenter).
    \23\ See DTCC April letter at 1-2 (endorsing the approach
described in the Matching Release); DTCC September Letter at 2; DTCC
June letter at 2-3; DTCC May letter at 2-3; DTCC April letter at 2,
12-14 (each stating that competition in service offerings may permit
useful innovation and product alternatives, to the benefit of
industry participants and ultimately to investors, and proposing a
method of facilitating access to DTC through Omgeo for BSTP and
SS&C).
    \24\ See SS&C letter at 4. Accordingly, as to DTCC's comments,
the Commission understands that SS&C would be in agreement with BSTP
as to concerns about access to DTC and the related discussions of
efficiency; competition, choice, and innovation; systemic risk;
operational risk; and interoperability with Omgeo. Concerns raised
about BSTP's governance arrangements and BSTP's request for relief
under Rule 10b-10 would be specific to BSTP. Concerns raised about
the cross-border aspects of the SS&C application would be specific
to SS&C.
    \25\ See DTCC September letter at 2 n.5. In considering and
addressing DTCC's comments, the Commission has considered each
application with respect to all of DTCC's comments except where
DTCC's comments were addressed specifically to BSTP's governance
arrangements, BSTP's request for relief under Rule 10b-10, and the
cross-border aspects of the SS&C application, as noted previously
above. See supra note 24.
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    The discussion below first summarizes DTCC's proposed model for
access to DTC submitted as part of its comments regarding the BSTP and
SS&C applications. The discussion next provides an overview of comments
organized by the particular subject matter raised across the respective
comment files, and provides BSTP's and SS&C's responses as well as the
Commission's assessment and response within each subject matter
section. The Commission notes here that many of DTCC's current
arguments are inconsistent with prior representations it made when it
sought for Omgeo--and Omgeo was granted, based on those
representations--an exemption from registration to provide matching
services. Those representations are discussed in detail below.
1. DTCC's Proposed Model for Access to DTC
    In order to evaluate many of the particular issues raised by the
commenters, the Commission first generally notes DTCC's proposal for
structuring access to DTC, which is referenced throughout the
Commission's consideration of comments below. According to DTCC, the
optimal access model, referred to below as the ``single access'' model,
would enable the industry to continue to rely on the existing systems
(including certain systems currently located in Omgeo) to serve as the
unique point of access to what DTCC describes as ``the existing
infrastructure,'' in particular DTC and the bank and broker-dealer
custodians/settlement agents for the sending of matching confirmations
and settlement instructions.\26\ In other words, a single access model
would require BSTP and SS&C to access this existing infrastructure
uniquely through Omgeo and not via independent linkages to DTC.
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    \26\ See DTCC September letter at 2; DTCC June letter at 2-3;
DTCC May letter at 2; DTCC April letter at 3.
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    DTCC believes that this approach would promote the safe and
efficient clearance and settlement of securities transactions while
permitting the securities industry to reap the benefits of the
reliable, centralized infrastructure that has developed over the past
forty years.\27\ DTCC states that the single access model would permit
BSTP and SS&C to avail themselves of Omgeo's extensive community of
custodians and settlement agents without the costs and risks that would
be incurred if each custodian and settlement agent had to create,
operate, and maintain a separate interface and infrastructure with BSTP
and SS&C.\28\ DTCC also notes that this would provide a more rapid,
less expensive option for BSTP and SS&C to begin providing matching
services.\29\ DTCC states that the single access model furthers the
purposes of Section 17A of the Exchange Act, citing previous Commission
statements that (i) a clearing agency entering into an interface with
another clearing agency has an interest in assuring itself that the
participant clearing agency will be able to meet its obligations, and
that (ii) clearing agencies may require reasonable assurances of
another clearing agency's ability to meet its obligations, provided
such requirement does not impose an inappropriate burden on
competition.\30\
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    \27\ See id.
    \28\ See DTCC April letter at 12-13.
    \29\ See id.
    \30\ See DTCC September letter at 2; DTCC May letter at 8-9.
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    The Commission evaluates the merits of the BSTP and SS&C
applications on their own terms under the statutory standard described
above. The Commission is not opining on the general issue of whether a
multiple access model is always preferable to a single access model.
2. Efficiency
    Under Section 17A of the Exchange Act, Congress directs the
Commission to facilitate a prompt system for clearing and settling
transactions, and the Congressional findings in Section 17A state that
inefficient procedures for clearance and settlement impose unnecessary
costs on investors and persons facilitating transactions.
    The Commission received multiple comments addressing whether the
expected effect of the BSTP and SS&C applications would result in
various inefficiencies, with a particular focus on the possibility of
unnecessary costs and processing inefficiencies. BSTP states in its
comment letter that the BSTP application promotes processing
efficiencies by proposing to bring automation to some segments of the
marketplace that today use manual procedures and by enabling straight-
through processing throughout the entire trade lifecycle, which BSTP
states will contribute to increases in same-day affirmation rates and
increases in settlement rates.\31\ Similarly, SS&C states in its
comment letter that the SS&C application promotes processing
efficiencies by streamlining the post-trade communication flow between
institutional customers, broker-dealers, custodians, and interested
parties, providing for real-time communications and matching services
that highlight trade discrepancies early in the trade lifecycle, which
SS&C states will lead to timely affirmations and a reduction in failed
deliveries.\32\ In addition, nine commenters identified increases in
efficiency in the confirmation/affirmation process itself as an

anticipated benefit of having multiple matching service providers.\33\
---------------------------------------------------------------------------

    \31\ See BSTP May letter at 3.
    \32\ See SS&C letter at 2.
    \33\ See AllianceBernstein at 1; Altieri; Capital Market
Solutions; Connolly; James; Lang; Northern Trust; SIFMA AMF at 2;
Traiana.
---------------------------------------------------------------------------

    However, DTCC raises multiple concerns, summarized below, about the
effect of the applications on the efficiency (both in terms of
unnecessary costs and processing inefficiencies) of the settlement
system for U.S. equities. The Commission understands that DTCC is
primarily concerned with the following matters: (i) whether it is
efficient for BSTP and SS&C to have direct access (rather than mediated
access) to DTC for submission of delivery orders; (ii) whether new
matching service providers might negatively affect current trade
confirmation/affirmation rates; (iii) how control numbers for trades
can be managed efficiently in a marketplace with multiple matching
service providers; and (iv) whether the costs that DTCC and market
participants might incur to incorporate new matching service providers
into the market infrastructure can be supported by the anticipated
benefits. The Commission evaluates each of these concerns in turn.
i. Access to DTC
    With respect to the access model proposed by each of the BSTP and
SS&C applications, DTCC states that allowing both BSTP and SS&C to
access DTC directly under a ``multiple access'' model would impose
additional costs on the industry, including the cost of building access
to DTC for each applicant and the related cost of building parallel
access to custodians and settlement agents.\34\ In addition, DTCC also
states that developing a post-trade processing system, including a
settlement instructions database, that is completely independent of
Omgeo (including the Omgeo ALERT database that centrally maintains
account information and standing settlement instructions to enrich
allocation messages for settlement at DTC) would raise interface costs
for industry participants and increase the technological complexity of
the infrastructure for the national clearance and settlement
system.\35\ DTCC also notes that failed trades are currently resolved
and reconciled through Omgeo, not DTC.\36\ As an alternative to a
multiple access model, DTCC proposed a single access model, summarized
above in Part III.B.1.
---------------------------------------------------------------------------

    \34\ See DTCC April letter at 11; Cornerstone Report at 6, 23.
    \35\ See id. at 17-19. The Commission notes that DTCC's concerns
about the costs of building linkages are addressed in Part
III.B.2.iv below.
    \36\ See id. at 14 n.43.
---------------------------------------------------------------------------

    DTCC's current arguments supporting a single access model that runs
through Omgeo cannot be reconciled with DTCC's own prior
representations surrounding the formation of the joint venture between
DTCC and Thomson Financial (Global Joint Venture or ``GJV,'' later
renamed Omgeo), which was granted an exemption from registration to
provide matching services in the Omgeo order.\37\ The Commission finds
that DTCC must continue to abide by prior representations it made that
led the Commission to approve the Omgeo order.
---------------------------------------------------------------------------

    \37\ See Global Joint Venture Matching Services--US, LLC; Order
Granting Exemption From Registration as a Clearing Agency, Exchange
Act Release No. 34-44188 (Apr. 17, 2001), 66 FR 20494 (Apr. 23,
2001) (``Omgeo order'').
---------------------------------------------------------------------------

    For purposes of background, as a condition precedent to the GJV's
formation, DTC submitted a proposed rule change to transfer DTC's
existing ETC and matching engine to Omgeo as its contribution to the
GJV.\38\ The Commission received thirty-six comment letters in response
to both the DTC 00-10 proposal and the notice that preceded the Omgeo
order, seventeen of which requested that the Commission take steps to
safeguard interoperability and competition among service providers in
order to prevent any entity from gaining an unfair monopoly.\39\
---------------------------------------------------------------------------

    \38\ See Exchange Act Release No. 34-43541 (Nov. 9, 2000), 65 FR
69591 (Nov. 17, 2000) (notice of filing by DTC of a proposed rule
change relating to the combination of the DTC's TradeSuite
institutional trade processing services with Thomson-Financial ESG's
institutional trade processing services) (``DTC 00-10 proposal'');
see also Exchange Act Release No. 34-44189 (Apr. 17, 2001), 66 FR
20502 (Apr. 23, 2001) (Commission order approving DTC's proposed
rule change relating to the combination of DTC's TradeSuite
institutional trade processing services with Thomson-Financial ESG's
institutional trade processing services) (``DTC 00-10 approval
order'').
    In the above proposed rule change, the transfer involved
TradeMessage (automated exchange of messages such as block trade
notices of execution, allocation instructions, trade confirmations,
and affirmations), TradeMatch (electronic comparison of investment
manager allocations with broker-dealer trade confirmations),
TradeSettle (supplier of account and settlement data using DTC's
Standing Instructions Database, and router of settlement
instructions to custodian banks and clearing agents), and TradeHub
(router of messages).
    \39\ See Omgeo order, supra note 37, at 20504.
---------------------------------------------------------------------------

    The Commission believes that providing a summary of key comments on
the DTC 00-10 proposal is helpful in explaining the Commission's
assessment of DTCC's objections to the BSTP and SS&C applications
because the past comments raise many of the same issues raised in the
comments to this order. One of the commenters cited by the Commission
in the DTC 00-10 approval order, TradingLinx, focused its concern on
the transfer of TradeMessage and TradeSettle,\40\ which was notable
given that the Commission was primarily focused on the transfer of the
matching service functionality. The TradingLinx letter pointed out
that, at the time, all vendors had free, open access to the data
contained in DTC's Standing Instructions Database (``SID''), which
houses settlement instructions for the industry. TradingLinx worried
that transferring SID to a for-profit entity might change the cost or
level of access to SID data. DTCC submitted a comment in response,
stating that TradingLinx's concerns were misplaced because (i) vendors
acting on behalf of DTC participants will be able to transmit
settlement instructions directly to DTC without the involvement of GJV;
(ii) vendors acting on behalf of customers of the DTC TradeSuite family
of services have access to SID; (iii) those vendors can enter data in
and receive data from SID on behalf of broker-dealers, investment
managers, and custodians who are common customers of the vendors and
DTC; and (iv) the staffs of DTCC and GJV have determined that the same
open access by customers' vendors to SID will continue with respect to
the unified database after GJV commences operations.\41\
---------------------------------------------------------------------------

    \40\ See letter from Justin Lowe, Chief Executive Officer, and
Robert Raich, Chief Financial Officer, TLX Trading Network (Dec. 18,
2000), available at http://www.sec.gov/rules/sro/60032/60032-13.pdf.
    \41\ See letter from Carl H. Urist, Managing Director and Deputy
General Counsel, DTCC (Jan. 4, 2001), available at http://www.sec.gov/rules/sro/60032/60032-18.pdf.
---------------------------------------------------------------------------

    Another commenter on the DTC 00-10 proposal, GSTP AG, expressed
concerns that combining elements of DTC with a commercial entity could
result in denial of access to DTC for matching service competitors,
and/or pricing for access to DTC settlement and depository services
that might preference GJV over matching service competitors.\42\ DTCC
responded by reiterating the assurances it made in its response to
TradingLinx, stating that GJV will at the option of its customers
either enter settlement instructions on their behalf into the DTC
settlement system (or any other settlement system with which the GJV
interfaces) or make the settlement instructions available to the
customers or their vendors so that the customers or vendors can enter
the instructions into a settlement system.\43\

GSTP AG then responded with requests (also cited by the Commission in
the Omgeo order) that, before these issues can be resolved, it be
clearly understood which functions will continue to be performed
exclusively by DTC and which will be performed by the GJV, noting that
(i) DTC offers through TradeSuite a service to all U.S. settlement
agents who have an account with DTC for settlement whereby the trades
confirmed and/or affirmed are relayed to the settlement agent involved
in the trade; (ii) this feature of the service is an integral part of
the clearance and settlement process as it is used by all settlement
agents to update their records and by the DTC to proceed with the
settlement; and (iii) fair and open access to DTC settlement functions
for all matching services must encompass a requirement that DTC, and
not the GJV, continue to provide this service.\44\
---------------------------------------------------------------------------

    \42\ See letter from Burkhard H. Gutzeit, Chairman, and G.
Steven Crosby, Acting Chief Executive Officer, GSTP AG (Jan. 3,
2001), available at http://www.sec.gov/rules/sro/60032/60032-16.pdf.
    \43\ See letter from Carl H. Urist, Managing Director and Deputy
General Counsel, DTCC (Jan. 12, 2001), available at http://www.sec.gov/rules/sro/60032/60032-24.pdf.
    \44\ See letter from Burkhard H. Gutzeit, Chairman, and G.
Steven Crosby, Acting Chief Executive Officer, GSTP AG (Jan. 30,
2001), available at http://www.sec.gov/rules/sro/60032/60032-33.pdf.
---------------------------------------------------------------------------

    DTCC's subsequent response indicated that DTC would limit its
activities to following the settlement instructions authorized by its
participants, whether those instructions were submitted by GJV or GSTP
AG.\45\ The Commission ultimately approved the DTC-00-10 proposal after
DTC submitted an amendment to the rule filing stating that DTC shall
not favor any single provider of matching services, including GJV, over
any other matching services in terms of the quality and caliber of the
interface to DTC's clearing agency or settlement functions, quality of
connectivity, receipt of delivery and payment orders, speed or
processing delivery and payment orders, capacity provided, or priority
assigned in processing delivery and payment orders.\46\
---------------------------------------------------------------------------

    \45\ See letter from Richard B. Nesson, Managing Director and
General Counsel, DTCC (Mar. 9, 2001), available at http://www.sec.gov/rules/sro/60032/60032-38.pdf.
    \46\ See DTC 00-10 approval, supra note 38, at 20505.
---------------------------------------------------------------------------

    Subsequent to approval of the Omgeo order, DTC also submitted
proposed rule change SR-DTC-2001-11, proposing to authorize DTC to
accept and act upon instructions provided by a central matching
provider other than Omgeo. The Commission's approval order discussed
two significant factors relevant to DTCC's comments regarding access to
DTC.\47\ First, the approval order noted that DTC neither engaged in
matching institutional trade information nor communicated to its
participants or others prior to settlement that a transaction has been
matched.\48\ Pursuant to the order, then, DTC and Omgeo had clear and
distinct functions: Omgeo was to provide matching services and DTC was
to facilitate settlement. Second, the approval order noted that (i) DTC
assumed a matching service provider would make arrangements for the
communication of trade information to the DTC participants expected to
settle a matching transaction by book-entry delivery at DTC, and (ii)
DTC was prepared to accept from a matching service provider a file of
deliver order instructions to settle transactions between DTC
participants that had authorized it to accept such instructions from
the matching service provider.\49\
---------------------------------------------------------------------------

    \47\ See Exchange Act Release No. 34-44905 (Oct. 4, 2001), 66 FR
51987 (Oct. 11, 2001) (order approving DTC rule change authorizing
DTC to act upon instructions provided by a central matching service
provider).
    \48\ See id. at 51987.
    \49\ See id. at 51987-88.
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission stated its
belief that the DTC rule change was consistent with the Exchange Act
because it would allow DTC to act upon deliver order instructions
received from a matching service provider.\50\ The Commission observes
that this is precisely the arrangement now contemplated by the BSTP and
SS&C applications--one where BSTP and SS&C, as matching service
providers, can communicate settlement instructions to DTC without Omgeo
as an intermediary. Given the series of representations made by DTCC in
support of approving the DTC rule changes that facilitated the creation
of Omgeo and approval of the Omgeo order itself, the Commission views
DTCC's current suggestion that the Commission now require a single
access model for new matching service providers to be inconsistent with
DTCC's prior representations.
---------------------------------------------------------------------------

    \50\ See id. at 51988.
---------------------------------------------------------------------------

    Even apart from DTCC's prior inconsistent representations, the
Commission is also unpersuaded that the prospect of incurred costs
merits denial or modification of the applications insofar as they
propose a multiple access model. Matching service providers cannot
settle transactions since they necessarily require access to the
central securities depository for the United States, and as such access
to the central securities depository is distinct from access to other
post-trade processes (such as providing a standing instructions
database).\51\ The Commission further believes that multiple points of
access to DTC have value with respect to redundancy (discussed further
below). The Commission also finds that DTCC's objections to costs
generated by multiple points of access--which the Cornerstone Report
did not estimate--are speculative.\52\ Moreover, these types of costs
should not be unexpected in light of the Omgeo order, as described in
more detail below. Further, if the Commission were to require each
matching service provider to access DTC through Omgeo, such dependency
could allow Omgeo to impose surcharges or other costs on its
competitors that are not imposed on Omgeo itself, which the Commission
believes could lead to unnecessary costs. Even if no fees were imposed,
the structure could also limit innovation in the provision of matching
services by other matching service providers. BSTP and SS&C also
cautioned against such an outcome. BSTP describes in its comment letter
that any new matching service provider required to rely on Omgeo would
find itself in the untenable position of being dependent on a
competitor's infrastructure, cooperation, and fee structure to operate
its business and would likely find that such circumstances create an
insurmountable barrier to entry.\53\ Similarly, SS&C infers from DTCC's
position that Omgeo would impose the same charges on competing matching
services as they do on clients today and states that, should the
Commission accept this position, SS&C doubts that any service would
find it economically viable to enter the market for post-trade services
to compete with Omgeo.\54\
---------------------------------------------------------------------------

    \51\ As noted above, SS&C has its own Delivery Instruction
Database. See supra Part II.B (describing SS&C's proposed service).
    \52\ See, e.g., Cornerstone Report at 30 (stating that there are
aspects of central matching services that may be best provided by a
single provider).
    \53\ See BSTP August letter at 4.
    \54\ See SS&C letter at 3.
---------------------------------------------------------------------------

    The Commission notes that the BSTP and SS&C applications did not
specify whether BSTP or SS&C planned to develop their own duplicate
standing instructions database. In cases where BSTP and SS&C can choose
whether to depend on an existing system or develop their own, the
Commission expects that market forces will determine whether utilizing
existing services or systems will be dictated by an assessment of the
business costs and benefits related to such choices. The Commission
believes that such decisions are not predetermined.

    Finally, the Commission notes that DTCC has adopted a multiple
access model for trade data submitted to one of its other registered
clearing agencies, NSCC. Currently, NSCC receives trade data directly
from exchanges, qualified special representatives, correspondent
clearing agencies, and Omgeo.\55\ Because trade information is coming
from separate market participants directly into NSCC, the Commission
believes that this example further suggests that a DTCC registered
clearing agency can receive data directly from Omgeo and multiple other
entities in an effective and efficient manner that is consistent with
the Exchange Act.\56\
---------------------------------------------------------------------------

    \55\ See generally NSCC & Industry Working Group, Trade
Clearance Input Concept Paper (August 2014), available at http://www.dtcc.com/news/2014/september/16/dtcc-publishes-concept-paper-on-trade-clearance-input (discussing NSCC's system for capturing
trades).
    \56\ The history of ETC services reflects a similar multiple
access approach. To facilitate settlement in a registered securities
depository following use of an ETC service, DTC coordinated with the
Midwest Securities Trust Company (``MSTC'') and the Philadelphia
Depository Trust Company (``Philadep'') to ensure that DTC
participants on one side and sole participants in either MSTC or
Philadep on the other side could collectively achieve ETC by linking
DTC's automated settlement system for institutional transactions
with similar systems developed in coordination with MSTC and
Philadep. See Exchange Act Release No. 34-19227 (Nov. 9, 1982), 47
FR 51658, 51659-60 (Nov. 16, 1982). The Commission noted that these
linked systems facilitated communications without regard to the
parties' choice of depository, thereby promoting uniformity in
clearance and settlement procedures. The Commission also noted at
the time that the linkages should reduce unnecessary costs
associated with settlement, such as from delayed or lost affirmation
and settlement instructions. See id. at 51660-61.
---------------------------------------------------------------------------

ii. Effect on Trade Confirmation/Affirmation Rates and Industry Efforts
To Shorten the Settlement Cycle
    DTCC states that the multiple access model contemplated by the BSTP
and SS&C applications may decrease the promptness of the current
matching services infrastructure by increasing the time necessary to
route confirmations and affirmations between customers and service
providers.\57\ In the Cornerstone Report, DTCC cites research
suggesting that certain components of the market's infrastructure,
which may include the national system for clearance and settlement,
have characteristics where the optimal structure is to provide clearing
and settlement services via a single, regulated entity rather than
multiple competing firms.\58\ DTCC states that broker-dealers using
multiple matching services would be required to either modify existing
systems to account for multiple matching service providers or invest in
multiple systems, one for each such matching service provider, to
obtain trade confirmations and transmit settlement instructions.\59\
DTCC also states that this duplication in systems would likely lead to
additional costs and risks of error to the detriment of industry
participants and their customers, who may face additional burdens to
make timely deliveries, impairing their ability to comply with Rule
10b-10 and Regulation SHO.\60\ Further, DTCC states that BSTP's entry
may induce participants to move from Omgeo's to a less efficient
sequential model, which according to data from Omgeo yields
significantly lower affirmation rates in the majority of DTC eligible
transactions.\61\ DTCC states that the combined effect of these
potential consequences could also impair industry efforts to shorten
the settlement cycle.\62\
---------------------------------------------------------------------------

    \57\ See DTCC April letter at 13.
    \58\ See Cornerstone Report at 4, 20-21 (describing the roles
that economies of scale and network effects play in the provision of
clearing services). DTCC also notes, for example, that there appears
to be little dispute that the core depository services currently
provided by DTC are more efficiently provided by a single depository
than by multiple competing depositories. See id. at 4.
    \59\ See id. at 19; DTCC April letter at 8. This section focuses
specifically on aspects of this concern related to efficiency, such
as the potential need for broker-dealers to obtain trade
confirmations and transmit settlement instructions using multiple
systems. The costs of establishing linkages are addressed below in
Part III.B.2.iv. The potential for an increase in systemic or
operational risk are addressed, respectively, in Parts III.B.4 and
III.B.5.
    \60\ See Cornerstone Report at 7; DTCC April letter at 8 (noting
that maintaining multiple systems for compliance with Rule 10b-10
would require not only referencing two sources for providing trade
instructions but also two sources for receiving, downloading, and
maintaining such trade confirmations under the applicable
recordkeeping rules, resulting in unnecessary duplication,
additional costs, and an increased risk of errors).
    BSTP requested that the Commission clarify the need for a
matching service provider to obtain no-action relief under Rule 10b-
10 in order to provide ETC and matching services. The Commission
notes that BSTP has obtained such no-action relief from the Division
of Trading and Markets. In addition, the Commission notes that SS&C
obtained no-action relief from the Division of Trading and Markets
in 2008.
    \61\ See Cornerstone Report at 6.
    \62\ See DTCC April letter at 16.
---------------------------------------------------------------------------

    After carefully considering these comments, the Commission believes
that, on balance, approval of the BSTP and SS&C applications is more
likely to promote rather than impair promptness in the market for
matching services, particularly with respect to the effect on
confirmation/affirmation rates and industry efforts to shorten the
settlement cycle. First, the Commission acknowledges that obtaining
access to new matching service providers may require market
participants to modify existing systems or purchase new systems to
facilitate access to those matching service providers. But the
Commission notes that these costs would be borne only by market
participants presented with new products or services that they
anticipate will offer benefits not available via the existing market
infrastructure or via existing matching service providers that justify
bearing these costs. DTCC's concern that these systems may be
duplicative ignores that duplicative services may carry benefits that
market participants seek, such as providing a new access point to DTC,
a new interface with features not provided by Omgeo, or access to new
markets or market participants not accessible through Omgeo.
    BSTP states that its matching service will receive trade execution
information in real time, thereby enabling users to immediately
identify and address processing exceptions on the trade date. BSTP
states that it will provide a variety of efficiency tools that it
believes are not currently offered to market participants to help them
manage settlement exceptions, including tools for exception monitoring
and instant chat functionality.\63\ The Commission believes that
streamlining the confirmation/affirmation function helps facilitate
prompt settlement because, as the use of manual processes for entry of
information decreases, the opportunity to improve same-day (i.e.,
prompt) affirmation rates for U.S. equities increases. The Commission
also believes that the tools BSTP intends to offer will increase the
ability of market participants and their custodians to manage
settlement exceptions.
---------------------------------------------------------------------------

    \63\ See BSTP application at S-3, S-5; see also BSTP May letter
at 8.
---------------------------------------------------------------------------

    Second, the Commission does not find DTCC's argument that matching
services fall among those components of the market's infrastructure
having characteristics where the optimal structure is to provide them
via a single entity rather than multiple competing firms to be so
compelling as to justify denial or modification of the applications.
DTCC comments, including comments in the Cornerstone Report, fail to
establish or otherwise substantiate in any specific detail how the
fixed costs of operating a matching service are so high as to generate
inefficiencies if borne by more than one provider.\64\ As BSTP notes in
its

comment letter, the Cornerstone Report concedes that the research
supporting this argument concerns providers of CSD and CCP services,
not confirmation/affirmation platforms or matching services.\65\ The
Commission believes that this difference in clearing agency activity is
significant and notes that the characteristics of a matching service
provider are distinct from those of a clearing agency providing CSD or
CCP services. The Commission's treatment of the different entities
within the DTCC complex helps to illustrate this point. For instance,
clearing agencies that provide CSD and CCP services, such as DTC and
NSCC, are registered with the Commission, act as SROs under Section 19
of the Exchange Act, submit rule filings for Commission review and
approval, and remain subject to the full set of requirements applicable
to clearing agencies under Section 17A of the Exchange Act, as well as
the rules and regulations thereunder. Matching service providers like
Omgeo are, in contrast, exempt clearing agencies that the Commission
has authorized to provide certain services, subject to specific
conditions as set forth in an exemptive order. The different approaches
reflect the Commission's view that different types of clearing entities
have different operating structures with different attributes that
reflect different regulatory goals and objectives. The Commission
believes that differences stemming from the types of clearing entity or
service provided in this case support allowing multiple entities to act
as matching service providers, and may lead to increases in efficiency
in the market for matching services.\66\
---------------------------------------------------------------------------

    \64\ The Cornerstone Report states that interoperability is the
key to competition in central matching services and notes that there
are conditions in the respective orders that are designed to
facilitate interoperability. The Cornerstone Report concludes that
there are significant complexities associated with pricing in an
interoperating central matching services marketplace, and that more
careful analysis is needed to ensure that these complexities are
resolved in a manner consistent with the Commission's mandate. See
Cornerstone Report at 26-29.
    \65\ See BSTP August letter at 1 (citing Cornerstone Report at
n.58).
    \66\ The Commission believes that these gains in efficiency may
stem from increased competition and innovation in the market for
matching services, as discussed below in Part III.B.3.
---------------------------------------------------------------------------

    DTCC also suggests that access to multiple matching service
providers may increase the time necessary to route confirmations and
affirmations between customers and service providers, which may
interfere with market participants' ability to satisfy their
obligations under Regulation SHO. DTCC also states that duplication of
systems may result in multiple providers of Rule 10b-10 confirmations,
resulting in unnecessary duplicate systems, additional costs, and an
increased risk of errors.\67\ The Commission also finds these arguments
too speculative. First, as BSTP notes in its comment letter, the
Cornerstone Report identifies a particular scenario whereby delays in
the affirmation or matching process in connection with a long sale of
securities occurs at NSCC and leads to delivery failures, which could
occur within the existing market structure and is not specifically
caused by the existence of multiple matching service providers.\68\ The
Commission agrees that this example is not unique to an environment
with multiple matching service providers and therefore finds the
Cornerstone Report's assertions highly speculative. Second, the
operational and interoperability conditions included in the Omgeo order
are designed to limit communication errors or other delays by setting
conditions with respect to interoperability among multiple matching
service providers.\69\ Regulation SCI,\70\ which also applies to exempt
clearing agencies subject to ARP,\71\ further seeks to establish
standards for connectivity, reliability, and resiliency to minimize the
types of disruptions contemplated by DTCC. Third, the Commission notes
that the examples of potential Regulation SHO violations presented in
the Cornerstone Report, similar to the Rule 10b-10 comments discussed
above, are speculative and more fundamentally unrelated to the concerns
about efficiency raised by DTCC because, as BSTP also notes, the
absence or presence of multiple confirmation service providers was not
material or even relevant to the violations in question.\72\ The
Commission therefore believes that these DTCC comments are too
speculative and attenuated to be persuasive.
---------------------------------------------------------------------------

    \67\ See supra notes 59-60 and accompanying text. The Commission
notes that it has addressed comments expressing concerns about
duplicate systems above. In addition, the costs of establishing
linkages are addressed below in Part III.B.2.iv. The potential for
increases in systemic or operational risk are addressed,
respectively, in Parts III.B.4 and III.B.5.
    \68\ See BSTP August letter at 5.
    \69\ These conditions are also included below for BSTP and SS&C.
See infra Part IV.A.2.ii (for BSTP) and Part IV.B.2.ii (for SS&C).
    \70\ See Exchange Act Release No. 34-73639 (Nov. 19, 2014), 79
FR 72251 (Dec. 5, 2014).
    \71\ Application of Regulation SCI to exempt clearing agencies
is discussed in Part III.B.8.
    \72\ Specifically, as BSTP describes, one involved violations
that persisted over four years and the other involved allegations of
knowingly and willfully ignoring requirements. See BSTP August
letter at 5 & n.19. The Commission notes that neither has
circumstances implicating either the presence of multiple service
providers or the linkages between them.
---------------------------------------------------------------------------

    In response to DTCC, BSTP counters that Omgeo actually impedes the
move to a shortened settlement cycle by reducing the incentives for new
providers to enter the market and thereby attract market participants
to use matching services. BSTP states that it intends to service, among
others, investment managers, brokers, and custodians that currently
rely on manual processes for post-trade matching of trade and
allocation information. In particular, BSTP states that it will enable
such investment managers to gain the benefits of an electronic matching
service while continuing to use their existing workflows (fax, email,
PDF, etc.) to send allocation instructions to their executing brokers,
an important segment of market participants necessary to shorten the
settlement cycle.\73\ In contrast to the concerns raised by DTCC, BSTP
states that transmission of matched settlement data without a direct
electronic link to DTC would introduce a layer of inefficiency and
complexity that would impair efforts to move to a shortened settlement
cycle.\74\ Consistent with BSTP's position, five other commenters also
expressed the view that increasing the number of matching service
providers, by increasing efficiency, would likely also facilitate
moving to a shortened settlement cycle.\75\ The Commission does not
believe that expanding the scope of market participants engaged in
matching services will impede industry efforts to shorten the
settlement cycle because, in this situation, the availability of
multiple matching service providers will provide market participants
with more venues to match their trades in a timely, efficient manner,
thereby increasing the potential for a higher global rate of affirmed
trades within the current settlement cycle.\76\
---------------------------------------------------------------------------

    \73\ See BSTP May letter at 8. BSTP also notes that increased
resiliency is necessary to move to a shortened settlement cycle. See
id. Comments related to resiliency (i.e., operational risk) are
addressed in Part III.B.5.
    \74\ See BSTP August letter at 4. Comments regarding access to
DTC were addressed above in Part III.B.2.i.
    \75\ See AllianceBernstein at 1; Capital Market Solutions;
Puskuldjian; SIFMA AMF at 1; Traiana.
    \76\ See Exchange Act Release No. 34-49405 (Mar. 11, 2004), 69
FR 12922, 12926 (Mar. 18, 2004) (noting that it is generally
accepted that a substantial portion of the risks in a clearance and
settlement system is directly related to the length of time it takes
for trades to settle and that, in other words, time equals risk).
---------------------------------------------------------------------------

iii. Management of Control Numbers
    Related to DTCC's concerns regarding efficient access to DTC, DTCC
also raises concerns about how, under a multiple access model, control
numbers

used to identify trades throughout the trade lifecycle would be
assigned. First, DTCC explains that DTCC TradeSuite ID, which is part
of Omgeo, provides control numbers to market participants upon
receiving the trade data input from the executing broker-dealer.\77\
DTCC states that issuing control numbers from DTC, rather than
TradeSuite ID, would require substantial system changes, either through
building a new system within DTC or transferring the TradeSuite ID
control number issuance capability to DTC.\78\ Second, DTCC notes that
there are potential benefits to centralizing this data. For example,
DTCC states that centralization of time-stamped trade records at DTCC
has permitted the settlement agents and DTC to more efficiently and
effectively settle trades that failed to settle on the scheduled
settlement date, while allowing market participants to reconstruct
trades and even unwind them when appropriate.\79\
---------------------------------------------------------------------------

    \77\ See DTCC April letter at 15.
    \78\ See id.; see also Cornerstone Report at 19-22. The
Commission notes, however, that, in its comments regarding the
timeframes for building and operating interfaces, DTCC identifies
assignment of control numbers as one of the functionalities it will
need to develop with BSTP and SS&C to ensure interoperability
consistent with the conditions of the Omgeo order. See infra Part
III.B.7.ii.
    \79\ See DTCC April letter at 7.
---------------------------------------------------------------------------

    The Commission agrees that there are potential benefits to
centralizing trade data in a single repository. Indeed, BSTP states
that the creation of the control number, the transmission of the
control number to the parties involved in settlement, and the
transmission of settlement instructions to DTC are critical components
of post-trade processing, and, as such, are elements of the national
clearance and settlement system that ought to be provided on a fair and
non-discriminatory basis by DTC.\80\ BSTP further notes, however, that
even if the Commission were to continue to allow DTC to outsource
issuance of control numbers to Omgeo, DTC could simply allow BSTP to
generate its own control numbers on DTC's behalf. BSTP states that,
whatever the approach, it is capable of enriching a confirmation with a
control number, thereby providing the same benefit of efficiently and
effectively settling trades, as provided by the existing
infrastructure.\81\
---------------------------------------------------------------------------

    \80\ See BSTP May letter at 14.
    \81\ See id.
---------------------------------------------------------------------------

    DTC rule change SR-DTC-2001-11 was approved to allow DTC to accept
and act upon instructions provided by a matching service provider, and
if centralization of trade data is necessary for such settlement, DTC
has undertaken, in its capacity as a registered clearing agency and
SRO, to perform such services.\82\ Further, centralization of trade
data remains possible under a multiple access model supported by
consistent data standards and identifiers. In this regard, BSTP notes
that DTC could ensure that control numbers generated by BSTP are
distinguishable from those generated by Omgeo by requiring, for
example, use of a ``B'' prefix for the former and an ``O'' prefix for
the latter.\83\
---------------------------------------------------------------------------

    \82\ See supra Part III.B.2.i.
    \83\ See BSTP May letter at 14 n.41.
---------------------------------------------------------------------------

iv. Costs of Linkages
    DTCC states that both the DTCC complex and market participants
would face increased costs if the multiple access model contemplated by
the BSTP and SS&C applications were implemented, and that the risks and
costs of building and testing these connections would multiply
exponentially as additional matching service providers enter the
market.\84\ DTCC states that the Commission should therefore allow the
industry to avail itself of the systems and controls that have already
been established through Omgeo, an industry-owned utility.\85\ First,
DTCC states that DTC would have to develop, build, and maintain new
systems to interoperate with BSTP and SS&C. DTCC states that it would
have to modify its internal systems and network management
infrastructure and build in capabilities to prepare for the possibility
of additional central matching services with direct access to DTC, and
that BSTP and SS&C would also incur substantial costs.\86\ DTCC states
that, as DTC's systems become more complex, DTC's maintenance
requirements would also become more complex and costly, costs which
would be borne by industry participants and ultimately investors.
According to DTCC, these additional costs would also require DTC to
reprioritize other critical projects, thereby potentially delaying
important industry initiatives intended to make the national clearance
and settlement system more secure and efficient.\87\ Second, DTCC
states that market participants involved in the settlement of trades
matched by BSTP and SS&C would need to develop, build, and maintain new
interfaces and reengineer internal systems to receive and process
messages from BSTP and SS&C. DTCC also states that market participants
would inevitably bear at least some of the costs incurred by DTC, BSTP,
and SS&C, as those costs are passed on to investors.\88\
---------------------------------------------------------------------------

    \84\ See DTCC April letter at 11
    \85\ See DTCC April letter at 11; Cornerstone Report at 18-19.
    \86\ Specifically, DTCC states that BSTP and SS&C would be
required to (i) implement a redundant fault tolerant network design,
including interfaces that ensure robust security protocols and
processes based on DTCC standards, and (ii) build access to the
custodian/settlement agent community to implement the multiple
access model, imposing significant time, cost and other resources on
BSTP, SS&C, and the custodians/settlement agents, costs that DTCC
states would inevitably be passed on to investors. See DTCC April
letter at 11.
    \87\ See id. at 12.
    \88\ See id. at 11; Cornerstone Report at 24.
---------------------------------------------------------------------------

    With respect to the implementation of new network designs and
interfaces, and the provision of access, the Commission is unpersuaded
that the prospect of additional expenses merits denial or modification
of the applications. The Commission acknowledges that the entry of BSTP
and SS&C into the market for matching services may initially result in
additional investments by BSTP, SS&C, Omgeo, and DTC, as well as
potentially a number of other market participants who rely upon such
entities in various capacities. Neither DTCC nor any of those entities
quantified the associated costs, however. The Commission expects that,
as for-profit entities, neither BSTP nor SS&C would choose to bear
these costs, including costs passed through from DTC, unless either
believed it could do so profitably. While there may be initial costs
required to establish new linkages, these new linkages will introduce
competition and choice into the market for matching services, providing
new opportunities for innovation that may reduce costs to market
participants in the long run, as discussed further below. Indeed, there
was unanimity in the comments by market participants about the impact
on costs passed down to them: twenty-three market participants or
industry groups commented on the BSTP application and expressed no
concerns about costs being passed on to them. Rather, as noted
previously, many of the commenters stated the opposite--that the
introduction of new matching service providers would reduce costs to
industry.\89\
---------------------------------------------------------------------------

    \89\ See, e.g., infra note 94 and accompanying text regarding
reduced costs.
---------------------------------------------------------------------------

    With respect to implementation difficulties, the Commission is
unpersuaded that the prospect of expenditures merits denial or
modification of the applications. As previously discussed, both Omgeo
and DTC agreed to a number of conditions that anticipated, and were
designed to facilitate, the possibility of new matching service
providers.\90\ The

Commission notes that neither DTCC nor the Cornerstone Report provided
concrete descriptions of which critical projects would be delayed, or
for how long. Further, as a registered clearing agency, DTC has
obligations under Section 17A(b)(3)(F) of the Exchange Act to foster
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions, which it cannot abrogate due to
cost. To the extent that DTCC reprioritizes projects, entities within
the DTCC complex registered pursuant to Section 17A of the Exchange Act
must continue to meet their legal and regulatory obligations.
---------------------------------------------------------------------------

    \90\ See supra notes 37-50 and accompanying text.
---------------------------------------------------------------------------

3. Competition, Choice, and Innovation
    Section 17A of the Exchange Act directs the Commission, in
facilitating the establishment of the national clearance and settlement
system, to have due regard for, among other things, maintenance of fair
competition among clearing agencies.\91\ Below is an overview of
comments related to competition. The Commission also received comments
about choice and innovation, which are discussed below.
---------------------------------------------------------------------------

    \91\ See 15 U.S.C. 78q-1(a)(2)(A).
---------------------------------------------------------------------------

    One commenter states explicitly that approving the BSTP application
would be consistent with the objectives of Section 17A of the Exchange
Act and investor protection by promoting the integrity of the financial
markets.\92\ DTCC, however, states that it is unclear whether the
national clearance and settlement system can effectively sustain
competition among multiple matching services and that the outcome of
such competition may be that a for-profit entity becomes the primary
provider of matching services. DTCC questions whether a for-profit
entity like BSTP or SS&C can ensure that pricing decisions will be
undertaken in a way that benefits the long-term best interest of the
industry.\93\
---------------------------------------------------------------------------

    \92\ See SIFMA AMF at 2.
    \93\ See Cornerstone Report at 5-6, 29-30.
---------------------------------------------------------------------------

    There was unanimous support for new entrants to provide matching
services. Several commenters anticipated that additional providers of
matching services would yield benefits, namely increases in
competition, choice, and innovation within the market for matching
services.\94\ Twelve commenters identified as a related benefit a
reduction in costs to market participants generally.\95\ In addition,
four commenters cited BLP's role in BSTP's proposed matching service
and BLP's overall reputation as positive aspects of the BSTP
application.\96\ BSTP states that its application will promote fair
competition, consistent with Section 17A(a)(2)(A),\97\ and SS&C
similarly notes that its application would allow for competition in the
area of institutional trade matching.\98\ In its comment letters, DTCC
generally expressed support for the promotion of competition in service
offerings to customers, including ETC and matching services to
registered broker-dealers, investment managers, and custodians/
settlement agents. DTCC states that competition in service offerings,
including ETC and matching services to registered broker-dealers,
investment managers, and custodians/settlement agents, may permit
useful innovation and product alternatives, to the benefit of industry
participants and ultimately to investors.\99\
---------------------------------------------------------------------------

    \94\ See AllianceBernstein at 1; Altieri; Anonymous; Connolly;
Denci; Dore; Durant; Fidessa; James; Lang; Matthews; McCafferty;
Naratil; Northern Trust; Puskuldjian; Scuteri; SIFMA AMF at 1-2;
Traiana.
    \95\ See AllianceBernstein at 1 (noting that reduced costs would
be a natural economic byproduct of the increased availability of
service providers, promoting trading and liquidity in the market);
Ambos (noting that Omgeo's matching service potentially charged its
group three times, as broker-dealer, outsourcer, and custodian,
which the commenter stated may not be necessary if BSTP offers a
matching service); Capital Market Solutions (noting that the ability
to choose between matching services on a per-trade basis will help
firms test services without having to invest in a large upfront
cost); Connolly (noting that competition keeps prices at market
rates); James; Lang (noting that adding a capable competitor in the
post-trade processing space will lead to innovation which will
ultimately result in lower transaction costs); Puskuldjian;
Ransford; Scuteri (noting that competition allows the free market to
dictate fair pricing); SIFMA AMF at 2; Traiana; see also Dore
(noting that the absence of competition results in a lack of fee
transparency).
    \96\ See Altieri; Connolly; James; Ransford.
    \97\ See BSTP May letter at 4; see also 15 U.S.C. 78q-
1(a)(2)(A).
    \98\ See SS&C letter at 1.
    \99\ See DTCC June letter at 2; DTCC May letter at 2; DTCC April
letter at 2.
---------------------------------------------------------------------------

    Despite general agreement on the benefit of competition among
matching service providers, DTCC and the applicants disagreed on the
specific terms under which new entrants would compete with Omgeo, the
only current matching service provider. DTCC states that the conditions
on access and pricing in the BSTP and SS&C notices should be
reconsidered. While noting that the conditions are substantially the
same as those imposed on Omgeo, DTCC offers several bases for
modification: Changes in the marketplace (including DTCC's 2013
purchase of Thomson Financial's outstanding ownership interest in
Omgeo), differences in the ownership and governance of Omgeo and the
applicants, differences in the related services offered by applicants'
affiliates, differences in the pricing structures of Omgeo and the
applicants, and changes in law and regulation since 2001.\100\ DTCC
states that the pricing and access conditions in the Omgeo order
derived largely from concerns that central matching, which at the time
was provided by DTC as an industry utility, would be performed by a
separate for-profit entity in Omgeo. According to DTCC, the concern was
that Omgeo could restrict competitors' access to DTC and give Omgeo an
unfair advantage through differential pricing, lack of
interoperability, and preferential treatment of Omgeo's clients by DTC.
Therefore, Omgeo represented in its request for an exemption that it
would not impose prohibitions or limit access to its services by
potential customers, though it might terminate a subscription for
failure to pay fees. According to DTCC, now that Omgeo is a wholly-
owned subsidiary of DTCC, it does not compete with BSTP or SS&C for
customers, while BSTP and SS&C are for-profit entities and therefore
subject to the incentive to limit access to competitors.\101\ DTCC says
the Commission should impose on BSTP, and where applicable BLP, pricing
and access conditions appropriate to the specific roles of each within
the national market system and the national clearance and settlement
system.\102\
---------------------------------------------------------------------------

    \100\ See DTCC April letter at 18-19.
    \101\ See DTCC April letter at 18-19; DTCC May letter at 16;
Cornerstone Report at 5-6.
    \102\ See DTCC April letter at 19; Cornerstone Report at 5-6.
For purposes of the below discussion, the Commission assumes that
DTCC would seek to impose the same on SS&C and its parent company
and/or affiliates.
---------------------------------------------------------------------------

    In response to DTCC's comments above, SS&C comments that it is not
for DTCC to determine the affordability of its offering but rather for
the marketplace to decide. SS&C states that it is fully committed to
honoring the pricing and access conditions set forth in the SS&C
application and notice. SS&C also notes that while Omgeo may not
compete for customers in the United States, it does in other
jurisdictions, including Canada, where Omgeo and SS&C are already
direct competitors.\103\
---------------------------------------------------------------------------

    \103\ See SS&C letter at 5.
---------------------------------------------------------------------------

    DTCC also raises several competition concerns specific to the BSTP
application. First, DTCC questions whether BSTP might bundle its
matching service with other BLP services, raising potential antitrust
concerns by creating a disincentive for BLP customers to use Omgeo's
matching service. DTCC states that BLP should clarify its intentions
with regard to

bundled pricing and that the Commission should clarify whether BSTP may
offer different prices to distinct groups of customers while requiring
fair access to BSTP's matching service. DTCC also requests that any
determination to grant BSTP an exemption be expressly conditioned on
BSTP not engaging either in tying of its matching service to other BLP
services or in bundled pricing with respect to its matching service.
DTCC requests that BSTP be required to make its matching service
``separately available'' to someone who does not wish to purchase any
other BLP service.\104\ Second, DTCC questions whether BSTP might
deplete Omgeo's high-volume customer base, requiring Omgeo to either
(i) raise prices on its remaining customers to cover its fixed costs or
(ii) leave prices unchanged, thereby through DTCC subsidizing BLP's
operations. DTCC stated that BSTP, as a for-profit entity, should not
be allowed to provide matching services in an anti-competitive manner
by targeting solely larger, more actively trading end-users while not
permitting fair access to smaller, less active end-users. In this
regard, DTCC also states that BSTP should not be allowed to condition
use of its matching service on customers renting Bloomberg
Terminals.\105\
---------------------------------------------------------------------------

    \104\ See DTCC April letter at 21 & n.64.
    \105\ See id. at 19 & n.59.
---------------------------------------------------------------------------

    In response to the multiple comments summarized above, BSTP
comments that DTCC's assertion of potential antitrust concerns has no
merit and that DTCC does not offer any logical explanation of how
approving the BSTP application, and thereby introducing Omgeo's first
competitor, could harm competition, but notes that it may affect
Omgeo's current monopoly and DTCC's own business interests.\106\ BSTP
also responds that there is nothing unusual or pernicious in the fact
that BSTP will be a for-profit business, noting that many SEC-regulated
entities, including those operating pursuant to exemptions, are for-
profit. Indeed, BSTP further notes that, in the Omgeo order, the
Commission observed that Omgeo would be operated on a for-profit
basis.\107\
---------------------------------------------------------------------------

    \106\ See BSTP May letter at 22.
    \107\ See id. at 19-20 n.59.
---------------------------------------------------------------------------

    Lastly, DTCC states that the Commission should require conditions
on access to BSTP's FailStation product that are similar to those
required for Omgeo's ALERT service and contained in the Omgeo order.
DTCC cites BSTP's own description of FailStation as an industry utility
that aggregates failed trade and settlement pre-matching data from all
trade counterparties in real time into a single report for the
investment manager, custodian, and broker. DTCC draws parallels between
access to FailStation and access to ALERT, noting that commenters
expressed concerns about access to ALERT after the creation of Omgeo,
and the conditions were included to provide assurances that other
central matching services and persons that represent or otherwise
provide services to customers (i.e., end-users) of Omgeo would have
access to ALERT on fair and reasonable terms.\108\ BSTP responds that
FailStation is a product offered by Bloomberg Finance LP and is made
available to all market participants who wish to purchase it, and
accordingly there is no reason to impose a regulatory obligation on
BSTP to ensure FailStation remains accessible to market participants.
In discussing the comparisons made by DTCC between FailStation and
Omgeo's ALERT service, BSTP states that the two are completely
different services because ALERT is a database of customer relationship
information and settlement data that is shared by institutions, broker-
dealers, and custodians. According to BSTP, FailStation is, by
contrast, a tool that allows users of BSTP's service to monitor and
manage pre- and post-settlement exceptions for a particular trade in
real time.\109\
---------------------------------------------------------------------------

    \108\ See DTCC April letter at 20 & n.63.
    \109\ See BSTP May letter at 26 & n.83.
---------------------------------------------------------------------------

    Because of the interconnected nature of DTCC's many concerns raised
above regarding the appropriateness of the access and pricing
conditions contained in the BSTP and SS&C notices, the Commission will
address them together. With respect to the absence of access and
pricing conditions within the BSTP and SS&C applications reflective of
their role in the marketplace, the Commission is unpersuaded that the
prospect of bundling services, cross-subsidization of services,
profitability, restrictions on access to unrelated services, and other
like concerns merits denial or modification of the applications. To
clarify, the Commission disagrees with DTCC's characterization of the
historical purpose of these conditions under the Omgeo order as being
tied to any particular applicant's ownership model or any particular
marketplace structure.\110\ As the Commission stated in the Omgeo
order, the Commission intended to require substantially the same
conditions for other matching service providers,\111\ and did not
distinguish among future hypothetical applicants on the basis of their
non-profit or for profit status, governance structures, affiliated
companies, or other factors related to the marketplace as a whole.
Instead, these conditions were intended to assure that matching service
providers other than Omgeo receive equal treatment by DTC, an affiliate
of Omgeo.\112\ Additionally, the Commission does not see how Omgeo's
status as a subsidiary of DTCC affects whether it will compete with
BSTP and SS&C. That Omgeo does not compete with any other matching
service provider currently is solely a reflection of its position as
the only current matching service provider in the U.S. market.
Moreover, DTCC's comments, including its concern the BSTP may deplete
Omgeo's high-volume customer base, demonstrate that DTCC does
anticipate competing with BSTP and SS&C for customers, in line with the
Commission's expectation that market forces resulting from the
introduction of multiple matching service providers would necessarily
drive customer choice in this regard.
---------------------------------------------------------------------------

    \110\ See, e.g., DTCC April letter at 18-19; see also DTCC May
letter at 16.
    \111\ See Omgeo order, supra note 37, at 20498.
    \112\ See id.; see also supra note 43 and accompanying text.
---------------------------------------------------------------------------

    The Commission also disagrees with DTCC's attempts to draw a
parallel between the role that DTC and associated settlement system
products (such as ALERT) play in the national clearance and settlement
system and the role that Bloomberg Terminals, FailStation, and other
BLP products play in the national clearance and settlement system.
Despite any promotional claims that such products are industry
utilities, from a regulatory perspective, Bloomberg Terminals,
FailStation, and other BLP products primarily provide functionality for
executing trades rather than clearing and settling trades. DTC, in
contrast, as a registered clearing agency and the CSD for U.S.
equities, is a critical element of the national system for clearance
and settlement. In addition, the arguments presented by DTCC raising
concerns over the potential for BSTP to bundle are speculative and the
Commission believes that allowing market forces to determine whether
bundling, Bloomberg Terminals access, or any other factor influences
either high- or low-volume customer choice to be appropriate at this
juncture.
    With respect to modifying the conditions as applied to SS&C and
BSTP, the Commission believes that market conditions continue to
support consistent treatment across matching service providers. The
Commission believes that a potential overlap in targeted customer bases
between the

applicants and Omgeo is not a sufficiently compelling reason to support
modifying the conditions because the conditions were included to
facilitate competition and that necessarily implied competition for
customers.
    With respect to innovation, both BSTP and SS&C state that their
applications will promote new data processing techniques and
technology-driven solutions. For example, SS&C states that its service
stands out in terms of its flexibility,\113\ while BSTP states that its
offering stands out in terms of potential synergies with other tools
currently used.\114\ Congressional findings cite to techniques that
create the opportunity for more efficient, effective, and safe
procedures, and the Commission believes that the description of
services in the BSTP and SS&C applications may promote such
opportunities, which are consistent with the public interest and the
protection of investors.
---------------------------------------------------------------------------

    \113\ See BSTP letter at 3-4.
    \114\ See SS&C letter at 3.
---------------------------------------------------------------------------

    On balance, the Commission believes that the access and pricing
conditions in the BSTP and SS&C notices would promote fair competition.
New entrants such as BSTP and SS&C could foster competition in the
provision of matching services by competing with Omgeo by reducing the
cost of matching services to broker-dealers and institutional customers
or increasing the quality or type of services offered. Competition, in
turn, could foster innovation in the market for matching services,
resulting in more efficient matching and communications systems.
i. Impact of Applicants' Workflows on Competition, Choice and
Innovation
    Competition, choice, and innovation are not only addressed by
commenters in the context of the general prospect of new entrants BSTP
and SS&C, but also within the context of the discussion raised by DTCC
regarding BSTP and SS&C's multiple access model workflow and DTCC's
alternative single access model workflow. DTCC states that the
Commission should distinguish competition in central matching from
competition in access to settlement and related functions (e.g.,
providing internal control numbers and sending matching confirmation
and settlement instructions to settlement agents and DTC). The
Commission has previously described DTCC's position that the single
access model is the optimal way to support competition in matching in
Part III.B.2.i.\115\ DTCC states that requiring BSTP and SS&C to send
trade instructions to DTC solely through the existing infrastructure
would not impose a burden on competition not necessary or appropriate
in furtherance of the purposes of the Exchange Act because it would be
justified by the benefits to the clearance and settlement system
resulting from greater visibility for DTC and its participants into
pre-settlement trade activity, enabling firms to correct errors before
fails occur and reducing the number of places in the trade lifecycle
where an error in settlement could occur without imposing additional
costs on industry, as DTCC states the multiple access proposal
would.\116\
---------------------------------------------------------------------------

    \115\ See DTCC June letter at 2-3; DTCC May letter at 2; DTCC
April letter at 3.
    \116\ See DTCC April letter at 14 n.45.
---------------------------------------------------------------------------

    In response, BSTP states that using Omgeo, as DTCC proposes,
creates an unjustified barrier to entry, discouraging vendors from
entering the matching services business because of the limited scope of
services they would be able to provide outside Omgeo and because a
competitor, Omgeo, would continue to control certain basic matching
services functions. For example, BSTP states that such a workflow would
place a competitor between the matching service provider and DTC, and
between the matching service provider and custodians and settlement
agents.\117\ BSTP states that DTCC's recommendation to use Omgeo
reflects a fundamental conflation of DTCC's commercial interests as an
unregulated holding company with the regulatory obligations of its
subsidiaries, including DTC and Omgeo. BSTP further notes that the
Cornerstone Report focuses primarily on how the approval of the BSTP
application could affect Omgeo and Omgeo's business model, which BSTP
states is itself rooted in a de facto monopoly over matching services.
BSTP notes that DTC is subject to the full range of requirements under
Section 17A of the Exchange Act while Omgeo is subject to the terms of
the Omgeo order. BSTP states that DTCC fails to distinguish between its
own corporate business interests and the requirements applicable to DTC
under the Exchange Act and Omgeo under the Omgeo order.\118\ BSTP also
states that mandating usage of Omgeo would hamper innovation because it
would preserve the status quo, eliminating incentives for DTCC and its
affiliates to innovate or to upgrade or improve infrastructure.\119\
---------------------------------------------------------------------------

    \117\ See BSTP May letter at 6-7.
    \118\ See id. at 8-9.
    \119\ See id. at 7.
---------------------------------------------------------------------------

    BSTP states that direct access to DTC is essential to the matching
services concept and critical to the national system for clearance and
settlement. BSTP states that DTCC's recommendation for a single-access
model draws a fundamentally incorrect and inappropriate dichotomy by
highlighting the distinction between matching services and access to
settlement functions because it suggests that a matching service
consists only of the internal function of comparing data and not the
function of transmitting an affirmed confirmation to DTC. BSTP notes
that previous Commission statements have clarified that a matching
service seeking an exemption from registration as a clearing agency
would be required to establish an electronic link to a registered
clearing agency that provides for the settlement of its matched
trades.\120\ According to BSTP, this recognizes that the capability of
a matching service to send affirmed trades directly to DTC is critical
to a safe and sound process for clearing and settling trades in the
national clearance and settlement system, and that mandating the use of
Omgeo would frustrate and impair the benefits that matching services
bring to market participants.\121\
---------------------------------------------------------------------------

    \120\ See id. at 9. For discussion of previous Commission
statements on the requirements that an entity seeking an exemption
to provide matching service would need to satisfy, see the Matching
Release, supra note 13, at 17947 n.28.
    \121\ See BSTP May letter at 10.
---------------------------------------------------------------------------

    BSTP also states that mandating the use of Omgeo would be
inconsistent with DTC's obligations as a registered clearing agency.
Citing Section 17A(b)(3)(F) and (I) of the Exchange Act, BSTP states
that DTC has an obligation to maintain rules that foster cooperation
and coordination with persons engaged in the clearance and settlement
of securities transactions, that remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions, and that do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act. BSTP states that mandating the use of
Omgeo would be inconsistent with these obligations because DTCC would
have the Commission adopt a requirement that favors one or more of
DTCC's wholly-owned subsidiaries when Section 17A imposes an
affirmative obligation to facilitate the development of matching
services in a manner that

does not burden competition and that facilitates the linking of
clearance and settlement facilities.\122\
---------------------------------------------------------------------------

    \122\ See id.
---------------------------------------------------------------------------

    BSTP notes that access to DTC was a major concern when the
Commission issued the Omgeo order, and the Commission has above already
assessed DTC's arguments regarding efficient access to DTC against the
historical background to the Omgeo order and related DTC rule
filings.\123\ For example, citing DTCC's comment letters from that
period, BSTP states that, in moving TradeSuite to Omgeo, DTCC promised
that vendors acting on behalf of DTC participants will be able to
transmit settlement instructions directly to DTC without the
involvement of Omgeo.\124\ BSTP also cites DTCC's comment letter
stating that it shall not favor any single matching service provider
over any other in terms of the quality and caliber of the interface to
DTC's clearing agency or settlement functions, quality of connectivity,
receipt of delivery and payment orders, speed or processing of delivery
and payment orders, capacity provided, or priority assigned in
processing delivery and payment orders. BSTP also cites DTCC's
statement that DTC's longstanding practice of providing members of the
financial industry with equal, standardized access to DTC's services
will continue after the formation of Omgeo, and that such practice is
required by Section 17A of the Exchange Act and subject to Commission
oversight.
---------------------------------------------------------------------------

    \123\ See supra notes 37-50 and accompanying text.
    \124\ See BSTP May letter at 10.
---------------------------------------------------------------------------

    Further, BSTP states that mandating the use of Omgeo would require
DTC to propose an unjustifiable rule change. BSTP notes that, as a
registered clearing agency, DTC is a rules-based organization, and BSTP
further notes that DTCC has cited to no rule that would require
matching services to use Omgeo to access DTC. BSTP states that, if DTC
wished to adopt such a requirement, it would be required to submit a
proposed rule change, subject to notice, public comment, and Commission
review and approval. BSTP notes that DTC has not submitted such a
proposed rule change and further notes its belief that any such
proposed rule change would be unsupportable under the Exchange
Act.\125\
---------------------------------------------------------------------------

    \125\ See id. at 12.
---------------------------------------------------------------------------

    SS&C states in its letter that it is in complete agreement with
BSTP's response on matters where the concerns raised by DTCC are
substantially the same between the BSTP and SS&C applications,
including the single versus multiple access question.\126\ Separately,
SS&C also notes that, under DTCC's proposal for a single access model,
competition as it relates to institutional post-trade processing would
be confined to central matching while all other key ancillary services
would remain outside this scope, subject to DTCC control as part of
Omgeo. As noted previously, SS&C infers from DTCC's position that Omgeo
would impose the same charges on competing matching services as they do
on clients today and states that, should the Commission accept this
position, SS&C doubts that any service would find it economically
viable to enter the market for post-trade services to compete with
Omgeo.\127\
---------------------------------------------------------------------------

    \126\ See SS&C letter at 4.
    \127\ See SS&C letter at 3. For prior discussion of these
expected surcharges, see Part III.B.2.i, and supra notes 53-54 and
accompanying text.
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    The Commission is unpersuaded that, in considering the prospect of
competition among matching service providers, it must find that a
single, direct link to DTC through Omgeo is the only outcome sufficient
to support approval of the BSTP and SS&C applications. As discussed
previously, the Commission has already approved DTC rule change SR-DTC-
2001-11, which authorized DTC to accept from a matching service
provider a file of deliver order instructions to settle transactions
between DTC participants that have authorized DTC to accept such
instructions from the matching service provider.\128\ The Commission
notes that DTCC states that its Investment Management System (``IMS'')
may receive deliver orders from multiple sources, including Omgeo as
well as other matching service providers.\129\
---------------------------------------------------------------------------

    \128\ See supra notes 47-50 and accompanying text.
    \129\ See DTCC, Inventory Management System, available at http://www.dtcc.com/asset-services/settlement/inventory-management-system
(last accessed Nov. 2, 2015) (discussing IMS transaction types,
including code ``MITS''--matched institutional deliveries sent to
IMS from Omgeo or another matching utility).
---------------------------------------------------------------------------

    Further, the Commission is unpersuaded that it should deviate from
this existing regulatory framework because of DTCC's proposed vision
for how competition among matching service providers could work. As
discussed above, the Commission notes that it has previously described
its expectation that an entity seeking an exemption as a matching
service provider would be required to establish an electronic link to a
registered clearing agency that provides for the settlement of its
matched trades.\130\ The Commission specifically expressed concern
about the concentration of risk that occurs in an entity that performs
matching services instead of dispersing that risk more broadly to
broker-dealers and their institutional customers. The Commission's
concerns regarding concentration of risk--whether through aggregation
of activity in multiple matching service providers, or further
aggregation of trade enrichment activity under a single access model--
remain unchanged from those expressed in the Matching Release, even if
multiple links to DTC result in some implementation costs.
---------------------------------------------------------------------------

    \130\ See Matching Release, supra note 13, at 17947 n.28.
---------------------------------------------------------------------------

4. Systemic Risk
    Within the concept of requiring linked or coordinated facilities
for clearance and settlement of securities transactions is the
implication that any one facility that is connected to other facilities
could generate externalities that can affect the system as a whole. If
such externalities can create disruptions to the national system for
clearance and settlement, then the prospect of such systemic risk
implicates facilitating the establishment of linked or coordinated
systems.
    The Commission received multiple comments addressing the expected
effect of the BSTP and SS&C applications on systemic risk. BSTP notes
in its comment letter that the BSTP application promotes investor
protection by providing a prompt and accurate matching service that
eliminates a single point of dependency in the current market
infrastructure for matching services, thus enhancing the robustness of
the clearance and settlement system.\131\ As noted above, BSTP also
highlights that its application promotes efficiency by enabling
straight-through processing throughout the entire trade lifecycle,
which it states will contribute to increases in same-day affirmation
rates and in settlement rates.\132\ As to SS&C, as noted above, SS&C
states that it is in agreement with BSTP on those points that overlap
between the BSTP and SS&C applications.\133\
---------------------------------------------------------------------------

    \131\ See BSTP May letter at 3; see also BSTP August letter at
2-4.
    \132\ See id.; see also supra note 31 and accompanying text.
    \133\ See supra note 24 and accompanying text.
---------------------------------------------------------------------------

    Multiple commenters agree with BSTP and SS&C. Ten commenters note
that increasing the number of matching service providers would remove
the single point of dependency present in the existing market
infrastructure for matching services, decreasing the risks associated
with a single point of failure.\134\ Similarly, four commenters

cite improved confirmation/affirmation rates overall as anticipated
benefits of having multiple matching service providers,\135\ and one of
those commenters also notes the related benefit of a likely reduction
in settlement fails.\136\ An additional commenter supports the approval
of additional providers of matching services where the matching service
(i) supports standardized message formats and processing procedures,
(ii) adheres to interoperability principles with current and future
providers, (iii) accommodates increased volume on a scalable basis
sufficient to function as a continuity of business alternative in the
event other providers experience operational issues or failure, (iv)
facilitates a shortened settlement cycle, and (v) supports straight
through processing.\137\
---------------------------------------------------------------------------

    \134\ See AllianceBernstein at 1; Ambos; Capital Market
Solutions; Connolly; Denci; Fidessa; Northern Trust; Ransford;
Scuteri; SIFMA AMF at 2.
    \135\ See Capital Market Solutions; Lang; Matthews; Puskuldjian.
    \136\ See Puskuldjian.
    \137\ See Citi at 1-2. The Commission notes that the aspects of
this comment are addressed throughout this order: Concerns related
to standardized messaging formats and processing procedures are
discussed in Parts III.B.2.i, iii, and iv; concerns related to the
sufficiency of an applicant to provide a business continuity
alternative are discussed in Part III.B.5; concerns related to
interoperability are discussed in Part III.B.7; and concerns related
to a shortened settlement cycle and straight-through processing are
discussed in Part III.B.2.ii.
---------------------------------------------------------------------------

    In its comment letters and in the Cornerstone Report, however, DTCC
raises multiple concerns about the effect of the applications on
systemic risk. Central to the disagreement between the applicants and
DTCC is whether BSTP and SS&C should have direct access to DTC.
Further, to the extent that BSTP and SS&C have direct access to DTC,
DTCC states that such linkage arrangements may increase systemic risk
to the market's settlement infrastructure. DTCC also disagrees with
commenters stating that the BSTP and SS&C applications will alleviate
the single point of dependency problem that exists in the current
market infrastructure, stating that a single market participant is
unlikely to subscribe to two separate matching service providers and
therefore not increase the resiliency that results from redundant
systems.\138\ In addition, DTCC raises other concerns regarding the
solvency of BSTP, SS&C, their respective parent companies, and their
respective affiliates; the resiliency of SS&C, its parent company, and
its affiliates; and the volume limits represented in the SS&C
application.
---------------------------------------------------------------------------

    \138\ See Cornerstone Report at 4-5.
---------------------------------------------------------------------------

i. Single Point of Dependency
    First, BSTP states that Omgeo represents a single point of failure
for matching services because it is the only means of accessing DTC for
settlement.\139\ BSTP states that a resilient environment is needed in
matching services, which can be achieved through the introduction of
additional matching service providers if they are allowed to establish
separate, redundant connections to DTC and market participants.\140\
BSTP states that centralization of records is worrisome and that
introducing an additional venue for storing records will benefit the
marketplace by alleviating reliance on a single entity.\141\ BSTP notes
that a single access model would prevent the establishment of separate,
direct connections to DTC and therefore eliminate the benefit that
multiple pathways would provide, such as alleviating message traffic
congestion during high volume trading periods (such as near the time of
market close). In its comment letters, BSTP states that it will provide
increased resiliency by providing an alternative means for affirmed
confirmations to be transmitted to DTC, custodians, and settlement
agents.\142\
---------------------------------------------------------------------------

    \139\ See BSTP May letter at 6.
    \140\ See BSTP August letter at 3-4. BSTP cites to recent events
in which the presence of multiple service providers and points of
connectivity helped facilitate trading on alternate trading venues
when the primary listing venue suffered a disruption. See id. at 4 &
n.12.
    \141\ See id. at 17.
    \142\ See id. at 8.
---------------------------------------------------------------------------

    DTCC counters that allowing both BSTP and SS&C to access DTC
directly would increase systemic risk relative to a single access model
because a single access model has fewer interfaces within the market
infrastructure that provides matching services, meaning fewer potential
points of failure, less complexity, and therefore less risk to the
national clearance and settlement system.\143\ DTCC also notes that,
under the current model, when a broker-dealer executes an institutional
trade, they provide a trade record and Omgeo assigns a control number
to be used throughout the trade lifecycle, allowing DTC, market
participants, and regulators to track the phases of one or more trades
over time.\144\ In addition, the Cornerstone Report states that a
multiple access model can only reduce the single-point-of-dependency
problem during a matching service provider outage when the two parties
to a trade have access to multiple matching service providers and can
easily transition from using one to using the other.\145\ The
Cornerstone Report also states that, even if a second market entrant
could feasibly provide matching services, further complexities may
arise when additional entrants become matching service providers.\146\
---------------------------------------------------------------------------

    \143\ See DTCC April letter at 11, 13; Cornerstone Report at 6,
23.
    \144\ See DTCC April letter at 7; DTCC May letter at 3-15.
    \145\ See Cornerstone Report at 23-24.
    \146\ See id. at 41.
---------------------------------------------------------------------------

    The Commission notes that it has already addressed several
arguments related to efficiency concerns regarding access to DTC in
Part III.B.2.i. On the single point of dependency question, the
Commission agrees with BSTP and disagrees with DTCC. As DTCC correctly
notes, the risk that the clearance and settlement system would fail
during times of market stress, such as the 1987 market break, has been
described as the single most important threat to the U.S. financial
system, and that settlement failures, if widespread, can have a
systemic impact on the national clearance and settlement system while
imposing significant costs on market participants.\147\ As described
above, the Commission maintains the concerns it expressed within the
Matching Release with respect to concentration of processing risk in a
single matching service provider.\148\ On balance, the Commission
believes that the redundancy created by more interfaces and linkages
within the settlement infrastructure increases resiliency, as suggested
by BSTP. In the event of a disruption in services at Omgeo, the
redundancy facilitated by the addition of matching services provided by
BSTP and SS&C makes it more likely that market participants can
continue to match and settle trades than if Omgeo stands as a necessary
intermediary for settlement at DTC.
---------------------------------------------------------------------------

    \147\ See DTCC April letter at 1-2, 3.
    \148\ See Matching Release, supra note 13, at 17946.
---------------------------------------------------------------------------

    The Commission acknowledges, as noted by DTCC, that in order for
one matching service provider to facilitate redundant access to DTC in
the event Omgeo or another matching service provider experiences a
disruption, customers will need to have access to multiple matching
service providers. The Commission notes that, unlike participants in a
CCP, customers of a matching service provider are not subject to
requirements to determine suitability for membership. Because obtaining
access to a matching service provider is not subject to determinations
regarding suitability for membership, the Commission expects that
customers could gain access to a secondary matching service provider
with enough

ease to meaningfully reduce disruption to the marketplace, as compared
to a scenario where access to DTC is not redundant.
    With respect to the direct links proposed by the BSTP and SS&C
applications, the Commission is unpersuaded that the prospect of
increased technical complexity merits denial or modification of the
applications. As BSTP notes in its comment letter, technological
improvements since approval of the Omgeo order have increased the
ability to establish safe and secure communication links.\149\ Further,
BSTP states that there is nothing new or unique about the activities
that will be required of DTC to establish an interface with BSTP. BSTP
states that it would expect to use the same protocol as Omgeo, and
notes that the comment letters demonstrate that market participants do
not view linkage requirements as disadvantageous.\150\ According to
BSTP, whether the trade instructions are in a proper format requires
only the use of an agreed protocol. BSTP further states that BSTP's
matching service will use industry standard communication, message, and
file-transfer protocols and will be able to ensure that the trade
instructions sent to DTC are in the proper format.\151\ BSTP states
that, like many industry participants, its affiliates also currently
maintain as part of their day-to-day operations multiple connections
with a variety of pre- and post-trade services (including Omgeo) using
FIX and other standardized protocols.\152\ As BSTP correctly notes,
even DTCC acknowledges that Omgeo currently interfaces with over 60
vendors, including a BSTP affiliate, on behalf of its customers.\153\
---------------------------------------------------------------------------

    \149\ See BSTP May letter at 11.
    \150\ See id. at 13 (citing to SIFMA AMF for the point that
additional service providers will permit firms to improve upon
contingency strategies and disaster recovery models as well as allow
firms to diversify their support model and mitigate risk by moving
trade volume to other service providers if one is experiencing
interruptions or outages).
    \151\ See id. at 15.
    \152\ See id.
    \153\ See id. at 12 n.37.
---------------------------------------------------------------------------

    The Commission acknowledges that there may be externalities
associated with a settlement infrastructure where multiple competing
matching services link to DTC. Such externalities could manifest if,
for example, a systems failure at BSTP reduces the ability of DTC to
process transaction information received from Omgeo or SS&C. In such a
scenario, BSTP may not fully internalize the costs of errors in its
systems because a portion of these costs are imposed on its
competitors. The Commission believes, however, that the
interoperability conditions, along with the requirements in Regulation
SCI for SCI entities to coordinate the testing of business continuity
and disaster recovery plans on an industry-wide basis,\154\ help to
mitigate the risk that one or more matching services with access to DTC
could establish systems that significantly externalize the consequences
of systems malfunctions to the national system for clearance and
settlement.
---------------------------------------------------------------------------

    \154\ See 17 CFR 242.1004(c). Application of Regulation SCI to
exempt clearing agencies is addressed in Part III.B.8.
---------------------------------------------------------------------------

    In addition, DTCC notes two other benefits of its single-access
model: (i) DTC would receive earlier warnings of potential problem
transactions, which would reduce disruptions and improve the
reliability and efficiency of the national clearance and settlement
system; and (ii) exclusive reliance on Omgeo for access to DTC, NSCC,
and the custodians/settlement agents would permit DTCC to facilitate
future developments in the operational systems used to generate trade
instructions for clearance and settlement, thereby reducing risk of
system disruptions or system incompatibilities that result in trade
failures.\155\ The Commission does not see why these benefits cannot
materialize if the BSTP and SS&C applications are approved. BSTP, for
example, is proposing to include as part of its matching service other
services that provide information to custodians and other stakeholders
earlier in the settlement process than currently provided, which may
also reduce the number of problem transactions. Similarly, approving
the BSTP and SS&C applications does not prevent DTCC from facilitating
future developments in the operational systems used to generate trade
instructions for clearance and settlement. On the contrary, with three
matching service providers, the number of entities that may be working
to facilitate new developments in the generation of trade instructions
will be increased.
---------------------------------------------------------------------------

    \155\ As an example, DTCC cites a recent approved rule change in
support of DTC's settlement matching initiative, intended to reduce
uncertainty in the settlement of institutional transactions at DTC.
See DTCC April letter at 14 n.44.
---------------------------------------------------------------------------

    Second, DTCC states it is essential that only one entity issue
control numbers because multiple issuers of control numbers would
greatly increase the likelihood of settlement errors.\156\ DTCC
therefore recommends that regardless of where a trade is centrally
matched, the broker be required to send a trade record and obtain a
control number for that trade from Omgeo in a manner that facilitates
the single access model, as the electronic confirmation and matching
process is currently conducted.\157\ DTCC further states that