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Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices SECURITIES AND EXCHANGE
COMMISSION
Release No. 3491063; File No. SRDTC
2020019

Self-Regulatory Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change To Update the Distributions Service Guide February 4, 2021.

I. Introduction On December 21, 2020, The Depository Trust Company DTC
filed with the Securities and Exchange Commission Commission, pursuant to Section 19b1 of the Securities Exchange Act of 1934 Act 1 and Rule 19b4 thereunder,2 proposed rule change SRDTC2020019. The proposed rule change was published for comment in the Federal Register on December 29, 2020.3 The Commission did not receive any comment letters on the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change.
II. Description of the Proposed Rule Change DTC proposes to amend its Corporate Actions Distributions Service Guide Distributions Guide 4 to 1 more clearly explain the interim accounting process, generally, 2 provide an explanation for the interim accounting process for a security being delisted, 3
change how DTC manages interim accounting when an ex-date 5 is changed due to an unscheduled closure of a stock exchange, 4 remove the statements that DTCs U.S. Tax Withholding UTW service is available to subaccounts of U.S.
Participants and that users of the UTW
service must enter into a Withholding Agent Agreement, and v make certain conforming and technical changes, including updating the copyright date, each described in greater detail below.
1 15

U.S.C. 78sb1.
CFR 240.19b4.
3 Securities Exchange Act Release No. 3490747
December 21, 2020, 85 FR 85765 December 29, 2020 File No. SRDTC2020019 Notice.
4 DTCs Distributions Guide is available at http
www.dtcc.com//media/Files/Downloads/legal/
service-guides/Service%20Guide%20
Distributions.pdf. Capitalized terms not defined herein are defined in the Rules, By-Laws, and Organization Certification of DTC Rules, available at http www.dtcc.com//media/Files/
Downloads/legal/rules/dtc_rules.pdf.
5 The ex-date or ex-dividend date is the day the stock starts trading without the value of an already-declared dividend.
2 17

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A. Changes to the General Description of Interim Accounting Interim accounting is an important part of the entitlements and allocations process for distributions for DTC. The interim period also referred to in the Distributions Guide as the due bill period is the period during which a settling trade has due bills attached to it. A due bill is an indication of a sellers obligation to deliver a pending distribution e.g., cash dividend, stock dividend, interest payment, etc. to the buyer in a securities transaction. For distributions that are the subject of a due bill, the interim period extends from the Interim Accounting Start Date i.e., record date +1 6 up to the Due Bill Redemption Date which is typically exdate +1 for equities and payable date 1
for debt.7
Normally, the registered holder of a security on the close of business on the record date is entitled to the distribution. There are times, however, when that is not the case. Such times generally fall into two categories. First, for equity issues, there are times when the listed exchange will declare an exdate that is not one business day prior to the record date e.g., an ex-date that equals payable date +1. At such times, a buyer is entitled to the distribution when the registered holder of an equity issue sells the security prior to the exdate. Second, for most bonds, the buyer of the security is entitled to the interest payment i.e., the distribution on trades that settle up to and including the day before the payable date, even though the buyer is not the record date holder.
With DTCs interim accounting process, during a due bill period, DTC
tracks all settled activity, where the receiver typically a buyer is entitled to a distribution, and adjusts Participants record-date positions, crediting the receiver and debiting the deliverer typically a seller the distribution amount.8 DTC states that this process helps ensure accurate payment on the payable date and eliminate timeconsuming and costly paper processing.9
6 The record date is the cut-off date used to determine which shareholders are entitled to a corporate dividend. Typically, the ex-date is the day before the record date.
7 The payable date refers to the date that any declared stock dividends are due to be paid out.
Investors who purchased their stock before the exdate are eligible to receive dividends on the payable date.
8 The physical movement of securities such as, deposits, withdrawals-by-transfer, and certificateson-demand are not transactions that are included in the interim accounting process; thus, they do not result in adjustments between Participants. See Notice, 85 FR at 85766.
9 Id.

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DTC proposes to amend the Distributions Guide to provide greater clarity and transparency regarding the foregoing description of the interim accounting process.
B. Interim Accounting on a Security Being Delisted In certain scenarios, listed exchanges might not announce an ex-date that is on or after the date the corresponding security is being delisted. In such instances, if the listed exchange does not declare an ex-date, but instead provides direction that trades in a particular security up to a specified date include the distribution, then DTC
captures interim accounting based on the exchanges direction.10 The current Distributions Guide does not clearly describe the foregoing process. DTC
proposes to update the Distributions Guide to clearly describe the process.
DTC also proposes to update the copyright date of the Distributions Guide.
C. Interim Accounting for an Ex-Date Change Due to Unscheduled Closing of a Stock Exchange Occasionally, there is an unscheduled closing of one or more stock exchanges due to, e.g., a national day of mourning, an event causing significant market disruption or regional impact, etc..
During an unscheduled closing, a listed exchange typically moves ex-dates that were scheduled for that date to the next open business day, which is usually the record date. Such a move is necessary because ex-dates must occur on a business day that the listed exchange is open.11
Currently, when an exchange moves ex-dates due to unscheduled closing of the exchange, DTC continues to apply the interim accounting process described above.12 According to DTC, when there is an unscheduled closure, the intent of the exchange is for the final day of trading with a due bill to fall on the business day prior to the unscheduled closure, so that there would be no executed trades in the security on the day of closure.13
However, because this scenario causes ex-dates and record dates to coincide, 10 DTC states that on the rare occasions, a corporate action event e.g., a merger would occur during an interim period that would require DTC
to make special processing arrangements. See id.
11 See, e.g., FINRA Rule 11140Transactions in Securities Ex-Dividend, Ex-Rights or ExWarrants available at https www.finra.org/rulesguidance/rulebooks/finra-rules/11140.
12 Notice, 85 FR at 85767.
13 DTC has participated in various conversations with exchanges, industry representatives, and Participants to better understand and help address this issue. See id.

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