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Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices
and because the interim accounting process is based on a two-day settlement cycle, an unintended consequence is the application of due bills to activity one day after record date.14 Since DTC
continues to apply its standard interim accounting process, Participants are required to perform adjustments to reverse the interim accounting on activity to which the interim accounting should not have applied, creating unnecessary work for the Participants.15
In order to avoid the need for such adjustments, DTC proposes to no longer apply the interim accounting process when an exchange moves an ex-date due to an unexpected closure of the exchange.
D. UTW Service DTC states that its UTW service is designed to help ensure that the appropriate non-resident alien withholding tax is applied to U.S.sourced income paid to DTCs direct non-U.S. Participants.16 DTC further states that the applicable withholding tax is determined based on the type of income being paid along with the tax forms provided by the Participant.17
The Distributions Guide currently provides that the UTW service is available to non-U.S. Participants, including subaccounts of U.S.
Participants, and that users of the UTW
service must enter into a Withholding Agent Agreement.18 DTC believes that U.S. tax regulations 19 require DTC to withhold U.S. tax on payments it makes to its non-U.S. Participants.20 However, according to DTC, U.S. tax regulations do not contemplate a process under which DTC would withhold tax obligations of its U.S. Participants.21
DTC also acknowledges its obligations apply regardless of whether there is or is not an agreement between DTC and its Participants to do so.22 DTC proposes to revise the Distributions Guide to reflect its understanding of the foregoing U.S. tax regulations.
III. Discussion and Commission Findings Section 19b2C of the Act 23
directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that 14 Id.
15 Id.
16 Id.
17 Id.
18 Distributions Guide, U.S. Tax Withholding, pg 23, supra note 4.
19 See 26 CFR 1.14417a.
20 See Notice, 85 FR at 85767.
21 Id.
22 Id.
23 15 U.S.C. 78sb2C.

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such proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to such organization. After carefully considering the proposed rule change, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to DTC. In particular, the Commission finds that the proposed rule change is consistent with Section 17Ab3F of the Act 24 and Rule 17Ad22e21 promulgated under the Act,25 for the reasons described below.
A. Consistency With Section 17Ab3F
Section 17Ab3F of the Act 26
requires, in part, that the rules of a clearing agency be designed, in general, to protect investors and the public interest. As described above, the proposed rule change would update the Distributions Guide to more clearly explain the interim accounting process and, more specifically, provide an explanation of the interim accounting process for a security being delisted, as well as update the copyright date.
Additionally, as described above, the proposed rule change would amend the Distributions Guide for consistency with DTCs understanding of relevant U.S.
tax regulations. The Commission believes that these changes would provide DTCs Participants and the public with greater clarity and transparency regarding DTCs interim accounting process, which, in turn, is generally to the benefit of investors and the public. Accordingly, the Commission believes that the proposed rule change is designed, in general, to protect investors and the public interest, consistent with Section 17Ab3F of the Act.27
Section 17Ab3F of the Act 28 also requires, in part, that the rules of a clearing agency be designed to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions. As described above, the proposed rule change would change how DTC
manages interim accounting when an exchange moves an ex-date due to an unscheduled closure of the exchange, so that DTC will no longer capture interim activity that results from such a scenario. As a result, Participants would no longer need to perform adjustments 24 15

U.S.C. 78q1b3F.
CFR 240.17Ad22e21.
26 15 U.S.C. 78q1b3F.
27 Id.
28 Id.
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to reverse the interim accounting on activity to which the interim accounting should not have otherwise applied. By eliminating this need, the proposed rule change should help streamline DTCs interim accounting process for tracking due bills associated with Participants securities transactions. Because interim accounting is part of DTCs broader mechanism for the clearance and settlement of securities transactions, the Commission believes that by streamlining DTCs interim accounting process, the proposed rule change is designed to remove impediments and perfect the mechanism of the system for the prompt and accurate clearance and settlement of securities transactions, consistent with Section 17Ab3F of the Act.29
B. Consistency With Rule 17Ad 22e21
Rule 17Ad22e21 under the Act 30
requires that DTC establish, implement, maintain and enforce written policies and procedures reasonably designed to, in part, be efficient and effective in meeting the requirements of its Participants and the markets it serves.
As described above, the proposed rule change would amend the Distributions Guide to 1 provide greater general clarity and transparency regarding DTCs interim accounting process, 2
explain the interim accounting process for a security being delisted, 3 no longer apply interim accounting when an exchange changes an ex-date due to an unscheduled closure of the exchange, and 4 remove the statements that the UTW service is available to subaccounts of U.S. Participants and that users of the UTW service must enter into a Withholding Agent Agreement.
The foregoing proposed changes would improve the Distributions Guide by clarifying DTCs interim accounting processes, as well as the application and requirements of the UTW service. As a result, the proposed changes would help better inform DTCs Participants regarding those matters. Moreover, as described above, the proposed change to no longer apply interim accounting when there is an unscheduled closure of an exchange would provide efficiencies to Participants by obviating the need for them to make unnecessary interim accounting adjustments.
Accordingly, for the reasons stated above, the Commission believes that the proposed rule change is designed to enhance DTCs efficiency and effectiveness in meeting the requirements of its Participants and the 29 Id.
30 17

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CFR 240.17Ad22e21.

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