SEC Division of Trading and Markets no-action letter: The Depository Trust & Clearing Corporation

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHIN_GTOrl, D C1 20549
DIVISION OF
TRADING AND MARKETS
Ms. Merrie Faye Witkin t AQt � 'f, -
Managing Director and Deputy General Counsel The Depository Trust & Clearing Corporation 55 Water Street New York, NY 10041-0099 Re: Net Capital Treatment of Class A Preferred Stock Issued by the Depository Trust Company Dear Ms. Witkin:
This is in response to your letter dated February 10, 2009, on behalf of the Depository Trust Company ("DTC") and its broker-dealer participants, that requests the Division of Trading and Markets ("Division") not recommend enforcement action to the Securities and Exchange Commission (the "Commission") ifDTC broker-dealer participants treat their investments in DTC Series A Preferred Stock as allowable assets when calculating net capital pursuant to Rule 15c3-l (the "net capital rule" or "Rule l 5c3-l ") under the Securities Exchange Act of 1934 as amended. Based upon your letter of February 10, 2009, as well as the Division's letters to Mr. Richard B. Nesson ofDTC dated September 29, 2006 and August 21, 2000, I understand the following facts to be pertinent to DTC's request. DTC is a limited purpose trust company under New York Banking Law and operates as a securities depository and clearinghouse for the settlement of securities trading activity. It is registered with the Commission as a clearing agency and also is regulated by the Board of Governors of the Federal Reserve System. DTC provides custodial and processing services to banks, broker-dealers, clearing agencies, securities exchanges and other financial institutions, which are known as "participants" under DTC's rules. All participants must be approved by DTC and deposit cash into a Participants Fund maintained by DTC. DTC uses this Participants Fund as a risk management device to protect against losses incident to its custodial and trade processing operations. In letters to the Commission dated January 19, 1999, February 2, 2000, and September 20, 2006,:DTC proposed to increase its capital by r-estructuring DTC's Participants Fund. It proposed to reduce the cash deposits in the Participants Fund and issue a corresponding amount of preferred stock. DTC, as a depository institution, is subject to risk-based PUBLIC REFERENCE COPY