FR 2020-29022

The document published by the Securities and Exchange Commission regards a proposed rule change by The Depository Trust Company (DTC) to introduce a new fee for its ClaimConnect service. This service is designed to help participants match and settle cash claim transactions, addressing issues like trading discrepancies. The proposed fee is $1.75 per side for each matched claim, resulting in a total cost of $3.50 per transaction. This fee is intended to cover the costs incurred by DTC in developing and running the ClaimConnect service, and it will be enacted starting from January 1, 2021. Importantly, participants have the flexibility to continue using their existing methods for claim settlements if they choose not to use ClaimConnect.

Summary and Key Points

The document outlines the introduction of a fee related to a new service aimed at streamlining the transaction settlement process. ClaimConnect serves as an optional tool for participants at DTC, offering an automated way to handle claims, which can help reduce errors and operational burdens associated with manual processing. The rationale behind the fee—based on a cost-plus-low-margin approach—aims to ensure fair recovery of DTC’s investment into this new feature.

Issues and Concerns

One significant concern is the lack of comparison between the new fee and existing industry standards or competitor offerings. This raises questions about the competitiveness and fairness of this fee. Additionally, the document provides minimal transparency regarding how the fee is calculated based on costs and what specific costs are involved. Such lack of detail could make it challenging for participants to evaluate whether the fee is justified or not.

Moreover, while the document states that the fee is intended to cover the operating expenses over a four-year return period, it does not clearly define what these operating expenses include or how they will be managed, potentially leading to future fee increases.

Another concern is the assumption that the new fee will not impact competition, as there's no detailed analysis of how this might affect the market dynamics. Participants who opt out of the service and rely on alternative methods may experience different outcomes regarding efficiency, costs, and accuracy.

Public Impact

For the general public, particularly those with investments tied to firms using DTC’s services, the introduction of ClaimConnect could mean more accurate and reliable transaction settlements. Ideally, this enhanced efficiency might result in more stable experiences related to securities trading.

Impact on Stakeholders

For financial institutions and brokers using DTC services, the implementation of ClaimConnect offers both potential benefits and drawbacks. On the positive side, the service could enhance operational efficiency and reduce human errors in processing claims. However, the new fees might be considered an additional operational cost, influencing their decision to adopt this service.

Stakeholders who opt not to use ClaimConnect may worry about staying competitive, as the service could streamline processes for users. Conversely, those already equipped with effective proprietary systems might view the option as non-essential.

Overall, while the service provides a promising tool for improved transaction settlements, clearer communication of its pricing structure and competitive position would be instrumental in addressing the concerns outlined above.

The document outlines a proposed change by The Depository Trust Company (DTC) to introduce a new fee specifically related to its ClaimConnect service. This decision has several implications regarding the document's financial references and their broader effects.

Introduction of a New Fee

DTC proposes a $1.75 fee per side, per-matched claim for users of the ClaimConnect service, resulting in a total collection of $3.50 for each matched claim. This fee applies whether the claim is manually or automatically matched within the service. Unmatched claims, such as those compared or canceled, are not subject to this fee. It is notable that this is a new fee structure for participants using DTC's Asset Services products.

Impact of the Fee

The fee is designed to recoup costs over a four-year period, aligning with DTC's strategy of setting prices at cost plus a low-margin markup. This strategy covers development costs, operational expenses, and aids in accumulating necessary capital. However, specific details about what precisely constitutes these costs and margins are not provided, which could lead to some uncertainty among stakeholders about the fee's reasonableness.

Furthermore, the fee structure aims to evenly distribute costs between the two parties of a matched claim, reflecting their collaborative use of the ClaimConnect service. However, this distribution method might raise equity concerns for those who do not wish to engage with the service, as the proposal does not sufficiently explore potential impacts on participants who might prefer alternative claim settlement methods.

Competitive Dynamics and Alternatives

Though the document assumes no financial burden on competition by asserting the fee is reasonable and equitable, it does not deeply examine the wider market implications of ClaimConnect's introduction. Participants are given the option to either adopt this service or continue using alternative methods like internal systems or third-party software. However, these alternative options might involve different costs or technological shifts that are not explored in detail, leaving some uncertainty regarding the fee's impact on overall market dynamics.

Comparative Analysis with Existing Fees

The document compares the proposed ClaimConnect fee with the existing Adjustment Service Fee, which is $1.50 per adjustment. This comparison suggests that while the Adjustment Service Fee does not involve matching processes, ClaimConnect's validation process could streamline claim settlements, potentially avoiding multiple adjustments and therefore reducing total costs over time.

Conclusion

Overall, while the ClaimConnect fee's introduction and its financial rationale are explained within the document, the transparency regarding actual costs and the competitive implications remain somewhat opaque. The document does not fully address how this fee may influence participants' operational strategies or the broader competitive landscape. Moreover, for laypersons or stakeholders seeking a more comprehensive understanding, additional context regarding these financial decisions would be beneficial.