SR-DTC-2021-004 and SR-OCC-2021-801 for Apes
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| Author       | Source       | 
| :-------------: |:-------------:|
| [u/c-digs](https://www.reddit.com/user/c-digs/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/mkju4s/srdtc2021004_and_srocc2021801_for_apes/) | 

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[Serious DD 👨‍🔬🔬](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Serious%20DD%20%F0%9F%91%A8%E2%80%8D%F0%9F%94%AC%F0%9F%94%AC%22&restrict_sr=1)

Some of you may have seen me post this already a few times. Many who responded have requested I post this separately as it is often buried in the comments.

I understand that not everyone has the time nor the experience to actually read the DTC and OCC regulatory changes. However, it is important that when assessing the DD and broad generalizations put forth by others, you take some time to skim the underlying document and also align it with reality. I waited for today to post this because 005 is another regulatory filing which has been totally misconstrued and I wanted to wait until Monday so that you can see for yourselves why.

Let's start with SR-*DTC*-2021-004 and SR-*OCC*-2021-801 and then we will discuss SR-*DTC*-2021-005 and SR-*OCC*-2021-004.

For Apes:

Citadel Farms belong to Banana Farmer Association. Banana Farmer Association create banana backup crop that every farmer contributes to. If farmer crop go bad, farmer can take from banana backup crop so farmer survive the season and farm next year.

Citadel Farms want more banana. Citadel Farms want more banana plants for humans and burn down field of wild banana plants where apes eat. Apes not happy and attack Citadel Farms and take their banana crop and eat every last banana. Now Citadel Farms cry to Banana Farmer Association to ask for backup crop.

Banana Farmer Association see that Citadel Farms did this to themselves and now say first we give back ONLY bananas you contributed. Then we sell your equipment, tools, and lease your land and we give you more banana.

For Homo Erectus:

801 is not a margin call and it doesn't allow OCC to margin call Citadel. It raises the Target Capital Contribution to 25% *for all members* from the current variable rate and it introduces a new Minimum Corporate Contribution that DTC already has for its members. It has a different purpose in this game and you need to understand why we are all waiting for this because it creates the conditions whereby Citadel *can be margin called without a lifeline*.

[I write about 801 here](https://www.reddit.com/r/GME/comments/mgus2l/rc_announcement_going_to_send_stonk_to_da_moon/gswzxsa?utm_source=share&utm_medium=web2x&context=3). Gist of it is that Options Clearing Corporation (OCC) of which Citadel Securities and Citadel Clearning are members is requiring a new Minimum Corporate Contribution and a new 25% Target Capital Requirement. It further clarifies that in the case of a default, the defaulting member's assets are drawn first before member assets are used.

[A snippet from page 19](https://www.sec.gov/rules/sro/occ/2021/34-91184.pdf):

> `Establishing a Minimum Corporate Contribution, which OCC would apply after a defaulting Clearing Member's margin and Clearing Fund deposits`, would ensure a minimum level of OCC's own pre-funded financial resources available to cover credit losses. `By applying the Minimum Corporate Contribution before charging the Clearing Fund, the proposed change helps protect non-defaulting Clearing Members from default losses of another Clearing Member`, which in turn helps reduce OCC's overall level of risk and ensure the prompt and accurate clearance and settlement of its cleared products.

[I wrote about 004 here](https://www.reddit.com/r/GME/comments/mgs05i/analysis_of_srdtc2021004_dtcc_changing_the_game/). 004 does the same thing but in the context of DTC (of which both Citadel Securities and Citadel Clearing are members): it subtly shifts the language of the underlying agreement to make it clear that the defaulting member's Corporate Contribution gets drawn down first and assets from the defaulting member are used as collateral for liquidity. Prior to 004, they would have drawn the liquidity from all member contributions.

[A snippet from page 14](https://www.dtcc.com/-/media/Files/Downloads/legal/rule-filings/2021/DTC/SR-DTC-2021-004-Approval-Notice.pdf):

> Within Table 5-B, Corporate Contribution is the first entry under the column labeled "Tool." Currently, the narrative for this entry includes a description of Corporate Contribution and delineates that in the event of a cease to act, `before applying the Participants Fund deposits of all other Participants to cover any resulting loss, DTC will apply the Corporate Contribution.` The proposed rule change would revise the current text of the definition of Corporate Contribution in order to more closely align with how this term is defined under Rule 4. Specifically, pursuant to the proposed rule change, the definition of Corporate Contribution would be revised to state, "The Corporate Contribution is an amount that is equal to 50% of the amount calculated by DTC in respect of its General Business Risk Capital Requirement, for losses that occur over any rolling 12 month period." `Similarly, the sentence directly above the definition of Corporate Contribution would be revised to remove the words "applying the Participants Fund deposits of all other Participants,"` and replace them with "charging Participants on a pro rata basis (other than the Defaulting Participant)."

Both documents deal with the procedures on drawing from the member "doomsday fund" and changes how a defaulting member may access the member contributed insurance pool.

The way I see it, the DTCC and OCC are setting the stage to firewall "some entity" (may be Citadel, may be others) from taking from the member insurance pool. Basically, with the change in verbiage with respect to 801 and 004, they are removing the lifeline from any defaulting member. It's the Banana Farmers Association saying that if you make a mistake, we're not giving you our bananas until your bananas are all used up.

We may very well see a huge shift in GME in the coming days as the firewalls around Citadel are coming into place. OCC 801 firewalling Citadel options activities. DTC 004 firewalling Citadel securities activities. Without these lifelines, it all be guarantees that Citadel will be completely wiped out in a default. The billion dollar question is whether this is the condition for which The Whale is waiting for to launch the final attack.

It's speculation that these have been designed with Citadel specifically in mind, but very possible.

Let's Talk About [SR-DTC-2021-005](https://www.dtcc.com/-/media/Files/Downloads/legal/rule-filings/2021/DTC/SR-DTC-2021-005.pdf)

I saw lots of posts over the weekend hyping this and the reality is that this change is not relevant. It should be obvious in the fact that it required no comment period and no SEC review.

The reason why it's been hyped is that the people doing the DD are reading it wrong. You need to start reading it on Page 29 then go back and read the rest of the document.

Page 29:

> `Pursuant to the proposed rule change, DTC would revise the text of the Settlement Guide to reflect that Pledged Securities do not move to an Account of the Pledgee`. As discussed above, the movement of the securities is not required to effect a Pledge and does not impact the rights of Pledgor or Pledgee under the Rules or the NYUCC. `Rather a Pledged Securities continues credited to the pledgor's account, however with a system notation showing the status of the position as pledged by the pledgor to the pledgee`. This status systemically prevents the pledged position from being used to complete other transactions, which is consistent with the Pledgees Control over the Pledge Securities, as discussed above. Likewise, the release of a pledged position results in the removal of notation of the pledge status of the position and the position would become available tothe pledgor to complete other transactions.

The "proposed rule change" is how DTC manages the transfer of securities on the backend. It has nothing to do with FTDs, rehypothecation, preventing deep ITM calls to close FTDs, etc. Nothing. It is a change to the member agreement to reflect how they handle transfer of securities on a technical level. They even say so multiple times:

On page 4 they write:

> As discussed below, `the proposed rule change relates to a technical aspect of the operational processing of Pledge transactions` and would not impact the rights or obligations of a Participant or Pledgee.

Again on page 11:

> `The changes to the Settlement Guide text are technical in nature`, and while enhancing clarity with respect to the book entries performed by DTC as they relate to pledge activity, the change would not impact the rights or obligations of Participants and Pledgees.

Now read these pages:

Page 22:

> However, as more fully discussed below, while the Settlement Guide and the Pledgee's Agreement make reference to the movement of Securities to a Pledgee's Account, `from an operational standpoint, DTC does not in fact credit a Security to an Account of a Pledgee; what the Pledgee receives is not a Security Entitlement`. The Securities remain credited to the Pledgor's account until the Pledgee releases the Pledged Securities or makes a demand for the Pledged Securities, as discussed below. `Rather, a notation is placed on the Account of the Pledgor that the Securities are Pledged to the Pledgee` and the Securities remain in pledged status until the Pledgee instructs otherwise.

Page 28:

> A Pledgee has "control" under Articles 8 and 9 of the NYUCC and under the DTC Rules of any Security Entitlements pledged to it through the facilities of DTC, and `the Pledgee is empowered to issue Entitlement Orders to DTC to direct the release, delivery or withdrawal of any such pledged Security Entitlements`.

They basically say "this is how we actually do it so we are just amending our agreements to reflect that". This is probably also why this change has no comment period and no SEC approval involved.

So what they are doing is updating the member agreement to reflect the fact that they don't actually transfer securities and only place a notation in their ledger. But because of this technical change, they need to update the original agreement and thus the strikeouts and amendments.

Now here is where you have to go back and re-read page 11 where everyone is getting hyped up (pay special attention to the formatting notation):

> (bold, underlined text indicates additions; bold strike-through text indicates deletions)

[![r/Superstonk - SR-DTC-2021-004 and SR-OCC-2021-801 for Apes](https://preview.redd.it/k2fp2svgocr61.png?width=740&format=png&auto=webp&s=90724f6ab9cbd099041ca45ebf7fe7f391948598)](https://preview.redd.it/k2fp2svgocr61.png?width=740&format=png&auto=webp&s=90724f6ab9cbd099041ca45ebf7fe7f391948598)

Please read this text on page 11 carefully after understanding the above

So the text: "*prevents the pledged position from being used to complete other transactions*" is unchanged. The text: "*available to ... complete other transactions*" is unchanged. The strike of "*from*" and replacement with "*held in*" is a reflection of the technical mechanism of how they handle the transaction with a ledger notation and not an actual transfer of securities.

The problem is that people have been reading page 11 without reading page 29 which explains why they are making the change.

If you are interested in the underlying OCC agreement, you can find it here: <https://www.sec.gov/rules/sro/occ/2021/34-91184-ex5a.pdf>

005 is effective immediately as of the filing date 2021APR01 per page 15:

[![r/Superstonk - SR-DTC-2021-004 and SR-OCC-2021-801 for Apes](https://preview.redd.it/s7qerr56odr61.png?width=768&format=png&auto=webp&s=362bcf493cdf10352be4c94c4125baa5177c8106)](https://preview.redd.it/s7qerr56odr61.png?width=768&format=png&auto=webp&s=362bcf493cdf10352be4c94c4125baa5177c8106)

Since it's effective immediately, whatever hype other DD has created should be in play today right?!?

Why didn't such a "MASSIVE GAME CHANGER" require a comment period and SEC review?

Again, on page 16, they emphasize:

[![r/Superstonk - SR-DTC-2021-004 and SR-OCC-2021-801 for Apes](https://preview.redd.it/d4y7x3mfodr61.png?width=777&format=png&auto=webp&s=15033e31346183a0103e4837914b1645308201e6)](https://preview.redd.it/d4y7x3mfodr61.png?width=777&format=png&auto=webp&s=15033e31346183a0103e4837914b1645308201e6)

"...because the changes are technical in nature" "without impacting the respective rights or obligations of DTC or persons using DTC's services"

Repeat after me: SR-DTC-2021-005 is purely technical in nature.

[SR-OCC-2021-004](https://www.sec.gov/rules/sro/occ.htm#SR-OCC-2021-004) Is Probably the Final Nail

Look, I can summarize this for you, but you should really read it yourself and see how all three of these fit together. SR-DTC-2021-004 is the analogue of SR-OCC-2021-801 + SR-OCC-2021-004.

In Summary

005 is not relevant to either GME, AMC, nor any other stock that is currently being shorted. It is purely a change to the member agreement to clarify a technical point of how DTC systems manage accounting.

My sense is that the real answer is OCC-801 + OCC-004 because OCC-801 + OCC-004 (options) is the twin of DTC-004 (securities) to create a firewall before the match is lit. *If you're going to burn down Citadel, don't you want to make sure that 1) they don't touch your money and 2) they will never get back up again?*

FAQ

These are some questions (and variants of) I've gotten over the last two weeks regarding my post and assessment.

Q: Why weren't these the rules to begin with?!?! Seems this would encourage less accountability before these were written. [u/classless_classic](https://www.reddit.com/u/classless_classic/)

DTC and OCC are self-regulatory bodies. If you wonder "why doesn't the SEC step in!?!" it's because ostensibly, DTC and OCC are self-regulating in the same way that Reddit is largely self-regulating. As such, there is a duality to how 004 and 801 will change that relationship between its members. It can be argued that because all members are exposed to risk through the shared pool, it encourages better self-policing and stronger self-regulation when everyone has something at stake. By isolating failing members, this may encourage bad behavior and in fact, may lead to shady activity with the express intent of causing a member to default (which is exactly what I think is going to happen).

Q: Forgive my smooth brain, If they aren't covered by insurance, how would apes get bananas? [u/bombalicious](https://www.reddit.com/u/bombalicious/)

004 and 801 do not change the fact that DTC and OCC will pay out of their shared member pool, but that they will only do so *after* the defaulting member has forfeited their member contributions and in the case of 004, the defaulting member's assets are used as collateral for liquidity (in other words, their assets are seized and liquidated for capital).

The one thing that is a bit worrying is part of SR-DTC-2021-004 on page 9:

> Second, in Table 3-B (DTC Critical Services), the description of critical service #19, (Cash and Stock Distributions) states that "As the owner of the securities, DTC has an obligation to its Participants to distribute principal, interest, dividend payments and other distributions received for those securities. No alternative provider is available." `The proposed rule change would revise the first sentence of this description to add the phrase "on the issuer's books and records" after the words "As owner of the securities."` DTC believes this change to the description, which currently does not include a reference to the fact that DTC's obligations with respect to distribution of "Cash and Stock Distributions" arise from its ownership of securities on the books and records of the issuer, is necessary to make clear that DTC is not the beneficial owner of the securities.

In other words, changing:

> As the owner of the securities, DTC has an obligation to its Participants to distribute principal, interest, dividend payments and other distributions received for those securities. No alternative provider is available.

To:

> As the owner of the securities `on the issuer's books and records`, DTC has an obligation to its Participants to distribute principal, interest, dividend payments and other distributions received for those securities. No alternative provider is available.

In other words, if you are cooking your books, we are not responsible and have no obligations beyond whatever is on the "books and records". This may be preparing to shield DTCC from shareholder lawsuits with respect to counterfeit shares.

Q: Wtf is taking so long with 801? What's the hold up? [u/BurnerAcctNo1](https://www.reddit.com/u/BurnerAcctNo1/)

Keep in mind that OCC-801 and DTC-004 are from two different organizations with two different processes, two different sets of lawyers, two different underlying agreements. This should be apparent because one is SR-DTC-2021-004 (securities) and the other is SR-OCC-2021-801 (options). So while I think they have the same goal, they originated from two totally different groups so have their own timelines.

Q: "Wen moon?" or ...do you know where we are for a timeframe on 801? [u/tardbanana](https://www.reddit.com/u/tardbanana/)

OCC-801 was filed on 2021FEB23. Comments were technically due 2021MAR16. It is not clear to me exactly when it will go into effect. Page 28 of 801 states that the change may be implemented "within 60 days of the later of (i) the date the proposed change was filed with the Commission or (ii) the date any additional information requested by the Commission is received". If 60 calendar days, that puts it at Apr 24. But keep in mind: "*within* 60 days" so it could come at any time.

OCC-004 was filed 2021MAR21 and on page 12 states: "Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding"

I believe these are calendar days as [the SEC has a very specific designation for business days](https://www.sec.gov/rules/final/2011/34-64251.pdf) and would have used "business days" if it were the case.

[If I were Citadel, what would I do? Try to delay the SEC from approving OCC-801 and OCC-004](https://www.bloomberg.com/news/articles/2021-04-01/citadel-securities-hires-ex-cftc-chairman-tarbert-as-legal-chief) because this buys me more time. See that language above? They just need the Commission to request additional information to delay the implementation.

Q: So 801 is the catalyst we're waiting for?

No; 801 by itself is not the catalyst; you should think of both 004 and 801 as a "barrier" or "shield" that is being put into place before whatever event is going to happen. So with 801 in place, then we will see the catalyst because all parties have donned their safety gear. Until 801 is in place, I don't think the Long Whale allows the rocket to launch because they are not protected from the shorts failing; failing shorts can still draw from the member contribution pool that all non-defaulting members have contributed to and the current agreement does not allow seizing defaulting member assets to use as collateral for liquidity.

I think all of the DD around "max pain" is misguided. If there is a Long Whale, the Long Whale is likely simply keeping the price in a narrow band to prevent the launch before the safety gear is set up.

Putting my tin foil hat on a for a moment: if there is any truth that this is being orchestrated by BlackRock, then the announcement of a new CEO, share recalls for the shareholder meeting, any other catalyst -- all of it is waiting for OCC-801 to be in place first. Rather than the Long Whale being BlackRock, I think the Long Whale is the majority of DTC and OCC non-defaulting members who have agreed that they need to shield themselves as much as possible from the default of a few members in this impossible short position. We may well see everyone start to cover once 801 is in place. Why did we get shut down in Jan? Because it was a broader threat to all of DTC and OCC without the member agreement changes encapsulated in 004 and 801. In reaction, DTC and OCC members "contain" GME until the firewalls are up. Citadel knows the game is up. DTC knows the game is up. OCC knows the game is up. If we can guess the short float and GME confirms the massive short float, then DTC and OCC *know* the short float because they are keeping records of these transactions.
