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Following is an outline of the Honest Broker procedure.

    1. DTC will activate its Honest Broker procedure only upon a pledgor's request when pledgees are unwilling to return pledged securities directly to a pledgor and only after it consults with the concerned parties to determine that taking this action is appropriate. DTC may also activate the procedures in case of a pledgor's extended operational outage. DTC will notify pledgees and DTC Participants when the Honest Broker procedures are activated. DTC will advise Participants of the possibility that deliveries in settlement of their transactions with the pledgor, if any, may be received from the DTC Honest Broker Participant Account (DTC HB Account).

      Note- In performing the role of honest broker, DTC will undertake no risk other than that arising from its own gross negligence.

    2. DTC will establish a DTC HB Account for the receipt and redelivery of the pledged securities.

    3. In operating the DTC HB Account, DTC will act exclusively as agent for the pledgees delivering securities to the DTC HB Account.

    4. Each pledgee must notify DTC of its intent to use the Honest Broker procedure and will use DTC's Demand of Collateral procedure (see Collateral Loan Program for more information) for pledged positions that the pledgee intends to deliver to the DTC HB Account. Pledgees can enter demand of collateral instructions by using the Demand for Collateral function (DCL).

      Note- Using DTC's Demand of Collateral procedure a pledgee can move securities from its DTC pledge account to the general account of any DTC Participant (other than the pledgor), including its own Participant account or the DTC HB account.

    5. In accordance with the function cutoff times, the pledgor will provide the following information via the Honest Broker function to each affected pledgee, and to DTC:

      • The identity of each issue for which the pledgee is requested to deliver shares to the DTC HB Account.
      • For each issue, information on the pledgor's transactions proposed to be settled that day by redelivery of the pledged positions). This information will be in standard deliver order (DO) format for each delivery and will include quantity, price, and settlement amount.
      • The DTC HB Account number to which each redelivery is to be made.

      Note- Pledgees will be able to view this information using the Honest Broker functionality.

    6. On settlement date, DTC will provide to the pledgees

      • Pricing information on short positions in National Securities Clearing Corporation's (NSCC's) Continuous Net Settlement (CNS) system; and
      • The aggregate delivery price for each issue (assuming that all of the shares are delivered).
    7. The pledgee can decide whether to deliver pledged positions to the DTC HB Account using the Honest Broker function.
    8. The pledgor will advise the DTC Participants that their expected deliveries will be made from the HB account rather than from the pledgor's own account. Provided that no bankruptcy ruling or court-imposed stay has occurred, shares will then be delivered from the DTC HB Account with deliveries made in descending price-per-share order (other than deliveries to settle open NSCC CNS short positions, which will be affected first).

      Note- DTC will not process free deliveries. All settlement credits will be made to the DTC HB Accounts. DTC will make special arrangements with NSCC for related money credits for CNS short positions.
    9. For each issue, DTC will allocate on a pro rata basis to any pledgee that had delivered pledged securities to the DTC HB Account
      • Proceeds received from the redeliveries and
      • Securities remaining in the account (including deliveries that were reclaimed or otherwise not completed).

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