[Federal Register Volume 61, Number 7 (Wednesday, January 10, 1996)]
[Notices]
[Pages 745-750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-364]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36681; File No. SR-Philadep-95-08]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Notice of Filing of a Proposed Rule Change Converting the
Settlement System for Securities Transactions to a Same-Day Funds
Settlement System
January 4, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),1 notice is hereby given that on November 3, 1995, the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-Philadep-95-08) as described in Items I, II, and
III below, which items have been prepared primarily by Philadep. On
December 19, 1995, Philadep filed an amendment to the proposed rule
change.2 The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letter from Keith Kessel, Compliance Officer, Philadep and
SCCP to Peter R. Geraghty, Esq., Division of Market Regulation,
Commission (December 14, 1995).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Philadelphia Depository Trust Company (``Philadep'') proposes
to amend Rules 1, 4, and 9 and adopt Rule 4(A) and certain Philadep
Procedures.3 The proposed rule change reflects a planned industry
conversion to an expanded same-day funds settlement (``SDFS'')
environment.
\3\ The text of these proposals is attached as Exhibit B to File
No. SR-Philadep-95-08. The file is available for review in the
Commission's Public Reference Room and at the principal office of
Philadep.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Philadep included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Philadep has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Introduction
The proposed rule change sets forth the rules and procedures
governing Philadep's SDFS system service. Philadep intends to provide
SDFS depository services for all eligible securities. Philadep has made
a substantial commitment to designing and building the data processing
and computer network that will be the foundation for Philadep's SDFS
system. Throughout this major industry conversion, Philadep has worked
closely with the Stock Clearing Corporation of Philadep (``SCCP''),
other registered clearing agencies, the Commission and the Board of
Governors of the Federal Reserve System (``Federal Reserve'').
In accordance with the SDFS service, Philadep will accept deposits
of securities certificates for safekeeping and will provide the full
range of SDFS depository services which include, but are not limited
to, deposits, book-entry delivery and receive orders, withdrawals,
pledges, trade confirmations, affirmations, transfers and dividend/
interest payments. New Philadep Rules and Procedures have been created
for, among other things, pledging, failure to settle, transaction
processing, risk management and money settlement in an expanded SDFS
environment. Philadep has made substantial revisions to its current
SDFS Procedures Manual and has included some of the salient procedural
sections as exhibits to this rule change.4
\4\ The text of the proposed procedures are attached as Exhibits
B (3)-(6) to File No. SR-Philadep-95-08. The file is available for
review in the Commission's Public Reference Room and at the
principal office of Philadep.
---------------------------------------------------------------------------
In assessing the impact of an expanded SDFS environment, the
operational requirements, risk, liquidity needs, among other matters,
were evaluated on a joint SCCP/Philadep basis. Operationally, both
wholly-owned subsidiaries of the Philadelphia Stock Exchange, Inc.
(``PHLX'') are integrally-related. Both registered clearing as well as
strategic business objectives.
Many links or tie-ins between SCCP and Philadep exist by by-law,
rule and agreement. For example, pursuant to a long-standing joint
agency agreement between SCCP and Philadep, SCCP, on behalf of
Philadep, effects, among other things, daily money settlements on
behalf of Philadep participants for securities received into and
delivered out of their accounts; processing of CNS movements from one
participant to another; processing of all SCCP/Philadep dividend and
reorganization settlements; and the preparation, rendering and
collection of bills to Philadep participants for depository services.
In addition to these services, Philadep, on behalf of SCCP,
facilitates book-entry movements through a joint SCCP and Philadep
allocation system in order to assure continuous net settlements for the
accounts of SCCP participants. Philadep also has
[[Page 746]]
contractually agreed to provide SCCP with the means to pledge
collateral to banks so that SCCP may obtain secured loans from such
respective banks.
2. Risk Management Controls
Risk management controls play a major role in the design of
Philadep's SDFS system.\5\ Philadep's risk management controls are
intended to protect Philadep participants against the inability of a
participant to pay for its settlement obligations. Philadep employs two
primary risk management controls for securities processing;
specifically, the collateral monitor and the net debit cap. As a result
of the close nexus between Philadep and SCCP, Philadep's collateral
monitor and net debit cap analysis incorporates SCCP settlements with
Philadep.
\5\ The text of the new SDFS risk management controls is
attached as Exhibit B(4) to File No. SR-Philadep-95-08. The file is
available for review in the Commission's Public Reference Room and
at the principal office of Philadep.
---------------------------------------------------------------------------
Philadep will utilize two features to manage risk. The first
involves participant collateralization; the second involves the
regulation of net debits. Philadep has designed the collateralization
aspect of SDFS to assure that a participant will have sufficient
collateral in its account to liquidate in the event that it (i) becomes
insolvent and/or (ii) fails to pay for its settlement obligation. In
addition to collateralization, the procedures governing operational
activity would prevent the completion of transactions if their
completion would cause a participant's individual net debit to exceed
its net debit cap. In this regard, the net debit cap application helps
to assure that Philadep will have sufficient cash liquidity to complete
settlement if any single participant fails to settle.
An individual participant's net debit cap is limited by Philadep's
established maximum net debit cap. The largest net debit cap is always
set lower than Philadep's total available liquidity. Presently, based
on a planned SCCP/Philadep total liquidity level of $60 million, the
maximum net debit cap a participant may incur is $40 million.
A. Collateralization
Philadep shall operate its SDFS system on a fully collateralized
basis. Participants will be required to have sufficient collateral in
their accounts to support their net settlement debits. If a participant
does not have sufficient collateral in its account, the transaction
will not be completed. The respective participant cannot allow its net
debit to exceed the total value of its collateral; otherwise, these
transactions are held on a recycle (pend) queue until sufficient
collateral is generated to allow their completion.
A participant may have several sources of collateral. The primary
sources of collateral are the following:
(1) Deposits by the participant to the Participants Fund;
(2) Proprietary or firm positions that the participant designates
as collateral;
(3) Securities received versus payment, for which the participant
has not yet paid (includes CNS deliveries); and
(4) Securities added to a participant's account, but not received
versus payment (e.g., deposits, free deliveries, free pledge releases,
release of segregated securities) that the participant designates as
collateral.
Because collateralization is an integral part in Philadep's SDFS
service, Philadep will conservatively assign values to various sources
of collateral, which will be subject to haircuts. Securities designated
as collateral by participants are valued based on the securities' prior
business day's closing market price, less an applicable haircut.
Philadep employs haircuts to protect itself and its participants
against price fluctuations in collateral in the event that Philadep
must liquidate the collateral of an insolvent participant. Moreover,
because Philadep may have to finance a participant's failure overnight
and borrow against a participant's collateral, Philadep's haircut
structure takes into consideration the haircuts imposed by its lending
institutions. Ordinarily, banks will not assign the full market value
to securities used to collateralize loans, rather banks will generally
consider the relative price volatility of the collateral and impose a
haircut accordingly.
Philadep haircuts the value of securities in a manner consistent
with industry standards and which will satisfy the dual objectives of
(i) adequately protecting Philadep and its participants from loss and
(ii) enhancing Philadep's ability to secure sufficient financing in the
event of a failure to settle situation. The haircut levels configured
by security type are as follows:
Equities--10%
Corporate and Municipal Debt--5%
Money Market Instruments--2%, 5% or up to 100%
(depending on their term and investment grade rating)
Philadep may revisit its liquidity needs at any time, including
intraday. Philadep reserves the right to reprice and modify haircuts
intraday if it determines these changes to be in the best interest of
Philadep and its participants.
B. Net Debit Caps
Net debit caps are central to Philadep's SDFS risk management
controls. Net debit caps limit the amount of settlement net debits
(amount to be paid by the participant) that a participant may incur at
any point during the processing day. Philadep will apply a net debit
cap to each participant's account, determined by such participant's net
debit history at Philadep and SCCP. Net debit caps are dynamic and,
accordingly, will periodically adjust in relation to the participant's
ongoing activity.
A participant may not allow its net settlement debit to exceed its
net debit cap. If a participant's net settlement debit would exceed its
respective net debit cap for transactions that are subject to risk
management control,\6\ the system will not allow the participant to
complete the transaction. The transaction will be placed in a pending
queue until the account generates sufficient offsetting credits from
subsequent account activity. Most credits come from securities
deliveries versus payment; securities pledges for value; principal,
dividend or interest allocations; or from received funds (Settlement
Progress Payments or ``SPP'') wired to Philadep's account at Philadep's
designated settling bank(s).
\6\ CNS and reclamation activity will be exempt from risk
management controls at the inception of SDFS. In other words, SCCP/
Philadep will still process these activities. However, when a
participant exceeds the net debit cap as a result of these
activities, SCCP/Philadep may request settlement prepayments to
reduce the daily debit. If SCCP/Philadep does not receive such
prepayments, Philadep may reverse unsettled book-entry receives
previously accepted to attain a positive collateral position,
reducing the net debit to an amount under the net debit cap.
---------------------------------------------------------------------------
Philadep will calculate net debit caps on daily net settlement
activities and may adjust these figures monthly. A participant's net
debit cap will be specifically determined by the following steps:
(1) Philadep calculates a participant's average of the three
highest end-of-day net debit settlements over a rolling three-month
period to establish a ``base figure.'' For purpose of calculating a
participant's net debit settlement, Philadep includes the net CNS
settlement.
(2) A participant's base figure is then multiplied by a factor to
determine the participant's individual net debit cap, which cannot
exceed Philadep's currently established maximum net debit cap of $40
million. Factors are
[[Page 747]]
based on a sliding scale, ranging from 1 to 2, where lower base figures
are multiplied by larger factors and higher base figures are multiplied
by smaller factors.
(3) Notwithstanding the specific net debit cap calculated for any
particular participant in subparagraph (2) above, all participants are
subject to a minimum net debit cap to be computed based on 50% of the
combined SCCP and Philadep Participants Funds. The minimum net debit
cap \7\ will be recalculated and adjusted semiannually.
\7\ Presently estimated at $3,500,000.
---------------------------------------------------------------------------
Despite the participant's base figure, Philadep reserves the right
to make adjustments to a participant's net debit cap. Philadep may
effect such change for a length of time deemed necessary and
appropriate by Philadep's management.
C. Proposed Rule 4(A)
Philadep proposes to adopt Rule 4(A) in order to clarify that
Philadep is authorized to pledge, repledge, hypothecate, transfer,
create a security interest, and/or assign (any of the foregoing shall
heretofore be termed a ``pledge'') any or all property received by
Philadep from its participants and earmarked for Philadep to use as
collateral for participant's unsatisfied obligations.\8\
\8\ The text of proposed Rule 4(A) is attached as Exhibit B(2)
to File No. SR-Philadep-95-08. The file is available for review in
the Commission's Public Reference Room and at the principal office
of Philadep.
---------------------------------------------------------------------------
Philadep defines the following as eligible collateral to secure
unsatisfied obligations: (i) deposits in the Participants Fund; (ii)
the securities or repurchase agreements in which the Participants Fund
is invested overnight; (iii) certain qualifying securities which secure
the open account indebtedness of the participant; (iv) securities which
have been pledged to Philadep as a voluntary deposit to the
Participants Fund; and (v) any or all securities designated as
collateral (collectively ``allowable assets'').
Philadep may pledge allowable assets to a lender. For instance,
Rule 4(A) specifies that Philadep shall have the right to pledge
securities to lenders in the event a participant fails to settle.
If Philadep pledges these allowable assets, Philadep will make the
appropriate account entries, reflecting the creation and transfer of
the respective security interest from the participant to Philadep and
from Philadep to the lender. Likewise, if a participant designates
securities as net additions, Philadep will record the security interest
on its books for such net additions, reflecting the decrease in the
account of the pledging participant and an increase in Philadep's
account corresponding to such net additions. Philadep will reverse
these journal entries upon the release and return of any pledged
assets, reflecting a decrease in the account of any pledgee and an
increase in the account of the pledgor as appropriate.
D. Use of the Collateral Monitor to Measure Participants' Available
Collateral
Philadep will monitor the collateral in each of the participant's
accounts. The mechanism to be used to regulate the collateral is
referred to as the ``collective monitor.'' The collateral monitor
cannot become negative.
At the start of each business day, Philadep credits each
participant's collateral monitor with its respective participants Fund
deposit. The collateral monitor reflects at all times the amount by
which the collateral in a participant's account secures the net debit
in its settlement account. Thus, the collateral monitor equals the
arithmetic summation of the difference of the value of the
participant's collateral (less an applicable haircut) and its net
settlement obligation.\9\ In other words, a participant's collateral
(less an applicable haircut) must equal or exceed a given participant's
net settlement obligation.
\9\ For example, if a participant had collateral securities with
a market value of $10,000, subject to a 10% haircut, the value of
the participant's collateral would be equal to $9,000. If the
participant also incurred a debit of $8,000, its collateral monitor
would equal $1,000 {($10,000-[10% x $10,000]+(-$8,000)}.
---------------------------------------------------------------------------
Philadep continually verifies the collateral value to assure that
the deliverer and receiver's collateral monitor would not become
negative as a result of Philadep processing an incipient transaction.
If the transaction would cause either participant to be under-
collateralized, Philadep prevents the transaction until the deficient
participant has infused sufficient collateral into its account for the
transaction to complete.\10\
\10\ The text of the new SDFS recycling procedure is attached as
Exhibit B(5) to File No. SR-Philadep-95-08. The file is available
for review in the Commission's Public Reference Room and at the
principal office of Philadep.
---------------------------------------------------------------------------
E. Methods of Controlling Collateral
Philadep's SDFS system will provide an on-line, real-time mechanism
to monitor and infuse intraday collateral.
Controls comprise: (i) classifying collateral, (ii) updating
collateral valuations and (iii) furnishing new collateral.\11\
\11\ A discussion of the collateral controls is attached as
Exhibit B(4) to File No. SR-Philadep-95-08. The file is available
for review in the Commission's Public Reference Room and at the
principal office of Philadep.
---------------------------------------------------------------------------
With regard to collateral classification, participants may
designate free (unpledged) securities positions in participants'
accounts as either collateral or non-collateral.
In addition to the opening free positions, intraday positions have
collateral value. However, Philadep will not provide the same latitude
to participants as described for free positions to classify certain
other types of transactions. Specifically, Philadep's SDFS system will
automatically designate securities received versus payment as
collateral because they represent incomplete transactions (receiver-
participants have not yet paid for these securities).
With regard to updating the collateral valuation, Philadep's SDFS
system will credit a participant's collateral monitor with the
collateral value; that is, its market value, less the applicable
haircut.
With regard to both the classification and infusion of additional
collateral, participants have several methods of managing collateral in
their accounts, outlined as follows:
General Classification of Opening (Start-of-Day) Securities
Positions as Collateral
Participants may give Philadep instructions to designate all
securities in the participant's account as collateral at the opening
of each business day. Philadep would then designate all start-of-day
positions as collateral, and the respective participant's collateral
monitor would be credited with its collateral value.
Automatic Classification of Free Securities Additions
Participants may give Philadep instructions to designate all
free securities transactions to its collateral monitor (e.g.,
deposits, free delivery orders (``DOs'') received).
Intraday Reclassification of Securities
Participants may submit instructions to Philadep, to reclassify
a specific quantity of an issue as collateral, previously classified
as non-collateral, resulting in a collateral monitor credit equal to
the collateral value of the securities reclassified. Conversely,
participants may request that Philadep reclassify as non-collateral
those securities that have previously been classified as collateral.
However, Philadep would not fulfill such instruction if such removal
of collateral from the participant's account would cause its
collateral monitor to become negative.
[[Page 748]]
Settlement Progress Payments (``SPPs'')
Participants could increase their collateral monitor by wiring
SPPs to Philadep's account at its designated settling bank(s). The
participant's collateral monitor, as well as its settlement account,
would be credited for the amount of the SPP; thus, a participant's
actual net debit would be reduced.
In summary, Philadep is building a computerized system that will
continuously track the value of each participant's collateral on a
real-time, on-line basis, to ensure that the collateral's value is
equal to or exceeds the participant's current net settlement debit. If
a participant does not have sufficient collateral to cover the
resulting net settlement debit from a proposed transaction, the
participant may pledge more collateral or cash to enable Philadep to
act on the transaction instructions; otherwise, such transaction will
not be completed and pend in the system until Philadep receives
sufficient collateral on the participant's behalf. Participants may
wire funds to Philadep intraday to satisfy their collateral
requirements.
3. Pending Transactions--Recyle Algorithm
If an incoming delivery order would cause a participant to exceed
its net debit cap and/or create insufficient collateral, Philadep will
place such transactions in a recycle (pending) queue and prioritize it
accordingly.\12\ Transactions that continue to pend at the close of the
processing day will be purged from the system and must be subsequently
re-entered by the participant that initially entered it.
\12\ An overview of the recycle process is attached as Exhibit
B(5) to File No. SR-Philadep-95-08. The file is available for review
in the Commission's Public Reference Room and at the principal
office of Philadep.
---------------------------------------------------------------------------
4. Settlement and Failure to Settle Procedures
At the end of the processing day, Philadep will provide each
participant with a net settlement amount, which will be the aggregate
of the end-of-the-day net debits and credits in the participant's SCCP
and/or Philadep accounts. Money settlements will occur daily with
immediately available funds in the form of fed wire transfers into and
out of Philadep's account at its designated settling bank(s).
In the event a participant or its representative bank/depository
institution fails to settle, Philadep will utilize its liquidity
resources to finance such participant's unsettled net debit. Philadep
will prioritize the order in which it will use the resources. Philadep
will first use cash from the Participants Fund and other immediately
available internal sources prior to drawing upon its external bank
credit facilities. In the event that Philadep must use external lines
of credit to secure an extension of credit in connection with the
defaulting participant, Philadep shall secure the participant's assets
as collateral as described earlier in subsections 2 (D) and (E).
When and if the participant settles by 10:00 A.M., Eastern Time,
the next morning, Philadep will use the settlement payment received to
repay the principal and finance charges of the lending bank. Philadep
will then return the pledged collateral to the participant. For
example, if the defaulting participant is solvent and pays its net
debit balance and interest charge in same-day funds on the day after
the default, Philadep would generally reverse the procedures followed
on the day of the default. Philadep would repay lenders and restore
pledged securities.
If, on the other hand, the defaulting participant remains in
default the next business day, Philadep may take the following steps in
successive order: (1) apply the defaulting participant's Clearing Fund
deposit to satisfy the participant's obligation; (2) apply collateral
of the defaulting participant which are the subject of incomplete
transactions; (3) apply any other collateral of the defaulting
participant, including collateral which are not subject to incomplete
transactions; (4) if the participant's collateral is exhausted, apply
pro rata net credit reductions to all participants who delivered
securities to the defaulting participant on the day of the default,
such reductions being limited to the amount of the net credit balance
of each participant resulting from transactions with the defaulting
participant; (5) in the alternative to such net credit reductions,
resell to the delivering participant securities that were sold to the
defaulting participant on the day of the default; and (6) make pro rata
net credit reductions to all participants with net credit balances,
including those participants that did not make deliveries to the
defaulting participant on that day.
5. Paying Agent Charge-Back Procedures
With respect to principal, dividend, interest and corporate
reorganization payment obligations (``P&I payments'') under the
proposed rule change, Philadep will pay such amounts when paid.
Specifically, Philadep will pay participants in same-day funds upon
receipt of payment by paying agents of such distributions in same-day
funds in accordance with Philadep's operating procedures. Philadep
worked diligently to affect paying agents' timely disbursement of P&I
payments to Philadep by payable dates. Philadep has witnessed dramatic
improvement over the past year in paying agents' timely disbursement of
P&I payments in same-day funds to Philadep. Philadep remains
steadfastly committed to working closely with the industry, the
Commission and the Federal Reserve, among others, in educating paying
agents and assuring their maximum adherence to the higher standards of
payment performance required under the SDFS environment.
In order to induce the delivery of P&I payments in same-day funds
from paying agents that would not otherwise receive such payments from
issuers in same-day funds on payable date, Philadep may agree to
provide rebates to such paying agents. Philadep will act as the
conduit, passing along such rebate costs to those participants
benefiting from receiving same-day P&I payments that would have
otherwise received payment in next-day funds.
Philadep will be authorized to immediately charge-back participants
that were previously credited with payments. In order to charge-back
participants, the paying agent must furnish Philadep a written request
within ten (10) business days of the payable date and may do so for
several reasons: (1) an error by the paying agent; (2) a failure by the
issuer to provide the paying agent with sufficient funds to cover the
payments; (3) the bankruptcy of the issuer on or prior to the payable
date; or (4) other paying agent default.
Additionally, Philadep may also charge-back participants for any
errors made by Philadep, including errors as a result of erroneous
announcements or payment calculations credited to participants in
anticipation of payments which Philadep has not received. For either
charge-back method, Philadep reserves the right to impute and recover
interest from the respective participant.
With regard to charge-backs initiated by the paying agent, Philadep
shall notify the participant one (1) business day prior to the date
Philadep enters the charge-back in the participant's daily settlement
account. Although Philadep usually verifies the facts stated in the
notice from the paying agent, Philadep does not have any obligation to
do so. If the paying agent notifies Philadep more than ten (10)
business days after payment date, Philadep is not required to charge-
back the participant's account, but will cooperate with the paying
agent and the participant to resolve the matter. For Philadep initiated
charge-
[[Page 749]]
backs, Philadep generally will give participants one (1) day notice of
the charge-back.
6. Revised Participants Fund
To compensate for the risks in a SDFS environment and to respond to
Philadep's increased liquidity needs, Philadep will modify its
Participants Fund in its form and size. Philadep will maintain an all
cash Participants Fund.
The all cash requirement applies to both the minimum and any
additional, voluntary deposits. If participants decide to make
voluntary, additional deposits, they will accomplish two objectives:
first, it allows them to increase the level of settlement activities
that may occur without potential disruption and, second, they will
receive interest rebates from SCCP/Philadep for deposits in excess of
$50,000 in accordance with SCCP/Philadep's procedures.
Each Philadep participant must deposit a minimum amount of
$10,000.\13\ Whereas some inactive participants will only maintain a
required deposit of $10,000, many participants will have to deposit
additional amounts based upon the type and extent of their clearing and
depository activities. In order to effect the transition of Philadep
and its participants to the SDFS environment, Philadep will implement
these changes on or before February 1996.
\13\ See Exhibits B(1) and B(3) attached to File No. SR-
Philadep-95-08. The file is available for review in the Commission's
Public Reference Room and at the principal office of Philadep.
---------------------------------------------------------------------------
Philadep will calculate the required cash deposit according to a
participant's activity \14\ in accordance with the following formulae
[formulae (a), (b) and (c) below are not additive; a participant shall
be only responsible for making the highest deposit amount required by
any single formula below]:
\14\ For Philadep participants that utilize the RIO interface
for settlement, half of the SCCP Clearing Fund deposit requirement
shall be allocated to Philadep's Participants Fund to protect
against potential settlement defaults for securities not eligible
for the RIO interface. Similarly, those Philadep participants that
clear and settle through CNS accounts at SCCP shall have their
respective Philadep and SCCP Participants Fund deposits combined and
then divided equally and allocated between Philadep and SCCP to
satisfy the Fund deposit requirement at each clearing corporation.
(a) Inactive Accounts: $10,000.00 \15\
\15\ For Philadep Inactive Participants that are also SCCP
Inactive Participants, the Philadep Participants Fund deposit shall
be $5,000. For Philadep Inactive Participants that are also SCCP
Active Participants, no additional Philadep Participants Fund
deposit will be required.
---------------------------------------------------------------------------
(less than $100 of average monthly billings)
(b) Specialized Services:
(maximum $50,000 required with $100 or greater in average monthly
billings for either Deposit or Transfer activity)
--Deposit Activity: $25,000.00 plus
--Transfer Activity: $25,000.00
(c) Participants not doing Specialized Service activity with service
fees of $100 or greater in average monthly billions The greater of
either:
(1) $25,000, or;
(2) 1% of the average of the three highest net debits over the past
three months, if higher than the SCCP required deposit (rounded to the
next $5,000 increment).
Philadep will recalculate the Participants Fund deposit
requirements at the end of each month based on the previous three
months prior to the most recent month. Philadep will notify its
participants of any required deposit increases and the amount of such
additional deposit within ten (10) business days of the end of the
month. Participants whose deposit requirements have decreased will be
notified at least quarterly, although they may inquire and withdraw
excess deposits monthly. In this way, participants may leave excess
cash deposits in the participants fund and reduce the level of monthly
administration that would otherwise be necessary. As previously stated,
Philadep will also accept voluntary excess fund deposits to reduce
administrative burdens.
Philadep estimates that at the time of implementing the foregoing
modifications to the risk management controls, SCCP and Philadep will
have combined liquidity resources of over $60 million, comprising $7
million in combined cash deposits to the Participants Fund (under the
revised formulae), $4.7 million in unrestricted capital and $50 million
in lines of credit,\16\ altogether designed to support the new SDFS
system. SCCP/Philadep will routinely monitor these amounts and assess
the need to increase them over time based on SCCP and Philadep activity
levels. Considering SCCP/Philadep's risk and liquidity structure,
Philadep's net debit cap levels are conservative, having been set in
accordance with such combined liquidity resources and with due regard
to SCCP's long-standing margin account financing program.
\16\ As of the date of this filing, SCCP/Philadep has secured
$30 million in such credit lines and projects to secure $20 to $40
million in additional lines.
---------------------------------------------------------------------------
Philadep believes that the proposed rule change is consistent with
Section 17A of the Act because it promotes the prompt and accurate
clearance and settlement of securities transactions in securities and
funds in Philadep's custody and under its control. Philadep believes
that with the development of the new SDFS system and its attendant risk
management controls, Philadep and its participants are protected from
the risk of a material loss. Philadep's Rules and Procedures are
designed to promote efficiencies and protect Philadep and its
participants in an expanded SDFS environment.
(B) Self-Regulatory Organization's Statement on Burden on Competition
Philadep does not believe that the proposed rule change will impact
or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
No written comments have been solicited or received. Philadep will
notify the Commission of any written comments received by Philadep.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which Philadep consents, the Commission will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference
[[Page 750]]
Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such
filing will also be available for inspection and copying at the
principal office of Philadep. All submissions should refer to the file
number SR-Philadep-95-08 and should be submitted by January 31, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\17\
\17\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-364 Filed 1-9-96; 8:45 am]
BILLING CODE 8010-01-M
