[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2012]
[[Page Unknown]]
[Federal Register: January 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33513; File No. SR-PTC-93-04]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
Participants Trust Co. Relating to the Percentage Margin Applied by PTC
With Respect to GNMA Project, Construction, and Mobile Home Securities
January 24, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 8, 1993,
Participants Trust Company (``PTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
primarily by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to obtain permanent
approval of the percentages to be deducted from the market value of
certain securities to determine how those securities should be valued
for purposes of participants' net free equity. The securities and
percentages are as follows:
GNMA Project Loan Securities--10%
GNMA Project Note Securities--10%
GNMA Construction Loan Secjurities--12%
GNMA Mobile Home Securities--20%
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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. The self-regulatory organization
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
The purpose of the proposed rule change is to obtain permanent
approval of the percentage margin applied by PTC with respect to GNMA
Project, Construction, and Mobile Home securities for the purpose of
calculating a participant's net free equity.\2\ These margin levels
were approved by the Commission on a temporary basis on October 7,
1991\3\ in order to allow PTC to obtain and evaluate historical data
regarding the level of price volatility of Project, Construction, and
Mobile Home GNMA securities prior to the Commission approving such
margins on a permanent basis. The historical data on price movements
collected by PTC confirms the price volatility assumptions that were
applied in establishing the margin levels in October 1991; this
historical data is summarized below. PTC, therefore, seeks permanent
approval of these margin levels as follows:
\2\``Net Free Equity`` represents PTC's calculation of the
amount of excess equity, available in a participant's account, which
PTC may borrow against or liquidate in the event a participant's
debit balance is not satisfied at the end of the day.
\3\Securities Exchange Act Release No. 29793 (October 7, 1991),
56 FR 51732.
GNMA Project Loan Securities--10%
GNMA Project Notice Securities--10%
GNMA Construction Loan Securities--12%
GNMA Mobile Home Securities--20%
Under PTC's rules, a certain percentage determined by PTC (referred
to in PTC's rules as the ``Applicable Percentage'') of the market value
of a participant's securities is included in the computation of a
particpant's net free equity. Net free equity of zero or greater is
required to be maintained by participants in each of its agency,
pledgee, or proprietary accounts in order for transactions to be
processed. PTC has the right to borrow against or liquidate the assets
that comprise the net free equity computations of those accounts should
a participant fail to pay the account debit balance at the end of the
day. By including only a portion of the market value of securities in
net free equity, PTC attempts to limit the risk that could be caused by
fluctuations in market value of these securities held in those
accounts.
PTC deducts 5% from the market value of GNMA single family
securities to arrive at their Applicable Percentage. That percentage is
based upon historical price volatility figures. Historical volatility
of the Project, Construction, and Mobile Home GNMA securities is
similar to the single family securities, but the market for those
securities is less liquid. Therefore, the enhanced margin levels for
these securities provide PTC with greater protection should PTC need to
borrow against or liquidate these assets.\4\
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\4\The margin levels for Project, Construction, and Mobile Home
GNMA securities were approved in 1991 by PTC's Risk Management
Committee and by PTC's Board of Directors.
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As stated above, the Commission approved the enhanced margin levels
for Project, Construction, and Mobile Home GNMA securities on a
temporary basis in October, 1991.\5\ In conjunction with the original
filing, PTC submitted historical data on price volatility of these GNMA
securities.\6\ This data had indicated that the price movements of GNMA
Project, Construction, and Mobile Home securities tracked those of GNMA
single-family securities. These price movement comparisons were based
on prices on GNMA Construction Loan, Project Loan, and single-family
securities, over the period from December 1989 to December 1990, and
prices on GNMA Mobile Home and single-family securities over the period
from March 1990 to February 1991.\7\
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\5\Securities Exchange Act Release No. 29793, supra note 3.
\6\Letter from Alison N. Hoffman, Assistant Counsel, PTC, to
Scott Wallner, Staff Attorney, Division of Market Regulation,
Commission, dated August 1, 1991.
\7\Id.
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In conjunction with the present filing, PTC has submitted tables
relating daily, weekly, and monthly prices and price movements of GNMA
Construction Loan, Project Loan, Project Note, and Mobile Home
securities for the period October 1, 1991 to June 30, 1993, as compared
to the prices and price movements of GNMA single-family securities over
the same period.\8\ This data supports the conclusion that the price
volatility of these GNMA securities continues to be similar to the
price volatility of GNMA single-family securities, as the price
movements of the GNMA Project, Construction, and Mobile Home securities
closely track the price movements of the GNMA single family securities
over this period. Because the historical data collected since the
Commission granted PTC temporary approval of the enhanced margin levels
supports those margin levels, PTC asks for permanent approval of these
margin levels.
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\8\File No. SR-PTC-93-04, Appendix A.
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The proposed rule change promotes the prompt and accurate clearance
and settlement of securities transactions and assures the safeguarding
of securities and funds in PTC's custody or control by limiting the
risk caused by fluctuations in the market value of securities when used
to collateralize intraday processing of securities transactions. It is
therefore consistent with section 17A of the Act and the rules and
regulations thereunder applicable to PTC.
B. Self-Regulatory Organization's Statement on Burden on Competition
PTC does not believe that the proposed rule change will have an
impact on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
PTC has not solicited, and does not intend to solicit, comments on
this proposed rule change. PTC has not received any unsolicited
comments from participants or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 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 90 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 the self-regulatory organization 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. 552, will be available for inspection and copying in the
Commission's Public Reference 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 PTC. All submissions
should refer to File Number SR-PTC-93-04 and should be submitted by
February 21, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2012 Filed 1-28-94; 8:45 am]
BILLING CODE 8010-01-M
