[Federal Register Volume 62, Number 4 (Tuesday, January 7, 1997)]
[Notices]
[Pages 1018-1020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-233]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38100; File Nos. SR-SCCP-96-10 and SR-Philadep-96-19]
Self-Regulatory Organizations; Stock Clearing Corporation of
Philadelphia; Philadelphia Depository Trust Company; Notice of Filing
and Order Granting Accelerated Approval on a Temporary Basis of
Proposed Rule Changes Relating to Participants Fund Formulas
December 30, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 15, 1996, the
Stock Clearing Corporation of Philadelphia (``SCCP'') and the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
changes (File Nos. SR-SCCP-96-10 and SR-Philadep-96-19) as described in
Items I and II below, which items have been prepared primarily by SCCP
and Philadep. The Commission is publishing this notice and order to
solicit comments from interested persons and to grant accelerated
approval on a temporary basis of the proposed rule changes through June
30, 1997.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organizations' Statement of the Terms of
Substance of the Proposed Rule Changes
The proposed rule changes seek permanent approval of SCCP's and
Philadep's participants fund formulas. On February 22, 1996, the
Commission granted partial temporary approval to proposed rule changes
establishing SCCP's and Philadep's participants fund formulas in
connection with the industry conversion to same-day funds settlement
(``SDFS'').\2\ On August 29, 1996, the Commission extended the
[[Page 1019]]
temporary approval of the proposed rule changes through December 31,
1996.\3\
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\2\ Securities Exchange Act Release Nos. 36875 (February 22,
1996), 61 FR 7846 [SR-SCCP-95-06] and 36876 (February 22, 1996), 61
FR 7841 [SR-Philadep-95-08] (orders granting partial permanent and
partial temporary approval through August 31, 1996, of proposed rule
changes).
\3\ Securities Exchange Act Release Nos. 37623 (August 29,
1996), 61 FR 47229 [SR-SCCP-96-07] (order granting temporary
approval through December 31, 1996 of a proposed rule change) and
37625 (August 30, 1996), 61 FR 47227 [SR-Philadep-9-14] (order
granting partial permanent approval and partial temporary approval
of a proposed rule change through December 31, 1996).
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II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In its filing with the Commission, SCCP and Philadep included
statements concerning the purpose of and basis for the proposed rule
changes and discussed any comments that they received on the proposed
rule changes. The text of these statements may be examined at the
places specified in Item IV below. SCCP and Philadep have prepared
summaries, set forth in sections (A), (B), and (C) below, of the most
significant aspects of such statements.\4\
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\4\ The Commission has modified the text of the summaries
submitted by SCCP and Philadep.
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(A) Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
On February 22, 1996, SCCP and Philadep converted their processing
environment from a next-day funds settlement system to a SDFS system.
In an effort to reduce risk in a SDFS environment, SCCP and Philadep
put in place a new system and new controls with enhanced processing
capabilities. As a part of their conversion to SDFS, SCCP and Philadep
established new participants fund formulas.
Both Philadep's and SCCP's Rule 4, which govern the participants
fund and the procedures regarding the participants fund formulas,
currently provide for an all cash participants funds. The all cash
requirement applies to both the required deposits and any additional or
voluntary deposits made by participants.
Pursuant to Rule 4 of SCCP's rules and the procedures thereunder,
SCCP calculates participants' required cash deposits pursuant to the
following formulas:
(a) Inactive Account: $5,000 \5\
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\5\ Securities Exchange Release No. 37554 (August 9, 1996), 61
FR 42929 [File No. SR-SCCP-96-03] (order granting temporary approval
of a proposed rule change to establish a separate participant
category for inactive accounts through December 31, 1996).
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(b) Full Service (``CNS'') Account--The contribution of a CNS
Participant is based upon the larger of: (1) the participant's
monthly average of trading activity during the preceding three
months, $1,000 for every twenty-five trading units of one hundred
shares; or (2) the participant's aggregate dollar amount of all long
trades at their execution price for the prior three months divided
by the number of days in the prior three months multiplied by two
percent. The required contributions are rounded upward to $5,000
increments, and the average is a rolling average.
(c) Regional Interface Operations (``RIO'') Account--The
contribution of a RIO Participant is based on the participant's
monthly average of trading activity during the preceding three
months, $1,000 for every twenty-five trading units of one hundred
shares (with a $10,000 minimum and a $75,000 maximum contribution).
The required contributions are rounded upward to $5,000 increments.
A RIO Account is defined as a participant account whereby the
participant elects to settle with a clearing corporation other than
SCCP.
(d) Layoff Account--The contribution of a Layoff Participant is
set at a uniform rate of $25,000. A Layoff Participant Account is
defined as a participant account whereby the participant elects to
settle with a clearing corporation other than SCCP for trades not
executed on the Philadelphia Stock Exchange.
(e) Specialist Margin Account--The contribution of a Specialist
Margin Participant is set at a uniform rate of $35,000.
(f) Non-Specialist Margin Account--The contribution of a Non-
Specialist Margin Participant is set at a uniform rate of $35,000.
Pursuant to Rule 4 of Philadep's rules and the procedures
thereunder, Philadep calculates participants' required cash deposit
pursuant to the following formulas:
(a) Inactive Accounts: $5,000.00 \6\
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\6\ Securities Exchange Release No. 37554 (August 9, 1996), 61
FR 42929 [File No. SR-Philadep-96-07] (order granting temporary
approval of a proposed rule change to establish a separate
participant category for inactive accounts through December 31,
1996).
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(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 billings. The
greater of either:
(1) $25,000 or
(2) 1% of the average of the three highest net debits over the past
three months (rounded to the next $5,000 increment).
Both SCCP and Philadep recalculate each participant's deposit
requirement at the end of each month based on a participant's activity
for the previous three months prior to the most recent month. SCCP and
Philadep notify their participants of the amount of any required
deposit increase within ten business days of the end of the month.
Participants whose deposit requirements have decreased are notified at
least quarterly although they may inquire and withdraw excess deposits
monthly. Participants may leave excess cash deposits in the
participants fund. SCCP participants with deposits in excess of $50,000
receive interest rebates from SCCP.
The temporary approval periods for SCCP's and Philadep's
participants fund formulas expire on December 31, 1996. Therefore, SCCP
and Philadep have requested that the Commission permanently approve
their participants fund formulas.
SCCP and Philadep believe the proposed rule changes are consistent
with the requirements of Section 17A of the Act and the rules and
regulations thereunder because the rule proposals will promote the
prompt and accurate clearance and settlement of securities transactions
and will assure the safeguarding of securities and funds in the custody
or control of SCCP and Philadep or for which SCCP and Philadep are
responsible.
(B) Self-Regulatory Organizations' Statement on Burden on Competition
SCCP and Philadep do not believe that the proposed rule change will
impact or impose a burden on competition.
(C) Self-Regulatory Organizations' Statement on Comments on the
Proposed Rule Changes Received From Members, Participants, or Others
No written comments have been solicited or received. SCCP and
Philadep will notify the Commission of any written comments received by
SCCP and Philadep.
III. Date of Effectiveness of the Proposed Rule Changes and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act \7\ requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible. While the Commission believes at this time
that some of SCCP's and Philadep's participants fund formulas are
consistent with this obligation, the Commission continues to have
concerns about the adequacy of some of SCCP's and Philadep's
participants fund formulas in providing a sufficient source of cash
liquidity and in meeting the standards set forth by the
[[Page 1020]]
Division of Market Regulation (``Division'').\8\
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
\8\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 41920 (order publishing standards to be used by the Division
in reviewing the grant of full registration of clearing agencies).
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The Commission believes that clearing agencies operating SDFS
systems must have sufficient liquidity from a combination of cash and
lines of credit to ensure that settlement occurs at the end of the
business day even if a participant fails to settle with the clearing
agency or if the clearing agency experiences a systems problem. The
Commission further believes that a clearing agency must have immediate
access to an amount of cash which will enable the clearing agency to
fund settlement for most participant failures or systems problems
without having to immediately draw on its lines of credit (i.e., a
clearing agency's lines of credit should be its secondary source of
liquidity and not its primary source). Given the demand for liquidity
under an SDFS environment and in light of SCCP's use of its
participants fund to finance specialists purchases, the Commission has
concerns about the sufficiency of the levels of cash liquidity provided
by SCCP's and Philadep's formulas.\9\ For these reasons, the Commission
is approving the proposed rule changes through June 30, 1997, in order
that the Commission, SCCP, and Philadep can continue to analyze the
adequacy of SCCP's and Philadep's participants formulas.
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\9\ For a complete description of SCCP's and Philadep's
financing program, refer to Securities Exchange Act Release No.
20221 (September 23, 1983), 48 FR 45167 (order approving full
registration of SCCP, Philadep, et al.).
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SCCP and Philadep have requested that the Commission approve the
proposed rule changes on an accelerated basis. The Commission finds
good cause for approving the proposed rule changes prior to the
thirtieth day after the date of publication of notice of filing because
the proposed rule changes will allow SCCP and Philadep to continue to
apply their participants fund formulas when the current temporary
approvals expire on December 31, 1996.\10\
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\10\ The staff of the Board of Governors of the Federal Reserve
System has concurred with the Commission's granting of accelerated
approval of Philadep's proposed rule change. Telephone conversation
between John Rudolph, Board of Governors of the Federal Reserve
System, and Chris Concannon, Staff Attorney, Division, Commission
(December 30, 1996).
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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, N.W., Washington, D.C. 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 Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such filing will also be available for inspection
and copying at the principal office of SCCP and Philadep.
All submissions should refer to file numbers SR-SCCP-96-10 and SR-
Philadep-96-19 and should be submitted by January 28, 1997.
It is therefore ordered pursuant to Section 19(b)(2) of the Act,
that the proposed rule changes (File Nos. SR-SCCP-96-10 and SR-
Philadep-96-19) be, and hereby are approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-233 Filed 1-6-97; 8:45 am]
BILLING CODE 8010-01-M
