[Federal Register Volume 62, Number 242 (Wednesday, December 17, 1997)]
[Notices]
[Pages 66158-66160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32821]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39422; File No. SR-DTC-97-20]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Expanding the Money Market Instrument Settlement Program
December 19, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 22, 1997, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') and on November 13, 1997, amended
the proposed rule change (File No. SR-DTC-97-20) as described in Items
I and II below, which items have been primarily prepared by DTC. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval of the proposed rule change on a permanent basis.
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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 proposed rule change seeks permanent approval of DTC's expanded
money market instrument (``MMI'') settlement program. The Commission
previously approved DTC's expanded MMI program on a temporary basis.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DTC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments that it received on the proposed rule change.
The text of these statements may be examined at the places specified in
Item IV below. DTC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by DTC.
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[[Page 66159]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
DTC's expanded MMI program is an extension of DTC's same-day funds
settlement (``SDFS'') system. The proposed rule change seeks permanent
approval of DTC's expanded MMI settlement program for transactions in
institutional certificates of deposit, municipal commercial paper, and
bankers' acceptances.\3\ The proposed rule change also seeks to
permanently approve changes made to DTC's MMI programs for corporate
commercial paper (``CP''), medium term notes, preferred stock in a CP-
like mode, short term bank notes, and discount notes.\4\
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\3\ Securities Exchange Act Release Nos. 33958 (April 22, 1994),
59 FR 22878; and 35655 (April 28, 1995), 60 FR 22423.
\4\ Id.
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The Commission previously granted only temporary approval to the
expansion of DTC's MMI settlement program because at the time DTC had
not yet implemented the largest provisional net credit (``LPNC'')
control. The LPNC control consists of two new risk management features
which are designed to protect DTC against the combined failure of a MMI
issuer and a participant.
Under the first LPNC risk management feature, DTC subtracts from a
participant's actual overall SDFS net debit or credit the amount of the
participant's largest provisional net credit due to transactions in any
single issuer's MMI program. If a transaction causes the resulting net
debit (``simulated net debit'') to exceed the participant's net debit
cap, the transaction will be blocked until the account receives
sufficient credits to complete the transaction.
Under the second LPNC risk management feature, DTC subtracts from
the participant's collateral monitor the amount of a participant's
largest provisional net credit due to transactions in any single
issuer's MMI program. If a transaction will cause the resulting
collateral monitor (``simulated collateral monitor'') to become
negative (i.e., the participant's collateral would be insufficient to
cover its simulated net debit after the transaction), the transaction
will be blocked until the account receives sufficient collateral to
complete the transaction.\5\
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\5\ Because transactions in a failing MMI issue would be
reversed by DTC only if DTC is informed of the default by 3:00 PM
(Eastern Time), LPNC procedures remain in effect only until
approximately 3:05 PM (Eastern Time). After this time,
collateralization and net debit cap controls are applied to net
debits incurred by participants as a result of transactions that
have actually completed.
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DTC has reported that MMI issuers have defaulted both before and
after the LPNC controls were implemented in September 1995. However,
since the implementation of the LPNC controls, DTC stated that it has
not had any problems with liquidity or blocked transactions. DTC
indicated that the application of LPNC controls may cause some
participants to reach their net debit cap and as a result, block the
completion of further transactions. However, DTC reported that
participants generally complete blocked transactions by sending
intraday funds to DTC for credit to their participant settlement
account.
DTC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations promulgated thereunder because it promotes the prompt and
accurate clearance and settlement of transactions in MMIs.
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\6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC 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
DTC has not solicited comments on the proposed rule change.
Discussions with DTC participants indicate continued wide support for
the MMI programs.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) \7\ of the Act 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. The Commission believes that DTC's
proposed rule change is consistent with DTC's obligations under the
Act.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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Because the Commission was concerned that the proposed expanded MMI
settlement program increased risks associated with the use of
provisional credits, the Commission previously approved the proposed
rule change on a temporary basis until the new LPNC controls could be
implemented and monitored for their effectiveness. During the temporary
approval period, the LPNC risk management features have helped minimize
the impact of a default by an MMI issuer. In this regard, since the
LPNC controls were implemented in September 1995, DTC has reported that
it has had no problems with liquidity or blocked transactions. Thus,
the Commission finds that DTC's expanded MMI settlement program, with
the addition of the LPNC controls, is consistent with its obligations
under the Act to assure the safeguarding of securities and funds which
are in its custody or control or for which it is responsible.
DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
the date of publication of notice of filing because accelerated
approval will allow DTC to continue to use its MMI program without
interruption.
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 Room, 450 Fifth Street, NW., Washington,
DC. Copies of such filing will also be available for inspection and
copying at the principal office of the above-mentioned self-regulatory
organization.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-97-20) be and hereby is
permanently approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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[[Page 66160]]
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32821 Filed 12-16-97; 8:45 am]
BILLING CODE 8010-01-M
