[Federal Register Volume 63, Number 34 (Friday, February 20, 1998)]
[Notices]
[Pages 8726-8727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4254]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39658; File No. SR-DTC-97-14]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving a Proposed Rule Change Relating to Revisions to the
Procedures for Running Call Lotteries on Issues of Book Entry Only
Securities
February 12, 1998.
On July 14, 1997, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') a proposed rule
change (File No. SR-DTC-97-14) pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
was published in the Federal Register on December 8, 1997.\2\ The
Commission received no comment letters in response to the filing. For
the reasons discussed below, the Commission is approving the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 39373 (November 28,
1997), 62 FR 64612.
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I. Description
The proposed rule change amends DTC's procedures for running call
lotteries for book-entry only (``BEO'') issues of securities.\3\ Prior
to the rule
[[Page 8727]]
change, DTC's call lottery process allocated partially called
securities \4\ among participants having positions in the called
securities based on the participants' positions on the call publication
date.\5\ Under the amendment, for BEO issues of securities DTC will run
lotteries using its participants' positions as of the close of business
on the day DTC announces the lottery instead of the call publication
date.\6\ The proposed rule change does not set forth any other
amendments to DTC's call lottery procedures.
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\3\ For a discussion of DTC's call lottery process, refer to
Securities Exchange Act Release Nos. 21523 (November 27, 1984), 49
FR 47352 [File No. SR-DTC-84-09] (filing and immediate effectiveness
of proposed rule change); 30552 (April 2, 1992), 57 FR 12352 [File
No. SR-DTC-90-02] (order temporarily approving a proposed rule
change by the DTC relating to the establishment of a procedure to
recall certain deliveries which have created short positions as a
result of call lotteries); 35034 (November 30, 1994), 59 FR 63396
[File Nos. SR-DTC-94-08 and SR-DTC-94-09] (order granting temporary
approval of proposed rule changes to establish procedures to recall
certain deliveries which have created short positions as a result of
call lotteries and rejected deposits); and 36651 (December 28,
1995), 61 FR 429 [File No. SR-DTC-95-21] (order granting accelerated
permanent approval of a proposed rule change concerning short
position reclamation procedures).
\4\ The terms of certain issues allows the issuer to call for
part or all of the outstanding securities for redemption at certain
times during the issue's life. This type of issue is referred to as
a callable security. Callable securities are either preferred stock
or bonds which the issuer is permitted or required to redeem before
the stated maturity. Generally when an issuer calls a security, the
issuer's trustee publishes notice that the issue has been called or
in the case of registered securities, mails notice to the registered
holders.
\5\ The call publication date is the date on which the issuer
gives notice of the redemption.
\6\ A copy of DTC's proposed call lottery procedures is attached
as Exhibit A to DTC's proposed rule change, which is available for
inspection and copying at the Commission's Public Reference room or
through DTC.
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DTC has stated its belief that changing procedures solely for BEO
securities will contribute to a reduction in short positions without
causing any adverse impact to the parties concerned. The concept of a
publication date appears to be far less relevant to BEO securities than
to other securities. Generally issuers of these securities do not
publish partial call notices but rather inform only the holder of
record (which is DTC for BEO issues) which then notifies its
participants. Although the issuer may inform DTC of a publication date,
DTC believes this is done only for purposes of DTC's lottery, and the
date has no other real significance. DTC generally processes calls of
BEO issues within twenty-four hours of the call being announced by DTC.
II. Discussion
Section 17A(b)(3)(F) \7\ of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes that DTC's proposed rule change is consistent with DTC's
obligations under the Act because the new procedures should help reduce
the number of short positions created by call lotteries. In particular,
the rule change will eliminate short positions that occur when a
participant sells its shares between the call publication date and the
date DTC announces the lottery. As a result, DTC participants will
avoid the expenses associated with experiencing short positions,
including DTC's daily charge of 130% of the market value of each
security for which the participant has a short position at DTC.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-97-14) be, and hereby
is, 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4254 Filed 2-19-98; 8:45 am]
BILLING CODE 8010-01-M
