[Federal Register Volume 62, Number 35 (Friday, February 21, 1997)]
[Notices]
[Pages 8073-8074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4239]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38281; File No. SR-Philadep-96-15]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Notice of Filing and Order Granting Accelerated Approval of a
Proposed Rule Change To Amend and Clarify Certain Same-Day Funds
Settlement Procedures
February 13, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 6, 1996, the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-Philadep-96-15) as described in Items I and II
below, which items have been prepared primarily by Philadep. On
November 12, 1996, Philadep filed an amendment to the proposed rule
change to clarify the minimum net debit cap procedures.\2\ The
Commission is publishing this notice and order to solicit comments from
interested persons and to grant accelerated approval of the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Letter from Kieth Kessel, Compliance Officer, Philadep
(November 12, 1996).
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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 amend and to clarify
certain same-day funds settlement (``SDFS'') procedures relating to
Philadep's risk management controls.
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.\3\
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\3\ The Commission has modified the text of the summaries
submitted by Philadep.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On February 22, 1996, the Commission granted partial permanent
approval and partial temporary approval of proposed rule changes filed
by Philadep and the Stock Clearing Corporation of Philadelphia's
(``SCCP'') to establish an SDFS system.\4\ The purpose of the proposed
rule change is to amend and to clarify certain SDFS procedures relating
to the risk management controls (i.e., collateral monitor and net debit
cap).
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\4\ Securities Exchange Act Release Nos. 36875 (February 22,
1996), 61 FR 7846 [File No. SR-SCCP-95-06] and 36876 (February 22,
1996), 61 FR 7841 [SR-Philadep-95-08] (orders granting partial
temporary approval and partial permanent approval of proposed rule
changes to convert to same-day funds settlement systems) (``SDFS
Approval Orders'').
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Pursuant to the SDFS Approval Orders, Philadep provides each
participant with a settlement amount which is an aggregate of a
participant's end-of-day net debits and net credits in their SCCP and
Philadep accounts.\5\ Because of this common net settlement feature,
Philadep's SDFS Approval Order sets forth that Philadep's SDFS system
risk management controls would be applied in a limited manner to SCCP's
Continuous Net Settlement (``CNS'') activity. However, SCCP and
Philadep will not suspend the processing of a participant's CNS
activity when the participant's collateral monitor is negative or its
net debit cap is exceeded because CNS activity is exempt from the risk
management controls.
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\5\ Philadep's collateral monitor and net debit cap analysis are
structured to incorporate this netting of SCCP and Philadep
settlements.
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Philadep's proposed amendments to its SDFS system risk management
procedures clarify that the collateral of a joint SCCP/Philadep
participant that is contained in the participant's collateral monitor
may be fully utilized by Philadep to address any settlement default of
such joint participant. In this regard, Philadep recognizes several
sources of collateral that may be derived to support a joint
participant's Philadep activities as well as its SCCP CNS activities.
Collateral derived from a SCCP CNS participant generally includes the
participant's SCCP participants fund contribution and CNS securities
received. Collateral derived from a Philadep participant generally
includes the participant's Philadep participants fund contribution,
miscellaneous delivery order interest, interest, dividend and
reorganization credits, free receives, and proprietary positions that
the participant designated as collateral.
Philadep's procedures make clear that in the event of a joint
participant insolvency or a joint participant's failure to pay its end-
of-day settlement
[[Page 8074]]
obligation, Philadep can use any and all such collateral contained in
the participant's collateral monitor to address the default pursuant to
Philadep's existing default procedures.
Philadep also proposes to clarify and to amend its SDFS procedures
relating to minimum net debit caps. Currently, the minimum net debit
cap applied to participants' accounts is an amount equal to 50% of the
combined Philadep and SCCP participants funds (a Philadep-only
participant's minimum net debit cap is the amount equal to 50% of the
Philadep participants fund). Philadep proposes to establish a minimum
net debit cap formula which is the lesser of: (1) An amount equal to
50% of the combined Philadep and SCCP participants funds (a Philadep-
only participant's minimum net debit cap is an amount equal to 50% of
the Philadep participants fund); or (2) an amount equal to twice the
participant's aggregate end-of-day settlement amounts calculated over
the past three months. The minimum net debit cap will be recalculated
and adjusted on a monthly basis. Furthermore, Philadep reserves the
right to set an individual participant's minimum net debit cap at a
level less than that computed by the above formulas if Philadep
believes that for risk management purposes the minimum net debit cap
should be adjusted downward.
Philadep believes the proposed rule change is consistent with
Section 17A of the Act and the rules and regulations thereunder because
the proposal will assure the safeguarding of securities and funds which
are in the custody or control of Philadep or for which it is
responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
Philadep does not believe that the proposed rule change will impose
any inappropriate 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 relating to the proposed rule change 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
Section 17A(b)(3)(F) of the Act \6\ 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 Philadep's
proposed rule change clarifying certain SDFS procedures is consistent
with Philadep's obligations because the proposal should provide
participants with some certainty with respect to Philadep's application
of SDFS risk management controls to CNS activity and failure to settle
procedures. Additionally, the proposed rule change is consistent with
Philadep's obligations because the proposal establishes a second
minimum net debit cap formula which produces a more conservative
minimum net debit cap for certain participants.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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Philadep 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 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 the proposed
rule change, which should clarify certain SDFS procedures that are
currently being applied to participants, should become effective as
soon as possible.\7\
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\7\ The staff of the Board of Governors of the Federal Reserve
System has concurred with the Commission's granting of accelerated
approval. Telephone conversation between John Rudolph, Board of
Governors of the Federal Reserve System, and Chris Concannon, Staff
Attorney, Division of Market Regulation, Commission (February 13,
1997).
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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 Philadep. All submissions should
refer to the file number SR-Philadep-96-15 and should be submitted by
March 14, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-Philadep-96-15) 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. 97-4239 Filed 2-26-97; 8:45 am]
BILLING CODE 8010-01-M
