[Federal Register Volume 61, Number 39 (Tuesday, February 27, 1996)]
[Notices]
[Pages 7287-7288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4310]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36861; File No. SR-DTC-96-05]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval on a Temporary
Basis of a Proposed Rule Change to Modify the Procedures for Inter-
depository Deliveries
February 20, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 26, 1996, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-96-05) as described in Items I and II below, which items have
been prepared primarily by DTC. The Commission is publishing this
notice and order to solicit comments on the proposed rule change from
interested persons and to grant accelerated approval of the proposed
rule change on a temporary basis through August 31, 1996.
\1\ 15 U.S.C. 78s(b)(1) (1988).
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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 modify the procedures
for deliveries through the interface between DTC and the Philadelphia
Depository Trust Company (``Philadep'') as part of the planned
conversion on February 22, 1996, of DTC's money settlement system to an
entirely same-day funds settlement (``SDFS'') system.
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\
\2\ The Commission has modified the text of the summaries
submitted by DTC.
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(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 modify the procedures
for deliveries through the interface between DTC and Philadep as part
of the planned conversion of DTC's money settlement system to an
entirely SDFS system. In a 1994 memorandum issued jointly with the
National Securities Clearing Corporation (``NSCC''), DTC described the
planned conversion of DTC's money settlement system to an entirely SDFS
system and outlined the proposed modifications to the interface
delivery procedures.\3\
\3\ The Depository Trust company and National Securities
Clearing Corporation, Memorandum (July 29, 1994).
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In the next-day funds settlement (``NDFS'') system, DTC currently
processes deliveries to and from Philadep through its inter-depository
interface. This interface has been enhanced to improve efficiency while
allowing both depositories to employ separate risk management controls.
Until the conversion on February 22, 1996, to SDFS for all securities
transaction settlements, the proposed procedures will apply only to
securities currently eligible in DTC's SDFS system. Upon the
conversion, the procedures will apply to the settlement of all
securities transactions between DTC and Philadep.
When processing participants' deliveries to Philadep, DTC will
employ an immediate update technique whereby a delivering participant's
security position, collateral, and settlement accounts are immediately
updated if that delivering participant has sufficient securities and
collateral to allow the delivery to be completed. The delivering
participant's position is reduced by the quantity of securities it is
delivering, its settlement account is credited for the settlement value
of the transaction, and its collateral monitor is increased by the
settlement credit it has incurred and is reduced by the collateral
value of the securities it is delivering (provided the securities being
delivered are part of the participant's collateral position). To
facilitate processing in the event of a failure to settler incident,
DTC plans to establish a maximum net debit cap for interface activity
at $400 million upon the scheduled conversion on February 22, 1996.
Once a delivery satisfies risk management controls and completes at
DTC (i.e., the participant has sufficient securities to make the
delivery and the participant's collateral monitor will not become
negative because of the delivery), it is sent to Philadep where it is
subject to Philadep's internal risk management controls. In certain
instances, Philadep's internal risk management controls may prevent a
delivery from completing (i.e., the receiving participant may not have
sufficient collateral or the receipt will cause the participant to
exceed its net debit cap) and may cause those deliveries to pend in
Philadep's system. Deliver orders and payment orders that fail to
successfully complete in Philadep's system at the end of each
processing day (approximately 3:45 p.m.) will be returned to DTC, and
DTC will reverse the deliveries to the original delivering
participants. Such reversals will not be subject to Reciever-Authorized
Delivery (``RAD'') processing \4\ or risk management controls.
\4\ RAD allows a participant to review and either approve or
cancel incoming deliveries before they are processed in DTC's
system. For a further discussion of DTC's RAD procedures, refer to
Securities Exchange Act Release No. 25886 (July 6, 1988), [File No.
SR-DTC-88-07] (notice of filing and immediate effectiveness of a
proposed rule change implementing DTC's RAD procedures).
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DTC believes the proposed rule change is consistent with Section
17A of the Act \5\ and the rules and regulations thereunder because the
proposed rule change will contribute to efficiencies in processing
deliveries in the interface between DTC and Philadep. DTC also believes
the proposed rule change will be implemented consistently with the
safeguarding of securities and funds in DTC's custody or control or for
which it is responsible because the proposed
[[Page 7288]]
rule change modifies the current interface procedures.
\5\ 15 U.S.C. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no impact on competition by reason of the proposed
rule change.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
All participants were informed of the proposed rule change by a DTC
Important Notice,\6\ as well as by the 1994 memorandum referred to
above.\7\ Written comments from DTC participants or others have not
been solicited or received on the proposed rule change.
\6\ DTC Important Notice (January 9, 1996).
\7\ Supra note 3.
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III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act \8\ requires that the rules of a
clearing agency be designed to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions. The Commission believes that DTC's proposed procedures
relating to inter-depository deliveries are consistent with DTC's
obligations under Section 17A(b)(3)(F) because the proposed rule change
establishes procedures for the processing of inter-depository
deliveries between participants of DTC and Philadep.
\8\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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Under the proposed procedures, DTC will immediately update a
participant's account for deliver orders and payment orders sent to a
Philadep participant through the interface. In the event that the
delivery fails to complete at Philadep by the end of the day, the
procedures provide a mechanism by which DTC will reverse the
transaction to the original delivering participant without subjecting
that reversal to RAD or risk management controls. DTC has represented
that the expected volume of deliveries through the interface and the
possibility of such reversal procedures being employed are minimal.
However, the Commission encourages DTC to examine and consider future
enhancements to the interface to provide a mechanism through which DTC
participants can receive notification of transactions pending at
Philadep.
The Commission realizes that the proposed inter-depository delivery
procedures could create the situation where an inter-depository
reversal resulting from an uncompleted delivery at Philadep forces a
DTC participant to violate its net debit cap at DTC near the end of the
day. Therefore, the Commission believes the proposed procedures for
inter-depository reversals should be carefully monitored before they
become permanent. DTC has agreed to monitor activity through the DTC-
Philadep interface and to submit monthly reports to the Commission
concerning the number of inter-depository reversals performed pursuant
to the proposed procedures that cause participants to violate their net
debit caps. For this reason, the Commission is temporarily approving
the proposed rule change through August 31, 1996.
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 filing. The Commission finds good cause for so
approving the proposed rule change because accelerated approval of the
proposed procedures will allow DTC participants to utilize the
procedures for deliveries through the interface between DTC and
Philadep immediately following DTC's conversion to an all SDFS system
on February 22, 1996.
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. Sec. 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 DTC. All
submissions should refer to the file number SR-DTC-96-05 and should be
submitted by March 19, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-96-05) be, and hereby
is, approved on a temporary basis through August 31, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\ 17 CFR 200.30-3(a)(12) (1995).
Dated: February 15, 1996.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4310 Filed 2-26-96; 8:45 a.m.]
BILLING CODE 8010-01-M
