[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Notices]
[Pages 13729-13730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7193]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38404; File No. SR-DTC-97-03]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
to Modify the Receiver Authorized Delivery and Reclamation Procedures
for Payment Orders
March 14, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 4, 1997, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-97-03) as described in Items I, II, and III below, which items
have been prepared primarily by DTC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 purpose of the proposed rule change is to modify DTC's Receiver
Authorized delivery (``RAD'') procedures and reclamation procedures
with respect to payment orders.
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 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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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposal is to modify DTC's RAD procedures and
reclamation procedures with respect to payment orders. DTC proposes (1)
To reduce the minimum bilateral RAD threshold for payment orders from
$15 million to $1 million, (2) to modify a Participants Terminal System
(``PTS'') function (RADL) to enable a participant to set a different
RAD limit for payment orders and deliver orders for each contra-
participant, and (3) to allow only matched reclaims of payment orders
with a value less than $1 million to bypass risk management controls
(i.e., collateral monitor and net debit caps). DTC is proposing this
rule change in order to reduce the risk to DTC and its participants of
failure-to-settle situations.
In 1995, DTC modified its RAD procedures in preparation for the
same-day funds settlement (``SDFS'') conversion.\3\ The modifications
to RAD procedures established a $15 million minimum bilateral RAD limit
one participant can impose on another participant. Under the modified
procedure, the receiver of a payment order with a value of less than
$15 million generally does not have an opportunity to review and
approve the transaction.\4\ The RAD modifications were implemented to
minimize the number of transactions subject to RAD and the related
possibility for transaction blockage once all activities were converted
to SDFS.
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\3\ Securities Exchange Act Release No. 35720 (May 16, 1995), 60
FR 27360 [File No. SR-DTC-95-06] (order granting accelerated
approval of a proposed rule change modifying DTC's SDFS system).
\4\ Original payment orders submitted between 3:00 p.m. and 3:20
p.m. are subject to RAD regardless of their settlement value.
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DTC also modified its reclamation procedures in preparation for the
SDFS conversion and in conjunction with the modifications to RAD
procedures to ensure that this policy did not cause undue burden on
participants.\5\ Under the modified reclamation procedures, a matched
reclaim \6\ of a payment order or deliver order with a settlement value
less than $15 million is currently not subject to risk management
controls.
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\5\ Securities Exchange Act Release No. 36476 (November 9,
1995), 60 FR 57728 [File No. SR-DTC-95-16] (notice of filing and
order granting accelerated approval of a proposed rule change
relating to the modification of DTC's reclamation procedures).
\6\ A reclaim is deemed to be ``matched'' if its corresponding
original delivery was processed on the current processing day or the
preceding business day.
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However, payment orders differ from deliver orders because payment
orders are ``money-only'' transactions and do not involve securities.
When a payment order is processed, the receiver of the payment order
receives a settlement debit but does not receive any securities that
could serve as collateral for the debit incurred. Similarly, if a
payment order is reclaimed, the receiver of the reclamation incurs a
debit without receiving offsetting securities as collateral. DTC has
determined that there is more risk inherent in the reclamation of
payment orders than in the reclamation of deliver orders because the
reclamation of payment orders would more likely cause a participant's
account to become undercollateralized. Therefore, DTC believes that a
more conservative approach with respect to RAD procedures and
reclamation procedures is appropriate for payment orders.
Under the proposed rule change, RAD procedures and reclamation
procedures for payment orders will be modified as follows: (1) the
minimum bilateral RAD threshold for payment orders will be reduced to
$1 million from $15 million; (2) the PTS function (RADL) will be
modified to enable a participant to set a different RAD limit for
payment orders
[[Page 13730]]
and deliver orders for each contra-participant; and (3) matched
reclaims of payment orders with a value less than $1 million will not
be subject to risk management controls.
DTC does not anticipate that these modifications will cause
significantly greater transaction volume. Approximately 98.5% of
payment orders processed by DTC are valued at an amount less than $1
million. Furthermore, DTC estimates that approximately 600-800 payment
orders of the 50,000 payment orders processed by DTC on a daily basis
could potentially be subject to the proposed RAD approval procedures.
DTC believes that the proposed rule change is consistent with
Section 17A of the Act \7\ and the rules and regulations thereunder
because it will provide for the equitable allocation of dues, fees, and
other charges among participants.
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\7\ 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 impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
On December 13, 1996, DTC sent its participants an Important Notice
describing the proposed rule change. The proposed rule change has been
discussed with a limited number of participants. None of the
participants with whom DTC discussed the proposed rule change expressed
any opposition to its adoption. Written comments from DTC participants
have not been solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(iii) \8\ of the Act and pursuant to Rule 19b-4(e)(6) \9\
promulgated thereunder because the proposed rule is effecting a change
that: (1) does not significantly affect the protection of investors or
the public interest; (2) does not impose any significant burden on
competition; (3) does not become operative for thirty days from the
date of its filing on February 4, 1997, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest; and (4) was provided to the Commission for its
review at least five days prior to the filing date. At any time within
sixty days of the filing of the proposed rule change, the Commission
may summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(e)(6).
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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, NW., 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, NW., 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 File No. SR-DTC-97-03 and should be submitted by April 11,
1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7193 Filed 3-20-97; 8:45 am]
BILLING CODE 8010-01-M
