[Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
[Notices]
[Pages 19772-19774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10422]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39861; SR-DTC-97-21]
Self-Regulatory Organizations; the Depository Trust Company;
Notice of Filing of Proposed Rule Change Relating to Modification of
Processing Bankers' Acceptances
April 14, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 14, 1997, the
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission''), and on November 6, 1997, and
February 23, 1998, amended the proposed rule change 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 from
interested persons on the proposed rule change.
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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 will modify DTC's plan for processing
bankers' acceptances (``BAs'') to provide for fungibility of an
accepting bank's issues that are issued at a discount and that mature
on the same day.
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
In 1994, the Commission approved an expansion of DTC's money market
instruments (``MMI'') settlement program to include, among other
things, BAs,\3\ which allowed DTC to process
[[Page 19773]]
non-fungible BAs.\4\ The purpose of the proposed rule change is to
modify DTC's procedures to allow an accepting bank, at its option, to
assign one CUSIP number to a bundle of its BAs that are issued at a
discount and that have the same maturity date. DTC will treat all such
BAs assigned the same CUSIP number as fungible.
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\3\ Securities Exchange Act Release Nos. 33958 (April 22, 1994);
59 FR 22879 (order approving proposal on temporary basis); and 35655
(April 28, 1995), 60 FR 22423 (extension of temporary approval).
\4\ Non-fungible BAs consist of those with only one underlying
customer, draft, and accepting bank. A CUSIP number is assigned to
each BA as opposed to a bundle of BAs, as is currently proposed by
the rule change.
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Under existing practices in the BAs market, an issuing bank and an
investor may agree that a single issuance transaction can be settled by
the bank's delivery of a bundle of drafts, which may involve different
drawers, different underlying transactions, different goods, or
different countries of origin or destination, so long as each component
draft has been accepted by the issuing bank and has the same maturity
date. Industry participants have requested that DTC's proposed
processing rules reflect this current market practice for trading BAs.
The proposed program for processing BAs will provide for an issuing
bank to settle a single issuance transaction by book-entry delivery of
interests in a bundle of drafts accepted by the bank, maturing on the
same date, and identified by a single CUSIP number. Subsequent to the
initial issuance of these fungible BAs, the issuing bank may increase
the total amount of the issue outstanding by including additional
accepted drafts of the same or longer tenure as the other component
drafts.\5\ Similarly, the issuing bank may substitute for a component
draft of an outstanding issue of fungible BAs another accepted
component draft having the same or longer maturity date. DTC will make
available to participants through its Participant Terminal System
inquiry function information about the features (e.g., identity of
drawer, goods, country of origin, and destination) of each component
draft of fungible BAs that has been provided by the bank's issuing
agent as of the date of the inquiry.
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\5\ Where the component drafts have different maturity dates,
the bank issuing fungible BAs will be required to pay full maturity
on the earliest date that component draft matures.
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Market participants will remain responsible for complying with
regulations of the U. S. Treasury Department's Office of Foreign Assets
Control (``OFAC'') as they pertain to DTC-eligible BAs. In providing
issuance instructions to DTC, the bank's issuing agent will be required
to acknowledge that the issuance complies with OFAC regulations, if
that is the case. The acknowledgement shall constitute a representation
by the issuing agent that it maintains an appropriate system for
assuring compliance with OFAC regulations and that the subject issuance
complies with those regulations.
The bank's issuing agent will also be required to indicate in the
issuance instructions whether or not the BAs being issued are eligible
for purchase and discount at a federal reserve bank. As with
information concerning other kinds of issues distributed through DTC,
DTC will make the information available to participants but will not
verify the accuracy of information provided by the issuing agent with
respect to the BAs. DTC will not be liable for any loss related to the
accuracy or completeness of information about BAs made available by it.
In the event of the accepting bank's insolvency, DTC's MMI program
procedures relating to MMI issuer insolvency will apply. Furthermore,
in order to put participants in a position to independently pursue
claims against the bank or any other party (e.g., the drawer of an
accepted draft), DTC will seek to have accepted drafts which had been
made payable or endorsed to DTC's nominee, Cede & Co., at the time the
BAs were first issued, exchanged for accepted drafts made payable or
endorsed to each participant having a position in each issue of the
bank's BAs.\6\ If DTC is unable to arrange for such exchanges, DTC will
act, with respect to matters involving each issue of BAs (i.e., CUSIP),
in accordance with the written instructions of the participants having
sixty-six and two-thirds percent or more of the total position in that
issue.
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\6\ A participant having a position on DTC's books in an issue
of fungible BAs accepted by the insolvent bank would receive
component drafts with each draft in an amount proportional to the
participant's position in that issue.
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As with other types of financial instruments in DTC's MMI program,
for purposes of collateral valuation, BAs rated in one of the top two
ratings categories by at least one of the largest bank-debt rating
agencies and investment grade or above by other rating agencies will
receive a two percent haircut from market price. BAs rated as
investment grade only by the ratings agencies will receive a five
percent haircut and all lower-rated or unrated BAs will receive a 100
percent haircut (resulting in zero collateral value). DTC will not
accept for eligibility BAs that are in default.
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because it promotes the prompt and accurate clearance and
settlement of securities transactions.
(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 that is 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
No comments on the proposed rule change were solicited or received.
However DTC worked closely with a task force of The Bond Market
Association, which task force was comprised of DTC participants, in
developing the modified processing plan.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer periods (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(a) By order approve the proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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
[[Page 19774]]
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of DTC. All
submissions should refer to File No. SR-DTC-97-21 and should be
submitted by May 12, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10422 Filed 4-20-98; 8:45 am]
BILLING CODE 8010-01-M
