[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8279]
[[Page Unknown]]
[Federal Register: April 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33840; File No. SR-PTC-93-04]
Self-Regulatory Organizations; Participants Trust Company; Order
Approving a Proposed Rule Change Relating to the Percentage Margin
Applied by PTC With Respect to GNMA Project, Construction, and Mobile
Home Securities
March 31, 1994.
On November 8, 1993, the Participants Trust Company (``PTC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-PTC-93-04) pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
appeared in the Federal Register on January 31, 1994.\2\ No comments
were received. 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. 33513 (January 24, 1994),
59 FR 4302.
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I. Description
PTC seeks permanent approval of its proposed rule change
establishing the percentages to be deducted from the market value of
certain securities to determine how those securities should be valued
for purposes of participants' Net Free Equity.\3\ The current proposal
is substantially the same as the one the Commission temporarily
approved on October 7, 1991.\4\
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\3\Net Free Equity is calculated as the sum of:
(1) The cash balance in the account;
(2) The market value of securities in the account, less the
appropriate haircut for such securities (``Applicable Percentage'');
and
(3) The value of all Supplemental Processing Collateral; minus
(4) Reserve on Gain on transfers made that day. Supplemental
Processing Collateral includes the following:
(1) The value of optional deposits to the participants fund
allocated to that account (optional deposits to the participants
fund are deposits that exceed the minimum deposit required pursuant
to PTC's rules and procedures); and
(2) 20% of the mandatory deposits to the participants fund for
the Master Account (mandatory deposits to the participants fund are
minimum deposits required to be deposited into such fund pursuant to
PTC's rules and procedures). Reserve on Gain means:
(1) The contract value credited to the cash balance of a
delivering participant or limited purpose participant over the
market value of securities credited to the transfer account
associated with the account of the receiving participant; or
(2) The market value of securities credited to the transfer
account associated with the account of a receiving participant over
the contract value credited to the cash balance of the delivering
participant or limited purpose participant. PTC Rules, Article I,
Rule 1.
\4\Securities Exchange Act Release No. 29793 (October 7, 1991),
56 FR 51732.
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Under PTC's rules, the Applicable Percentage\5\ of the market value
of securities is used in computing a participant's Net Free Equity.
PTC's rules require participants to maintain Net Free Equity of zero or
greater in each of their agency, pledgee transfer, or proprietary
accounts in order for transactions to be processed. PTC has the right
to borrow against or liquidate those assets that comprise the Net Free
Equity computations in those accounts in the event that the participant
responsible for one or more of those accounts fails to pay the account
debit balance at the end of the day. By including only a portion of the
market value of securities in Net Free Equity, i.e., the Applicable
Percentage, PTC attempts to limit the risk caused by fluctuations in
the market value of securities in those accounts.
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\5\``Applicable Percentage'' means that percentage of the market
value of securities that is included in the computation of Net Free
Equity. The Applicable Percentage is determined by deducting certain
percentages (i.e., margin) from the market value of securities. See
also supra note 3.
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Under the proposal, PTC is seeking permanent approval of the
following margin levels:
GNMA Project Loan Securities--10%
GNMA Project Note Securities--10%
GNMA Construction Loan Securities--12%
GNMA Mobile Home Securities--20%
PTC deducts 5% from the market value of GNMA Single-Family
securities to arrive at their Applicable Percentage. That percentage is
based upon historical price volatility figures. Historical volatility
of the Project, Construction, and Mobile Home GNMA securities is
similar to that of Single-Family GNMA securities, but PTC believes that
the market for those securities is less liquid. This is reflected in
the higher margin levels for those securities.
II. Discussion
The Commission believes that PTC's proposed rule change is
consistent with section 17A of the Act, and, specifically, with
sections 17A(b)(3) (A) and (F).\6\ Those sections require a clearing
agency to be organized, and its rules be designed, to promote the
prompt and accurate clearance and settlement of securities transactions
and to assure the safeguarding of securities and funds which are in its
custody or control or for which it is responsible.
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\6\15 U.S.C. 78q-1(b)(3) (A) & (F).
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The Commission approved the margin levels for Project,
Construction, and Mobile Home GNMA securities on a temporary basis on
October 7, 1991.\7\ In that filing, PTC submitted historical data which
suggested that the price movements of GNMA Project, Construction, and
Mobile Home securities tracked those of GNMA Single-Family
securities.\8\ The Commission approved PTC's margin levels on a
temporary basis to allow further evaluation by PTC of price movement
correlations between GNMA Single-Family securities on the one hand, and
GNMA Project, Construction, and Mobile Home securities on the other, as
well as to gauge the volatility of such securities. In seeking
permanent approval of its margin levels, PTC submitted in support of
its proposal data consistent with the price movement data in the
original filing.\9\
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\7\Securities Exchange Act Release No. 29793, supgra note 4.
\8\The price movement comparisons were based on prices of GNMA
Construction Loan, Project Loan, and Single-Family securities, over
the period from March 1990 to February 1991. Letter from Alison
Hoffman, Assistant Counsel, PTC, to Scott Wallner, Staff Attorney,
Division of Market Regulation, Commission, dated August 1, 1991.
\9\PTC compared daily price movements of GNMA Single-Family 10%
securities against each of Project Note, Project Loan, Construction
Loan, and Mobile Home 10% securities. File No. SR-PTC-93-04,
appendix A.
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The Commission is satisfied that PTC's proposal is consistent with
the Act, but suggests that PTC review periodically the price movement
correlations and volatility described above. The Commission believes
that the enhanced margin levels for these securities will promote the
prompt and accurate clearance and settlement of securities transactions
and assure the safeguarding of securities and funds in PTC's custody or
control by limiting the risk arising from fluctuations in the market
value of Project, Construction, and Mobile Home securities when used to
collateralize intraday processing of securities transactions.
III. Conclusion
For the reasons stated above, the Commission finds that PTC's
proposal is consistent with section 17A of the Act.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\10\ that PTC's proposed rule change (File No. SR-PTC-93-04) be,
and hereby is, approved.
\10\15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\17 CFR 200.30-3(a) (12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8279 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M
