[Federal Register Volume 61, Number 106 (Friday, May 31, 1996)]
[Notices]
[Pages 27377-27378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13694]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37244; File No. SR-Philadep-96-07]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Notice of Filing of a Proposed Rule Change To Establish a
Separate Participant Category for Inactive Accounts
May 24, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 8, 1996, the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-Philadep-96-07) as described in Items I, II, and
III below, which items have been prepared primarily by Philadep. 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) (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 amend Philadep's
rules to establish a separate participant category for inactive
accounts and to amend the participants fund formulas with respect to
such inactive accounts. Specifically, the proposed rule change will
define the term ``Inactive Account'' and will set forth the mechanism
for detecting a change in a participant's status from inactive to
active and for the immediate collection of the additional required
participants fund contribution at such time.
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.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Philadep proposes to amend its rules with respect to the minimum
cash deposit contribution of its inactive participants to be set at the
uniform rate of $5,000 instead of at the previously approved rate of
$10,000.\2\ ``Inactive Accounts'' are proposed to be defined as an
account which conducts de minimis activity, currently established to be
less than $100 in monthly billing activities.
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\2\ Securities Exchange Act Release No. 36876 (February 22,
1996), 61 FR 7841 [SR-Philadep-95-08] (order granting partial
temporary approval and partial permanent approval of a proposed rule
change).
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Philadep proposes to adjust its Inactive Account contribution to
the participants fund from $10,000 to $5,000. In proposing this
amendment, Philadep recognizes that inactive accounts pose virtually no
risk to the clearing corporation so long as they remain in such
inactive status. In this regard, Philadep has established procedures to
detect a change in a participant's status from inactive to active and
for the immediate collection of the additional required participants
fund contribution at such time.
Philadep will monitor its participants' account activities to
assure that all participants post the requisite participants fund
contributions. Philadep evaluates the nature and financial integrity of
all participants of Philadep, even if they initially establish only
Inactive Accounts. Philadep evaluates prospective participants,
develops a customer profile, assesses the firm's capital adequacy,
determines the initial participants fund contribution, contacts the
firm's Designated Examining Authority for a review of its regulatory
history, and presents any and all pertinent information collected to
Philadep's Admissions Committee. The Admissions Committee ultimately
makes the determination about whether to admit the participants and
directs managements where appropriate to gather additional information
so that the Committee can make such a determination. After admission,
Philadep monitors participants' account activities to assure that the
proper participants fund contribution is being collected from each
participant.
Specifically with respect to Inactive Accounts, Philadep's Finance
and Administration (``F&A'') Department will identify for Philadep's
Operations Department which specific accounts are currently inactive.
Thereafter, the Operations Department will monitor on a daily basis a
report which reflects daily deposit, transfer, and miscellaneous
deliver order (``MDO'') activity of such Inactive Accounts.
Specifically, the Operations Department will generate a report that
maintains cumulative total of deposits, transfers, and MDOs occurring
in each Inactive Account for each monthly billing cycle.\3\ If that
total exceeds forty but is less than seventy-five for any Inactive
Account in any given month, the Operations Department will immediately
notify the F&A Department and Philadep's compliance officer. The F&A
Department will verify this activity and will immediately call and send
a letter to the affected participant informing the participant that it
must wire the additional participants fund contributions associated
with an active account by the next business day or cease doing any
further activity in the account for the remainder of the month. If the
participant's total exceeds seventy-five transfers, deposits, and MDOs,
the participants must wire additional participants fund contributions
associated with an active account by the next business day. The
seventy-five count threshold serves as a reliable proxy to determine
$100 of billing activity. In this regard, the most expensive activity
among deposits, transfers, and MDOs, multiplied by 75, typically
generates less than $100 in monthly billings. A participant's failure
to wire the additional participants fund contributions in compliance
with the aforementioned procedures subjects the participant to a $500
fine for the first offense and a $2,000 fine for the second offense
occurring during the same calendar year. If the participant does not
wire the additional participants fund contribution to Philadep by the
next business day, Philadep will disallow
[[Page 27378]]
any further business in the account beginning on the next business day
after the additional contribution was due. Accordingly, an offense as
contemplated by the foregoing fine schedule refers to the number of
times that the account was inactivated from conducting any further
business for failure to furnish Philadep with the additional
contribution during a calendar year.
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\3\ This report will be distribute on a daily basis to Philadep
management and Philadep's compliance officer.
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Once active, an account will be routinely subject to the normal
review and update process on a monthly basis, and the F&A Department
will recalculate each participant's participants fund deposit
requirement at the end of each month based upon the participant's
previous three months activity, prior to the most recent month.
Philadep believes the proposed rule change is consistent with
Section 17A of the Act and the rules and regulations thereunder because
the proposal should help to safeguard securities and funds in their
custody or control or for which they are responsible and foster
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions.
(B) Self-Regulatory Organization's Statement on Burden on Competition
Philadep believes that the proposed rule change will not impose any
burden on competition not contemplated within the parameters of the
Act.
(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
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
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (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 Philadep consents, the Commission will:
(a) By order approve such 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. 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 Philadep. All
submissions should refer to the file number SR-Philadep-96-07 and
should be submitted by June 21, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13694 Filed 5-30-96; 8:45 am]
BILLING CODE 8010-01-M
