[Federal Register Volume 64, Number 104 (Tuesday, June 1, 1999)]
[Notices]
[Pages 29377-29378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13812]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41437; File No. SR-DTC-99-03]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Implementing the Pending Transfer Account
May 21, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 3, 1999, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change 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 from interested persons and to grant accelerated
approval of 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 purpose of the proposed rule change is to implement a pending
transfer account to facilitate the use of collateral in financing
transactions.
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
DTC subjects deliveries and pledges to DTC's risk management
controls.\3\ A delivery or pledge of securities is pended and not
completed if the securities are then serving as collateral to secure
the obligations of the delivering or pledging participant to DTC. Also,
a free delivery or pledge is pended if the securities are money market
instruments and were received by the delivering or pledging participant
on that day in a valued delivery. The risk management controls remain
in effect, and the pending delivery or pledge is recycled until daily
money settlement is completed at DTC, which usually occurs at
approximately 5:00 p.m. (eastern time). Prior to daily money
settlement, a pending delivery or pledge (other than a free delivery or
pledge of money market instruments received on that day in a valued
delivery) will be completed if the participant subsequently has other
collateral available to support the participant's obligations to DTC.
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\3\ DTC's risk management controls are a set of procedures
designed to protect DTC against the loss that may result from a
participant failure.
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In financing transactions, a lender or tri-party agent often
performs an evaluation of the collateral to insure that the collateral
meets certain criteria. A tri-party agent acting on behalf of
[[Page 29378]]
several lenders must also allocate the collateral among the individual
lenders. The process of evaluation and allocation of collateral is
labor intensive and time-consuming. Lenders and tri-party agents have
informed DTC that they often do not begin the process of evaluating and
allocating collateral until late in the day because they are reluctant
to begin that process before DTC's risk management controls are
released. Lenders and tri-party agents have also informed DTC that they
could begin that process earlier in the day and could thus gain
valuable processing time, if they could be assured that a pending
delivery or pledge will be completed after DTC's risk management
controls are released as long as DTC does not need the securities for
collateral purposes.
At the request of participants, including participants which act as
lenders and tri-party agents, DTC developed the pending transfer
account. Under the proposed rule change, a participant delivering or
pledging securities can indicate to DTC that if the participant has
sufficient securities in its account to complete the delivery or pledge
but the delivery or pledge is blocked by DTC's risk management
controls, the securities are to be reserved in the participant's
pending transfer account. Securities reserved in the participant's
pending transfer account are reported throughout the day to the
receiver or pledgee designated by the participant. Those securities are
not available to the participant for any other activities at DTC and
can only be released from the participant's pending transfer account
during the day by the designated receiver or pledgee. The delivery or
pledge will be completed when DTC releases its risk management controls
only if DTC does not need the securities in the participant's pending
transfer account for collateral purposes. DTC anticipates that the
pending transfer account will be available for use by participants in
the second quarter of 1999.
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder since the pending transfer account will facilitate the use
of collateral in certain financing transactions processed through DTC's
facilities. According to DTC, 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 since
securities reserved in the pending transfer account will be subject to
DTC's existing risk management controls.
(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no adverse 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
The proposed rule change was discussed with several participants.
All participants were informed of the proposed rule change by a DTC
Important Notice dated December 19, 1998. Written comments from DTC
participants or others 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
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to facilitate the prompt and accurate
clearance and settlement of securities transactions for which it is
responsible.\4\ The Commission finds that the rule change is consistent
with this obligation because reserving the position associated with
financing transactions that recycle for risk management control and
reporting to the lenders and tri-party agents that the position has
been reserved, will provide lenders and tri-party agents with an
assurance that the recycling transactions will have sufficient position
to complete when DTC release its risk management controls. These
additional assurances should allow lenders and tri-party agents to
begin their collateral evaluation/allocation process earlier in the
processing day and should result in an earlier movement of the funds
associated with the financial transactions.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after publication
of the notice of the filing. The Commission finds good cause for
approving the proposed rule change prior to the thirtieth day after
publication of the notice of the filing because use of the pending
transfer service by a participant is voluntary and accelerated approval
will permit DTC participants to immediately benefit from this service.
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 submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submissions, 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,
DC 20549. Copies of such filings will also be available for inspection
and copying at the principal office of DTC. All submissions should
refer to the file number SR-DTC-99-03 and should be submitted by June
22, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-99-03) be, and hereby
is, approved on an accelerated basis.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-13812 Filed 5-28-99; 8:45 am]
BILLING CODE 8010-01-M
