[Federal Register Volume 60, Number 140 (Friday, July 21, 1995)]
[Notices]
[Pages 37696-37698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17939]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35971; File No. SR-DTC-95-11]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Modifications to the Prime Broker Option in the
Institutional Delivery System
July 14, 1995
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 26, 1995, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') 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 on the proposed rule change from interested persons.
\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 proposed rule change consists of modifications to the existing
procedures for the prime broker option in DTC's Institutional Delivery
(``ID'') system.\2\
\2\ The text of the modifications to the ID procedures is
attached as an exhibit to this Notice.
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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 that 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.\3\
\3\ 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 a previous filing with the Commission, DTC set forth procedures
for the prime broker option in the ID system, including procedures for
the disaffirmation of a trade which had previously been affirmed by the
prime broker.\4\ In that filing DTC stated that
[[Page 37697]]
prior to the change to three business days as the standard settlement
period (``T+3'') in 1995,\5\ DTC would develop a more automated
mechanism for disaffirmation of trades by a prime broker. The purpose
of this proposed rule change is to implement a more automated mechanism
for disaffirmation by a prime broker and to clarify how an executing
broker specifies settlement locations for trades.
\4\ Securities Exchange Act Release No. 34779 (October 3, 1994),
59 FR 51465 [File No. SR-DTC-94-13] (notice of filing and order
granting accelerated approval on a temporary basis of proposed rule
change implementing the prime broker option in the ID system).
\5\ On October 6, 1993, the Commission adopted Rule 15c6-1 under
the Act, which establishes three business days after the trade date
instead of five business days as the standard settlement time frame
for most broker-dealer transactions. Securities Exchange Act Release
No. 33023 (October 6, 1993), 58 FR 52891 (release adopting Rule
15c6-1). On November 16, 1994, the Commission changed the effective
date of Rule 15c6-1 from June 1, 1995, to June 7, 1995. Securities
Exchange Act Release No. 34952 (November 9, 1994), 59 FR 59137.
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Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a
clearing agency 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 the custody or
control of the clearing agency or for which it is responsible. DTC
believes its proposed rule change meets the requirements of the Act
because the rule change will contribute to the automation of trade
processing in the ID system and therefore will promote the prompt and
accurate clearance and settlement of securities transactions. DTC also
states that the enhancements to its ID system will be implemented
consistently with the safeguarding of securities and funds in its
custody or control or for which it is responsible.
\6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no 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
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(iii) \7\ of the Act and Rule 19b-4(e)(4) \8\ thereunder
because the rule change effects a change in an existing service of DTC
that does not adversely affect the safeguarding of securities or funds
in the custody or control of DTC or for which it is responsible and it
does not significantly affect the respective rights or obligations of
DTC or persons using the prime broker option in the ID system. At any
time within sixty days of the filing of such 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.
\7\ 15 U.S.C. 78s(b)(3)(A)(iii) (1988).
\8\ 17 CFR 240.19b-4(e)(4) (1994).
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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, DC 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,
DC 20549. Copies of such filing will also be available for inspection
and copying at the principal office of DTC. All submissions should
refer to the File No. SR-DTC-95-11 and should be submitted by August
11, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
Procedures for the Prime Broker Option in the ID System
Confirmation/affirmation
Executing Brokers can use the ID system to confirm to Prime
Brokers trades done with mutual clients for securities which are
eligible for settlement in NSCC's Continuous Net Settlement (CNS)
system, in DTC's trade-for-trade (PDQ) system, or elsewhere when the
trades are to be settled by a Prime Broker (i.e. a Broker-Dealer
that provides a clearing facility for certain customers).
The ID system determines settlement based on the Prime Broker
Agent ID number which is stored in the ID Masterfile, as well as
from the ``Settlement Location'' field specified in the trade input
record. For CNS trades, DTC delivers the trade details of all trades
affirmed between noon the prior day and noon the current day to NSCC
each afternoon for CNS settlement.
Prime Brokers are required to maintain two or more Agent ID
numbers. One Agent ID number must be reserved as a special number
which the Executing Broker specifies on trade input to confirm a
prime broker trade. The Executing Broker determines the settlement
option based on a settlement location of DTC (CNS or PDQ) or any
other settlement location (trades settling away from NSCC or DTC).
If DTC settlement location is specified, the ID system determines
CNS or PDQ depending on eligibility, and the transaction is
processed in accordance with the existing Procedures as described
within the ID Manual. Provided the security identifier (CUSIP) is
CNS eligible, the trade is delivered to NSCC for settlement.
Otherwise, if the security is DTC eligible, it is processed for PDQ
settlement.
Disaffirmation
Prime Brokers have the option, under certain circumstances, to
reverse an affirmed confirmation back to an unaffirmed confirmation
status. To exercise that option, the Prime Broker can use the
disaffirmation function of the ID system to cause all affirmed
trades for that client to be reversed to the confirmation status,
thus preventing them from settling within CNS or PDQ processing.
Prime broker trades settling outside CNS or PDQ may likewise be
disaffirmed, but the Prime and Executing Brokers must cancel
settlement instructions outside of ID.
Only Prime Brokers have access to the IDPB disaffirmation
function in the ID system via PTS terminals. In the event that
disaffirmation becomes necessary, the Prime Broker can use the IDPB
function to enter the DTC control numbers of those trades to be
disaffirmed. The Prime Broker will not affirm any trades which have
been reported in the ID system subsequent to the Prime Broker's
decision to terminate its relationship with the client.
For affirmed trades destined for CNS settlement, one of two
situations may apply. If affirmation and disaffirmation both occur
within the same noon to noon cycle, the ID system reverses the
status of the affirmed confirmation to confirmation (unaffirmed) and
does not deliver the trade details to NSCC. Otherwise, the ID system
delivers a reversal of the trade details to NSCC.
Once entered into ID by the Prime Broker, disaffirmations are
reported to the Executing Brokers with a special PTS disaffirmation
ticket. In addition, the Prime Broker should contact DTC's ID
Support unit by telephone to alert DTC to the disaffirmation event.
DTC will, on a best efforts basis, contact the Executing Brokers by
telephone to alert them to the disaffirmation and the existence of
the special tickets on their PTS printers.
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Note: DTC has no responsibility to ascertain that (i) a prime
brokerage agreement is in effect between the Prime Broker and the
Executing Broker which are identified in any instruction submitted
to DTC or (ii) an instruction submitted to DTC by the Prime Broker
or by the Executing Broker is in accordance with the provisions of
any such prime brokerage agreement.
[FR Doc. 95-17939 Filed 7-20-95; 8:45 am]
BILLING CODE 8010-01-M
