[Federal Register Volume 61, Number 141 (Monday, July 22, 1996)]
[Notices]
[Pages 37948-37950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18456]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37440; File No. SR-DTC-96-07]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change to Modify Certain Provisions of the Fund/SERV Interface
Agreement to Accommodate Same-Day Funds Settlement
July 15, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 6, 1996, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-96-07) 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) (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 modify certain
provisions of DTC's Fund/SERV Interface Agreement (``Fund/SERV
Agreement'') with the National Securities Clearing Corporation
(``NSCC'') because of the conversion of DTC's money settlement system
entirely to a same-day funds settlement (``SDFS'') system.
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.\2\
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\2\ The Commission has modified the text of the summaries
submitted 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 1989, DTC established an interface with NSCC to allow DTC
participants that were not Fund/SERV members to access NSCC's Fund/SERV
system.\3\ Several provisions of the Fund/SERV Agreement between DTC
and NSCC relating to settlement must be modified because of the
conversion to SDFS.\4\
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\3\ Fund/SERV is a centralized, automated processing system for
mutual fund purchases and redemptions. For a further description of
Fund/SERV and DTC's interface with NSCC, refer to Securities
Exchange Act Release Nos. 25146 (November 20, 1987), 52 FR 45418
[File No. SR-NSCC-87-08] (order granting permanent approval to
NSCC's Fund/SERV); 31937 (March 1, 1993), 58 FR 12609 [File No. SR-
NSCC-92-14] (order approving modifications to NSCC's Fund/SERV); and
27056 (July 24, 1989), 54 FR 31752 [File No. SR-DTC-89-09] (order
approving DTC's Fund/SERV interface with NSCC).
\4\ For further information regarding DTC's SDFS system, refer
to Securities Exchange Act Release No. 35720 (May 16, 1995), 60 FR
27360 [File No. SR-DTC-95-06] (order granting accelerated approval
of a proposed rule change modifying the SDFS system).
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The Fund/SERV Agreement currently provides that DTC participants
that participate in the Fund/SERV interface are required to make an
additional deposit to DTC's next-day funds settlement (``NDFS'')
participants fund. Under DTC's SDFS system, there no longer is a
separate NDFS participants fund. Furthermore, each participant's Fund/
SERV activity now will be included in the formula used to determine the
amount of that participant's required deposit to DTC's
[[Page 37949]]
participants fund.\5\ Accordingly, the Fund/SERV Agreement is being
modified to reflect the existence of a single participants fund and a
new participants fund formula.
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\5\ Under DTC's SDFS system procedures, a participant's required
deposit is based on the participant's liquidity needs. Therefore, a
participant's Fund/SERV activity, to the extent it results in
liquidity use (i.e., net debits), will be included in the
calculation of its required participants fund deposit.
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In addition, the Fund/SERV Agreement will be modified to reflect
the application of the SDFS settlement procedures and the SDFS failure
to settle procedures, are set forth in DTC's Rules and Procedures.
Under the proposed rule change, DTC no longer will settle Fund/SERV
obligations separately from other settlement activity conducted between
DTC and NSCC. DTC's settlement obligations resulting from Fund/SERV
interface activity will be settled on a net basis with all other
settlement obligations between DTC and NSCC. In the event a DTC
participant fails to settle with DTC and the participant has a Fund/
SERV debit owed to NSCC, DTC will employ its failure to settle
procedures. If DTC's failure to settle procedures result in sufficient
funds to pay NSCC, DTC will make such payment to NSCC. If the failure
to settle procedures do not result in sufficient funds to pay the
debit, DTC will not make payment to NSCC. On the next business day,
NSCC will, on DTC's request, reverse the Fund/SERV transactions of the
defaulting participant and recover any credits paid to NSCC Fund/SERV
members with respect to the transactions.
DTC believes the proposed rule change is consistent with Section
17A of the Act and the rules and regulations thereunder because the
proposed rule change will modify the Fund/SERV Agreement between DTC
and NSCC to reflect the conversion to an entirely SDFS settlement
system. DTC also believes 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 because the proposed
rule change modifies the Fund/SERV Agreement to reflect the application
of DTC's SDFS failure to settle procedures.
(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
Comments on the proposed rule change were not solicited. DTC will
notify the Commission of any written comments received by DTC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 17A(b)(3)(F) of the Act \6\ requires that the rules of a
clearing agency be designed 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 and to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions. The Commission believes that DTC's proposed rule change
is consistent with DTC's obligations under Section 17A(b)(3)(F) because
the proposed rule change should further reduce DTC's risk exposure with
regard to its participants' Fund/SERV activities by applying DTC's SDFS
settlement procedures and DTC's failure to settle procedures to the
Fund/SERV interface.
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\6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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Furthermore, although DTC does not guarantee its participants'
Fund/SERV settlement payments to NSCC, the proposed rule change
includes safeguards against losses due to participant defaults. Under
the amended Fund/SERV Agreement between DTC and NSCC, DTC's SDFS
failure to settle procedures will be employed to identify excess
collateral and/or other funds to cover DTC's settlement obligations to
NSCC resulting from a failed participant's Fund/SERV activities. If the
application of DTC's SDFS failure to settle procedures produces funds
to pay the defaulting participant's Fund/SERV obligations, then there
should be a reduction in the number of reversals at NSCC. If DTC's
procedures fail to produce sufficient funds, DTC will not be liable for
the remaining settlement obligations, and NSCC will reverse the Fund/
SERV transactions the following day.
The Commission also believes the proposal is consistent with DTC's
obligations to foster cooperation and coordination with persons engaged
in the clearance and settlement of securities transactions because the
proposal will allow DTC and NSCC to settle obligations arising from
Fund/SERV interface activity on a net basis; thus, simplifying the two
clearing agencies' settlement procedures. Furthermore, the revised
Fund/SERV Agreement sets forth DTC's and NSCC's responsibilities if a
participant fails to settle and establishes a framework by which DTC
and NSCC can mitigate the risks posed by a defaulting participant.
DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing. The Commission finds good cause for so
approving the proposed rule change prior to the thirtieth day after the
date of publication of notice of filing because the proposed rule
change will amend the Fund/SERV Agreement between DTC and NSCC in
accordance with DTC's conversion to SDFS on February 22, 1996, and will
allow DTC to apply the safeguards provided under the SDFS failure to
settle procedures to the Fund/SERV interface immediately. Furthermore,
the Commission has previously published notice of and approved NSCC's
rule filing with regard to the proposed changes in the Fund/SERV
interface and DTC's rule filing setting forth its SDFS failure to
settle procedures. DTC's and NSCC's proposed rule changes did not
generate any comment letters, and the Commission does not anticipate
comments with regard to DTC's amendment to the Fund/SERV Interface
Agreement.
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 number SR-DTC-96-07 and should be submitted by August
12, 1996.
[[Page 37950]]
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-96-07) be, and hereby
is, approved.
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) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18456 Filed 7-19-96; 8:45 am]
BILLING CODE 8010-01-M
