[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)]
[Notices]
[Pages 40925-40926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19263]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41640; File No. SR-DTC-99-18]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Regarding a Year 2000 Compliance Acknowledgment
July 22, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 6, 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 proposal.
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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
Under the proposed rule change, DTC will require that its
participants who provide settlement information solely through DTC's
proprietary Participant Terminal System (PTS) submit to DTC, no later
than September 15, 1999, a Year 2000 compliance acknowledgment
demonstrating their operational capability.
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 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
On January 1, 2000, we will experience the first century change
since the advent of computers and related technology. Because certain
computer programs may misinterpret the Year 2000 as 1900, the U.S.
financial industry has undertaken efforts to prepare for the impending
date change. As the new millennium approaches, DTC must assess its own
Year 2000 readiness, as well as seek comfort as to the Year 2000
readiness of all its participants.
Under the proposed rule change, DTC is setting forth a policy
statement with respect to DTC's Rule 2. That rule provides the
standards and obligations that entities must meet to become DTC
participants and to retain their status as participants. Pursuant to
Rule 2, a participant must furnish to DTC, upon DTC's request,
information that
[[Page 40926]]
demonstrates the participant has satisfactory operational capability.
DTC's Rule 2 has been interpreted to require participants who
provide settlement input to DTC through a computer to computer link to
conduct a Year 2000 validation test with DTC at some point during the
first nine months of 1999.\3\ The validation test requires participants
to process a series of scripted transactions and to balance with DTC's
position and settlement statements. Each participant is being required
to provide DTC with a standard testing acknowledgment signed by a
senior internal auditor stating that it has balanced to the position
and settlement statements and had done so in a Year 2000 compliance
environment.\4\ The validation test is designed to test the Year 2000
compliance of the computer to computer interface between DTC and the
participant. The Year 2000 testing acknowledgment confirms the
successful completion of the validation test and provides some comfort
as to the ability of the participant to transact business with DTC in a
Year 2000 compliant manner.
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\3\ Securities Exchange Act Release No. 40696 (November 20,
1998), 63 FR 65829 [File No. SR-DTC-98-18].
\4\ If a participant does not have an internal auditor, the
testing acknowledgment may be executed by a senior compliance
officer or other equivalent officer.
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Participants who provide settlement information solely through
DTC's PTS \5\ are not required to perform validation testing as DTC has
already tested PTS and found it to be Year 2000 compliant. Although DTC
is comfortable that the interface used to communicate with PTS-only
participants is Year 2000 compliant, under the proposed rule filing
these participants will be required to submit to DTC, no later than
September 15, 1999, a Year 2000 compliance acknowledgement which
relates to their organization as a whole. The Year 2000 compliance
acknowledgment is identical to that required from participants who are
subject to the validation testing requirement except that the language
regarding testing has been deleted.
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\5\ References to PTS also include PTS Jr. PTS Jr. is a dial-up
system (i.e., utilizing a PC, modem, and non-dedicated phone line)
that offers all of the functionary (at reduced speed) of a regular,
dedicated PTS terminal. PTS Jr. is designed for low-volume users or
those participants who choose not to utilize a more costly,
dedicated PTS terminal.
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In DTC's view a participant's failure to provide DTC with a
standard Year 2000 compliance acknowledgment will constitute a failure
to demonstrate the sufficient operational capability required by DTC's
Rule 2. DTC recognizes the importance in obtaining assurances that
participants are individually prepared to operate normally before,
during, and after the first few days of Year 2000. DTC believes that
the industry as a whole has an interest in assuring itself that each
participant (and/or participant's processing agent) can interact with
and complete the depository's settlement process throughout the day in
terms of both the participant's connectivity to the depository and also
its internal processing systems and capabilities. Considering the
potential for the widespread and detrimental consequences of a
participant's failure to be adequately prepared for the impending date
change, DTC believes that its rules can be reasonably interpreted as
requiring an assurance that the participant is prepared for the Year
2000 as set forth in the Year 2000 compliance acknowledgment.
DTC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
because the Year 2000 compliance acknowledgement will help ensure that
DTC participants have sufficient operational capability.
(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
The language contained in the Year 2000 testing acknowledgment,
relating to DTC's validation testing requirement, was reviewed without
comment by the Securities Industry Association's Legal and Compliance
subcommittee, as well as the New York Clearing House Year 2000
Committee. The Year 2000 compliance acknowledgment is identifical to
the Year 2000 testing acknowledgment except that the language regarding
testing has been deleted.
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 promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
finds that the proposed rule change is consistent with this obligation
because the Year 2000 compliance acknowledgment should allow DTC to
address any potential problems associated with the participants' Year
2000 readiness. As a result, DTC should be able to continue to provide
for the prompt and accurate clearance and settlement of securities
transactions before, on, and after Year 2000 without interruption.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the publication of notice of
the filing. Approving prior to the thirtieth day after publication of
notice should allow DTC to implement its requirement of a Year 2000
compliance acknowledgment in a timely manner.
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 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 20549-0609.
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-99-18 and should be submitted by August 18, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\that the proposed rule change (File No. SR-DTC-99-18) be and
hereby is approved.
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\7\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19263 Filed 7-27-99; 8:45 am]
BILLING CODE 8010-01-M
