[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49277-49278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24858]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39070; File No. SR-DTC-97-10]
Self-Regulatory Organizations; the Depository Trust Company;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Certificate of Deposit Early Redemption Service
September 12, 1997.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 3, 1997, 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 from interested persons on 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 proposed rule change will modify DTC's existing Certificate of
Deposit Early Redemption Service (``CERR'') to allow participants to
transmit certificate of deposit (``CD'') early redemption instructions
by electronic delivery rather than by delivery of hardcopy forms (i.e.,
paper).
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
Currently, DTC participants redeeming CDs prior to maturity must
process such transactions through DTC's Voluntary Offering Program.
These participants submit early redemption instructions to DTC by way
of a hardcopy Voluntary Offering Instruction Form (``VOI Form'') which
must be accompanied by any additional required documentation.\3\ Upon
receipt of early redemption instructions, DTC debits the participant's
general free account and enters a corresponding credit in the same
account using a contra-CUSIP number. When DTC receives the proceeds of
an early redemption from the issuer, DTC credits the principal amount
and any accrued interest minus any applicable penalty for early
redemption to the participant's settlement account.
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\3\ When a CD is redeemed prior to maturity, the beneficial
owner of the CD is charged an early withdrawal fee unless the
beneficial owner is deceased or has been adjudicated incompetent (or
for any other reason listed in the applicable trust agreement or
bond indenture). If the early withdrawal request is based on one of
those circumstances, the early withdrawal fee is waived, and the
early redemption is considered ``exempt.'' Some issuers require
owners seeking an exempt early redemption to submit documentation
substantiating the exemption. Such documentation presently is
submitted to DTC by participants with the VOI form.
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DTC proposes to modify CERR by offering participants the ability to
transmit early redemption instructions to DTC electronically through
DTC's Participant Terminal System (``PTS''). DTC will modify its
already existing PTS function, the Reorganization Inquiry for
Participants System (``RIPS''), to offer information regarding early
redemption \4\ such as: (i) a CD's eligibility for processing through
CERR; (ii) the last date prior to maturity on which an issuer will
accept a CD for early redemption; and (iii) whether or not an issuer
requires the immediate submission of documents supporting an exempt
early redemption. In addition, DTC will add a CERR function to PTS
through which participants will be able to transmit early redemption
instructions electronically to DTC.
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\4\ DTC has advised the Commission that the RIPS procedures
currently contain the following provision which will also be
applicable to CD early redemption information on RIPS:
The information provided by means of the RIPS function is based
upon communications (whether oral or written) received by DTC from a
variety of sources, and DTC does not represent that such information
is accurate, or adequate or fit for any particular purpose. DTC
shall not be liable for (1) any loss resulting directly or
indirectly from mistakes, omissions, interruptions, delays, errors
or defects arising from or related to the information provided on
the RIPS function, and (2) any special, consequential, exemplary,
incidental, or punitive damages. The information provided in the
RIPS function with respect to a particular reorganization activity
is subject to change at any time without prior notice.
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In order to submit an early redemption instruction to DTC
electronically, a participant will input information into CERR,
including (i) the quantity of the eligible securities to be
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redeemed, (ii) customer information, (iii) information required by the
issuer, (iv) whether the early redemption is exempt or nonexempt, and
(v) if exempt, details regarding the circumstances supporting the
exemption.\5\ Next, the participant will transmit the early redemption
instructions after which CERR will report any editing errors to the
participant and will determine whether the participant's general free
account contains a position sufficient to cover the instruction.\6\
After the submitted information is verified, the participant will be
required to transmit the information to DTC again. By transmitting the
instruction the second time, the participant will be acknowledging that
the information inputted is correct and that the participant agrees to
maintain and submit, if requested within thirty months from the date of
redemption, documentation supporting an exempt early redemption. If an
issuer requires that documentation be submitted prior to early
redemption, the participant must also acknowledge that it will provide
such documentation to DTC within five business days from the date of
the instruction.
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\5\ Under the existing system, participants must submit any
documentation required to support as exempt early redemption in
hardcopy along with the early redemption instruction. However, under
the CERR PTS function the participant requesting early redemption
will not be required to submit such documentation in hardcopy at the
time of the early redemption instruction but must agree to supply
such information to DTC if requested by the issuer within thirty
months of the early redemption. If a participant fails to provide
such documentation to DTC when requested to do so within such
thirty-month period, DTC will charge the participant the amount of
the nonexempt early redemption fee and will remit the proceeds to
the issuer.
\6\ If the participant does not have a position sufficient to
support the instruction, the instruction will be dropped because
instructions submitted through the CERR PTS function are not subject
to DTC's recycle procedures. Accordingly, participants will be
required to monitor their general free account and enter a new
instruction once a position sufficient to satisfy the instruction is
available.
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Upon receipt of an electronic early redemption instruction, DTC
will deduct the securities from the participant's general free account
and add the securities to the participant's reorganization account. If
the issuer requires the participant to submit documentation supporting
an exempt early redemption, the instruction will spend until the fifth
business day from the date of the instruction.\7\ Participants may
determine the status of an early redemption instruction by using an
inquiry function on CERR PTS.
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\7\ If DTC has not received the required supporting documents by
the end of the fifth business day, the instruction will be dropped.
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When DTC receives the proceeds of a CD early redemption, DTC will
promptly credit the funds to the participant's settlement account and
debit the participant's reorganization account. If the issuer rejects
the presentment, DTC will endeavor to determine the reason for the
rejection, convey this information to the participant, and restore the
position to the participant's general free account.
All early redemption instructions, whether exempt or not, will be
subject to acceptance by the issuer. Therefore, it is possible that a
presentment could be rejected by the issuer because the CD does not
provide for early redemption. If DTC is able to identify such CDs
itself, the RIPS function will indicate that the CD does not have an
early redemption privilege and will automatically prevent a participant
from entering early redemption instructions for such CDs.
DTC does not believe that it is feasible to determine whether all
of the 20,000 CDs currently eligible for services at DTC provide for
early redemption. Therefore, a participant's early redemption
instruction ultimately may be rejected by the issuer even if it
initially is accepted for processing by CERR. When such a rejection
occurs, DTC will convey the reason for the rejection to the participant
and will restore the position to the participant's general free
account.
DTC believes that the proposed rule change is consistent with the
requirements of section 17A(b)(3)(A) of the Act \8\ and the rules and
regulations thereunder because it promotes efficiencies in the
clearance and settlement of securities transactions.
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\8\ 15 U.S.C. 78q-1(b)(3)(A).
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(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 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
DTC has not solicited or received any comments.
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) of the Act \9\ and Rule 19b-4(e)(4) thereunder \10\ because
it effects a change in an existing service of DTC that (i) does not
adversely affect the safeguarding of securities or funds in the custody
or control of DTC or for which it is responsible and (ii) does not
significantly affect the respective rights or obligations of DTC or
persons using the service. At any time within sixty days of the filing
of such 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.
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(e).
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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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of DTC. All submissions
should refer to File No. SR-DTC-97-10 and should be submitted by
October 10, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24858 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M
