[Federal Register Volume 61, Number 185 (Monday, September 23, 1996)]
[Notices]
[Pages 49807-49808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24253]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37684; File No. SR-PTC-96-05]
Self-Regulatory Organizations; Participants Trust Company; Notice
of Filing of Proposed Rule Change Relating to Establishing a New
Category of PTC Participant
September 16, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 21, 1996, the
Participants Trust Company (``PTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-PTC-96-05) as described in Items I, II, and III below, which Items
have been prepared primarily by PTC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Items of Substance
of the Proposed Rule Change
The proposed rule change establishes a new category of PTC
participant, a ``Federal Reserve participant,'' for Federal Reserve
Banks.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, PTC 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. PTC 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 PTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to allow PTC to
establish a new category of PTC participant, a Federal Reserve
participant, in order to enable Federal Reserve Banks to maintain
accounts at PTC for the purpose of accepting securities as collateral
for discount window advances from the Federal Reserve Banks and for
other obligations to Federal Reserve Banks. At a later date, the
Federal Reserve Banks may elect to accept securities pledged as
collateral to secure Treasury tax and loan accounts \3\ or collateral
pledged for other purposes which may be requested by a Federal Reserve
Bank.
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\3\ A financial institution can be designated as a Treasury tax
and loan depository to process deposits of Federal taxes and to
maintain and administer separate accounts known as Treasury tax and
loan accounts. In order to accept these deposits, the financial
institution must pledge collateral security to secure Treasury tax
and loan balances with the Federal Reserve Bank of the district in
which it is located. 31 CFR 202, 203.
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Following approval of this proposed rule change, PTC and the
Federal Reserve Bank of New York (``FRBNY'') will commence a pilot
program which will be open to a limited number of PTC participants.
During the pilot program, FRBNY will permit collateral that it accepts
as meeting its requirements to be pledged by pilot participants to
secure discount window advances and other direct obligations of such
participants to the FRBNY.
During the pilot, PTC also will undertake software changes that may
later permit pledges of Treasury tax and loan collateral and pledges of
collateral by institutions that are not direct participants themselves
but use PTC participants as custodians.\4\ The FRBNY will review the
performance of the pilot program, and PTC will make appropriate
adjustments to assure that the program functions in accordance with the
FRBNY's requirements. Other Federal Reserve Banks will participate in
the collateral arrangements as agreed between the individual Federal
Reserve Bank and PTC.
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\4\ Many smaller institutions which cannot meet the high capital
requirements established by PTC to be admitted as a participants
establish clearing arrangements with PTC participants in order to
utilize PTC's services.
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Background
PTC was established as a depository for mortgage-backed securities
to facilitate the prompt and accurate clearance and settlement of
transactions in mortgage-backed securities, initially, GNMA securities.
Currently, PTC's rules permit participation as either a participant or
a limited purpose participant. Participants are entitled to all of
PTC's services and system capabilities in accordance with PTC's rules.
Limited purpose participants are subject to limitations on the scope of
their activity with the principal limitation being the inability to
deliver securities versus payment and to incur a transactional debit
balance.
Proposed Category of Eligibility
Establishing the Federal Reserve participant as a category of
participation will enable Federal Reserve Banks to participate in PTC
in a capacity different from that of participants or limited purpose
participants.\5\ The new category of participant will allow Federal
Reserve Banks to hold securities pledged as collateral for discount
window advances and for other purposes specified by a Federal Reserve
Bank.
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\5\ The new category of Federal Reserve participant will be
governed by a new Section 2A to Rule 1, Article IV of PTC's rules
(``Qualifications and Duties of Participants and Limited Purpose
Participants'') and by a new form of participation agreement for
Federal Reserve participants.
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Like limited purpose participants, Federal Reserve participants
will be restricted from receiving securities versus payment and
incurring a debit balance, In addition, Federal Reserve participants
will not receive principal and interest (``P&I'') advances on
securities held at PTC and therefore are not required to repay third-
party loans obtained for this purpose.\6\
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\6\ Federal Reserve participants will not receive P&I through
PTC because P&I on securities in a pledgee account is paid to the
pledgor pursuant to PTC's rules.
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The proposed rule change also provides that Federal Reserve
participants will be exempt from some of the obligations applicable to
participants and limited purpose participants consistent with the
restricted nature of the Federal Reserve Bank participation.\7\ The
most significant exemptions applicable to Federal Reserve participants
are that they are not required to: (1) indemnify PTC or any licensor or
provider of data processing services to PTC; (2) furnish periodic
financial reports and open books and records for inspection by PTC; (3)
pay fees, fines or assessments; (4) contribute to the participants
fund; or (5) submit disputes to arbitration.
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\7\ These exemptions are set forth in the new Section 2A to Rule
1, Article IV of PTC's rules.
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The proposed rule change further provides that securities and
property of a Federal Reserve participant are not subject to any lien,
security interest, or ownership interest by PTC.\8\ In addition, PTC is
liable to a Federal Reserve participant for losses attributable in the
case of a failure to exercise ordinary care or in the case of willful
misconduct or fraudulent or criminal acts, and will not waive any of
its rules or procedures without a Federal Reserve participant's consent
if the effect of such
[[Page 49808]]
waiver would be to prejudice a Federal Reserve participant's rights.
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\8\ Because securities held by PTC for the account of a Federal
Reserve participant are held in pledgee accounts and transferred
free into such accounts, this change is merely a restatement of
PTC's existing rules, which provide that PTC does not have a lien,
security, or ownership interest in securities held and transferred
in this manner.
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The special provisions applicable to Federal Reserve participants
are consistent with the restricted nature of Federal Reserve Bank
participation at PTC which is to hold pledged securities that are
transferred free of payment through PTC's system.
Additional Rule Changes
PTC also is making certain technical changes to several sections of
its rules to conform them to the present rule change. In particular,
PTC is amending its rules to clarify the characterization in its rules
that certain transfers of securities into a pledgee account constitute
the transfer of a security interest in the subject securities subject
to the satisfaction of all requirements of applicable law including,
but not limited to, those requirements which are satisfied through PTC.
Furthermore, PTC is not responsible for the failure of parties to take
the requisite action to comply with the requirements of applicable law
for which PTC cannot determine compliance.\9\ In addition, PTC is
amending its rules to clarify that the approval of the receiving
participant is a condition precedent to effecting an account transfer
of securities into a pledgee account.\10\
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\9\ PTC rules, Article II, Rule 3, Section 3 and Article II,
Rule 16.
\10\ PTC rules, Article II, Rule 13, Section 1(b)(iii).
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PTC believes that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act \11\ and the rules and regulations
thereunder because it will facilitate the prompt and accurate clearance
and settlement of securities transactions.
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\11\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
PTC does not perceive that the proposed rule change will impose any
burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
PTC has engaged in discussions and correspondence with the FRBNY in
the course of formulating the proposed rule change. The proposed rule
change also has been discussed informally with participants at meetings
of PTC's Operations Committee, which is comprised of representatives of
PTC's participants. Participants have responded favorably to the
proposed rule change at such meetings although no written comments from
participants have been solicited or received.
Except as described in the preceding paragraph, PTC has not
solicited and does not intend to solicit comments on this proposed rule
change and has not received any unsolicited written comments from
participants or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which PTC consents, the Commission will:
(A) by order approve such proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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, N.W., Washington,
D.C. 20549. Copies of such filings will also be available for
inspection and copying at the principal office of PTC. All submissions
should refer to the file number SR-PTC-96-05 and should be submitted by
October 15, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12) (1995).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-24253 Filed 9-20-96; 8:45 am]
BILLING CODE 8010-01-M
