[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2012]


[[Page Unknown]]

[Federal Register: January 31, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33513; File No. SR-PTC-93-04]

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
Participants Trust Co. Relating to the Percentage Margin Applied by PTC 
With Respect to GNMA Project, Construction, and Mobile Home Securities

January 24, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 8, 1993, 
Participants Trust Company (``PTC'') 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 the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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 purpose of the proposed rule change is to obtain permanent 
approval of the percentages to be deducted from the market value of 
certain securities to determine how those securities should be valued 
for purposes of participants' net free equity. The securities and 
percentages are as follows:

    GNMA Project Loan Securities--10%
    GNMA Project Note Securities--10%
    GNMA Construction Loan Secjurities--12%
    GNMA Mobile Home Securities--20%

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

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 obtain permanent 
approval of the percentage margin applied by PTC with respect to GNMA 
Project, Construction, and Mobile Home securities for the purpose of 
calculating a participant's net free equity.\2\ These margin levels 
were approved by the Commission on a temporary basis on October 7, 
1991\3\ in order to allow PTC to obtain and evaluate historical data 
regarding the level of price volatility of Project, Construction, and 
Mobile Home GNMA securities prior to the Commission approving such 
margins on a permanent basis. The historical data on price movements 
collected by PTC confirms the price volatility assumptions that were 
applied in establishing the margin levels in October 1991; this 
historical data is summarized below. PTC, therefore, seeks permanent 
approval of these margin levels as follows:


    \2\``Net Free Equity`` represents PTC's calculation of the 
amount of excess equity, available in a participant's account, which 
PTC may borrow against or liquidate in the event a participant's 
debit balance is not satisfied at the end of the day.
    \3\Securities Exchange Act Release No. 29793 (October 7, 1991), 
56 FR 51732.

    GNMA Project Loan Securities--10%
    GNMA Project Notice Securities--10%
    GNMA Construction Loan Securities--12%
    GNMA Mobile Home Securities--20%

    Under PTC's rules, a certain percentage determined by PTC (referred 
to in PTC's rules as the ``Applicable Percentage'') of the market value 
of a participant's securities is included in the computation of a 
particpant's net free equity. Net free equity of zero or greater is 
required to be maintained by participants in each of its agency, 
pledgee, or proprietary accounts in order for transactions to be 
processed. PTC has the right to borrow against or liquidate the assets 
that comprise the net free equity computations of those accounts should 
a participant fail to pay the account debit balance at the end of the 
day. By including only a portion of the market value of securities in 
net free equity, PTC attempts to limit the risk that could be caused by 
fluctuations in market value of these securities held in those 
accounts.
    PTC deducts 5% from the market value of GNMA single family 
securities to arrive at their Applicable Percentage. That percentage is 
based upon historical price volatility figures. Historical volatility 
of the Project, Construction, and Mobile Home GNMA securities is 
similar to the single family securities, but the market for those 
securities is less liquid. Therefore, the enhanced margin levels for 
these securities provide PTC with greater protection should PTC need to 
borrow against or liquidate these assets.\4\
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    \4\The margin levels for Project, Construction, and Mobile Home 
GNMA securities were approved in 1991 by PTC's Risk Management 
Committee and by PTC's Board of Directors.
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    As stated above, the Commission approved the enhanced margin levels 
for Project, Construction, and Mobile Home GNMA securities on a 
temporary basis in October, 1991.\5\ In conjunction with the original 
filing, PTC submitted historical data on price volatility of these GNMA 
securities.\6\ This data had indicated that the price movements of GNMA 
Project, Construction, and Mobile Home securities tracked those of GNMA 
single-family securities. These price movement comparisons were based 
on prices on GNMA Construction Loan, Project Loan, and single-family 
securities, over the period from December 1989 to December 1990, and 
prices on GNMA Mobile Home and single-family securities over the period 
from March 1990 to February 1991.\7\
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    \5\Securities Exchange Act Release No. 29793, supra note 3.
    \6\Letter from Alison N. Hoffman, Assistant Counsel, PTC, to 
Scott Wallner, Staff Attorney, Division of Market Regulation, 
Commission, dated August 1, 1991.
    \7\Id.
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    In conjunction with the present filing, PTC has submitted tables 
relating daily, weekly, and monthly prices and price movements of GNMA 
Construction Loan, Project Loan, Project Note, and Mobile Home 
securities for the period October 1, 1991 to June 30, 1993, as compared 
to the prices and price movements of GNMA single-family securities over 
the same period.\8\ This data supports the conclusion that the price 
volatility of these GNMA securities continues to be similar to the 
price volatility of GNMA single-family securities, as the price 
movements of the GNMA Project, Construction, and Mobile Home securities 
closely track the price movements of the GNMA single family securities 
over this period. Because the historical data collected since the 
Commission granted PTC temporary approval of the enhanced margin levels 
supports those margin levels, PTC asks for permanent approval of these 
margin levels.
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    \8\File No. SR-PTC-93-04, Appendix A.
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    The proposed rule change promotes the prompt and accurate clearance 
and settlement of securities transactions and assures the safeguarding 
of securities and funds in PTC's custody or control by limiting the 
risk caused by fluctuations in the market value of securities when used 
to collateralize intraday processing of securities transactions. It is 
therefore consistent with section 17A of the Act and the rules and 
regulations thereunder applicable to PTC.

B. Self-Regulatory Organization's Statement on Burden on Competition

    PTC does not believe that the proposed rule change will have an 
impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    PTC has not solicited, and does not intend to solicit, comments on 
this proposed rule change. PTC has not received any unsolicited 
comments from participants or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 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 90 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 the self-regulatory organization 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 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 will also be available for 
inspection and copying at the principal office of PTC. All submissions 
should refer to File Number SR-PTC-93-04 and should be submitted by 
February 21, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2012 Filed 1-28-94; 8:45 am]
BILLING CODE 8010-01-M