[Federal Register Volume 59, Number 31 (Tuesday, February 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3483]


[[Page Unknown]]

[Federal Register: February 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33602; File No. SR-DTC-94-02]

 

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change Relating to the Pledge of 
Government Securities as Collateral

February 8, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 26, 1994, 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 
by DTC. 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) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    DTC is filing the proposed rule change to provide for a procedure 
to allow participants to pledge government securities to DTC to cover 
outstanding Next-Day Funds Settlement (``NDFS'') short positions.

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.

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

    (a) The purpose of the proposed rule change is to provide an 
alternate means for participants to satisfy their obligation to provide 
DTC with a short position penalty. When a participant incurs a short 
position, DTC now imposes a cash penalty of 130% of the market value of 
the short securities. The cash DTC receives is invested and earns 
interest. The interest earned is returned to participants at periodic 
intervals during the year as part of the general refund.\2\ Under the 
proposed rule change, interest earned on pledged securities will be 
automatically credited to participants' accounts (as is currently the 
procedure for all pledged securities positions). The proposed rule 
change thereby will provide participants with a more efficient method 
to receive interest income. By allowing participants to pledge 
government securities to DTC to replace cash deposits, the proposed 
rule change will improve participants' cash management abilities.
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    \2\The general refund allocates back to participants excess 
operating revenues and interest earned calculated by activity 
levels.
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    Under the proposal, participants could pledge government securities 
residing in their DTC ``free'' accounts to DTC as collateral to replace 
cash deposits to cover outstanding NDFS short positions. Only short 
positions aged thirty calendar days or more will be considered eligible 
for collateralizaion. Initially, only DTC-eligible\3\ U.S. Treasury 
issues (Treasury bills, bonds, and notes) which are fully guaranteed by 
the U.S. government will be accepted as collateral.
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    \3\``Eligible securities'' refers to government securities that 
are eligible for DTC services. DTC may hold such securities through 
its account at the Federal Reserve Bank of New York.
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    Each day, DTC will inform each participant of its short positions 
aged thirty days or older as of the close of the previous business day. 
The participant could then enter a request over DTC's Participant 
Terminal System (``PTS'') to pledge government securities to a newly 
established DTC pledge account in order to have its short charges 
reversed. The pledge system will verify that the securities being 
pledged are eligible for collateralization before the pledge is allowed 
to update into DTC's system.
    The value of participants' securities short positions and pledged 
securities will be marked to the market on a daily basis, and short 
charges will be adjusted accordingly. Participants may pledge 
additional securities to cover an increase in their aggregate short 
charges or request a release of pledged securities which are no longer 
needed to cover their aggregate short charges.
    A participant may request a release of collateral. In that 
instance, the securities would be returned to the ``free'' account at 
the end of the processing day, and the short charges would be 
reinstated the following day. The participant may also substitute 
pledged securities. After inputting the new pledge and the release 
request, the participant would contact the Reconciliation Department 
prior to 12:30 p.m. to request a release approval.
    If pledged securities are redeemed, DTC will hold the redemption 
proceeds in a suspense account until the pledged securities are 
released and moved to the participant's ``free'' account. At that time, 
the redemption proceeds are credited to participants' settlement 
accounts. If pledged government securities are called for redemption, 
the participant must release the pledge and move the securities to a 
``free'' account. Interest earned on pledged securities will be 
automatically credited to participants' accounts.
    (b) The proposal is consistent with the requirements of Section 17A 
the Act and the rules and regulations thereunder applicable to DTC 
since the proposed rule change will give DTC participants greater 
flexibility in collateralizing their short positions. At the same time 
the proposal will continue to provide DTC with high quality collateral 
for short positions.

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

    DTC does not believe that the proposed rule change imposes any 
burden on competition.

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

    DTC's Short Position Advisory Committee, composed of members 
representing DTC participants, has reviewed the proposed rule change 
and supports its approval. No official comments have been solicited or 
received. 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

    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 the self-regulatory organization consents, 
the Commission will:

A. By order approve the 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 also will be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-DTC-94-2 and should be submitted by March 8, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3483 Filed 2-14-94; 8:45 am]
BILLING CODE 8010-01-M