[Federal Register Volume 59, Number 42 (Thursday, March 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4863]


[[Page Unknown]]

[Federal Register: March 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33671; File No. SR-DTC-93-13]

 

Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Relating to An Increase in the 
Fixed Net Debit Cap Employed in the Depository Trust Company's Same-Day 
Funds Settlement System

February 23, 1994.
    On December 1, 1993, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-93-13) under section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ to increase the fixed net 
debit cap employed in DTC's same-day funds settlement (``SDFS'') 
system. Notice of the proposal was published in the Federal Register on 
January 19, 1994.\2\ No comments were received. For the reasons 
discussed below, the Commission is approving the proposed rule change.
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    \1\15 U.S.C. 78(b)(1) (1988).
    \2\Securities Exchange Act Release No. 33457 (January 11, 1994), 
59 FR 2887.
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I. Description

    For each participant, DTC establishes a net debit cap in its SDFS 
system\3\ in order to assure that DTC's liquidity resources are 
sufficient to complete settlement if an SDFS participant fails to 
settle its net debit obligation. Each participant's net debit in the 
SDFS system is limited throughout the processing day by a net debit cap 
that is the lesser of: (1) The adjustable net debit cap, which is a 
multiple of the participant's deposits to the SDFS participants fund, 
or (2) the fixed net debit cap.\4\ The fixed net debit cap is set at 
75% of: (1) the aggregate cash deposits to the SDFS participants fund 
and (2) DTC's internal and external lines of credit. The fixed net 
debit cap is currently set at $387 million.
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    \3\For a detailed description of DTC's SDFS system, refer to 
Securities Exchange Act Release No. 26051 (August 31, 1988), 53 FR 
34852 (File No. SR-DTC-88-06) (order granting permanent approval of 
the SDFS system).
    \4\As of February 15, 1994, there were 238 participants in the 
SDFS program. The fixed net debit cap is the operative cap for 
twenty-two of these SDFS participants. Telephone conversation 
between Carl H. Urist, Deputy General Counsel, DTC, and Peter R. 
Geraghty, Attorney, Division of Market Regulation (``Division''), 
Commission (February 15, 1994).
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    DTC has on deposit approximately 72% of the commercial paper 
(``CP'') outstanding in the U.S. and expects that virtually all CP 
outstanding in the U.S., except CP that is in direct issuers' 
proprietary book-entry systems, will be included in DTC's CP program 
sometime in 1994.
    With the anticipated increase in volume of commercial paper 
settlements in its SDFS system, DTC is concerned that the fixed net 
debit cap at its current level could have the undesirable effect of 
temporarily blocking substantial numbers of book-entry deliveries. To 
prevent such occurrences, DTC has decided to increase its external 
committed lines of credit by $250 million in order to raise the fixed 
net debit cap of SDFS participants that elect to share DTC's cost of 
obtaining the increase in the external lines of credit. The $250 
million increase in external lines of credit should raise the fixed net 
debit to approximately $574 million. DTC believes that the securities 
resources available to it to collateralize any borrowing it should have 
to make under the increased external lines of credit are more than 
adequate.\5\
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    \5\DTC's line of credit agreements provide that any borrowing 
may be collateralized by securities in the account of a failing 
participant as well as by securities that have been deposited by DTC 
participants to the SDFS participants fund. On February 1, 1994, 
deposits to the SDFS participants fund included securities having a 
market value of approximately $627 million. Letter from Richard B. 
Nesson, Executive Vice President and General Counsel, DTC, to 
Jonathan Kallman, Associate Director, Division, Commission (February 
1, 1994).
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II. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in its custody or control or for which it is 
responsible.\6\ The Commission previously acknowledged the risk 
reduction benefits of the net debit cap in the order granting permanent 
approval of DTC's CP program.\7\ The Commission continues to believe 
that the net debit cap is a integral part of the risk reduction 
measures taken by DTC to protect the securities and funds in its SDFS 
system.
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    \6\15 U.S.C. 78q-1(b)(3)(F) (1988).
    \7\For a detailed description and discussion of the SDFS system 
and the CP program's risk controls, refer to Securities Exchange Act 
Release No. 30986 (July 31, 1992), 57 FR 35856 (File No. SR-DTC-92-
01) (order approving implementation of CP program).
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    Section 17A(b)(3)(F) also requires that the rules of a clearing 
agency be designed to promote the prompt and accurate clearance and 
settlement of securities transactions. The Commission believes that 
increasing the fixed net debit cap should help promote the prompt and 
accurate clearance and settlement of transactions in the SDFS system by 
decreasing the possibility that book-entry deliveries could be 
temporarily blocked from processing due to a participant exceeding its 
fixed net debit cap.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, of 
section 17A of the Act in particular, and of the rules and regulations 
thereunder.
    It is therefore ordered, Pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-DTC-93-13) be, and 
hereby is, approved.

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    \8\15 U.S.C. 78s(b)(2) (1988).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4863 Filed 3-2-94; 8:45 am]
BILLING CODE 8010-01-M