[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