[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8279]


[[Page Unknown]]

[Federal Register: April 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33840; File No. SR-PTC-93-04]

 

Self-Regulatory Organizations; Participants Trust Company; Order 
Approving a Proposed Rule Change Relating to the Percentage Margin 
Applied by PTC With Respect to GNMA Project, Construction, and Mobile 
Home Securities

March 31, 1994.
    On November 8, 1993, the Participants Trust Company (``PTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-PTC-93-04) pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
appeared in the Federal Register on January 31, 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. 78s(b)(1).
    \2\Securities Exchange Act Release No. 33513 (January 24, 1994), 
59 FR 4302.
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I. Description

    PTC seeks permanent approval of its proposed rule change 
establishing 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.\3\ The current proposal 
is substantially the same as the one the Commission temporarily 
approved on October 7, 1991.\4\
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    \3\Net Free Equity is calculated as the sum of:
    (1) The cash balance in the account;
    (2) The market value of securities in the account, less the 
appropriate haircut for such securities (``Applicable Percentage''); 
and
    (3) The value of all Supplemental Processing Collateral; minus
    (4) Reserve on Gain on transfers made that day. Supplemental 
Processing Collateral includes the following:
    (1) The value of optional deposits to the participants fund 
allocated to that account (optional deposits to the participants 
fund are deposits that exceed the minimum deposit required pursuant 
to PTC's rules and procedures); and
    (2) 20% of the mandatory deposits to the participants fund for 
the Master Account (mandatory deposits to the participants fund are 
minimum deposits required to be deposited into such fund pursuant to 
PTC's rules and procedures). Reserve on Gain means:
    (1) The contract value credited to the cash balance of a 
delivering participant or limited purpose participant over the 
market value of securities credited to the transfer account 
associated with the account of the receiving participant; or
    (2) The market value of securities credited to the transfer 
account associated with the account of a receiving participant over 
the contract value credited to the cash balance of the delivering 
participant or limited purpose participant. PTC Rules, Article I, 
Rule 1.
    \4\Securities Exchange Act Release No. 29793 (October 7, 1991), 
56 FR 51732.
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    Under PTC's rules, the Applicable Percentage\5\ of the market value 
of securities is used in computing a participant's Net Free Equity. 
PTC's rules require participants to maintain Net Free Equity of zero or 
greater in each of their agency, pledgee transfer, or proprietary 
accounts in order for transactions to be processed. PTC has the right 
to borrow against or liquidate those assets that comprise the Net Free 
Equity computations in those accounts in the event that the participant 
responsible for one or more of those accounts fails 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, i.e., the Applicable 
Percentage, PTC attempts to limit the risk caused by fluctuations in 
the market value of securities in those accounts.
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    \5\``Applicable Percentage'' means that percentage of the market 
value of securities that is included in the computation of Net Free 
Equity. The Applicable Percentage is determined by deducting certain 
percentages (i.e., margin) from the market value of securities. See 
also supra note 3.
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    Under the proposal, PTC is seeking permanent approval of the 
following margin levels:

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

    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 that of Single-Family GNMA securities, but PTC believes that 
the market for those securities is less liquid. This is reflected in 
the higher margin levels for those securities.

II. Discussion

    The Commission believes that PTC's proposed rule change is 
consistent with section 17A of the Act, and, specifically, with 
sections 17A(b)(3) (A) and (F).\6\ Those sections require a clearing 
agency to be organized, and its rules be designed, to promote the 
prompt and accurate clearance and settlement of securities transactions 
and to assure the safeguarding of securities and funds which are in its 
custody or control or for which it is responsible.
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    \6\15 U.S.C. 78q-1(b)(3) (A) & (F).
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    The Commission approved the margin levels for Project, 
Construction, and Mobile Home GNMA securities on a temporary basis on 
October 7, 1991.\7\ In that filing, PTC submitted historical data which 
suggested that the price movements of GNMA Project, Construction, and 
Mobile Home securities tracked those of GNMA Single-Family 
securities.\8\ The Commission approved PTC's margin levels on a 
temporary basis to allow further evaluation by PTC of price movement 
correlations between GNMA Single-Family securities on the one hand, and 
GNMA Project, Construction, and Mobile Home securities on the other, as 
well as to gauge the volatility of such securities. In seeking 
permanent approval of its margin levels, PTC submitted in support of 
its proposal data consistent with the price movement data in the 
original filing.\9\
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    \7\Securities Exchange Act Release No. 29793, supgra note 4.
    \8\The price movement comparisons were based on prices of GNMA 
Construction Loan, Project Loan, and Single-Family securities, over 
the period from March 1990 to February 1991. Letter from Alison 
Hoffman, Assistant Counsel, PTC, to Scott Wallner, Staff Attorney, 
Division of Market Regulation, Commission, dated August 1, 1991.
    \9\PTC compared daily price movements of GNMA Single-Family 10% 
securities against each of Project Note, Project Loan, Construction 
Loan, and Mobile Home 10% securities. File No. SR-PTC-93-04, 
appendix A.
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    The Commission is satisfied that PTC's proposal is consistent with 
the Act, but suggests that PTC review periodically the price movement 
correlations and volatility described above. The Commission believes 
that the enhanced margin levels for these securities will promote the 
prompt and accurate clearance and settlement of securities transactions 
and assure the safeguarding of securities and funds in PTC's custody or 
control by limiting the risk arising from fluctuations in the market 
value of Project, Construction, and Mobile Home securities when used to 
collateralize intraday processing of securities transactions.

III. Conclusion

    For the reasons stated above, the Commission finds that PTC's 
proposal is consistent with section 17A of the Act.
    It is therefore ordered, Pursuant to section 19(b)(2) of the 
Act,\10\ that PTC's proposed rule change (File No. SR-PTC-93-04) be, 
and hereby is, approved.

    \10\15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\17 CFR 200.30-3(a) (12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8279 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M