[Federal Register Volume 59, Number 117 (Monday, June 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14884]
[[Page Unknown]]
[Federal Register: June 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34199; File No. SR-DTC-94-04]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Accelerated Approval of a Proposed Rule Change to
Implement the Interactive Capabilities and the Electronic Mail Features
of the Enhanced Institutional Delivery System
June 10, 1994.
On April 13, 1994, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-DTC-94-04) under Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ to implement the
interactive capabilities and the electronic mail features of the
enhanced Institutional Delivery (``ID'') system.\2\ Notice of the
proposal was published in the Federal Register on May 13, 1994.\3\ The
Commission received three comment letters supporting implementation of
DTC's proposal.\4\ For the reasons discussed below, the Commission is
granting accelerated approval of the proposed rule change.
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\1\15 U.S.C. 78(b)(1) (1988).
\2\The Commission recently approved the overall concept of the
enhanced ID system. Securities Exchange Act Release No. 33466
(January 12, 1994), 59 FR 3139 [File No. SR-DTC-93-07]. The approval
order sets forth a description and discussion of the enhancements
being made to the ID system and requires DTC to submit for each
principal new feature the finalized rules and procedures in a
proposed rule change filing under Section 19(b)(2) of the Act.
The Commission also recently noticed the standing instruction
database feature of the enhanced ID system. For a description and
discussion of the standing instruction database feature, see
Securities Exchange Act Release No. 33679 (February 24, 1994), 59 FR
10444 [File No. SR-DTC-94-01].
\3\Securities Exchange Act Release No. 34018 (May 5, 1994), 59
FR 25133.
\4\Letters from John Zupan, Chairperson, Bank Depository User
Group, to Secretary, Commission (April 28, 1994), from George J.
Minnig, Chairman, Securities Operations Division, Regulatory &
Clearance Committee of the Securities Industry Association, to
Jonathan G. Katz, Secretary, Commission (April 29, 1994), and from
Lawrence Morillo, Senior Vice President, Pershing, Division of
Donaldson, Lufkin & Jenrette Securities Corporation, to Jonathan G.
Katz, Secretary, Commission (May 12, 1994).
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I. Description
The proposed rule change enables ID system users to use the ID
system interactively. Specifically, this enhancement allows for the
interactive receipt of trade input and affirmations and for the
interactive distribution of confirmations and certain trade reports. It
provides users with the capability of accomplishing all ID system
processing within a single business day. ID system users have the
option to continue to use the ID system in a batch mode.
The proposal also implements two optional electronic mail
features.\5\ These features enable ID system users to send and receive
``notification of order execution'' and ``institution instruction''
messages. A notification of order execution can be sent by a broker-
dealer to communicate the details of an order execution to an
institution. If the institution accepts the notification of order
execution, the institution can send the broker-dealer an institution
instruction containing information (e.g. the allocation of shares in a
block trade) which is needed by the broker-dealer in order to enter
trade data into the ID system for the preparation of confirmations.
Currently, broker-dealers and institutions make telephone calls, send
facsimile transmissions, or utilize the services of a private
electronic trade confirmation vendor to communicate this information.
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\5\The filing which proposed the overall enhanced ID concept
discussed three electronic mail features (i.e., ``notification of
order execution,'' ``institution instruction,'' and ``institution
request for cancellation/correction''). The cancellation/correction
feature is not ready for implementation at this time and therefore
is not a subject of this approval order. When DTC is prepared to
implement the cancellation/correction feature or any other new
electronic mail feature, it should submit a proposed rule change
filing under Section 19(b)(2) of the Act.
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II. Discussion
Section 17A(b)(3)(F)\6\ of the Act requires that the rules of a
clearing agency, such as DTC, be designed to promote the prompt and
accurate clearance and settlement of securities transactions. As
discussed below, the Commission believes that DTC's proposed rule
change is consistent with this obligation.
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\6\15 U.S.C. 78q-1(b)(3)(F) (1988).
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The Commission believes that the electronic mail features will
enable ID system users to eliminate their reliance on telephone calls
or facsimile transmissions when communicating information such as the
details of order executions or allocations for block trades. The
Commission believes that transmitting this information electronically
is more efficient and accurate than the methods currently used and,
therefore, will promote the prompt and accurate clearance and
settlement of institutional transactions.
The Commission also believes that the interactive capability is
essential to the industry's conversion to a three business day
settlement cycle, which will be the standard settlement time for most
broker-dealer trades beginning June 1, 1995.\7\ Because interactive
capability will enables ID system users to confirm and affirm
institutional transactions in one business day, it should facilitate
users' ability to settle their transactions on the third day after the
trade.
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\7\For a detailed description and discussion of the conversion
to a three business day settlement cycle, see Securities Exchange
Act Release No. 33023 (October 13, 1993), 58 FR 52891 [File No. S7-
5-93] (adopting Commission Rule 15c6-1).
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DTC has requested that the Commission find good cause for approving
the proposed rule change prior to thirtieth day after the date of
publication of notice of the filing. The Commission finds good cause
for so approving the proposed rule change because the electronic mail
features and specifically the interactive capability are critical to
converting to a three business day settlement cycle and should be
implemented as soon as possible to provide ID system users with time to
become accustomed to the new features before June 1, 1995.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular with the requirements of Section 17A of the Act, and
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-94-04) be, and
hereby is, approved.
\8\15 U.S.C. 78s(b)(2) (1988).
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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 J. McFarland,
Deputy Secretary.
[FR Doc. 94-14884 Filed 6-17-94; 8:45 am]
BILLING CODE 8010-01-M