[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