[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21178]


[[Page Unknown]]

[Federal Register: August 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34561; File Nos. SR-DTC-94-08 and SR-DTC-94-09]

 

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Changes Establishing Procedures To 
Recall Certain Deliveries of Securities Which Have Created Short 
Positions

August 19, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on May 23, 1994, The Depository 
Trust Company (``DTC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes (File Nos. SR-
DTC-94-08 and SR-DTC-09) as described in Items I, II, and III below, 
which Items have been prepared primarily by DTC. On August 1, 1994, DTC 
amended File No. SR-DTC-98-08\2\ to clarify that certain time frames 
for participants' actions were being shortened from the time frames 
established in a previously approved rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule changes 
from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Letter from Karen G. Lind, Associate Counsel, DTC to Peter R. 
Geraghty, Attorney, Division of Market Regulation, Commission 
(August 1, 1994).
    \3\Infra note 4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Changes

    Collectively, the proposed rule changes seek (1) permanent approval 
of DTC's existing procedures to recall securities deliveries which have 
created short positions as a result of call lotteries and (2) to expand 
the procedures to recall securities deliveries which have created short 
positions as a result of rejected deposits. The Commission previously 
granted temporary approval of the procedures relating to short 
positions created as a result of call lotteries.\4\ The temporary 
approval expired on April 1, 1994.
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    \4\For a complete description and discussion of the procedures 
designed to help eliminate short positions caused by call lotteries, 
refer to Securities Exchange Act Release No. 34-30552 (April 2, 
1992), 57 FR 12352 [File No. SR-DTC-90-02] (order approving proposed 
rule change on a temporary basis until April 1, 1994).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In its filings with the Commission, DTC included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received on the proposed rule changes. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    File No. SR-DTC-94-08 seeks permanent approval of the procedures 
that enable participants to recall book-entry deliveries of callable 
securities\5\ if the participants' accounts become short as a result of 
deliveries made between the call publication date\6\ and the date of 
DTC's lottery.\7\ File no. SR-DTC-94-09 seeks to expand the procedures 
to allow participants to recall book-entry deliveries of securities if 
the participants' accounts become short because securities previously 
deposited at DTC are rejected by the transfer agent within ninety days 
of deposit for registered securities and within nine months for bearer 
securities.\8\ If securities are rejected by the transfer agent after 
ninety days or nine months from the date of deposit at DTC, 
participants will not be able to recall the book-entry delivery, and 
therefore, their accounts will remain short.
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    \5\A callable security is either preferred stock which the 
issuer is permitted or required to redeem or bonds which the issuer 
is permitted or required to redeem before the stated maturity date 
at a specified price.
    \6\The call publication date is the date on which the issuer 
gives notice of redemption.
    \7\DTC has established a lottery process to allocate securities 
in a partially called issue among participants having positions in 
the issue. DTC allocates the called securities among participants 
who had positions in the issue on the call publication date rather 
than on the day when the lottery is held. Securities Exchange Act 
Release No. 21523 (November 27, 1984), 49 FR 47352 [File No. SR-DTC-
84-09] (notice of filing and immediate effectiveness of proposed 
rule change).
    \8\Under DTC procedures, a participant depositing securities 
receives immediate credit in its securities account (i.e., before 
the certificates are sent to the transfer agent for transfer and 
registration in the name of DTC's nominee). Once the participant's 
account is credited, the securities are available to the depositing 
participant for deliveries, withdrawals, and pledges. If the 
transfer agent rejects a transfer after the depositing participant 
has made a book-entry delivery of the credited securities, 
elimination of the credit from the participant's account may create 
a short position. The proposed rule change will enable the 
depositing participant to reclaim the securities from the 
participant that received the book-entry delivery.
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    The procedures will allow a participant with a short position to 
initiate the recall process within ten business days of the short 
position being created by sending a broadcast message directly to the 
receiver of the book-entry delivery. Participants will be able to 
transmit this message through DTC's Participant Terminal System 
network. The receiving participant has five business days to comply 
with the recall request if the participant has a position in that 
security at DTC. If the receiving participant does not have such a 
position at DTC, it must comply with the recall request within fifteen 
business days.\9\ If the short position is less than the amount of the 
delivery, the receiver has the option to return the entire delivery or 
just the portion which is short. If the receiving participant does not 
comply with the recall request within the applicable time, the 
recalling participant may request DTC's intervention.\10\ Recalls will 
only reverse the book-entry delivery; the original transaction still 
must be settled by the delivering and receiving participants (i.e., the 
delivering participant must deliver securities to the receiving 
participant).
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    \9\A reclamation can create a short position in the receiving 
participant's account if the securities already have been delivered 
to another party or withdrawn from DTC. In the event of further 
redeliveries, each redelivering participant also will have ten 
business days from the time its account is driven short to recall 
the securities in order to eliminate its respective short position.
    \10\The intervention request must be submitted to DTC no later 
than twenty-five days after the original reclamation request was 
made.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe a burden will be placed on competition as a 
result of the proposed rule changes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Changes Received From Members, Participants or Others

    No comments were received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing 
for Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (a) By order approve such proposed rule changes or
    (b) Institute proceedings to determine whether the proposed rule 
changes should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington DC 20549. Copies 
of the submissions, all subsequent amendments, all written statements 
with respect to the proposed rule changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549, and at the principal offices of DTC. All 
submissions should refer to File Nos. SR-DTC-94-08 and SR-DTC-94-09 and 
should be submitted by September 19, 1994.

    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) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21178 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M