[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