[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29271]


[[Page Unknown]]

[Federal Register: November 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34988; File No. SR-PTC-94-05]

 

Self-Regulatory Organizations; Participants Trust Company; Order 
Approving on an Accelerated Basis a Proposed Rule Change Establishing 
Early Principal and Interest Distribution on Government National 
Mortgage Association II Securities

November 18, 1994.
    On October 11, 1994, the Participants Trust Company (``PTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-PTC-94-05) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ The proposed rule change 
establishes early principal and interest (``P&I'') distribution on 
Government National Mortgage Association (``GNMA'') II securities. The 
Commission published notice of the proposed rule change in the Federal 
Register on October 21, 1994.\2\ On November 4, 1994, PTC filed 
Amendment No. 1 to the proposed rule change.\3\ The amendment was 
technical in nature and did not require republication of notice of 
filing. No comments were received. For the reasons discussed below, the 
Commission is approving the proposed rule change on an accelerated 
basis.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 34846 (October 14, 1994), 
59 FR 53220.
    \3\Amendment No. 1 modified the filing by requesting accelerated 
approval of the proposed rule change. Letter from Carol A. Jameson, 
PTC, to Jonathan G. Katz, Secretary, Commission (November 4, 1994).
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I. Description

    The proposed rule change extends PTC's program for the early 
distribution of P&I to GNMA II P&I distributions. Under the proposal, 
PTC can distribute all of the P&I on GNMA II securities to its 
participants by Fedwire early in the day of distribution rather than by 
credits to the participants' cash balances payable at end of day 
settlement.
    Before November 1993, PTC's rules and procedures provided that PTC 
disburse P&I on securities deposited at PTC by means of credits to the 
participants' applicable cash balances. This resulted in the 
participants' receipt of available funds in the amount of the P&I net 
of any account debits and/or credits at the end of the day as part of 
the settlement process. In November 1993, PTC's rules were amended to 
eliminate the requirement that P&I be disbursed by means of credits to 
participants' cash balances and to permit PTC, as it deemed advisable 
from time to time, to make payment of P&I either by intraday Fedwire 
transfer of immediately available funds or by means of credits to the 
applicable cash balances.\4\
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    \4\Securities Exchange Act Release Nos. 33132 (November 9, 
1993), 58 FR 59501 and 33586 (April 12, 1994), 59 FR 59501.
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    At that time, the Commission required PTC to limit intraday 
disbursement of P&I to the amount of collected and available P&I 
payments without recourse to funds available to PTC from other 
sources.\5\ At that time, PTC began a pilot program to distribute up to 
50% of the P&I payable with respect to GNMA I securities subject to the 
requirement that the intraday distribution be made from collected and 
available GNMA I P&I only. PTC's present program for the early 
distribution of GNMA I P&I permits the distribution of up to 50% of P&I 
payable by intraday Fedwire transfer of funds on the distribution date 
with the balance distributed by credits to the participants' cash 
balances payable at end of day settlement.\6\
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    \5\Other sources of funds available to PTC for P&I disbursement 
include PTC's own funds, the cash portion of the mandatory deposits 
to the participants' fund, and borrowed funds secured by the P&I 
receipts.
    \6\PTC intends to continue its current program for the intraday 
distribution of GNMA I P&I subject to its discretion to suspend the 
program if it is deemed necessary or advisable at any time in the 
future.
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    Under the GNMA II P&I disbursement program, Chemical Bank acts as 
central paying and transfer agent for the GNMA II program and credits 
PTC's account on its books in the amount of the GNMA II P&I payment. 
PTC transfers the funds via Fedwire transfer into PTC's account at the 
Federal Reserve Bank of New York on the GNMA II distribution date.\7\ 
Under current procedures, PTC credits the GNMA II P&I to its 
participants' accounts at PTC on the day of receipt and disburses 
payment in same-day funds net of any account debits and/or credits as 
part of the end-of-day settlement.\8\
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    \7\The GNMA II distribution date is generally the twentieth day 
of the month. If the nineteenth day of the month is not a business 
day but the twentieth day of the month is a business day, then the 
distribution date will be the first business day after the twentieth 
day of the month. If both the nineteenth and twentieth days of the 
month are not business days, the first business day thereafter is 
the distribution date.
    \8\PTC does not use its uncommitted line of credit to fund the 
GNMA II P&I disbursement.
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    As allowed under the new procedures, PTC anticipates passing-
through to its participants all GNMA II P&I upon its receipt from 
Chemical Bank. This will result in the intraday disbursement of all 
payable GNMA II P&I by Fedwire transfer at or before approximately 12 
noon to all participants that elect to receive it intraday.

II. Discussion

    The Commission believes that the proposed rule change is consistent 
with Section 17A of the Act\9\ and in particular with Sections 
17A(b)(3) (A) and (F) of the Act.\10\ Sections 17A(b)(3) (A) and (F) 
require, among other things, that a clearing agency is organized and 
its rules are designed to assure the safeguarding of securities and 
funds in its custody or control or for which it is responsible. The 
Commission believes that PTC's proposal to establish early P&I 
distribution on GNMA II securities is consistent with this obligation.
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    \9\15 U.S.C. 78q-1 (1988).
    \10\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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    Under PTC's rules, a participant may avoid credit fails occasioned 
by debits that exceed its maximum allowed debit amount or that cause 
the account to fail PTC's collateral check by prefunding its debit 
balance throughout the day. On major settlement days, PTC receives a 
significant amount of its settlement funds in the form of intraday 
prefunding payments from participants. These prefunding payments are 
most typically required and paid in the morning of the processing day. 
The intraday distribution of GNMA I P&I and the corresponding reduction 
in the amount that is credited to participants' account balances at the 
end of the day has not caused any adverse effect on PTC's settlement 
cycle even in the months in which the GNMA I distribution date has 
coincided with a major settlement date.
    In contrast to the GNMA I disbursement program, there is a central 
paying and transfer agent for GNMA II securities (i.e., Chemical Bank). 
The majority of GNMA I issuers currently make payment to PTC directly 
by means of check or ACH transfer of funds. Such payment system 
occasionally results in late or misdirected payments. Having a central 
paying and transfer agent should prevent these occasional late or 
misdirected payments. Furthermore, GNMA II P&I disbursements are 
consistently much smaller than the GNMA I disbursements.\11\
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    \11\For example, the August 1994 GNMA I disbursement was 
approximately $6 billion, and the August 1994 GNMA II disbursement 
was approximately $.8 billion.
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    The Commission therefore believes that PTC is implementing its 
program for the early distribution of GNMA II P&I in a manner that is 
consistent with its safeguarding obligation under the Act and should 
not have any detrimental effect on the settlement cycle at PTC.
    PTC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing. In order for PTC to implement early 
distribution of P&I for the November 1994 GNMA II distribution date, it 
is necessary that PTC have the appropriate procedures in place in 
advance of the distribution. The Commission, therefore, finds 
sufficient cause to accelerate approval of this proposal.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the Act, in particular with 
Section 17A of the Act, and with the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-PTC-94-05) be, and 
hereby is, approved on an accelerated basis.

    \12\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.\13\
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    \13\17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-29271 Filed 11-28-94; 8:45 am]
BILLING CODE 8010-01-M