[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30258]


[[Page Unknown]]

[Federal Register: December 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35044; File No. SR-PTC-94-06]

 

Self-Regulatory Organizations; Participants Trust Company; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Designating Certain Mortgage-Backed Securities Guaranteed by the 
Government National Mortgage Association as Depository Eligible 
Securities

December 2, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 17, 1994, the 
Participants Trust Company (``PTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-PTC-94-06) as described in Items I, II, and III below, which Items 
have been prepared primarily by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change allows PTC to designate mortgage-backed 
securities (``MBS'') guaranteed by the Government National Mortgage 
Association (``GNMA'') under its Platinum program as depository 
eligible securities as permitted by Article I, Rule 2 of PTC's rules.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 Change

    PTC currently acts as depository for single-class GNMA I and GNMA 
II MBS and multiclass REMIC securities guaranteed by GNMA, the 
Department of Veterans Affairs (``VA''), and the Federal Home Loan 
Mortgage Corporation (``FHLMC''). The proposed rule change now allows 
PTC to designate mortgage-backed securities guaranteed by GNMA under 
its Platinum program as depository eligible securities.
Background
    GNMA is a wholly-owned corporate instrumentality of the United 
States of America within the Department of Housing and Urban 
Development. Through its GNMA I and GNMA II MBS programs, GNMA 
guarantees the timely payment of principal and interest (``P&I'') on 
securities issued by private institutions and backed by pools of 
federally insured or guaranteed mortgage loans. Through the GNMA REMIC 
program, the GNMA guarantee extends to payment of P&I on multiclass 
securities issued by grantor trusts and collateralized by GNMA I MBS. 
The GNMA guarantee is backed by the full faith and credit of the United 
States.
Platinum Program
    The Platinum securities will represent an undivided interest in a 
pool of smaller, previously issued GNMA MBS securities. Like the GNMA 
REMIC securities currently on deposit at PTC, the GNMA Platinum 
securities will receive P&I from the cash flows provided by the GNMA 
MBS that collateralize the Platinum issues. The underlying GNMA MBS 
securities will be held on deposit in limited purpose accounts at PTC 
by the Platinum trustee. Initially, smaller pools of GNMA I MBS will 
collateralize the Platinum issues although other GNMA securities such 
as GNMA II MBS may also serve as underlying collateral at a later date.
    Each Platinum pool will be classified as a grantor trust for 
federal income tax purposes, and each GNMA Platinum security will be 
guaranteed by GNMA as to payment of P&I. This guarantee, like the 
guarantee on the underlying GNMA MBS securities, will be supported by 
the full faith and credit of the United States.
    Although the Platinum securities will be collateralized by smaller, 
previously issued GNMA securities, the combination of the GNMA pools 
into the Platinum securities is structured not to alter the economic 
characteristics of the investment. Accordingly, GNMA has requested that 
the Public Securities Association confirm that the delivery of a GNMA 
Platinum security will constitute ``good delivery'' for a GNMA trade 
for the same interest rate. Each Platinum issue will bear the same 
interest rate and payment date as the GNMA securities collateralizing 
the issue. The goal of the Platinum program is to increase liquidity in 
the secondary market by combining smaller, illiquid, or uneconomic GNMA 
MBS securities into a single certificate that will be more marketable 
in a manner similar to the FHLMC Giant and Federal National Mortgage 
Association (``FNMA'') Mega Pool programs. It is anticipated that only 
one class of Platinum security will be on deposit at PTC although other 
classes, such as small interest only and principal only classes, may be 
issued to the Platinum trustee or other program participants as 
compensation. In the event any such classes were to be deposited at or 
issued through PTC, they would be appropriately margined on PTC's 
system to reflect their relative illiquidity.
    PTC's current rules permit the designation of GNMA Platinum 
securities as eligible for deposit at PTC. As an eligible security 
functionally comparable to GNMA, VA, and FHLMC guaranteed MBS currently 
on deposit at PTC, PTC's rules and procedures are applicable and govern 
PTC's and its participants' rights and obligations with respect to the 
GNMA Platinum securities.
    As is the case with the mortgage-backed securities that are 
currently on deposit at PTC, the GNMA Platinum securities also will be 
deposited in certificated form at PTC and will be maintained in book-
entry form on PTC's book-entry system. It is anticipated that 
withdrawals of physical certificates will be permitted. PTC's current 
Custody Agreement with Chemical Bank, its custodian, accommodates the 
custody of the GNMA Platinum securities without change.
PTC Processing of GNMA Platinum Securities
    PTC's current system accommodates the GNMA Platinum securities, and 
no substantive changes need to be made to PTC's computer processing 
system for GNMA Platinum securities transaction processing. It is 
anticipated that initially the GNMA Platinum securities initially on 
deposit at PTC will be of one class. Any additional classes that may be 
issued will not be on deposit at PTC as is the case with residual 
interests in GNMA, VA, and FHLMC REMICs that are currently issued only 
in certificated form outside of PTC's depository and book-entry system. 
PTC's computer system is currently equipped to handle multiclass issues 
in the event other classes are issued through or deposited at PTC.
    The volume of the GNMA Platinum securities initially deposited at 
PTC will be modest compared to the total face amount of GNMA securities 
now on deposit at PTC and is expected to have a comparably small impact 
on PTC's overall transaction volume. GNMA MBS that collateralize the 
GNMA Platinum securities will remain immobilized at PTC and therefore 
will be removed from PTC's transaction volume after the creation of the 
GNMA Platinum securities. PTC will be able to process the GNMA Platinum 
transaction volume by utilizing its present resources and capacity.
Pricing and Margining of GNMA Platinum Securities
    PTC's Board of Directors, upon the recommendation of PTC's Risk 
Management Committee, will establish the margin percentages used by PTC 
for the Platinum securities in PTC's system. It is anticipated that PTC 
will utilize the same pricing sources and methodology for the Platinum 
securities as is currently employed for the pricing of the GNMA I 
securities on deposit at PTC.
    If multiple classes are deposited at PTC, each class will be 
appropriately priced and margined to reflect its class characteristics 
such as degree of illiquidity and price volatility. PTC's end-of-day 
loan agreement currently accommodates the pledge of the GNMA Platinum 
securities as collateral to finance settlement without change at the 
prices and margins applied by PTC on its system.
Disbursement of P&I on GNMA Platinum Securities
    GNMA will appoint a trustee and administrator for the Platinum 
program to hold the GNMA MBS serving as collateral for the Platinum 
securities, to verify the remaining principal balances, and to act as 
paying agent, transfer agent, and registrar of the GNMA Platinum 
securities. Such Platinum trustee will open a limited purpose account 
at PTC to hold the MBS serving as collateral for the Platinum issue.
    It is anticipated that the GNMA Platinum securities will pay P&I on 
the same day on which the P&I is disbursed on the underlying GNMA MBS 
securities at PTC. PTC, in accordance with its usual GNMA MBS 
practices, will credit the P&I on the GNMA I MBS securities to the 
limited purpose account holding the GNMA collateral on the normal GNMA 
I disbursement day, which is generally the sixteenth calendar day of 
the month.
    The Platinum administrator, as trustee and paying agent for the 
Platinum program, will instruct PTC to debit the trustee's limited 
purpose account at PTC in the amount of the Platinum distribution which 
will then be credited by PTC to the participants holding the GNMA 
Platinum securities as reflected on PTC's books and records. PTC will 
not borrow to fund disbursement of P&I on the GNMA Platinum securities. 
Accordingly, the disbursement of P&I on the GNMA Platinum securities 
will initially have no meaningful impact on PTC's current disbursement 
facilities.
    PTC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act,\2\ and the rules and regulations 
thereunder in that it is designed to promote the prompt and accurate 
settlement of securities transactions and to remove impediments to and 
perfect the mechanisms of a national system for the prompt and accurate 
settlement of securities transactions.
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    \2\15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statements on Burden on Competition

    PTC does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    PTC has not solicited comments with respect to the proposed rule 
change, and none have been received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act\3\ and subparagraph (e)(1) of Rule 19b-4\4\ 
thereunder because the proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the self-
regulatory organization. At any time within sixty days of the filing of 
such rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \3\15 U.S.C. 78s(b)(3)(A)(i) (1988).
    \4\17 CFR 240.19b-4(e)(1) (1994).
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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, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of PTC. All 
submissions should refer to File No. SR-PTC-94-06 and should be 
submitted by December 30, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30258 Filed 12-8-94; 8:45 am]
BILLING CODE 8010-01-M