[Federal Register Volume 60, Number 25 (Tuesday, February 7, 1995)]
[Notices]
[Pages 7250-7251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2904]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35299; File No. SR-PTC-95-07]


Self-Regulatory Organizations; Participants Trust Company; Order 
Approving on an Accelerated Basis a Proposed Rule Change Establishing a 
Daily Penalty Fee Applicable to Late Funding of Shortfalls in 
Participants' Mandatory Deposits to the Participants Fund

January 31, 1995.
    On December 14, 1994, the Participants Trust Company (``PTC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-PTC-94-07) pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ The 
proposed rule change establishes a daily penalty fee applicable to late 
funding of shortfalls in participants' mandatory deposits to the 
participants fund. On December 16, 1994, PTC filed Amendment No. 1 to 
the proposed rule change.\2\ On January 5, 1995, PTC filed Amendment 
No. 2 to the proposed rule change.\3\ The Commission published notice 
of the proposed rule change in the Federal Register on January 9, 
1995.\4\ 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\Amendment No. 1 modified the filing by providing that it be 
considered pursuant to Section 19(b)(2) of the Act rather than 
pursuant to Section 19(b)(3)(A) of the Act and by eliminating text 
inadvertently placed in the proposed rule change as originally 
filed. Letter from Carol A. Jameson, Assistant Vice President and 
Assistant Counsel, PTC, to Jonathan G. Katz, Secretary, Commission 
(December 15, 1994.)
    \3\Amendment No. 2 modified the filing by requesting accelerated 
approval of the proposed rule change and by clarifying the right of 
a participant to appeal the imposition of the penalty fee pursuant 
to PTC's rules. Letter from Carol A. Jameson, Assistant Vice 
President and Assistant Counsel, PTC, to Jonathan G. Katz, 
Secretary, Commission (January 3, 1995).
    \4\Securities Exchange Act Release No. 35182 (December 30, 
1994), 60 FR 2416.
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I. Description

    Pursuant to Rule 2 of Article V of PTC's rules, PTC maintains a 
participants fund to secure obligations of participants and limited 
purpose participants to PTC and to provide PTC with an additional 
source of cash collateral to meet its temporary financing needs. Each 
participant is required to maintain a mandatory deposit in the 
participants fund which is calculated as a percentage of its average 
gross debits over the previous month's three major settlement days. The 
mandatory deposit is subject to a minimum of $1 million and a maximum 
of $10 million. A limited purpose participant is required to maintain a 
lower mandatory deposit because of the limited nature of its activity 
in the depository. At least $150 thousand of the mandatory deposit must 
be made in cash. The remainder may be made in cash or United States 
Treasury obligations with a remaining maturity of one year or less.
    The adequacy of each participant's mandatory deposit is evaluated 
monthly based on the prior month's activity. Participants are notified 
of any shortfall and required to fund the deficiency within five 
business days. The securities portion of the mandatory deposit is 
marked-to-market weekly, and participants are required to fund any 
deficiency in this portion within two business days. [[Page 7251]] 
    Pursuant to Rule 3 of Article VI of PTC's rules, the proposed rule 
change establishes a daily penalty fee for a participant's failure to 
fund a shortfall in its mandatory deposit to the participants fund by 
the required date. The daily penalty fee is the greater of (i) $200 or 
(ii) an amount calculated at an annual rate equal to the daily average 
Fed Funds rate plus 250 basis points (2.5%) on the outstanding balance 
of the shortfall in the mandatory deposit to the participants fund.

II. Discussion

    The Commission believes that the proposed rule change is consistent 
with Section 17A of the Act\5\ and in particular with Section 
17A(b)(3)(G) of the Act.\6\ Section 17A(b)(3)(G) requires, among other 
things, that the rules of a clearing agency provide that its 
participants be appropriately disciplined for violation of any 
provision of the clearing agency's rules by fine or any other fitting 
sanction. The Commission believes that PTC's proposal to establish a 
daily penalty fee applicable to a participant's failure to fund on a 
timely basis a shortfall in its mandatory deposit to the participants 
fund is consistent with this obligation.

    \5\15 U.S.C. 79q-1 (1988).
    \6\15 U.S.C. 78q-1(b)(3)(G) (1988).
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    Because PTC maintains the participants fund to secret the 
obligations of participants and limited purpose participants to PTC, 
and other participants, late funding of a deficiency in a participant's 
mandatory deposit to the participants fund increases the risk of loss 
of PTC and its participants. In addition, late funding of a deficiency 
in a participant's mandatory deposit to the participants fund reduces 
an additional source of cash collateral which is available to PTC to 
meet temporary financing needs such as the payment of principal and 
interest. For these reasons, the Commission believes it is important 
that participants make timely funding of shortfalls and that the 
proposed penalty fee will encourage such funding.
    In the event that a participant is assessed a penalty, PTC's rules, 
consistent with Section 17A(b)(3)(H),\7\ provide participants with an 
opportunity to appeal the assessment of the penalty and to explain any 
mitigating circumstances. The penalty will not become effective until 
the period for filing an appeal has lapsed and will be automatically 
stayed during the pendency of any appeal. The Board of Directors also 
may reduce or remit a fine imposed by the President or a Vice President 
regardless of whether an appeal is made.\8\ The Commission believes 
that PTC's appeal process will provide participants with a fair 
opportunity to be heard.

    \7\Section 17A(b)(3)(H) of the Act requires, among other things, 
that the rules of a clearing agency provide a fair procedure with 
respect to the disciplining of participants.
    \8\See PTC Rules, Article VI, Rules 3 and 7.
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    PTC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirthieth day after the date of 
publication of notice of filing. In order to assure that PTC can 
implement the penalty fee beginning February 1, 1995, it is necessary 
that PTC receive the appropriate approval in advance of that date. 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,\9\ that the proposed rule change (File No. SR-PTC-94-07) be and 
hereby is approved on an accelerated basis.

    \9\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.\10\

    \10\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2904 Filed 2-6-95; 8:45 am]
BILLING CODE 8010-01-M