[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