[Federal Register Volume 60, Number 140 (Friday, July 21, 1995)]
[Notices]
[Pages 37696-37698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17939]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35971; File No. SR-DTC-95-11]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Modifications to the Prime Broker Option in the 
Institutional Delivery System

July 14, 1995
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 26, 1995, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by DTC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \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 consists of modifications to the existing 
procedures for the prime broker option in DTC's Institutional Delivery 
(``ID'') system.\2\

    \2\ The text of the modifications to the ID procedures is 
attached as an exhibit to this Notice.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DTC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments that it received on the proposed rule change. 
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.\3\

    \3\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In a previous filing with the Commission, DTC set forth procedures 
for the prime broker option in the ID system, including procedures for 
the disaffirmation of a trade which had previously been affirmed by the 
prime broker.\4\ In that filing DTC stated that

[[Page 37697]]
prior to the change to three business days as the standard settlement 
period (``T+3'') in 1995,\5\ DTC would develop a more automated 
mechanism for disaffirmation of trades by a prime broker. The purpose 
of this proposed rule change is to implement a more automated mechanism 
for disaffirmation by a prime broker and to clarify how an executing 
broker specifies settlement locations for trades.

    \4\ Securities Exchange Act Release No. 34779 (October 3, 1994), 
59 FR 51465 [File No. SR-DTC-94-13] (notice of filing and order 
granting accelerated approval on a temporary basis of proposed rule 
change implementing the prime broker option in the ID system).
    \5\ On October 6, 1993, the Commission adopted Rule 15c6-1 under 
the Act, which establishes three business days after the trade date 
instead of five business days as the standard settlement time frame 
for most broker-dealer transactions. Securities Exchange Act Release 
No. 33023 (October 6, 1993), 58 FR 52891 (release adopting Rule 
15c6-1). On November 16, 1994, the Commission changed the effective 
date of Rule 15c6-1 from June 1, 1995, to June 7, 1995. Securities 
Exchange Act Release No. 34952 (November 9, 1994), 59 FR 59137.
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    Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. DTC 
believes its proposed rule change meets the requirements of the Act 
because the rule change will contribute to the automation of trade 
processing in the ID system and therefore will promote the prompt and 
accurate clearance and settlement of securities transactions. DTC also 
states that the enhancements to its ID system will be implemented 
consistently with the safeguarding of securities and funds in its 
custody or control or for which it is responsible.

    \6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no impact on competition by reason of the proposed 
rule change.

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

    Written comments from DTC participants or others have not been 
solicited or received on the proposed rule change.

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)(iii) \7\ of the Act and Rule 19b-4(e)(4) \8\ thereunder 
because the rule change effects a change in an existing service of DTC 
that does not adversely affect the safeguarding of securities or funds 
in the custody or control of DTC or for which it is responsible and it 
does not significantly affect the respective rights or obligations of 
DTC or persons using the prime broker option in the ID system. At any 
time within sixty days of the filing of such proposed 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.

    \7\ 15 U.S.C. 78s(b)(3)(A)(iii) (1988).
    \8\ 17 CFR 240.19b-4(e)(4) (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, NW., Washington, DC 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of DTC. All submissions should 
refer to the File No. SR-DTC-95-11 and should be submitted by August 
11, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.

Procedures for the Prime Broker Option in the ID System

Confirmation/affirmation

    Executing Brokers can use the ID system to confirm to Prime 
Brokers trades done with mutual clients for securities which are 
eligible for settlement in NSCC's Continuous Net Settlement (CNS) 
system, in DTC's trade-for-trade (PDQ) system, or elsewhere when the 
trades are to be settled by a Prime Broker (i.e. a Broker-Dealer 
that provides a clearing facility for certain customers).
    The ID system determines settlement based on the Prime Broker 
Agent ID number which is stored in the ID Masterfile, as well as 
from the ``Settlement Location'' field specified in the trade input 
record. For CNS trades, DTC delivers the trade details of all trades 
affirmed between noon the prior day and noon the current day to NSCC 
each afternoon for CNS settlement.
    Prime Brokers are required to maintain two or more Agent ID 
numbers. One Agent ID number must be reserved as a special number 
which the Executing Broker specifies on trade input to confirm a 
prime broker trade. The Executing Broker determines the settlement 
option based on a settlement location of DTC (CNS or PDQ) or any 
other settlement location (trades settling away from NSCC or DTC). 
If DTC settlement location is specified, the ID system determines 
CNS or PDQ depending on eligibility, and the transaction is 
processed in accordance with the existing Procedures as described 
within the ID Manual. Provided the security identifier (CUSIP) is 
CNS eligible, the trade is delivered to NSCC for settlement. 
Otherwise, if the security is DTC eligible, it is processed for PDQ 
settlement.

Disaffirmation

    Prime Brokers have the option, under certain circumstances, to 
reverse an affirmed confirmation back to an unaffirmed confirmation 
status. To exercise that option, the Prime Broker can use the 
disaffirmation function of the ID system to cause all affirmed 
trades for that client to be reversed to the confirmation status, 
thus preventing them from settling within CNS or PDQ processing. 
Prime broker trades settling outside CNS or PDQ may likewise be 
disaffirmed, but the Prime and Executing Brokers must cancel 
settlement instructions outside of ID.
    Only Prime Brokers have access to the IDPB disaffirmation 
function in the ID system via PTS terminals. In the event that 
disaffirmation becomes necessary, the Prime Broker can use the IDPB 
function to enter the DTC control numbers of those trades to be 
disaffirmed. The Prime Broker will not affirm any trades which have 
been reported in the ID system subsequent to the Prime Broker's 
decision to terminate its relationship with the client.
    For affirmed trades destined for CNS settlement, one of two 
situations may apply. If affirmation and disaffirmation both occur 
within the same noon to noon cycle, the ID system reverses the 
status of the affirmed confirmation to confirmation (unaffirmed) and 
does not deliver the trade details to NSCC. Otherwise, the ID system 
delivers a reversal of the trade details to NSCC.
    Once entered into ID by the Prime Broker, disaffirmations are 
reported to the Executing Brokers with a special PTS disaffirmation 
ticket. In addition, the Prime Broker should contact DTC's ID 
Support unit by telephone to alert DTC to the disaffirmation event. 
DTC will, on a best efforts basis, contact the Executing Brokers by 
telephone to alert them to the disaffirmation and the existence of 
the special tickets on their PTS printers.


[[Page 37698]]

    Note: DTC has no responsibility to ascertain that (i) a prime 
brokerage agreement is in effect between the Prime Broker and the 
Executing Broker which are identified in any instruction submitted 
to DTC or (ii) an instruction submitted to DTC by the Prime Broker 
or by the Executing Broker is in accordance with the provisions of 
any such prime brokerage agreement.

[FR Doc. 95-17939 Filed 7-20-95; 8:45 am]
BILLING CODE 8010-01-M