[Federal Register Volume 60, Number 214 (Monday, November 6, 1995)]
[Notices]
[Pages 56081-56082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27427]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36437; File No. SR-DTC-95-15]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change Relating to Processing 
Securities With Indexed Principal Features Through the Receiver 
Authorized Delivery Facility

October 30, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 23, 1995, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-95-15) 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

    DTC is filing the proposed rule change to require transactions in 
securities issued under a Money Market Instrument (``MMI'') program 
having an indexed principal \2\ feature and settling in DTC's Same Day 
Funds Settlement (``SDFS'') system to be directed to DTC's Receiver 
Authorized Delivery facility (``RAD'').\3\ RAD requires the receiver to 
authorize the transaction prior to it being processed by DTC.

    \2\ An ``indexed principal'' is principal directly derived by 
reference to a currency, composite currency, commodity, or other 
financial index.
    \3\ For a description of DTC's RAD facility, refer to Securities 
Exchange Act Release Nos. 25886 (July 8, 1988), 53 FR 26698 [File 
No. SR-DTC-88-07] (notice of filing and immediate effectiveness of 
the RAD facility) and 35720 (May 16, 1995), 60 FR 27360 [File No. 
SR-DTC-95-07] (order granting accelerated approval of a $15 million 
per transaction minimum threshold to utilize the RAD facility for 
approval or cancellation of deliveries).
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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 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.\4\

    \4\ 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

    The purpose of the proposed rule change is to ensure that DTC 
participants receiving a valued delivery of MMI securities with an 
indexed principal feature will receive complete and accurate 
information about whether or not such securities have an indexed 
principal feature. The value of MMI securities with an indexed 
principal feature may change dramatically in a short period of time; 
therefore, DTC's participants have asked DTC to develop controls to 
ensure that participants have accurate information about this feature 
before accepting delivery of such a security. DTC has responded to 
these concerns by developing procedural changes that will reduce the 
likelihood that a DTC participant will purchase this type of security 
without full knowledge of its indexed principal feature.
    Under the proposal, DTC will require mandatory authorization from 
receivers of securities having an indexed principal feature before DTC 
will process the transaction. DTC participants will transmit such 
authorization via DTC's RAD facility.\5\ In addition, DTC will revise 
its twenty and forty-eight character CUSIP descriptions to include a 
unique identifier that will indicate that an issue has an indexed 
principal feature.

    \5\ The transactions will be directed to DTC's existing RAD 
facility; however, they will be subject to a separate approval and 
reporting process.
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    DTC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder because it promotes the prompt and accurate 
clearance and settlement of transactions in securities that settle in 
same-day funds. The proposed rule change will be implemented in a 
manner designed to safeguard the securities and funds in DTC's custody 
or under its control.

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

    DTC 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

    In June 1995, DTC released a memorandum to its participants about 
DTC's efforts to provide more complete information regarding the 
indexed principal feature of MMI securities. Written comments from DTC 
participants or others have not been solicited on the proposed change; 
however, State Street Bank and Trust Company (``State Street'') 
submitted a comment letter to DTC expressing two concerns regarding the 
proposed rule change. First, State Street wrote that it currently uses 
DTC's Main Frame Dual Host System (``MDH'') for daily settlement 
purposes rather than DTC's Participant Terminal System (``PTS''). State 
Street explained that because the new RAD authorization function only 
is available on PTS and not MDH, it would be forced to process the new 
RAD authorizations manually. DTC responded to State Street's concern by 
agreeing to enable them to process the new RAD authorizations through 
MDH.
    Secondly, State Street commented that DTC should be able to provide 
accurate and complete issuance information without the need for an 
additional RAD control. DTC responded in its letter to State Street 
that DTC participants and the Public Securities Association (``PSA'') 
asked DTC to develop a method of identifying securities with an indexed 
principal feature and a procedure to affirmatively notify participants 
when they take delivery of securities having such a feature. DTC 
participants and the PSA requested the development of these procedures 
to ensure that DTC participants know before taking delivery that a 
particular security has an indexed principal feature. DTC believes that 
the proposed rule change effectively addresses these requests.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which DTC consents, the Commission will:
    (a) By order approve such proposed rule change or 

[[Page 56082]]

    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
D.C. 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 number SR-DTC-95-15 and should be submitted by 
November 27, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\ 17 CFR 200.30-3(a) (12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27427 Filed 11-3-95; 8:45 am]
BILLING CODE 8010-01-M