[Federal Register Volume 60, Number 222 (Friday, November 17, 1995)]
[Notices]
[Pages 57728-57730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28397]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36476; File No. SR-DTC-95-16]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to the Modification of DTC's Reclamation 
Procedures

November 9, 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 

[[Page 57729]]
change (File No. SR-DTC-95-16) as described in Items I and II below, 
which items have been prepared primarily by DTC. The Commission is 
publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to grant accelerated approval 
of the proposed rule change.

    \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 purpose of the proposed rule change is to modify DTC's 
reclamation procedures as part of the conversion of DTC's money 
settlement system to an entirely same-day funds settlement (``SDFS``) 
system. The proposed rule change will affect reclamations that are 
processed in both the SDFS system and the next-day funds settlement 
(``NDFS'') system.\2\ The revisions include (1) extending the period 
DTC will match reclaims with deliveries from the business day the 
reclaim is submitted to the business day the reclaim is submitted and 
the prior business day and (2) processing unmatched reclaims instead of 
rejecting them.

    \2\ The changes described in this notice and order apply to both 
NDFS and SDFS reclaims unless specified as otherwise.
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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 
submitted by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    DTC planned to implement modifications to its reclamation 
procedures in the second quarter of 1995, but the implementation was 
postponed until the third quarter of 1995 at the request of 
participants.\4\ Some participants were concerned that the modified 
reclamation procedures would be implemented at a time when the number 
of reclamations might increase as a result of the implementation of the 
shortened settlement time frame required under Commission Rule 15c6-1, 
which became effective on June 7, 1995.\5\

    \4\ A reclaim is the return of a delivery order or a payment 
order by a participant.
    \5\ Securities Exchange Act Release Nos. 33023 (October 6, 
1993), 58 FR 52891 (adoption of Rule 15c6-1) and 34952 (November 9, 
1994) 59 FR 59137 (changing the effective date of Rule 15c6-1).
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    Furthermore, after additional discussions with participants, The 
Cashiers Association of Wall Street, the Securities Lending Division of 
the Securities Industry Association, and the New York Clearing House 
Association, DTC revised the planned modifications to the reclamation 
procedures as discussed below. The revisions include (1) extending the 
period for matching reclaims with deliveries from the business day the 
reclaim is submitted to the business day the reclaim is submitted and 
the prior business day and (2) process unmatched reclaims instead of 
rejecting them.
    The reclaim matching period is the period in which DTC's system 
will search for the original securities delivery or payment order being 
reclaimed in order to determine whether the reclaim should be processed 
as a matched reclaim or as an unmatched reclaim. The original version 
of the revised reclaim procedures provided for a reclaim matching 
period of sixty business days in certain cases. DTC later concluded 
that almost all reclaims are likely to be matched using two business 
days, and any complications presented by a longer period for matching 
reclaims are unnecessary. Therefore, under the porposed rule change DTC 
will attempt to match reclaims to transactions processed either on the 
same day the reclamation is entered or on the prior business day. All 
reclaims with a corresponding orginal transaction that completed on the 
current or the preceding business day will be processed as ``matched 
reclaims.''
    Matched SDFS reclaims will not be subject to Receiver-Authorized 
Delivery (``RAD'') processing, which means that the receiver of a 
matched SDFS reclaim will not have the opportunity to review and 
approve the reclaim before it is processed. All matched SDFS reclaims 
with a settlement value less than $15 million will not be subject to 
participants' risk management controls (i.e., collateral monitor and 
net debit caps). Matched SDFS reclaims with a settlement value of $15 
million or more will be subject to normal risk management controls.
    The receiver of a matched reclaim will not be able to enter a 
reclaim reversal through DTC's automated reclamation facility. If a 
matched reclaim needs to be reversed, it must be entered through the 
free form mode and it will be treated as an unmatched reclaim.\6\

    \6\ A reclaim submitted in a free form mode refers to a reversal 
submitted as a deliver order or a payment order through either 
Mainframe Dual Host, Computer-to-Computer Facility, or Participant 
Terminal System and identified as a reclaim by its reason code, 
which returns the securities or payment order to the original 
delivering party.
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    Under the proposed rule change, DTC will process unmatched reclaims 
subject to certain controls instead of rejecting them. Unmatched 
reclaims are those that cannot be matched to a completed original 
transaction. Unmatched reclaims also include partial reclaims, reclaims 
received by DTC during the night cycle, and reclaims of transactions 
that were processed more than one business day prior to the day on 
which the reclaim is submitted. All unmatched SDFS reclaims will be 
subject to RAD processing, which means the receiver of an unmatched 
reclaim will have an opportunity to review and approve the reclaim 
before it is processed. Unmatched SDFS reclaims also will be subject to 
participants' collateral and risk management controls regardless of the 
settlement value.
    DTC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because the rule proposal will facilitate the processing of 
reclaims of securities deliveries and payment orders which were made 
through DTC's facilities. DTC believes the proposed rule change will be 
implemented consistently with the safeguarding of securities and funds 
in DTC's custody and control or for which it is responsible because the 
proposed rule change modifies DTC's existing reclamation procedures.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no adverse 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

    DTC informed participants of the proposed revisions to the 
reclamation procedures by a DTC Important Notice dated June 22, 1995. 
No written comments have been received.

[[Page 57730]]


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

    Section 17A(b)(3)(F) 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.\7\ The 
Commission believes that DTC's reclamation procedures are consistent 
with DTC's obligations under section 17A(b)(3)(F) to promote the prompt 
and accurate clearance and settlement of securities transactions 
because the proposed procedures extend the period in which reclaims are 
matched and processed from one business day to two business days, which 
should reduce the number of unmatched or rejected reclaims. DTC 
believes that almost all reclaims will be processed within the two 
business day period. In addition, under the proposal DTC will process 
unmatched reclaims subject to certain risk management controls rather 
than rejecting them thus further reducing the number of rejected 
reclaims.

    \7\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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    The Commission also believes the proposal is consistent with DTC's 
obligation to safeguard securities and funds in its custody or control 
or for which it is responsible because the processing of matched 
reclaims with settlement values exceeding $15 million will be subject 
to DTC's risk management controls and unmatched reclaims will be 
subject to DTC's risk management controls and RAD processing. Matched 
reclaims with settlement values exceeding $15 million and all unmatched 
reclaims that violate receiving or delivering participants' net debit 
caps or collateral monitors will not be completed and will await 
processing until sufficient collateral or credits are applied to the 
participants' accounts. Unmatched reclaims also will be subject to RAD 
processing. Therefore, receiving participants will have the opportunity 
to review and approve unmatched reclaims of $15 million or more before 
they are processed.
    DTC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of the filing. The Commission finds good cause 
for so approving the proposed rule change because accelerated approval 
will allow DTC participants to benefit from the expanded reclamation 
matching period and the processing of unmatched reclaims subject to 
certain controls immediately upon implementation of the necessary 
system changes. The Commission also believes that accelerated approval 
will provide DTC participants with ample time to become familiar with 
the new reclamation procedures prior to final implementation of SDFS on 
February 22, 1996.

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 Section, 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 Number SR-DTC-95-16 and should be submitted by 
December 8, 1995.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-95-16) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28397 Filed 11-16-95; 8:45 am]
BILLING CODE 8010-01-M