[Federal Register Volume 61, Number 7 (Wednesday, January 10, 1996)]
[Notices]
[Pages 744-745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-363]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36677; File No. SR-PTC-95-08]


Self-Regulatory Organizations; Participants Trust Company; Order 
Granting Accelerated, Permanent Approval of Proposed Rule Change 
Modifying the Opening of Processing Activity for Security Transactions

January 3, 1996.
    On December 19, 1995, the Participants Trust Company (``PTC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-PTC-95-08) pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ The 
proposed rule change modifies the opening of processing activity for 
security transactions on a permanent basis. The Commission published 
notice of the proposed rule change in the Federal Register on January 
3, 1996.\2\ No comment letters were received. For the reasons discussed 
below, the Commission is granting accelerated, permanent approval of 
the proposed rule change.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 36624 (December 21, 
1995), 61 FR 208.
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I. Description

    The proposed rule change modifies and makes permanent a ninety day 
pilot program that commenced on October 23, 1995, that established the 
opening of security processing activity at 8:30 a.m. instead of the 
previous time of 7:00 a.m.\3\ The current end-of-day cut-off times will 
remain unchanged. Consistent with the pilot program, PTC's processing 
system will retain the 7:00 a.m. opening time for purposes of 
participant log-ons and intraparticipant movements of securities into 
or out of segregated accounts. In addition, the pilot program will be 
modified to permit the return of securities collateral to participant 
positions using PTC's Collateral Loan Facility (``CLF'') mechanism 
beginning at 7:00 a.m.

    \3\ Securities Exchange Act Release No. 36405 (October 20, 
1995), 60 FR 55629 [File No. SR-PTC-95-07] (notice of filing and 
order granting accelerated approval of proposed rule change 
establishing a ninety day pilot program through January 21, 1996).
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    The proposed rule change conforms the opening of processing 
activity at PTC to the 8:30 a.m. opening time of the Federal Reserve 
System's fedwire. This will eliminate the hour and a half window during 
which time transactions failing PTC's credit checks cannot be processed 
because participants are unable to move funds to PTC (``prefunding'') 
until the 8:30 fedwire opening. PTC expects that the incidence of 
transactions that will require prefunding in order to pass credit 
checks during the 7:00 a.m. to 8:30 a.m. period will increase after the 
implementation of PTC/SPEED processing Release 5.6. Under SPEED Release 
5.6, the abeyance account will be eliminated, and transactions will be 
immediately posted to the deliverer's and receiver's account (i.e., 
securities no longer will be posted to a participant's abeyance account 
while awaiting match by the receiving participant).\4\ Based on its 
experience during the pilot program, PTC anticipates that the later 
opening of processing activity will have no impact on the settlement 
process. PTC will continue to monitor any effects of the change.

    \4\ For further information on SPEED Release 5.6 and changes to 
PTC's processing system, refer to Securities Exchange Act Release 
No. 36377 (October 16, 1995), 60 FR 54741 [File No. SR-PTC-95-06] 
(notice of filing of proposed rule change).
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    The pilot program and the proposed permanent opening of security 
processing activity at 8:30 a.m. was discussed on December 7, 1995, at 
a meeting of the PTC Operations Committee, which consists of 
participant representatives. It was the consensus of the Operations 
Committee members that the 8:30 a.m. opening time for processing should 
be made permanent, and along with retaining the 7:00 a.m. opening time 
for intraparticipant activities under the pilot program, participants 
also should be able to begin returning collateral using the CLF 
mechanism at 7:00 a.m.

II. Discussion

    Section 17A(b)(3)(F) requires that the rules of a clearing agency 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\5\ As discussed below, the Commission 
believes that PTC's proposal to modify permanently the opening time of 
processing activity for security transactions is consistent with PTC's 
obligation under the Act.

    \5\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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    The implementation of SPEED Release 5.6 into PTC's processing 
system will cause simultaneous debiting and crediting of participants' 
cash and securities accounts. This will require that the cash balance 
of a receiving participant's account in an account transfer versus 
payment transaction be debited even though the delivery may not have 
been approved by the receiving participant. Match functionality no 
longer will operate to defer the debitting of the cash balance of the 
receiving participant until the delivery is approved. Because unmatched 
deliveries of transfers versus payment no longer will generate a credit 
to the cash balance of the delivering participant without the 
corresponding debit to the receiving participant, it is anticipated 
that the implementation of SPEED Release 5.6 may result in increased 
incidences of failed deliveries due to the receiving participant 
exceeding its net debit monitoring level and thereby requiring 
prefunding. The change in the opening time of processing activity at 
PTC to coincide with the opening of Fedwire should reduce the number of 
transactions failing credit checks because participants will be able to 
move funds through the fedwire to PTC at the opening of PTC's 
processing.
    PTC 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. PTC has operated the 
proposed permanent changes as a pilot program since October 23, 1995. 
The Commission believes that PTC has satisfactorily monitored the 
effects of the modifications to the opening of security processing 
activity during the pilot program and anticipates that conforming the 
opening of processing activity at PTC to the opening time of 

[[Page 745]]
the Federal Reserve System's fedwire should have no detrimental impact 
on the settlement process. In addition, the modifications to the 
opening of processing activity for security transactions were discussed 
and agreed to by the Operations Committee, which consists of 
participant representatives. Participants also have had the opportunity 
to comment on the proposal during the pilot program and no written 
comments were received by PTC or the Commission. Finally, the 
Commission believes that participants should have the opportunity to 
become familiar with the modification to the pilot program which 
permits the return of securities collateral to participant positions 
using PTC's CLF mechanism beginning at 7:00 a.m. (i.e., the prepilot 
program opening time for return of securities collateral) before the 
implementation of SPEED Release 5.6 on January 8, 1996. The staff of 
the Board of Governors of the Federal Reserve System has concurred with 
the Commission's decision to grant accelerated approval.\6\

    \6\ Telephone conversation between John R. Rudolph, Board of 
Governors of the Federal Reserve System, and Ari Burstein, Division 
of Market Regulation, Commission (December 27, 1995).
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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,\7\ that the proposed rule change (File No. SR-PTC-95-08) be and 
hereby is approved on an accelerated, permanent basis.

    \7\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\8\

    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-363 Filed 1-9-96; 8:45 am]
BILLING CODE 8010-01-M