[Federal Register Volume 61, Number 185 (Monday, September 23, 1996)]
[Notices]
[Pages 49807-49808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24253]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37684; File No. SR-PTC-96-05]


Self-Regulatory Organizations; Participants Trust Company; Notice 
of Filing of Proposed Rule Change Relating to Establishing a New 
Category of PTC Participant

September 16, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 21, 1996, the 
Participants Trust Company (``PTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-PTC-96-05) as described in Items I, II, and III below, which Items 
have been prepared primarily by PTC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Items of Substance 
of the Proposed Rule Change

    The proposed rule change establishes a new category of PTC 
participant, a ``Federal Reserve participant,'' for Federal Reserve 
Banks.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, PTC 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. PTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by PTC.
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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 allow PTC to 
establish a new category of PTC participant, a Federal Reserve 
participant, in order to enable Federal Reserve Banks to maintain 
accounts at PTC for the purpose of accepting securities as collateral 
for discount window advances from the Federal Reserve Banks and for 
other obligations to Federal Reserve Banks. At a later date, the 
Federal Reserve Banks may elect to accept securities pledged as 
collateral to secure Treasury tax and loan accounts \3\ or collateral 
pledged for other purposes which may be requested by a Federal Reserve 
Bank.
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    \3\ A financial institution can be designated as a Treasury tax 
and loan depository to process deposits of Federal taxes and to 
maintain and administer separate accounts known as Treasury tax and 
loan accounts. In order to accept these deposits, the financial 
institution must pledge collateral security to secure Treasury tax 
and loan balances with the Federal Reserve Bank of the district in 
which it is located. 31 CFR 202, 203.
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    Following approval of this proposed rule change, PTC and the 
Federal Reserve Bank of New York (``FRBNY'') will commence a pilot 
program which will be open to a limited number of PTC participants. 
During the pilot program, FRBNY will permit collateral that it accepts 
as meeting its requirements to be pledged by pilot participants to 
secure discount window advances and other direct obligations of such 
participants to the FRBNY.
    During the pilot, PTC also will undertake software changes that may 
later permit pledges of Treasury tax and loan collateral and pledges of 
collateral by institutions that are not direct participants themselves 
but use PTC participants as custodians.\4\ The FRBNY will review the 
performance of the pilot program, and PTC will make appropriate 
adjustments to assure that the program functions in accordance with the 
FRBNY's requirements. Other Federal Reserve Banks will participate in 
the collateral arrangements as agreed between the individual Federal 
Reserve Bank and PTC.
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    \4\ Many smaller institutions which cannot meet the high capital 
requirements established by PTC to be admitted as a participants 
establish clearing arrangements with PTC participants in order to 
utilize PTC's services.
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Background

    PTC was established as a depository for mortgage-backed securities 
to facilitate the prompt and accurate clearance and settlement of 
transactions in mortgage-backed securities, initially, GNMA securities. 
Currently, PTC's rules permit participation as either a participant or 
a limited purpose participant. Participants are entitled to all of 
PTC's services and system capabilities in accordance with PTC's rules. 
Limited purpose participants are subject to limitations on the scope of 
their activity with the principal limitation being the inability to 
deliver securities versus payment and to incur a transactional debit 
balance.

Proposed Category of Eligibility

    Establishing the Federal Reserve participant as a category of 
participation will enable Federal Reserve Banks to participate in PTC 
in a capacity different from that of participants or limited purpose 
participants.\5\ The new category of participant will allow Federal 
Reserve Banks to hold securities pledged as collateral for discount 
window advances and for other purposes specified by a Federal Reserve 
Bank.
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    \5\ The new category of Federal Reserve participant will be 
governed by a new Section 2A to Rule 1, Article IV of PTC's rules 
(``Qualifications and Duties of Participants and Limited Purpose 
Participants'') and by a new form of participation agreement for 
Federal Reserve participants.
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    Like limited purpose participants, Federal Reserve participants 
will be restricted from receiving securities versus payment and 
incurring a debit balance, In addition, Federal Reserve participants 
will not receive principal and interest (``P&I'') advances on 
securities held at PTC and therefore are not required to repay third-
party loans obtained for this purpose.\6\
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    \6\ Federal Reserve participants will not receive P&I through 
PTC because P&I on securities in a pledgee account is paid to the 
pledgor pursuant to PTC's rules.
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    The proposed rule change also provides that Federal Reserve 
participants will be exempt from some of the obligations applicable to 
participants and limited purpose participants consistent with the 
restricted nature of the Federal Reserve Bank participation.\7\ The 
most significant exemptions applicable to Federal Reserve participants 
are that they are not required to: (1) indemnify PTC or any licensor or 
provider of data processing services to PTC; (2) furnish periodic 
financial reports and open books and records for inspection by PTC; (3) 
pay fees, fines or assessments; (4) contribute to the participants 
fund; or (5) submit disputes to arbitration.
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    \7\ These exemptions are set forth in the new Section 2A to Rule 
1, Article IV of PTC's rules.
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    The proposed rule change further provides that securities and 
property of a Federal Reserve participant are not subject to any lien, 
security interest, or ownership interest by PTC.\8\ In addition, PTC is 
liable to a Federal Reserve participant for losses attributable in the 
case of a failure to exercise ordinary care or in the case of willful 
misconduct or fraudulent or criminal acts, and will not waive any of 
its rules or procedures without a Federal Reserve participant's consent 
if the effect of such

[[Page 49808]]

waiver would be to prejudice a Federal Reserve participant's rights.
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    \8\ Because securities held by PTC for the account of a Federal 
Reserve participant are held in pledgee accounts and transferred 
free into such accounts, this change is merely a restatement of 
PTC's existing rules, which provide that PTC does not have a lien, 
security, or ownership interest in securities held and transferred 
in this manner.
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    The special provisions applicable to Federal Reserve participants 
are consistent with the restricted nature of Federal Reserve Bank 
participation at PTC which is to hold pledged securities that are 
transferred free of payment through PTC's system.

Additional Rule Changes

    PTC also is making certain technical changes to several sections of 
its rules to conform them to the present rule change. In particular, 
PTC is amending its rules to clarify the characterization in its rules 
that certain transfers of securities into a pledgee account constitute 
the transfer of a security interest in the subject securities subject 
to the satisfaction of all requirements of applicable law including, 
but not limited to, those requirements which are satisfied through PTC. 
Furthermore, PTC is not responsible for the failure of parties to take 
the requisite action to comply with the requirements of applicable law 
for which PTC cannot determine compliance.\9\ In addition, PTC is 
amending its rules to clarify that the approval of the receiving 
participant is a condition precedent to effecting an account transfer 
of securities into a pledgee account.\10\
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    \9\ PTC rules, Article II, Rule 3, Section 3 and Article II, 
Rule 16.
    \10\ PTC rules, Article II, Rule 13, Section 1(b)(iii).
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    PTC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act \11\ and the rules and regulations 
thereunder because it will facilitate the prompt and accurate clearance 
and settlement of securities transactions.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    PTC does not perceive that the proposed rule change will impose any 
burden on competition.

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

    PTC has engaged in discussions and correspondence with the FRBNY in 
the course of formulating the proposed rule change. The proposed rule 
change also has been discussed informally with participants at meetings 
of PTC's Operations Committee, which is comprised of representatives of 
PTC's participants. Participants have responded favorably to the 
proposed rule change at such meetings although no written comments from 
participants have been solicited or received.
    Except as described in the preceding paragraph, PTC has not 
solicited and does not intend to solicit comments on this proposed rule 
change and has not received any unsolicited written comments from 
participants or other interested parties.

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 PTC consents, the Commission will:
    (A) by order approve such proposed rule change or
    (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 submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submissions, 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, N.W., Washington, 
D.C. 20549. Copies of such filings will also be available for 
inspection and copying at the principal office of PTC. All submissions 
should refer to the file number SR-PTC-96-05 and should be submitted by 
October 15, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12) (1995).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-24253 Filed 9-20-96; 8:45 am]
BILLING CODE 8010-01-M