[Federal Register Volume 61, Number 203 (Friday, October 18, 1996)]
[Notices]
[Pages 54483-54484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26781]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37813; File No. SR-PTC-96-05]
Self-Regulatory Organizations; Participants Trust Company; Order
Granting Accelerated Approval of a Proposed Rule Change Relating to
Establishing a New Category of PTC Participant
October 11, 1996.
On August 21, 1996, the Participants Trust Company (``PTC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-PTC-96-05) pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'')\1\ to establish a
new category of PTC participant, a ``Federal Reserve participant.''
Notice of the proposal was published in the Federal Register on
September 23, 1996.\2\ No comment letters were received. For the
reasons discussed below, the Commission is granting accelerated
approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ Securities Exchange Act Release No. 37684 (September 16,
1996), 61 FR 49807.
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I. Description
The proposed rule change establishes a new category of PTC
participant, a Federal Reserve participant, for Federal Reserve
Banks.\3\ The new category of participants will enable Federal Reserve
Banks to maintain accounts at PTC for the purpose of accepting
securities pledged as collateral by PTC participants for discount
window advances from the Federal Reserve Banks. At a later date, PTC
participants may be able to deliver securities to the accounts of
Federal Reserve participants as collateral to secure Treasury tax and
loan accounts.\4\
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\3\ The new category of Federal Reserve participant will be
governed by a new Section 2A to Rule 1 of 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.
\4\ 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, PTC participants taking part in the pilot
program will be able to deliver securities that meet the requirements
of the FRBNY to the FRBNY's Federal Reserve participant's account to
secure discount window advances. During the pilot program, 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.\5\
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\5\ Many smaller institutions which cannot meet PTC's
participants' requirements establish clearing arrangements with PTC
participants in order to utilize PTC's services.
As necessary, PTC should submit a proposed rule change under
Section 19(b) of the Exchange Act describing any modifications to
the program which PTC plans to implement as a result of its review
of the pilot program.
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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 PTC's current participants or
limited purpose participants.\6\ Like limited purpose participants,
Federal Reserve participants will be restricted from receiving
securities versus payment and from 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.\7\
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\6\ Currently, PTC's rules permit participation as either a
participant or as a limited purpose participant.
\7\ 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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Consistent with the restricted nature of Federal Reserve Bank
participation, the proposed rule change also provides that Federal
Reserve participants will be exempt from some of the obligations
applicable to PTC's other participants and limited purpose
participants.\8\ 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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\8\ These exemptions are set forth in the new Section 2A to Rule
1 of Article IV of PTC's rules.
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Additional provisions of the proposed rule change are as follows.
Securities and property in the account of a Federal Reserve participant
are not subject to any lien, security interest, or ownership interest
by PTC.\9\ PTC shall not be liable to a Federal Reserve participant or
any third party for losses arising from nonperformance or
misperformance of the custody of deposited securities or its duties
other than the custody of deposited securities except to the extent
that such loss is attributable to the failure to exercise ordinary care
by PTC or in the case of willful misconduct or fraudulent or criminal
acts of PTC. PTC will not waive any of its rules or procedures without
a Federal Reserve participant's consent if the effect of such
[[Page 54484]]
waiver would be to prejudice a Federal Reserve participant's rights.
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\9\ 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 interest, or ownership interest in securities held and
transferred in this manner.
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II. Discussion
Section 17A(b)(3)(F) \10\ of the Exchange Act requires that the
rules of a clearing agency be designed to assure the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which it is responsible. For the reasons set forth below, the
Commission believes that PTC's proposed rule change is consistent with
this obligation under the Exchange Act.
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\10\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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PTC was established in 1989 as a depository for mortgage-backed
securities, primarily those guaranteed by the Government National
Mortgage Association (``GNMAs''), in order to immobilize these
securities and to allow them to be settled by book-entry. However,
GNMAs, unlike other mortgage-backed securities such as those guaranteed
by the Federal National Mortgage Association (``FNMAs'') and the
Federal Home Loan Mortgage Association (``FHLMCs''), are issued in
certificated form and therefore cannot be transferred over the Fedwire.
Currently, in order to use GNMAs as collateral for discount window
advances from Federal Reserve Banks, PTC participants must physically
remove the certificates from PTC and deposit them with the Federal
Reserve Banks. The proposed rule change will enable Federal Reserve
Banks to maintain accounts at PTC for the purpose of accepting from PTC
participants securities pledged as collateral for discount window
advances and as collateral to secure Treasury tax and loan accounts.
This will allow PTC participants to utilize GNMAs as collateral without
having to physically remove the certificates from PTC. As a result, the
Commission believes the proposed rule change facilitates the
safeguarding of securities in the custody or control of PTC by reducing
the physical movement of GNMAs and the risk of loss associated with the
physical movement of these securities. Furthermore, the Commission
believes that the proposal is consistent with industry efforts to
immobilize securities certificates and maximize efficiencies in
securities processing.
As previously stated, 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. The Commission believes that the special provisions
applicable to Federal Reserve participants are consistent with the
restricted nature of the Federal Reserve Banks' participation at PTC.
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 because accelerated approval
will permit PTC and the FRBNY to immediately commence the pilot
program. Furthermore, the Commission has not received any comment
letters and does not expect to receive any comment letters on the
proposal. In addition, the staff of the Board of Governors of the
Federal Reserve System (``Board of Governors'') has concurred with the
Commission's decision to grant accelerated approval.\11\
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\11\ Telephone conversation between John Rudolph, Board of
Governors, and Ari Burstein, Division of Market Regulation,
Commission (October 3, 1996).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the
Exchange Act and in particular Section 17A of the Exchange Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that the proposed rule change (File No. SR-PTC-96-05) be
and hereby is approved on an accelerated basis.
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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26781 Filed 10-17-96; 8:45 am]
BILLING CODE 8010-01-M