[Federal Register Volume 62, Number 135 (Tuesday, July 15, 1997)]
[Notices]
[Pages 37947-37948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18455]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38820; File No. SR-DTC-97-05]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change Relating to the 
Establishment of Procedures to Distinguish Repurchase Transactions and 
Other Financing Transactions From Securities Pledges

July 7, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 14, 1997, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-97-05) 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change amends DTC's Collateral Loan Program 
(``CLP'') procedures \2\ to enable DTC's participants to distinguish 
repurchase transactions (``repos'') and other types of financing 
transactions from pledges of securities.
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    \2\ A copy of DTC's procedures for repo accounts is attached as 
Exhibit 2 to DTC's proposed rule change, which is available for 
inspection and copying at the Commission's Public Reference Room or 
through DTC.
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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.\3\
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    \3\ 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

    According to DTC, many of its participants use the CLP to effect 
repurchase transactions (``repos''). The CLP's current procedures do 
not differentiate between a securities transaction that involves the 
transfer of the entire interest in securities (i.e., as in a repo 
transaction) from a securities transaction that involves the transfer 
of a security interest or other limited interest in the securities 
(i.e., a pledge).
    The proposed rule change implements procedures that allow DTC's 
participants to distinguish repos or other types of financing 
transactions from pledges of collateral. Under the proposed rule 
change, any organization that is eligible to establish a pledgee 
account (i.e., ``receiver'') at DTC may establish a repo account. 
Consequently, a participant engaging in a repo or other type of 
financing transaction will be able to deliver securities to the 
receiver's repo account instead of the receiver's pledgee account. DTC 
will deem instructions to deliver securities to a repo account as 
instructing DTC to transfer to the receiver the entire interest in the 
securities and not just a security interest or other limited interest.
    According to DTC's proposed procedures for repo accounts, the 
operation of a repo account will be identical to the operation of a 
pledgee account. As with a pledgee account: (1) The voting rights on 
securities credited to a repo account will be assigned to the 
participant that delivered the securities to the repo account; (2) cash 
dividend and interest payments and other cash distributions on the 
securities will be credited to the account of the delivering 
participant; (3) distributions of securities for which the ex-
distribution date is on or prior to the payable date or in which the 
distribution is payable in a different security will be credited to the 
account of the delivering participant; and (4) any stock splits or 
other distributions of the same securities for which the ex-
distribution date is after the payable date will be credited to the 
repo account of the receiver. Also, the reports and statements that DTC 
sends to participants and receivers for transactions involving repo 
accounts will be the same as the reports that DTC generates for a 
pledgee account except that such reports and statements will carry a 
repo account number.
    DTC will accept instructions solely from a receiver with respect to 
the disposition of securities credited to the receiver's repo account. 
The receiver may instruct DTC to deliver securities credited to its 
repo account to its DTC participant account if the receiver is also a 
DTC participant or to any other DTC participant account. Any receiver 
that instructs DTC to deliver securities credited to its repo account 
to another receiver or to a DTC participant other than the original 
delivering participant will be required to provide DTC with certain 
warranties and must indemnify DTC, its stockholders, and certain 
employees against potential liability.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act \4\ and the rules and 
regulations thereunder because it will facilitate the processing of 
repo and other types of financing transactions through DTC's facilities 
and therefore, is consistent with DTC's obligations to safeguard 
securities and funds in DTC's custody or control or for which it is 
responsible.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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(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

    The proposed rule change was developed through discussions with

[[Page 37948]]

several participants. Written comments from DTC participants or others 
have not been solicited or received on the proposed rule change.

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;
    (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, N.W., 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. Sec. 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 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-97-05 and should be 
submitted by August 5, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-18455 Filed 7-14-97; 8:45 am]
BILLING CODE 8010-01-M