[Federal Register Volume 62, Number 203 (Tuesday, October 21, 1997)]
[Notices]
[Pages 54666-54667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27758]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-3932; File No. SR-DTC-97-18]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding the Participant Exchange Service
October 10, 1997.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''), notice is hereby given that on August 15, 1997, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change 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 from interested persons on the proposed rule change.
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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 will expand DTC's participant exchange
service system (``PEX'') to add an additional notice, letters of free
funds (``LOFFs''), to the menu of notices currently available.
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.\2\
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\2\ 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
PEX is an on-line system that enables DTC participants to use DTC's
automated network to send and to respond to various notices required by
other self-regulatory organizations.\3\ The purpose of the proposed
rule change is to automate the exchange of LOFFs by adding LOFFs to the
menu of notices that can be transmitted through PEX.\4\
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\3\ For a complete description of PEX, refer to Securities
Exchange Act Release No. 28123 (June 13, 1990), 55 FR 25188 [File
No. SR-DTC-89-21] (order approving proposed rule change establishing
PEX).
\4\ DTC attached a detailed description of the method by which
LOFFs will be added to PEX as Exhibit B to its filing, which is
available for review and copying at the Commission's Public
Reference Room and through DTC.
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LOFFs are notices exchanged between the receiving and delivering
brokers of two party customer trades. Currently, LOFFs are sent in
hardcopy (i.e., on paper), usually through the mail or by facsimile.
The delivering broker sends a LOFF to the receiving broker requesting
the receiving broker to verify that the customer has sufficient funds
to settle the trade pursuant to Regulation T under the Act.\5\ The
receiving broker confirms the existence of the funds and returns the
LOFF to the delivering broker.
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\5\ 12 CFR 220.
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Under the proposed rule change, a delivering broker will be able to
send LOFF notices by entering the notice information into DTC's
participant terminal system (``PTS'').\6\ LOFF notices that do not
contain any errors will be stored in a DTC database in open status
pending a response from the receiving broker. Each LOFF sent using PEX
will be assigned a unique control number. Open notices will be
available for browsing and reply through PTS.
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\6\ DTC has informed the Commission that participants initially
will be able to exchange LOFFs through PEX only by way of PTS. At
some later point, participants will be able to exchange LOFFs by way
of mainframe dual host or computer-to-computer facility.
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Receiving brokers will be able to use PEX to respond to each LOFF
notice by its control number.\7\ Upon receiving a response, DTC will
match its control number to that of an open LOFF notice and mark that
notice as either (i) having sufficient funds, (ii) not having
sufficient funds, (iii) being rejected, or (iv) having a prime broker
relationship with the delivery broker.
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\7\ Although LOFF notices will not generate tickets, receiving
brokers will be able to view LOFF notices through PTS.
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All open LOFF notices will be kept on a DTC database for ninety
days from the
[[Page 54667]]
notice's initial send date. LOFF notices that have been accepted (i.e.,
for which funds are available) will remain on the database for two
days. LOFF notices that have been declined (i.e., for which funds are
available) will remain on the database for five days. All other LOFF
notices that receive replies (i.e., prime broker or rejected) will be
removed from the database thirty days after the initial send date of
the notice.
The proposed rule change is designed to eliminate the physical
delivery and confirmation of LOFFs thereby providing DTC participants
with a more timely and accurate messaging vehicle for these documents.
In addition, by incorporating LOFFs into the PEX System, DTC will offer
its participants an efficient means of tracking notices of LOFFs.
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(A) of the Act \8\ and the rules and
regulations thereunder because it promotes efficiencies in the
clearance and settlement of securities transactions.
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\8\ 15 U.S.C. 78q-1(b)(3)(A).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, in the public interest, and for
the protection of investors.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
DTC has not solicited participant comments on the proposed rule
change. A working group of participants has requested that DTC
incorporate LOFFs into the PEX system and has committed to using such a
service.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has been effective pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(e)(4) thereunder \10\
because it effects a change in an existing service of DTC that (i) does
not adversely affect the safeguarding of securities or funds in the
custody or control of DTC or for which it is responsible and (ii) does
not significantly affect the respective rights or obligations of DTC or
persons using the service. At any time within sixty days of the filing
of such rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\17 CFR 240.19b-4(e)(4).
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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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of DTC. All
submissions should refer to File No. SR-DTC-97-18 and should be
submitted by November 12, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27758 Filed 10-20-97; 8:45 am]
BILLING CODE 8010-01-M