[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