[Federal Register Volume 62, Number 235 (Monday, December 8, 1997)]
[Notices]
[Pages 64612-64613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39373; File No. SR-DTC-97-14]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change Relating to Revisions to the
Procedures for Running Call Lotteries on Issues of Book Entry Only
Securities
November 28, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 2, 1997, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-97-14) 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 purpose of the proposed rule change is to amend DTC's
procedures for running call lotteries for book-entry only (``BEO'')
issues of securities. Under the revisions, DTC will run lotteries using
its participants' positions as of the close of business on the day DTC
announces the lottery instead of the call publication date.\2\
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\2\ A copy of DTC's proposed call lottery procedures is attached
as Exhibit A 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 place 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
The purpose of the proposed rule change is to revise DTC's call
lottery procedures for BEO securities.\4\ Currently, DTC's call lottery
process allocates partially called securities \5\ among participants
having positions in the called securities based on the participants'
positions on the call publication date.\6\ Under the proposed rule
change, DTC will run the call lotteries using participants' positions
as of the close of business on the day DTC announces the call lottery.
The proposed rule change does not set forth any other amendments to
DTC's call lottery procedures.
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\4\ For a discussion of DTC's call lottery process, refer to
Securities Exchange Act Release Nos. 21523 (November 27, 1984), 49
FR 47352 (File No. SR-DTC-84-09) (filing and immediate effectiveness
of proposed rule change); 30552 (April 2, 1992) 57 FR 12352 (File
No. SR-DTC-90-02) (order temporarily approving a proposed rule
change by the DTC relating to the establishment of a procedure to
recall certain deliveries which have created short positions as a
result of call lotteries); 35034 (November 30, 1994) 59 FR 63396
(File Nos. SR-DTC-94-08 and SR-DTC-94-09) (order granting temporary
approval of proposed rule changes to establish procedures to recall
certain deliveries which have created short positions as a result of
call lotteries and rejected deposits); and 36651 (December 28, 1995)
61 FR 429 (File No. SR-DTC 95-21) (order granting accelerated
permanent approval of a proposed rule change concerning short
position reclamation procedures).
\5\ The terms of certain issues allows the issuer to call part
of the outstanding security for redemption at certain times during
the issue's life. This type of security is referred to as a callable
security. Callable securities are either preferred stock or bonds
which the issuer is permitted or required to redeem before the
stated maturity. Generally when an issuer calls a security, the
issuer's trustee publishes notice that the issue has been called or
in the case of registered securities, mails notice to the registered
holders.
\6\ The call publication date is the date on which the issuer
gives notice of the redemption.
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DTC believes that changing its procedures solely for BEO securities
will reduce the number of short positions without any adverse impact to
[[Page 64613]]
its participants because DTC believes that the publication date is less
relevant to BEO securities than other types of securities. According to
DTC, issuers of BEO securities generally do not publish partial call
notices. Instead, the issuers inform DTC of the call notice because DTC
is the securities' holder of record. DTC will then notify its
participants. While an issuer may inform DTC of a publication date, DTC
believes that this is done only for purposes of DTC's lottery and that
the date has no real significance. As a result of the expected fewer
short positions, DTC believes that its participants will save on
depository charges which are 130 percent of the current market value of
short positions. DTC's participants also will save on the costs
associated with reconciling short positions and the costs associated
with purchasing securities to cover short positions.
DTC believes that the proposed rule change is consistent with the
requirements of the Section 17A(b)(3)(F) of the Act and the rules and
regulations thereunder because it promotes efficiencies in the prompt
and accurate clearance and settlement of securities transactions.
(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.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
DTC has solicited participant comments on the proposed rule change.
It has taken into account participant responses to earlier proposed
alternatives to revising the call lottery procedures in developing this
rule change. The Reorganization Division Inc. of the Securities
Industry Association wrote DTC to express its support for revising the
call lottery procedures for BEO securities.\7\
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\7\ Letter from Brad F. Lesowitz, President, Reorganization
Division, Inc., Securities Industry Association to Donald F.
Donahue, Executive Vice President, DTC (April 4, 1997). A copy of
the letter is attached as Exhibit C 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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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. 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 will also be available
for inspection and copying at the principal office of DTC. All
submissions should refer to the file number SR-DTC-97-14 and should be
submitted by December 29, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31962 Filed 12-5-97; 8:45 am]
BILLING CODE 8010-01-M