[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