[Federal Register Volume 63, Number 34 (Friday, February 20, 1998)]
[Notices]
[Pages 8726-8727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4254]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39658; File No. SR-DTC-97-14]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Relating to Revisions to the 
Procedures for Running Call Lotteries on Issues of Book Entry Only 
Securities

February 12, 1998.
    On July 14, 1997, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change (File No. SR-DTC-97-14) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on December 8, 1997.\2\ The 
Commission received no comment letters in response to the filing. For 
the reasons discussed below, the Commission is approving the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 39373 (November 28, 
1997), 62 FR 64612.
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I. Description

    The proposed rule change amends DTC's procedures for running call 
lotteries for book-entry only (``BEO'') issues of securities.\3\ Prior 
to the rule

[[Page 8727]]

change, DTC's call lottery process allocated partially called 
securities \4\ among participants having positions in the called 
securities based on the participants' positions on the call publication 
date.\5\ Under the amendment, for BEO issues of securities 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.\6\ The proposed rule change does not set forth any other 
amendments to DTC's call lottery procedures.
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    \3\ 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).
    \4\ The terms of certain issues allows the issuer to call for 
part or all of the outstanding securities for redemption at certain 
times during the issue's life. This type of issue 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.
    \5\ The call publication date is the date on which the issuer 
gives notice of the redemption.
    \6\ 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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    DTC has stated its belief that changing procedures solely for BEO 
securities will contribute to a reduction in short positions without 
causing any adverse impact to the parties concerned. The concept of a 
publication date appears to be far less relevant to BEO securities than 
to other securities. Generally issuers of these securities do not 
publish partial call notices but rather inform only the holder of 
record (which is DTC for BEO issues) which then notifies its 
participants. Although the issuer may inform DTC of a publication date, 
DTC believes this is done only for purposes of DTC's lottery, and the 
date has no other real significance. DTC generally processes calls of 
BEO issues within twenty-four hours of the call being announced by DTC.

II. Discussion

    Section 17A(b)(3)(F) \7\ of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions. The Commission 
believes that DTC's proposed rule change is consistent with DTC's 
obligations under the Act because the new procedures should help reduce 
the number of short positions created by call lotteries. In particular, 
the rule change will eliminate short positions that occur when a 
participant sells its shares between the call publication date and the 
date DTC announces the lottery. As a result, DTC participants will 
avoid the expenses associated with experiencing short positions, 
including DTC's daily charge of 130% of the market value of each 
security for which the participant has a short position at DTC.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-97-14) be, and hereby 
is, approved.

    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. 98-4254 Filed 2-19-98; 8:45 am]
BILLING CODE 8010-01-M