[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Notices]
[Page 46270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23317]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40359; File No. SR-PTC-98-03]


Self-Regulatory Organizations; Participants Trust Company; Order 
Granting Accelerated Approval of a Proposed Rule Change Regarding PTC's 
Pricing and Margining Methodology for Newly Issued Collateralized 
Mortgage Obligation Securities

August 25, 1998.
    On June 15, 1998, the Participants Trust Company (``PTC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change (File No. SR-PTC-98-03) 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 August 11, 
1998.\2\ For the reasons discussed below, the Commission is granting 
accelerated approval of the approved rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 40304 (August 4, 1998), 
63 FR 42897.
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I. Description

    The rule change modifies PTC's pricing and margining methodology 
for new issue collateralized mortgage obligation (``CMO'') securities 
to more accurately reflect their value during an initial period when 
pricing vendors are generally unable to provide prices.\3\ Under the 
rule change, PTC will obtain indicative bid side prices (prior to the 
issuance of the CMO security) for each class of the issue from the deal 
underwriter prior to the closing. PTC will establish margins on new 
issue CMO securities (priced by reference to underwriter supplied 
prices) based on larger interest rate shifts, +100 or -200 basis 
points, than are applied to vendor priced CMO issues, +50 or -100 basis 
points. Interest only, principal only, and inverse floater classes will 
be given no value.
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    \3\ For a detailed description of PTC's pricing and valuation of 
CMOs, refer to Securities Exchange Act Release No. 40304, Id.
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    The underwriter supplied values will be used for a maximum of three 
weeks after the issuance. Any CMO issue not priced by both pricing 
vendors PTC uses at three weeks from issuance will be given a value of 
zero, as is currently the case, and will continue to be the case with 
respect to all but new CMO issues for this three week period.\4\
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    \4\ PTC currently gives new issue CMOs a zero value during this 
period in its assessment of a participant's collateral.
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II. Discussion

    Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible. As discussed below, the Commission 
believes that PTC's proposed rule change is consistent with this 
obligation.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the rule change will enable PTC to 
price and margin new issue CMO securities in a manner which will more 
accurately reflect their value when pricing vendors are unable to 
provide prices. The Commission believes that the rule change should 
allow PTC to more accurately value a participant's securities for 
purposes of collateral value in PTC's system while still assuring that 
PTC has available to it sufficient collateral in the event a 
participant does not satisfy its debit balance at the end of day 
settlement. Therefore, the Commission believes that the rule change is 
consistent with PTC's obligation to safeguard securities and funds.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after publication of notice because 
such approval will allow PTC to implement the modified margining and 
pricing methodology for new CMOs in a timely manner in connection with 
PTC's merger with The Depository Trust Company scheduled to occur 
during the month of August 1998.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with 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-PTC-98-03) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23317 Filed 8-28-98; 8:45 am]
BILLING CODE 8010-01-M