[Federal Register Volume 64, Number 104 (Tuesday, June 1, 1999)]
[Notices]
[Pages 29377-29378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13812]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41437; File No. SR-DTC-99-03]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Implementing the Pending Transfer Account

May 21, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 3, 1999, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared 
primarily by DTC. The Commission is publishing this notice and order to 
solicit comments from interested persons and to grant accelerated 
approval of 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 purpose of the proposed rule change is to implement a pending 
transfer account to facilitate the use of collateral in financing 
transactions.

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

    DTC subjects deliveries and pledges to DTC's risk management 
controls.\3\ A delivery or pledge of securities is pended and not 
completed if the securities are then serving as collateral to secure 
the obligations of the delivering or pledging participant to DTC. Also, 
a free delivery or pledge is pended if the securities are money market 
instruments and were received by the delivering or pledging participant 
on that day in a valued delivery. The risk management controls remain 
in effect, and the pending delivery or pledge is recycled until daily 
money settlement is completed at DTC, which usually occurs at 
approximately 5:00 p.m. (eastern time). Prior to daily money 
settlement, a pending delivery or pledge (other than a free delivery or 
pledge of money market instruments received on that day in a valued 
delivery) will be completed if the participant subsequently has other 
collateral available to support the participant's obligations to DTC.
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    \3\ DTC's risk management controls are a set of procedures 
designed to protect DTC against the loss that may result from a 
participant failure.
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    In financing transactions, a lender or tri-party agent often 
performs an evaluation of the collateral to insure that the collateral 
meets certain criteria. A tri-party agent acting on behalf of

[[Page 29378]]

several lenders must also allocate the collateral among the individual 
lenders. The process of evaluation and allocation of collateral is 
labor intensive and time-consuming. Lenders and tri-party agents have 
informed DTC that they often do not begin the process of evaluating and 
allocating collateral until late in the day because they are reluctant 
to begin that process before DTC's risk management controls are 
released. Lenders and tri-party agents have also informed DTC that they 
could begin that process earlier in the day and could thus gain 
valuable processing time, if they could be assured that a pending 
delivery or pledge will be completed after DTC's risk management 
controls are released as long as DTC does not need the securities for 
collateral purposes.
    At the request of participants, including participants which act as 
lenders and tri-party agents, DTC developed the pending transfer 
account. Under the proposed rule change, a participant delivering or 
pledging securities can indicate to DTC that if the participant has 
sufficient securities in its account to complete the delivery or pledge 
but the delivery or pledge is blocked by DTC's risk management 
controls, the securities are to be reserved in the participant's 
pending transfer account. Securities reserved in the participant's 
pending transfer account are reported throughout the day to the 
receiver or pledgee designated by the participant. Those securities are 
not available to the participant for any other activities at DTC and 
can only be released from the participant's pending transfer account 
during the day by the designated receiver or pledgee. The delivery or 
pledge will be completed when DTC releases its risk management controls 
only if DTC does not need the securities in the participant's pending 
transfer account for collateral purposes. DTC anticipates that the 
pending transfer account will be available for use by participants in 
the second quarter of 1999.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder since the pending transfer account will facilitate the use 
of collateral in certain financing transactions processed through DTC's 
facilities. According to DTC, the proposed rule change will be 
implemented consistently with the safeguarding of securities and funds 
in DTC's custody or control or for which it is responsible since 
securities reserved in the pending transfer account will be subject to 
DTC's existing risk management controls.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no adverse impact on competition by reason of the 
proposed rule change.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The proposed rule change was discussed with several participants. 
All participants were informed of the proposed rule change by a DTC 
Important Notice dated December 19, 1998. Written comments from DTC 
participants or others have not been solicited or received on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to facilitate the prompt and accurate 
clearance and settlement of securities transactions for which it is 
responsible.\4\ The Commission finds that the rule change is consistent 
with this obligation because reserving the position associated with 
financing transactions that recycle for risk management control and 
reporting to the lenders and tri-party agents that the position has 
been reserved, will provide lenders and tri-party agents with an 
assurance that the recycling transactions will have sufficient position 
to complete when DTC release its risk management controls. These 
additional assurances should allow lenders and tri-party agents to 
begin their collateral evaluation/allocation process earlier in the 
processing day and should result in an earlier movement of the funds 
associated with the financial transactions.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    DTC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after publication 
of the notice of the filing. The Commission finds good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of the notice of the filing because use of the pending 
transfer service by a participant is voluntary and accelerated approval 
will permit DTC participants to immediately benefit from this service.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submissions, 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 Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of such filings will also be available for inspection 
and copying at the principal office of DTC. All submissions should 
refer to the file number SR-DTC-99-03 and should be submitted by June 
22, 1999.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-99-03) be, and hereby 
is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-13812 Filed 5-28-99; 8:45 am]
BILLING CODE 8010-01-M