[Federal Register Volume 65, Number 6 (Monday, January 10, 2000)]
[Notices]
[Pages 1420-1421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42281; File No. SR-DTC-99-25]


Self Regulatory Organizations; The Depository Trust Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Modifying DTC's Failure-to-Settle Procedures

December 28, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 15, 1999, The 
Depository Trust Corporation (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in items I and II below, which 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 proposed rule change will modify DTC's failure-to-settle 
(``FTS'') procedures to permit DTC to borrow temporarily from all 
participants with net credit positions if DTC's liquidity resources are 
inadequate to complete settlement.

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

    The proposed rule change will modify DTC's procedures to permit DTC 
to borrow temporarily from all participants in net credit positions in 
the unlikely circumstances that DTC's liquidity resources are 
inadequate to complete settlement. Under the proposed rule change, 
instead of borrowing first from participants in net credit positions 
that have made deliveries to a failed participant, DTC would have the 
option to borrow pro rata from all participants having net credits.
    Each DTC participant pays the net debit balance or receives the net 
credit balance in its DTC money settlement account at the end of each 
day. DTC's principal risk is the possible failure of one or more 
participants to settle their net debit obligations. In order to assure 
that DTC is able to complete settlement on the day of a participant 
failure, DTC imposes on all participants net debit caps that are 
related to, among other things, the amount of DTC's total liquidity 
resources. DTC maintains liquidity resources of $1.4 billion, 
consisting of a cash participants fund of $400 million and a $1 billion 
committed line of credit with a consortium of banks.
    DTC's FTS procedures address the unlikely possibility that DTC's 
liquidity resources may be inadequate to complete settlement, a 
circumstance that has never occurred, by allowing DTC to borrow 
temporarily from participants having net credits. Under DTC's current 
FTS procedures, DTC would first reduce the net credits of participants 
that made deliveries to the failed participant. If this initial 
borrowing is insufficient, the procedures provide for DTC to apply net 
credit reductions pro rata to all participants having net credits.
    Because of DTC's net debit cap controls, DTC would experience a 
liquidity shortfall only if there were two or more participant failures 
on the same day. Simulations limiting the reduction of net credits 
solely to participants that have delivered to multiple failing 
participants, particularly where one or more of the failing 
participants maintain more than one DTC settlement account, show that 
because of the number of variables involved, such a process can be 
extremely time-consuming and if ever implemented could severely delay 
completion of settlement. By permitting DTC the option of either first 
reducing the net credits of deliverers to the failing participants with 
net credits or applying net credit reductions pro rata across-the-board 
to all participants, the proposed rule change could substantially 
reduce the amount of time necessary for DTC to process net credit 
reductions and to inform the affected participants.
    DTC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to

[[Page 1421]]

DTC since the proposed rule change will facilitate completion of daily 
money settlement at DTC in the unlikely event that DTC's liquidity 
resources are not sufficient to complete settlement.

B. Self Regulatory Organization's Statement on Burden on Competition

    DTC perceives no 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 and Others

    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 \3\ 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. The Commission believes that the proposed 
rule change is consistent with DTC's obligations under Section 
17A(b)(3)(c) because the proposal should facilitate the completion of 
the daily settlement process at DTC in the event of multiple 
participant failures on the same day which cause DTC's liquidity 
resources to be inadequate to complete settlement.
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    \3\ 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 the date of 
publication of notice of 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 such approval will 
allow DTC to implement this additional safeguard as soon as possible.

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 submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
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, NW, 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of DTC. All submissions 
should refer to File No. SR-DTC-99-25 and should be submitted by 
January 31, 2000. It is therefore ordered, pursuant to Section 19(b)(2) 
of the Act, that the proposed rule change (File No. SR-DTC-99-25) be, 
and hereby is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority. \4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-513 Filed 1-7-00; 8:45 am]
BILLING CODE 8010-01-M