[Federal Register Volume 65, Number 10 (Friday, January 14, 2000)]
[Notices]
[Pages 2449-2450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-980]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42323; File No. SR-DTC-99-24]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change Relating to Collateralization
Procedures
January 7, 2000.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
\1\ (``Act''), notice is hereby given that on October 27, 1999, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which items have been prepared
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 proposed rule change would revise DTC's collateralization
procedures for situations where a participant holds collateral
associated with the participant.
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
[[Page 2450]]
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.\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 Purpose of, and
Statutory Basis for, the Proposed Rule Change
DTC employs risk management controls to protect DTC and its
participants from the inability of one or more participants to pay its
settlement obligation. One such control, collateralization, is meant to
ensure that at all times a participant maintains collateral in its
account equal to or greater than its net debit. If a participant were
to fail to pay its settlement obligation, collateral in the failing
participant's account would be used to support any necessary borrowing
and potential liquidation.
On a small number of occasions, the collateral in a participant's
account has been associated with the participant (for example, the
participant's own commercial paper). In a situation where a
participant's obligation is supported partly or fully by its associated
securities, the risk that DTC would not have sufficient collateral if
that participant were to fail to pay DTC its settlement obligation is
increased. Although such incidents are infrequent, DTC has reviewed its
collateralization procedures that it follows to protect against a
participant's failure to settle with DTC due to a financial or
operational problem with respect to such situations.\3\ As a result of
its review, DTC is proposing to revise the aforesaid procedures to
provide for a systemic monitor that will withhold collateral value for
collateral associated with a participant.\4\
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\3\ DTC's current procedures relating to risk management
controls are set forth in memorandums dated March 17, 1995, which
are attached to Exhibit 3 to DTC's filing.
\4\ DTC's proposed collateralization procedures are attached as
Exhibit 2 to DTC's filing.
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DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder applicable to DTC because the proposed rule change will
facilitate completion of daily money settlement at DTC in the event of
a participant's failure to settle with DTC. 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 because the collateralization procedures
supplement DTC's existing risk management controls.
B. Self-Regulatory Organization's Statement on the Burden on
Competition
DTC perceives no adverse impact on competition by reason of the
proposed rule change.
C. Self-Regulatory Organization's Statement Comments on the Proposed
Rule Change Received From Members, Participants or Others
DTC discussed the proposed rule change with several participants.
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
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 the self-regulatory organization 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 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 Room in Washington, DC. Copies of such
filing will also be available for inspection and copying at the
principal office of DTC. All submissions should refer to File No. SR-
DTC-99-24 and should be submitted by February 4, 2000.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-980 Filed 1-13-00; 8:45 am]
BILLING CODE 8010-01-M