[Federal Register Volume 65, Number 223 (Friday, November 17, 2000)]
[Notices]
[Pages 69591-69592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29448]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43541; File No. SR-DTC-00-10]


Self-Regulatory Organizations; Depository Trust Company; Notice 
of Filing of Proposed Rule Change Relating to the Combination of the 
Depository Trust Company's TradeSuite Institutional Trade Processing 
Services With Thomson-Financial ESG's Institutional Trade Processing 
Services

November 9, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 22, 2000, 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 
primarily by DTC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested parties.
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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 being filed by DTC is DTC's proposal to 
combine its TradeSuite family of institutional trade-related services 
(``TradeSuite Business'') with the institutional trade processing 
services offered by Thomson Financial ESG (``ESG Business'') \2\ in a 
proposed joint venture, the Global Joint Venture (``GJV''), between The 
Depository Trust & Clearing Corporation (``DTCC'')\3\, Thomson 
Information Services Inc. (``TISI'') \4\, and Interavia, A.G. 
(``IAG'').\5\ The proposal is as follows:
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    \2\ Thomson Financial ESG is a wholly owned subsidiary of 
Thomson Financial, a Thomson Corporation subsidiary.
    \3\ DTCC was created in 1999 as a holding company for DTC and 
the National Securities Clearing Corporation (``NSCC'').
    \4\ TISI is a wholly owned subsidiary of Thomson Financial, a 
Thomson Corporation subsidiary. Thomson Corporation is a global 
electronic information company.
    \5\ IAG is a Swiss corporate affiliate of TISI.
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     After receipt of all necessary regulatory approvals, DTC 
will transfer existing assets of the TradeSuite Business, TISI will 
transfer existing U.S. assets of the ESG Business, and IAG will 
transfer existing non-U.S. assets of the ESG Business to the GJV 
between DTCC, TISI, and IAG.
     Certain support functions and other services will be 
provided to the GJV by DTCC, DTC, and TISI pursuant to service 
contracts.
     The GJV will provide post-trade, presettlement related 
services, including execution notification, allocation, electronic 
trade confirmation (``ETC''), central matching, operational and 
standing databases (i.e., trade enrichment), and communications between 
trading parties and their settlement agents.
     The GJV's governance arrangements will be designed to 
assure that the ``U.S. regulated aspects'' of the GJV's activities,\6\ 
including the pricing structure for the fees to be charged to users of 
such services, will be subject to the control of users.
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    \6\ The term ``U.S. regulated aspects'' of the GJV's activities 
refers to any services that would require registration with the 
Commission as a clearing agency, an exemption from such 
registration, or designation as a ``qualified vendor'' as defined in 
New York Stock Exchange Rule 387(a)(5), in National Association of 
Securities Dealers Rule 11860(a)(5), and in similar rules of other 
self-regulatory organizations. Such activities, therefore, would 
include the GJV's proposed ETC and centralized matching services for 
institutional transactions settling in the U.S., including cross-
border transactions between a U.S. broker-dealer and an institution 
located abroad.
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     The GJV will be operated on a for-profit basis. Fifty 
percent of any profits not retained by the GJV will be distributed to 
DTCC.\7\
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    \7\ Profits distributed to DTCC that are not retained by DTCC 
will be available for rebate to the participants of DTCC's wholly-
owned subsidiaries, DTC and NSCC subject to such determination by 
DTCC's Board of Directors.
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     The GJV will provide its ETC service and its central 
matching service through its wholly owned subsidiary, the GJV Matching 
Services--US, LLC, which has applied for an exemption from registration 
as a clearing agency.\8\
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    \8\ The Commission has stated that matching is a clearing agency 
function that requires an entity that performs matching to register 
as a clearing agency or obtain an exemption from registration as a 
clearing agency. However, an entity that only provides a matching 
services does not have to be subject to the full range of clearing 
agency regulation. Securities Exchange Act Release No. 39829 (April 
6, 1998), 63 FR 17943 [File No. S7-10-98]. In 1999, the Commission 
granted Thomson an an exemption from clearing agency registration to 
provide matching services. Securities Exchange Act Release No. 41377 
(May 7, 1999), 64 FR 25948 [File No. 600-31]. GJV Matching Services-
US, LLC has applied for exemption from clearing agency registration 
from the Commission. Securities Exchange Act Release No. 43540 
(November 9, 2000), [File No. 600-32].
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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 these 
statements.\9\
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    \9\ 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 expansion of the global economy, the tremendous growth in 
transaction levels in both domestic and cross-border markets, and the 
emergence of electronic trading vehicles has resulted in dramatic 
increases in securities trading volumes. This growth in volume is 
beginning to constrain the capacity of financial institutions to 
process trades efficiently so that they settle on time. Operations 
professionals in both domestic and foreign securities markets have 
concluded that the current sequential and fragmented electronic trade 
confirmation/affirmation model must be made more efficient and that 
broader industry connectivity to electronic systems must be encouraged 
so that these systems will be used for the large number of cross-border 
transactions that still rely upon the telephone and telefax for the 
communication of trade and settlement information.\10\
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    \10\ See, e.g., Securities Industry Association Institutional 
Transaction Processing Committee White Paper (December 1, 1999).
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    According to DTC, the combination of the TradeSuite \11\ and ESG 
Business \12\ and the linking of their current services and customers 
could produce immediate benefits. For example, DTC estimates that 12% 
of institutional trades processed in TradeSuite are affirmed on trade 
date and that only 87% are affirmed by noon of T+2. By introducing 
allocations processed in the ESG Business' OASYS system to the 
TradeSuite Business' TradeMatch, a much larger percentage of trades can 
be affirmed earlier in the settlement cycle.

[[Page 69592]]

Earlier affirmation would allow broker-dealers and their institutional 
customers to identify and resolve the exceptions and potential fails 
much earlier in the settlement cycle.
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    \11\ Generally, the TradeSuite Business consists of the 
following products: TradeMessage, TradeMatch, TradeSettle and 
TradeHub.
    \12\ Generally, the ESG Business consists of the following 
products: ALERT, OASYS, OASYS Global, MarketMatch, and ITM 
Benchmarks.
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    In the longer term, the combination of TradeSuite's and ESG's 
systems development expertise and other resources would enable the 
proposed joint venture to develop and market globally a single 
integrated ``workflow'' approach to trade management for both domestic 
and cross-border transactions. This development would facilitate the 
industry's goal of achieving straight-through processing, which would 
help manage the tremendous growth in trading volumes and prepare for 
the transition to shorter settlement cycles.
    In addition, the DTC resources to be transferred to the GJV or 
provided to the GJV pursuant to a services contract are for the most 
part resources that are already fully dedicated to the TradeSuite 
Business. Therefore, implementation of the subject proposal will not 
deprive DTC of resources needed for it to provide its other services in 
a safe and sound manner. Furthermore, all existing services of the 
TradeSuite and ESG Businesses will continue uninterrupted during and 
after the transfer to the GJV.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \13\ and the rules and 
regulations thereunder applicable to DTC because the implementation of 
the subject proposal will facilitate the prompt and accurate clearance 
and settlement of institutional transactions.
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    \13\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will not impose any burden on competition. 
The proposed joint venture will serve members of the securities 
industry and will be governed by its users. DTCC (which itself is owned 
by, and whose board represents, users) will own 50.1% of the GJV Class 
A Interests and only Class A Interests will have the right to vote on 
matters relating to the U.S. regulated aspects of the GJV's activities 
that are submitted to Interestholders.\14\ The GJV board of directors 
will be composed of eight Managers, seven of whom shall be voting 
Managers and one of whom, the President of the GJV, shall be a non-
voting Manager. Of the seven voting Managers, two will be appointees of 
DTCC and may be DTCC directors or officers (``DTCC Board 
Representatives''). Two voting Managers will be appointed by TISI and 
IAG, acting jointly. The remaining three voting Managers will be 
representatives of the global securities industry, two of whom will be 
nominees of DTCC. Board decisions involving U.S. regulated aspects of 
the GJV's business will require the affirmative vote of at least one of 
the two DTCC Board Representatives. In addition, the approval of both 
Interestholders will be required for many significant matters.
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    \14\ The GJV Class B Interests, which will have the right to 
vote on matters that do not relate to U.S. regulated aspects as well 
as to share in the GJV's profits attributable to its domestic 
business, will be owned 50% by DTCC, 45% by TISI, and 5% by IAG. The 
GJV Class C Interests, which will have the right to vote on matters 
that do not relate to U.S. regulated aspects as well as to share in 
the GJV profits attributable to its foreign business, will be owned 
50% by DTCC and 50% by IAG.
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    The purpose of the joint venture will be to introduce significant 
efficiencies into trade processing by combining two existing businesses 
with complementary positions and strengths. The joint venture will 
combine these two businesses to offer the securities industry an 
integrated system for trade processing which will assist firms in 
dealing with unprecedented levels of securities trading. The joint 
venture will also be a positive response to the expected industry and 
regulatory mandate to reduce settlement cycles worldwide and thereby to 
reduce risk affecting the national clearance and settlement system.
    The joint venture will cooperate with other post-trade 
presettlement processing systems in order to achieve interoperability.

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

    Written comments on the proposal from DTC participants or others 
have not yet been solicited or received.

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 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-00-10 and should be 
submitted by December 8, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29448 Filed 11-16-00; 8:45 am]
BILLING CODE 8010-01-M