[Federal Register Volume 66, Number 74 (Tuesday, April 17, 2001)]
[Notices]
[Pages 19820-19821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9431]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44172; File No. SR-DTC-00-17]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Eliminate DTC's Option To 
Resell to Deliverers the Securities They Had Previously Delivered by 
Book-Entry to the Account of a Participant That Has Failed To Settle 
Its Debit Obligation to DTC

April 10, 2001.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 14, 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

    DTC is proposing to amend its Rule 9(B) to eliminate DTC's option 
to resell to deliverers the securities they had previously delivered by 
book-entry to the account of a participant that has failed to settle 
its debit obligation to DTC.\2\
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    \2\ A copy of the text of DTC's proposed rule change is 
available at the Commission's Public Reference Room or through DTC.
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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

[[Page 19821]]

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.\3\
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    \3\ 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

    If a participant fails to pay its settlement obligation to DTC at 
the end of the day, DTC will use its liquidity resources (all-cash 
participants fund and bank line of credit) to complete settlement. 
Currently, DTC's rules provide that if the participant is insolvent and 
use of the participant's fund deposit does not eliminate its net debit 
obligation, DTC may on the business day following the failure-to-settle 
either: (1) Resell to deliverers the securities they had delivered to 
the insolvent participant on the day of the failure (``resale 
procedure'') or (2) sell in the open market those securities and other 
collateral in the insolvent participant's account.
    The resale procedure was included in DTC's rules prior to the 
industry's conversion to same-day funds settlement and DTC's adoption 
of associated risk management controls, including the collateral 
monitor and the imposition of net debit caps.\4\ The collateral monitor 
systematically prevents a participant from accruing a net debit that 
exceeds the value of the collateral in its account by blocking any 
transaction that would have that effect. For this purpose, collateral 
includes: (1) The participant's deposit to the participant's funds, (2) 
the value of securities in the participant's account that it has 
designated as collateral, and (3) the value of securities that are the 
subject of deliveries from other participants. The collateral value 
attributed to securities is equal to their market value minus a 
``haircut'' as determined by DTC.
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    \4\ For a description of same day funds settlement and DTC's 
adoption of associated risk management controls, refer to Securities 
Exchange Act Release Nos. 24689 (July 9, 1987), 52 FR 26613 [File 
No. SR-DTC-87-04] (order granting temporary approval to DTC's same-
day fund settlement service) and 26051 (August 31, 1988), 53 FR 
34853 [File No. SR-DTC-88-06] (order granting permanent approval to 
DTC's same-day fund settlement service).
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    DTC believes that its risk management controls adequately limit 
DTC's risk exposure in the event of a participant insolvency and that 
there is no need to rely upon the resale procedure. In addition, the 
proposed rule change will help clarify that book-entry deliveries on 
DTC's books are final.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \5\ and the rules and regulations thereunder 
applicable to DTC because the proposed rule change will promote the 
prompt and accurate clearance and settlement of securities transactions 
by clarifying that book-entry deliveries once effected are final.
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    \5\ 15 U.S.C. 78q-1.
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(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 or Others

    The Depository Trust & Clearing Corporation's (``DTCC'') July 2000 
White Paper on the goals of straight-through processing and T+1 
settlement identified the subject of the proposed rule change as one of 
the changes that would be required to achieve these goals. DTCC 
received two favorable comment letters expressing views on the subject 
proposal.\6\ These comment letters are attached as Exhibit 2 to DTC's 
filing.
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    \6\ Letters from Diane L. Schueneman, First Vice President, 
Merrill Lynch Investment Managers Operations and Arthur L. Thomas, 
Chief Operating Officer, Merrill Lynch Securities Services Division, 
to Dennis Dirks, President, Depository Trust Company (June 7, 2000), 
and from Jeffrey P. Neubert, President and Chief Executive Officer, 
New York Clearing House, to John Mancuso, Senior Systems Director, 
The Depository Trust & Clearing Corporation (September 22, 2000).
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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-00-17 and should be submitted by May 8, 
2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9431 Filed 4-16-01; 8:45 am]
BILLING CODE 8010-01-M