[Federal Register Volume 66, Number 133 (Wednesday, July 11, 2001)]
[Notices]
[Pages 36350-36351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17269]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44509; File No. SR-DTC-2001-09]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change To Raise Maximum Net Debit Caps and Required Participants 
Fund Contributions

July 3, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 29, 2001, 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 proposed rule change consists of (i) an increase to $1.80 
billion from $1.15 billion in the maximum net debit cap for any 
participant in the daily money settlement system of DTC, (ii) an 
increase of $200 million in the cash deposits to DTC's Participants 
Fund so that the aggregate amount of the required deposits to DTC's 
Participants Fund plus the required preferred stock investments of 
participants will increase to $600 million from $400 million and (iii) 
a decrease in the maximum net debit monitoring level in DTC's Mortgage-
Backed Securities Division (the ``MBS Division'') to $1.75 billion from 
$2 billion.

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 proprosed 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.\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 employs several risk management controls in its daily money 
settlement system to protect DTC and its participants against the risk 
that a participant will fail to pay its net debit balance. One of those 
risk management controls is the net debit cap control, which imposes 
net debit caps on all participants. Each participant's net debit is 
limited throughout the processing day to a net debit cap that is the 
lesser of four amounts: (1) A net debit cap based on the average of the 
three largest net debits that the participant incurs over a rolling 70 
business day period, (2) an amount, if any, determined by the 
participant's settling bank, (3) an amount, if any, determined by DTC 
or (4) the aggregate of the cash deposits in the Participants Fund plus 
DTC's committed lines of credit minus a cushion, which amount is 
currently $1.15 billion.
    Similarly, in the MBS Division each participant's net debit is 
limited throughout the processing day to a net debit monitoring level. 
The maximum net debit monitoring level in the MBS Division is the 
lesser of two amounts: (1) 100% of the total committed lines of credit 
available to DTC for the MBS Division (such total currently being $2 
billion) or (2) an amount, if any, determined by DTC.
    As trading volumes, particularly money market instruments, have 
increased, and as associated settlement values have increased, 
participants increasingly have had to make settlement progress 
payments, which are funds wired to DTC intraday, in order to avoid 
having their receipts of securities blocked by their net debit caps. 
Participants have requested that DTC raise the maximum net debit cap, 
which would increase operational efficiency for participants.
    In order to provide liquidity in the event of a participant's 
failure to settle with DTC after the proposed increase in the maximum 
net debit cap, DTC is increasing the amount of the required deposits to 
the DTC Participants Fund. The required deposits are presently an 
aggregate of $325 million in cash and an aggregate of $75 million in 
required preferred stock investments. The required cash deposits to the 
Participants Fund will be increased to $525 million so that the 
aggregate amount of the required cash deposits and preferred stock 
investments of participants will be $600 million.
    DTC and the National Securities Clearing Corporation are also 
jointly obtaining a committed credit facility to replace their existing 
separate credit facilities. As part of the new credit facility, the 
amount of the credit facility supporting DTC's money settlement system 
will be increased to $1.75 billion from $1 billion. This will give DTC 
aggregate available liquidity resources of $2.35 billion (i.e., $1.75 
billion credit facility plus $600 million Participants Fund and 
preferred stock investments). The amount of the credit facility 
supporting the MBS Division will be decreased to $1.75 billion from $2 
billion.\3\
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    \3\ The decrease in the amount of the credit facility supporting 
the MBS Division corresponds with a decrease in the volume of 
transactions being processed through the division and with an effort 
to more efficiently allocate the amount of credit available to DTC, 
NSCC, and the MBS Division.
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    As a result of increasing the aggregate liquidity resources to 
$2.35 billion, DTC will be able to increase the maximum net debit cap 
for any participant to $1.8 billion from $1.15 billion.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \4\ and the rules and regulations thereunder 
applicable to DTC because the proposed rule change will be implemented 
consistently with the safeguarding of securities and funds

[[Page 36351]]

in DTC's custody or control or for which it is responsible because all 
of DTC's risk management controls will continue in effect.
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    \4\ 15 U.S.C. 78q-1.
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(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 has been discussed with several 
participants. Written comments from participants or others have not 
been solicited or received on the proposed rule change. In addition to 
informing participants through this notice and order, all participants 
will be informed of the proposed rule change by a DTC Important Notice.

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 assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible.\5\ The Commission believes that the 
proposed rule change is consistent with DTC's obligations under the Act 
because an increase in DTC's liquidity resources will help DTC protect 
itself, its participants, and investors from the risks associated with 
the failure of one or more of its participants to settle their 
obligation with DTC at the end of a business day. Furthermore, 
Commission approval of the rule change is consistent with the 
Commission's past approvals of increases in DTC's liquidity resources 
and maximum net debit cap.\6\ Therefore, the Commission finds that 
DTC's proposed rule change is consistent with its obligations under 
Section 17A(b)(3)(F) of the Act.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ See, e.g., Securities Exchange Act Release No. 40330 (August 
17, 1998), 63 FR 45100.
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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 filing for approving the proposed rule change prior to 
the thirtieth day after publication of the 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 filing 
because accelerated approval will permit DTC to immediately increase 
its liquidity resources.

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-2001-09 and should be submitted by 
August 1, 2001.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2001-09) be, and hereby 
is, approved on an accelerated basis.

    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. 01-17269 Filed 7-10-01; 8:45 am]
BILLING CODE 8010-01-M