[Federal Register Volume 66, Number 242 (Monday, December 17, 2001)]
[Notices]
[Pages 65014-65015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30958]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45146; File No. SR-DTC-2001-14]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to the Closing Down 
of the Mortgage-Backed Securities Division of The Depository Trust 
Company

December 10, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 24, 2001, 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 concerns the closing of DTC's Mortgage-
Backed Securities Division (``MBS Division'').\2\ To accomplish this, 
DTC plans to close the MBS Division's transaction processing system and 
to amend DTC's rules to delete the MBS Division's rules.\3\ The 
securities formerly services by the MBS Division will remain eligible 
for processing on DTC's main processing system to the same extent that 
other Fedwire securities are currently processed at DTC although the 
issuance and the majority of clearance of these securities will be 
moved to the Fedwire system.
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    \2\ The MBS Division is the successor to The Participants Trust 
Company, which was merged into DTC effective August 31, 1998.
    \3\ These rules are currently in Annex A of DTC's Rules.
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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 such statements.\4\
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    \4\ 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 purpose of the proposed rule change is to obtain Commission 
approval of DTC's closing the operations of its MBS Division. 
Currently, among other things, the MBS Division issues and settles 
mortgage-backed securities that are guaranteed by the Government 
National Mortgage Association (``GNMA''). However, GNMA wishes to 
transfer the settlement of these mortgage-backed securities to the 
Fedwire system of the Federal Reserve Board.\5\ GNMA plans to convert 
its securities to Fedwire by the end of the first quarter of 2002.
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    \5\ The Fedwire system of the Federal Reserve Board is currently 
used for, among other things, the issuance and settlement of U.S. 
Treasury securities and mortgage-backed securities guaranteed by the 
Federal Home Loan Mortgage Corporation (``FHLMC'') and the Federal 
National Mortgage Association (``FNMA'').
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    GNMA announced its plans to move its securities to Fedwire in May 
2000. The conversion plans were developed in consultation with a task 
force organized by The Bond Market Association (``BMA'') that consisted 
of representatives from broker-dealers, custodial banks, GNMA, the 
Federal Reserve Banks, the Mortgage Bankers Association, DTC, and the 
BMA. The force formed a GNMA Conversion Subcommittee to develop a 
conversion plan and implementation schedule. In February 2001, the 
subcommittee issued its Conversion Plan.\6\
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    \6\ The Conversion Plan is available online at 
www.frbservices.org> and at www.bondmarkets.com/regulatory>. A copy 
of the Conversion Plan is also attached as Exhibit 2 of DTC's filing 
[DTC Important Notice No. 1483 (Feb. 15, 2001)], which is available 
through the Commission's Public Reference Section or through DTC.
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    The conversion is taking place in phases over a series of weekends 
beginning October 6, 2001, and is scheduled for completion by March 31, 
2002. During this period, different classes of GNMA securities will be 
moved electronically from the MBS Division to Fedwire in accordance 
with delivery instructions provided to the MBS Division by the MBS 
Division's participants. Other securities issued and settled on the 
books of the MBS Division, namely securities guaranteed by the 
Department of Veterans Affairs and a limited number of FNMA and FHLMC 
securities which are collateralized by GNMA securities, will also move 
to Fedwire at some time during the GNMA conversion or immediately after 
on dates to be determined.
    Shortly after the completion of the payment of principal and 
interest with respect to securities last converted to Fedwire, DTC will 
close the transaction processing system of the MBS Division, return the 
MBS Division participant fund deposits to the MBS Division's 
participants, and amend DTC's rules to delete the rules that apply to 
the MBS Division. After the conversion, FNMA securities will remain 
eligible for processing on DTC's main system in the same manner as 
other Fedwire securities are currently processed at DTC. Fedwire 
securities processed at DTC must be deposited and withdrawn free of 
payment over Fedwire to and from DTC's Fedwire account. Once deposited 
at DTC, Fedwire-eligible securities will be processed among DTC 
participants subject to DTC's rules and procedures without additional 
restrictions.
    In connection with the conversion of GNMA securities to Fedwire, 
DTC considered expanding its processing to permit GNMA securities to be 
delivered versus payment into and from DTC's Fedwire account subject to 
regulatory approval. DTC solicited comments from its participants, but 
fewer than a dozen

[[Page 65015]]

participants expressed an interest in using such a service. In light of 
the development costs involved and the limited interest expressed by 
its participants, DTC's Board of Directors concluded that DTC's 
resources would be better applied to projects that serve a wider 
participant base.
    DTC will notify the MBS Division's participants and the Commission 
upon the completion of the closure of the MBS Division.\7\
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    \7\ Notwithstanding the closure of the MBS Division, DTC will 
maintain the documents and records of the MBS Division in accordance 
with the regulations promulgated under Section 17(a) of the Exchange 
Act, 15 U.S.C. 78q.
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    DTC believes that the proposed rule change is consistent with the 
requirements of section 17(A)(b)(3)(A) of the Act and the rules and 
regulations thereunder applicable to DTC because it promotes and 
accurate clearance and settlement of securities transactions.

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

    DTC solicited written comments from its participants on GNMA's 
proposal to move its securities to Fedwire in DTC Important Notice No. 
0057 dated June 1, 2000.\8\ Participants responded by telephone and 
through discussions at meetings of the BMA, the GNMA Settlement Task 
Force formed under the auspices of the BMA, and DTC's Operations and 
Planning Committee. The consensus at these meetings and discussions was 
that DTC should support the proposed conversion to Fedwire and that 
GNMA securities should remain eligible for processing at DTC to the 
same extent as are other Fedwire eligible securities currently 
processed at DTC. DTC is a member of the GNMA Conversion Subcommittee 
and has worked closely with the BMA, GNMA, the Federal Reserve Banks, 
and interested industry members to facilitate the transition to 
Fedwire. DTC has issued Important Notices to DTC and MBS Division 
participants detailing the conversion processing flows and testing 
procedures.\9\
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    \8\ A copy of this notice is attached as Exhibit 2 of DTC's 
filing, which is available through the Commission's Public Reference 
Section or through DTC.
    \9\ Attached as Exhibit 2 of DTC's filing are the following DTC 
Important Notices relating to the GNMA conversion: Nos. 0057 (June 
1, 2000); 1483 (Feb. 15, 2001) (Conversion Plan attached); 1937 (May 
24, 2001); 2158 (June 21, 2001); 2159 (June 19, 2001); and 2198 
(July 5, 2001). These documents are available through the 
Commission's Public Reference Section or through DTC.
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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 
filing 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 rue 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, 450 Fifth Street, NW., Washington, 
DC. Copies of such filing will also be available for inspection and 
copying at DTC's principal office. All submissions should refer to File 
No. SR-DTC-2001-14 and should be submitted by January 7, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-30958 Filed 12-14-01; 8:45 am]
BILLING CODE 8010-01-M