[Federal Register Volume 68, Number 81 (Monday, April 28, 2003)]
[Notices]
[Pages 22432-22433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10385]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47709; File No. SR-DTC-2003-07]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Establish a Transaction 
Look-Ahead Process

April 21, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 9, 2003, 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 seeking to establish a transaction look-ahead process 
(``Look-Ahead'') which will reduce transaction blockage by applying the 
net amount of offsetting receive and deliver transactions in the same 
security rather than the gross amount of the receive transaction to a 
participant's net debit cap.\2\
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    \2\ The net debit cap, based upon the activity of the 
participant, is the maximum amount a participant may owe for 
transactions. Currently, the maximum allowable net debit cap is $1.8 
billion per participant.
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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.\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

    DTC's system controls prevent the processing of a transaction 
(i.e., cause the transaction to recycle) when the deliverer has 
insufficient position or collateral, the receiver has insufficient 
collateral, or the processing of the transaction would cause the 
receiver's net debit cap to be breached. For purposes of these 
controls, each transaction is assessed individually without regard to 
offsetting transactions that might resolve any system control issue 
presented by the initial transaction itself.
    In principle, a long series of back-to-back transactions could be 
blocked as a result of the first transaction failing. For example, if a 
transaction fails for insufficient position, collateral, or net debit 
cap, then a second transaction could fail because it is dependent on 
the first delivery to establish the necessary securities position, then 
a third could fail, and so on. This does in fact occur quite often in 
the money market instrument (``MMI'') market because of the large 
values involved when issuing/paying agents sell new commercial paper to 
broker-dealers who then make deliveries to custodians, who in turn have 
maturities of commercial paper awaiting acceptance by the issuing/
paying agents.
    DTC plans to introduce Look-Ahead in June. Look-Ahead will reduce 
transaction blockage by applying the net amount of offsetting receive 
and deliver transactions in the same security rather than the gross 
amount of the receive transaction to a participant's net debit cap. 
Look-Ahead will identify receive transactions pending due to a net 
debit cap insufficiency and link them to offsetting delivery 
transactions in the same security pending for a quantity deficiency. 
DTC will calculate the net effect of the offsetting transactions on the 
three participants involved, and if the net of the transactions results 
in positive risk management controls in all three accounts, the 
transactions will be completed. Initially, this capability will be 
available only for muni and corporate bonds, including MMIs where it is 
expected to have the widest application.
    As a result of Look-Ahead, the number of recycling transactions 
will be reduced which could also reduce the need for intraday funding 
by participants and could help achieve a more efficient level of 
straight-through processing. Participants will not be required to make 
systemic changes and can continue to process their deliveries as they 
do today.
    DTC believes that 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. By applying the net amount of 
offsetting receive and deliver transactions in the same security rather 
than the gross amount of the receive transaction to a participant's net 
debit cap, the proposed rule change should reduce the number of blocked 
transactions at DTC which would promote the prompt and accurate 
clearance and settlement of securities transactions.
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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 does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, in the public interest, and for 
the protection of investors.

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

    DTC has discussed this rule change proposal in its current form 
with various DTC participants and industry groups, a number of whom 
have worked closely with DTC in developing Look-Ahead.

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

[[Page 22433]]

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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-DTC-2003-07. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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-2003-07 and should 
be submitted by May 19, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-10385 Filed 4-25-03; 8:45 am]
BILLING CODE 8010-01-P