[Federal Register Volume 68, Number 103 (Thursday, May 29, 2003)]
[Notices]
[Pages 32143-32144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13449]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47899; File No. SR-DTC-2003-06]


Self-Regulatory Organizations; the Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Restrict the Next-Day 
Matched Reclamation Process

May 21, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 7, 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 restrict the ability of participants to effect 
reclamations to reverse completed Deliver Order (``DO'') and Payment 
Order (``PO'') transactions processed on the previous business day.

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.\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's current reclamation procedures allow participants to submit 
reclamations to reverse completed DO and PO transactions. When 
reclamation instructions are received, DTC currently attempts to match 
the reclaim with a completed original transaction processed on the 
current day (``same-day reclaims'') or on the preceding business day 
(``next-day reclaims''). Reclamations that are not matched to original 
deliveries are considered unmatched reclaims and are subject to the 
same rules and controls as original transactions. Reclamations that are 
matched to original deliveries are considered matched reclaims and are 
permitted to bypass the Receiver Authorized Delivery (``RAD'') system 
and override DTC's risk management controls if they are DOs less than 
$15 million or POs less than $1 million.\3\ In addition, matched 
reclamations can be processed in the exclusive reclaim period (3:20 
p.m. to 3:30 p.m.) and cannot be re-reclaimed by the receiver.
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    \3\ RAD is a control mechanism that allows participants to 
review transactions prior to completion of processing and that 
limits participants' exposure from misdirected or erroneously 
entered deliveries or payment orders. The override of DTC's risk 
management controls is designed to address industry concern that the 
receiver not be ``stuck'' with a delivery it does not know because 
of the depository's risk management controls.
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    Reclamations in general and next-day reclamations in particular 
impair the finality of settlement and prolong the period during which 
delivering participants and DTC are at risk. To minimize this exposure, 
DTC plans to eliminate the next-day matched reclamation process. Under 
its proposed procedures, DTC would continue to accept reclamation 
instructions and link those reclaim transactions to original 
transactions. However, only reclamation transactions that are linked to 
original transactions processed the same processing day would be 
considered matched. Only these matched reclaim transactions would be 
permitted to bypass RAD and DTC's risk management controls. In 
addition, only these matched reclaim transactions could be submitted in 
the exclusive reclaim period and would be blocked from subsequent re-
reclamation by the original deliverer.
    Reclamation transactions that are linked to original transactions 
processed prior to the current processing day would be processed in the 
same manner as other deliveries. That is, they would not bypass RAD or 
DTC's risk management controls. These linked reclamations would have to 
be submitted during normal input times and would not be allowed in the 
exclusive reclaim period. Furthermore, a participant receiving a linked 
reclamation that it believes is inappropriate would be able to re-
reclaim that transaction. To allow participants to continue 
automatically tracking transaction status changes, however, both 
matched and linked reclaim output will contain the Relative Block 
Number of both the reclamation and the original transaction.
    DTC plans to implement the enhancements to the reclamation process 
in phases. Beginning July 17, 2003, subject to Commission approval, DTC 
will eliminate the next-day matched reclaim process for money market 
instruments (``MMIs''). After that date, MMI reclaim transactions that 
cannot be matched to original transactions processed on the same 
business day will be processed in the same manner as other deliveries. 
DTC plans to eliminate the next-day matched reclaim capability for all 
other securities late in 2003 or early in 2004. At that time, DTC also 
proposes to begin linking reclamation transactions with original 
transactions processed in the preceding 60 days.
    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 restricting the next-day 
matched reclamation process, the proposed rule change should remove 
impediments to the finality of the settlement process and should 
shorten the period during which delivering participants and DTC are at 
risk. As a result, the proposed rule change should 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 perceives no impact on competition by reason of the proposed 
rule change.

[[Page 32144]]

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

    DTC has discussed this proposed rule change in its current form 
with various industry groups and distributed Important Notice 
4639 (February 26, 2003) to participants soliciting their 
comments. No comments were 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-DTC-2003-06. 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-2003-06 and should 
be submitted by June 19, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
Margaret H. McFarland,
Deputy Secretary.
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    \5\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 03-13449 Filed 5-28-03; 8:45 am]
BILLING CODE 8010-01-P