[Federal Register Volume 68, Number 131 (Wednesday, July 9, 2003)]
[Notices]
[Pages 41030-41031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17355]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48121; File No. SR-DTC-2003-06]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change to Restrict the Next-Day Matched 
Reclamation Process

July 2, 2003.

I. Introduction

    On April 7, 2003, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2003-06 pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published 
in the Federal Register on May 29, 2003.\2\ For the reasons discussed 
below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 47899 (May 21, 2003), 68 
FR 32143.
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II. Description

    DTC's current reclamation procedures allow participants to submit 
reclamations to reverse completed Deliver Order (``DO'') and Payment 
Order (``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 (i.e., the original deliverer).
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    \3\ RAD is a control mechanism that allows participants to 
review transactions prior to completion of processing in order to 
limit exposure from misdirected or erroneously entered deliveries or 
payment orders. The override of RAD and 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 RAD or 
the 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 is eliminating the next-day matched reclamation process. Under its 
revised procedures, DTC will 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 will be 
considered matched. Only matched reclaim transactions will be permitted 
to bypass RAD and DTC's risk management controls. In addition, only 
matched reclaim transactions can be submitted in the exclusive reclaim 
period and will be blocked from subsequent re-reclamation by the 
receiver.
    Reclamation transactions that are linked to original transactions 
processed prior to the current processing day will be processed in the 
same manner as other deliveries. That is, they will not bypass RAD or 
DTC's risk management controls. Linked reclamations will have to be 
submitted during normal input times and cannot be submitted in the 
exclusive reclaim period. Furthermore, a participant receiving a linked 
reclamation that it believes is inappropriate will be able to re-
reclaim that transaction. To allow participants to continue to 
automatically track transaction status changes, however, both matched 
and linked reclaim output will contain the Relative Block Number 
assigned by DTC of both the reclamation transaction and the original 
transaction.
    DTC plans to implement the enhancements to the reclamation process 
in phases. Beginning July 17, 2003, DTC will eliminate the next-day 
matched reclaim process for money market instruments (``MMIs''). 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 will 
begin linking reclamation transactions with original transactions 
processed in the preceding 60 days.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed, among other things, to promote the prompt 
and accurate clearance and settlement of securities transactions and to 
assure the safeguarding of securities and funds which are in its 
custody or control or for which it is responsible.\4\ The Commission 
finds that DTC's proposed rule change is consistent with this 
requirement because it should bring

[[Page 41031]]

more finality to the settlement process and as such facilitates prompt 
and accurate clearance and settlement and safety and soundness at DTC.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2003-06) be and hereby 
is approved.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17355 Filed 7-8-03; 8:45 am]
BILLING CODE 8010-01-P