[Federal Register Volume 68, Number 134 (Monday, July 14, 2003)]
[Notices]
[Pages 41666-41667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17710]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48130; File No. SR-DTC-2003-08]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change Relating to Rule 
4(A), Pledge of Property to the Corporation and Its Lenders

July 3, 2003.

I. Introduction

    On May 6, 2003, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-DTC-2003-08 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 21, 2003.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 47875 (May 15, 2003), 68 
FR 27877.
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II. Description

    Each DTC participant pays or receives the net debit or net credit 
balance in its DTC money settlement account at the end of each day. 
DTC's principal risk is the possible failure of one or more 
participants to settle their net debit obligations. To assure that it 
is able to complete its settlement obligations each day, DTC maintains 
liquidity resources, including a committed line of credit (maximum 
amount of $1.75 billion) with a consortium of banks. This committed 
line of credit is part of a combined syndicated facility with National 
Securities Clearing Corporation (``NSCC'').
    The line of credit matures annually. As part of the negotiations to 
extend the facility for the year beginning May 27, 2003, the lenders 
requested that Section 1 of DTC's Rule 4(A), ``Pledge of Property to 
the Corporation and its Lenders,'' be clarified.\3\ That section 
currently provides that for the purpose of securing loans to DTC, DTC 
may pledge and repledge and grant its lenders a security interest in 
(i) cash deposits in the participants fund and all securities, 
repurchase agreements, or deposits in which such cash is invested, (ii) 
net additions, including any security entitlements of participants in 
net additions, and (iii) preferred stock. That section also provides 
that any such loan to DTC may be on such terms as DTC, in its 
discretion, may deem necessary or advisable and may be in amounts 
greater and extend for time periods longer than the obligations of any 
participant in DTC. It further provides that no lender shall be 
obligated to return any pledged collateral prior to the full repayment 
of any loan secured thereby.
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    \3\ The lenders made a similar request of NSCC which also 
resulted in the filing of a proposed rule change by NSCC. Securities 
Exchange Act Release No. 47874 (May 15, 2003), 68 FR 27881 (May 21, 
2003) [File No. NSCC-2003-08].
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    DTC is adding language to Section 1 of Rule 4(A) to make clear what 
is implicit in the current rule that while there remain any outstanding 
obligations under any such loan, no participant may assert a claim 
against the lender for the return of any collateral pledged by DTC as 
security therefore.\4\ Subject to the foregoing and the terms of any 
such loan, the obligation of DTC to return any items of pledged 
collateral to its participants or to permit substitutions and 
withdrawals thereof remains unaffected.
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    \4\ The new language states, ``No Participant shall have any 
right, claim or action against any secured Lender (or any collateral 
agent of such secured Lender) for the return, or otherwise in 
respect, of any such collateral Pledged by the Corporation to such 
secured Lender (or its collateral agent), so long as any loans made 
by such Lender to the Corporation or other obligations, secured by 
such collateral, are unpaid and outstanding.''
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    In addition, the rule change makes a technical correction to the 
definition of the term ``pledge'' in Rule 1 necessitated by the recent 
revisions to Article 9 of the New York Uniform Commercial Code 
(``NYUCC''). Currently, the definition of ``pledge'' refers to Section 
9-115 of the NYUCC. The references to that specific section are deleted 
so DTC's definition refers to the NYUCC in general.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\5\ By adding language, as requested by its 
lenders, to its rules to make clear the rights of DTC, lenders, and 
participants with respect to pledged deposits, the

[[Page 41667]]

proposed rule change will help DTC maintain adequate liquidity 
resources and therefore should help assure DTC's ability to safeguard 
securities and funds.
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    \5\ 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 with the requirements of section 17A of the Act and the 
rules and regulations thereunder applicable.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-2003-08) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17710 Filed 7-11-03; 8:45 am]
BILLING CODE 8010-01-P