[Federal Register Volume 68, Number 137 (Thursday, July 17, 2003)]
[Notices]
[Pages 42442-42443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18068]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48145; File No. SR-DTC-2003-03]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Modifications to Settlement Progress Payments Procedures

July 9, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 13, 2003, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-2003-03) 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 
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 will modify DTC's settlement progress 
payment (``SPP'') procedures to allow DTC participants, including 
issuing/paying agents (``IPAs''), to direct that the proceeds from a 
specific SPP be used to fund a particular transaction, including the 
maturity presentments of maturing securities from a particular money 
market instrument (``MMI'') program.

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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Recently, DTC and the Bond Market Association (``BMA'') sought 
industry comment on a series of possible revisions to DTC's MMI 
settlement system that were designed to enhance efficiency and reduce 
the liquidity risk that IPAs incur when making daily payments of 
billions of dollars on maturing MMIs.\3\ Among the several problems 
that were identified, one is that the intraday funds paid by one 
commercial paper issuer may be used to pay off the maturity 
presentments of another issuer because IPAs cannot control how their 
issuers' obligations are processed against their accounts and because 
IPAs cannot align specific issuer intraday credits from the issuance of 
new commercial paper to a specific debt due to that same issuer's 
maturing commercial paper. Although this typically does not cause any 
problems because all obligations are settled, events such as those of 
September 11, 2001, can severely disrupt the process.
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    \3\ While DTC's filing focuses on commercial paper, the issues 
and revised procedures are for all instruments settled through the 
MMI settlement system.
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    Under DTC's current procedures for processing of maturity 
presentments, DTC delivers the maturing commercial paper from the 
accounts of participants having positions in the maturing instrument to 
the IPA's MMI participant account early on the maturity date (generally 
around 2:00 a.m.). Since maturity presentments are processed as the 
equivalent of book-entry deliveries versus payment, a maturity 
presentment may recycle (i.e. may pend in DTC's system) just as any 
delivery would if the net debit cap or collateralization controls 
applicable to the IPA's account prevent the delivery from taking place. 
In such a situation, the maturity presentment would be processed only 
when additional funds are credited to the IPA's account. Recycling 
maturity presentments are processed in the order they are in DTC's 
recycling queue. This order is without regard to any offsetting payment 
or reissuance transaction because, as mentioned above, there is no 
provision in DTC's current procedures that enables an IPA to allocate 
settlement credits derived from an intraday SPP to a specific issuer's 
maturity presentment.
    DTC's new procedures will enable the IPA to direct settlement 
credits from an intraday SPP to a specific issuer's maturity 
presentments. To do so, when an IPA wires funds to DTC's account at the 
Federal Reserve Bank of New York, the IPA will designate the CUSIP 
number of the issuer's MMI. DTC will use this information to process 
recycling transactions containing the designated CUSIP. (Previously, 
upon receipt of an intraday SPP, DTC would process the

[[Page 42443]]

first transaction in the IPA's recycling queue.)
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \4\ because it will promote the 
prompt and accurate settlement of securities transactions and will be 
implemented in a manner that is consistent with DTC's risk management 
controls.
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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.

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

    The proposed rule change was developed in consultation with 
participants in the MMI market and was one of the recommendations in a 
paper issued jointly by The Bond Market Association and The Depository 
Trust & Clearing Corporation, DTC's parent, on November 25, 2002. In 
addition, DTC's participants were notified by Important Notice 
B4528 on March 31, 2003, about the modifications to DTC's SPP 
procedures.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) \5\ of the Act and Securities Exchange Act Rule 19b-
4(f)(4) \6\ because it effects a change in an existing service of DTC 
that does not adversely affect the safeguarding of securities or funds 
in DTC's control or for which DTC is responsible and does not 
significantly affect DTC's or its participants' respective rights or 
obligations. At any time within 60 days of the filing of such proposed 
rule change, the commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(4).
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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 5th Street NW., Washington, DC 20549-0069. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-DTC-2003-03. 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 rule filing that 
are filed with the Commission, and all written communications relating 
to the rule filing between the Commission and any person, other than 
those that may be withheld from the public in accordance with 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room in 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-2003-03 and should be submitted within August 7, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-18068 Filed 7-16-03; 8:45 am]
BILLING CODE 8010-01-P