[Federal Register Volume 68, Number 223 (Wednesday, November 19, 2003)]
[Notices]
[Pages 65333-65335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28851]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48775; File No. SR-DTC-2003-12]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to the Processing of 
Maturity Presentments in DTC's Money Market Instrument Program

November 12, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on, September 30, 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

    The proposed rule change would allow DTC to implement new Money 
Market Instrument (``MMI'') Program procedures regarding the processing 
of Maturity Presentments (``MP'').\2\ Specifically, the new procedures 
would allow an Issuing/Paying Agent (``IPA'') to assign processing 
priorities to the MMI issuers for which the IPA acts as agent.
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    \2\ The references to maturity presentments are intended to 
cover, in addition to MPs, other payment obligations of MMI issuers, 
such as periodic principal payments and periodic interest payments.

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[[Page 65334]]

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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Under DTC's current procedures for the processing of MPs, early on 
the maturity date (generally around 2:00 a.m.) DTC initiates deliveries 
of the maturing paper from the accounts of participants having 
positions in the maturing paper to the MMI participant account of the 
IPA. Each MP is processed as the equivalent of a book-entry delivery-
versus-payment transfer. As such, MPs may ``recycle'' just as any 
delivery would if the net debit cap or collateralization controls 
applicable to an IPA's account prevent the delivery from updating. 
Recycling MPs would update once additional funds (e.g., from intraday 
settlement progress payment (``SPPs'') or from new issuances) are 
credited to the IPA's account. With the exception of a recent change 
enabling an IPA to target settlement credits from an SPP to a specific 
issuer's maturity presentments, MPs update on a random basis.\3\ There 
is no provision in DTC's current procedures enabling an IPA to assure 
that the recycling MPs of a specific issuer update by allocating to 
that issuer's MPs all or a specified portion of the IPA's net debit cap 
or by applying to that issuer's MPs settlement credits derived from the 
new issuance of its paper. By the same token, because of the random 
nature of MP processing, the IPA is unable to prevent a portion of its 
net debit cap as well as any ``excess'' or ``residual'' credits from 
being used to update the MPs of an issuer to which the IPA would prefer 
not to extend credit.\4\
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    \3\ Securities Exchange Act Release No. 48145 (July 9, 2003), 68 
FR 42442 (July 17, 2003) [File No. SR-DTC-2003-03] (proposed rule 
change allowing DTC to modify its settlement progress payment 
procedures to allow DTC participants to direct proceeds from a 
specific SPP be used to fund a particular transaction).
    \4\ ``Excess'' credits refer to credits resulting from an 
issuer's new issuances that exceed that issuer's offsetting MPs, 
SPPs that are not targeted to a specific issuer's MPs, as well as 
any unallocated net debit cap. ``Residual'' credits refer to credit 
balances from new issuances and targeted SPPs that are not large 
enough to completely offset the same issuer's MPs.
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    The proposed rule change would provide for the application of new 
issuance settlement credits to the MPs of the same issuer on a best 
efforts basis and would give IPAs the option to prioritize the order 
and manner in which MPs are processed, including the option to 
designate an issuer as self-funding.\5\ Systemically, DTC would attempt 
to align activities within the MMI system so that monies from Issuer 
A's credits are generally applied to Issuer A's MPs, subject to 
existing collateral monitor and net debit controls.
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    \5\ Under the proposed rule change, IPAs would be able to 
prioritize between issuers by using new Participant Terminal System 
(``PTS'') functions. IPAs logged into DTC's MMII PTS function would 
select ``Issuer Priority Control'' to access the main menu of IPA-
issuer options. This new functionality would allow IPAs to select 
which issuers' MPs would recycle at the bottom of the ATP queue; 
perform an issuer control inquiry on selected issuers; maintain an 
audit trail for selected issuers; and inquire about MPs for selected 
issuers.
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    Under the alignment approach, once an IPA has incurred a net debit 
up to its applicable net debit cap (or the IPA's collateral is fully 
used), subsequent MPs presented to the IPA's account will still recycle 
as they do today. When an IPA processes a new issuance of an MMI into 
the system and the issuance transaction updates into the receiving 
participant's account, the resulting credit them becomes available in 
the IPA's account to fund a recycling MP. At this time, the revised MMI 
system would inquire against the queue of recycling MPs to determine if 
there is an MP for the same issuer with the same base CUSIP that could 
be processed against the available credit. Once the appropriate MP is 
identified, that MP would be taken off the recycle queue and would be 
processed into the IPA's account. As further issuances for that issuer 
occur, additional MPs for the issuer would be processed so that MP 
processing would remain in rough alignment with the related issuance 
activity. If no offsetting MP is available on the recycle queue, the 
credit would be applied to an MP from another issuer, as is the case 
today, to make use of the available liquidity in the IPA's settlement 
account.
    Although the current procedures have worked well, since the events 
of September 11, 2001, participants in DTC's MMI program have been 
working with DTC on changes that would reduce risk without introducing 
processing inefficiencies. The proposed IPA rule change would address 
concerns that IPAs have raised about the random nature of DTC's process 
for updating maturity presentments by providing IPAs with the means to 
exercise greater control of their intra-day liquidity requirements and 
credit risk.
    The proposed rule change is consistent with the requirements of 
Section 17A(b)(3)(A) of the Act \6\ and the rules and regulations 
thereunder 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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    \6\ 15 U.S.C. 78q(b)(3)(A).
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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 subject proposals were developed in consultation with 
participants in the MMI market and are included as recommendations in a 
Discussion Paper issued jointly by The Bond Market Association and The 
Depository Trust & Clearing Corporation on March 31, 2003. DTC advised 
participants of the proposed modifications in Important Notice 5336 
(October 10, 2003).\7\
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    \7\ DTC advised participants of additional MMI system 
modifications in Important Notice 5311 on October 10, 2003. Those 
modifications are not within the scope of this rule filing.
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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 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 DTC 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

[[Page 65335]]

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-2003-12. 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 20549-0609. Copies of such filing also will be 
available for inspection and copying at the principal office of DTC. 
Copies of the proposed rule change and all subsequent amendments are 
also available at www.dtc.org/impNtc/mor/index.html. All submissions 
should refer to File No. SR-DTC-2003-12 and should be submitted by 
December 10, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-28851 Filed 11-18-03; 8:45 am]
BILLING CODE 8010-01-P