[Federal Register Volume 69, Number 98 (Thursday, May 20, 2004)]
[Notices]
[Pages 29155-29156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11401]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49709; File No. SR-DTC-2004-03]


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

May 14, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, notice is hereby given that on, March 18, 2004, 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

    Under the proposed rule change, DTC would modify its procedures 
relating to how deliveries are processed in DTC's 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 these 
statements.

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

    Under DTC's procedures applicable to MMI transactions, early on the 
maturity date (generally around 2 a.m.) \2\ DTC initiates deliveries of 
maturing paper from the accounts of participants having position in the 
maturing paper to the MMI participant account of the Issuing/Paying 
Agent (``IPA''). These transactions are processed as the equivalent of 
valued delivery orders (``DO''). The IPA can ``refuse to pay'' for 
maturing paper of a particular issuer by communicating that intention 
to DTC before 3 p.m. on the maturity date. DTC will inform all 
participants by broadcast message. DTC will then, among other things, 
reverse any completed maturity presentments by recrediting them to 
presenting participants.
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    \2\ All times are Eastern Standard Time.
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    The MMI procedures also provide for participants that are receivers 
of new MMI issuance DOs (e.g., custodian banks) to have until 3:30 p.m. 
to reclaim those DOs back to the IPA.\3\ Since the reclaim can be 
``matched'' with a DO processed on the same day, the reclaim is 
permitted to bypass the Receiver Authorized Delivery (``RAD'') system 
and DTC's risk management controls (e.g., net debit cap and collateral 
monitor) if the value of the DO is less than $15 million.\4\
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    \3\ Reclaims, or reclamations, are the means by which receivers 
can return erroneous deliveries.
    \4\ 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 delivery orders. The bypassing of DTC's risk management 
controls is designed to address industry concern that the receiver 
not be ``stuck'' with a delivery it should not have received because 
of DTC's risk management controls.
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    Although the current procedures have worked well, since the events 
of September 11, 2001, participants in

[[Page 29156]]

DTC's MMI program have been working with DTC on changes that would 
reduce risk without introducing processing inefficiencies. IPAs have 
raised concerns about potentially having to fund an issuer's maturity 
at a level higher than anticipated at the time IPA decides not to 
exercise a ``refusal to pay'' because the IPA fails to receive the 
settlement credits associated with new issuance DOs that are reclaimed 
after 3 p.m. As a result, IPAs are forced to make ``refusal to pay'' 
decisions based on incomplete data and increases the exposure of an IPA 
to an individual issuer.
    The proposed rule change would address these concerns by subjecting 
reclamations of all new MMI issuance DOs received after 2:30 p.m. to 
RAD controls and treating them as original transactions subject to 
DTC's normal risk management controls.\5\ To reduce the potential 
impact of the proposed change in the processing of reclaims received 
after 2:30 p.m., the proposed rule change would provide receivers of 
new issuance DOs with the option of having those deliveries made 
subject to RAD at 2 p.m. thereby giving these participants electing 
this option one-half hour to consider whether to accept or reject the 
DOs.\6\ While the cutoff for the Issuing/Paying agent (``IPA'') to 
exercise its ``refusal to pay'' option will remain at 3 p.m., the 
proposed rule change clarifies that since under certain circumstances 
DTC may extend the 2 p.m. and 2:30 p.m. cutoffs referred to above, DTC 
may also extend the 3 p.m. cutoff.
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    \5\ As a result, these post 2:30 p.m. reclamations will not be 
eligible for processing during the exclusive reclaim period (3:20 
pm. to 3:30 p.m.) and may not be ``re-reclaimed'' by the receiver.
    \6\ All new issuance DOs processed after 2 p.m. will 
automatically be subject to RAD unless the participant instructs DTC 
to the contrary. DTC participants may opt-out of forced RAD by 
completing the ``Forced MMI RAD Election Form'' and submitting it to 
their DTC relationship manager. The election form is available on 
DTC's Web site www.dtc.org as Attachment A to DTC Important Notice 
5337. A participant that, at first, elected to opt out of 
the forced RAD functionality may opt back in by submitting a 
completed election form to its DTC relationship manager.
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    The proposed rule change is consistent with the requirements of 
section 17A(b)(3)(A) of the Act \7\ 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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    \7\ 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 5337 
(March 19, 2004).

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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an E-mail to [email protected]. Please include 
File Number SR-DTC-2004-03 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. All submissions should refer to File Number 
SR-DTC-2004-03. This file number should be included on the subject line 
if e-mail is used. To help the Commission process and review your 
comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 and on DTC's Web site at http://www.dtc.org. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-DTC-2004-03 
and should be submitted on or before June 10, 2004.

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-11401 Filed 5-19-04; 8:45 am]
BILLING CODE 8010-01-P