[Federal Register Volume 69, Number 139 (Wednesday, July 21, 2004)]
[Notices]
[Pages 43648-43649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16562]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50025; File No. SR-DTC-2004-04]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change To Establish a Valued 
Delivery Order Interface With the National Securities Clearing 
Corporation

July 15, 2004.

I. Introduction

    On May 3, 2004, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change File No. SR-DTC-2004-04 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposed 
rule change was published in the Federal Register on June 2, 2004.\2\ 
No comment letters were received. For the reasons discussed below, the 
Commission is now 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. 34-49777 (May 26, 2004), 
69 FR 31149.
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II. Description

    The National Securities Clearing Corporation (``NSCC'') currently 
creates receive and deliver instructions for ``Balance Order 
Securities'' and for ``Special Trades'' which NSCC members then have to 
manually enter into DTC as ``Valued Delivery Orders'' (``VDOs'').\3\ In 
connection with NSCC's project to update and revise its Continuous Net 
Settlement (``CNS'') system (``CNS Rewrite''), NSCC requested DTC to 
establish an interface to automate and facilitate the processing and 
book-entry settlement of Balance Orders and Special Trades.\4\
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    \3\ The terms Balance Order Securities and Special Trades are 
defined in Rule 1 of NSCC's Rules and Procedures. The term Valued 
Delivery Order refers to an order to deliver securities where 
delivery is to be made for payment as opposed to a Free Delivery 
which refers to an order to deliver securities free of any payment 
by the receiver.
    \4\ The Commission recently approved NSCC's CNS Rewrite. 
Securities Exchange Act Release No. 50026 (July 15, 2004) [File No. 
SR-NSCC-2004-01].
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    DTC and NSCC currently have an automated VDO municipal bond 
interface known as the PDQ Automated Municipal Bond Settlement Facility 
(``PDQ Facility''). Pursuant to the PDQ Facility, NSCC members and NSCC 
municipal comparison only members (``MCOMs'') that are also DTC 
participants (``common participants'') or that clear through DTC 
participants may authorize NSCC to send to DTC their compared municipal 
bond transaction data in an automated file and may authorize DTC to 
accept and input such data as VDOs.
    As a result of requests from common participants and based upon 
DTC's and NSCC's positive experience with the PDQ Facility, DTC and 
NSCC will expand the PDQ Facility to include all NSCC Balance Orders 
and Special Trades. The VDO Interface will automatically convey from 
NSCC to DTC VDO instructions for each common participant's Balance 
Orders and Special Trades pursuant to standing instructions given to 
NSCC by the common participant. For NSCC MCOMs that are not common 
participants, NSCC will create delivery versus payment VDO instructions 
for a MCOM's Special Trades if both the MCOM and its DTC clearing 
broker have each provided standing instructions to process such trades 
through the VDO Interface. The VDO Interface will incorporate the PDQ 
Facility's functionality and will replace the PDQ Facility.\5\ DTC 
intends to implement the proposed rule change in conjunction with the 
implementation of NSCC's CNS Rewrite on or about August 6, 2004.\6\
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    \5\ Telephone conversation between Diane L. Brennan, Director of 
Risk Management, DTC, and staff of the Division of Market 
Regulation, Commission (May 21, 2004). Supplemented by letter from 
Diane L. Brennan, DTC (May 27, 2004).
    \6\ The date for implementation in the Notice has been adjusted. 
E-mail from Diane L. Brennan, DTC (June 23, 2004).

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[[Page 43649]]

III. Discussion

    Section 17A(b)(3)(F) of the Act requires among other things that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\7\ The 
Commission finds that DTC's proposed rule change is consistent with 
this requirement because VDO Interface being established will promote 
the prompt and accurate clearance and settlement of securities 
transactions by providing greater efficiency in the processing and 
book-entry settlement of Balance Orders and Special Trades by providing 
greater functionality and by allowing members to focus less attention 
on exception processing.
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    \7\ 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,\8\ that the proposed rule change (File No. SR-DTC-2004-04) be and 
hereby is approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16562 Filed 7-20-04; 8:45 am]
BILLING CODE 8010-01-P