[Federal Register Volume 69, Number 228 (Monday, November 29, 2004)]
[Notices]
[Pages 69433-69435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50690; File No. SR-DTC-2004-10]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change To Implement Phase II of the 
IMS Service

November 18, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 10, 2004, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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

    DTC is seeking to implement Phase II of its Inventory Management 
System (``IMS'').\2\ In the implementation of Phase I, IMS replaced the 
Authorization and Exception system to allow for automated settlement of 
institutional deliveries. By providing for authorization and control 
within asset class and transaction type, such as night deliver orders 
(``NDO''), through predefined profiles, IMS provides DTC participants 
with increased control and timing over their deliveries. The Phase II 
enhancements to the IMS service will extend a participant's ability to 
control the submission of its deliveries and will permit participants 
to determine how their deliveries recycle in the system.
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    \2\ The Commission approved a proposed rule change implementing 
Phase I of the IMS. Securities Exchange Act Release No. 48176 (July 
14, 2003), 68 FR 43244 [File No. SR-DTC-2002-19].
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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.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    DTC is seeking to implement Phase II of IMS. Currently, IMS allows 
DTC participants to:
    (1) Stage their institutional deliveries received from a matching 
utility system (such as Omgeo's TradeSuite system) for automated 
settlement;

[[Page 69434]]

    (2) Establish a predefined profile to allow greater control over 
the timing and order of their deliveries by transaction type and asset 
class;
    (3) Reintroduce drop deliveries for NDO, broker-to-broker balance 
orders, and all other participant deliveries; and
    (4) Warehouse deliveries with future settlement dates through the 
NDO function.
    Today, deliveries from the National Securities Clearing 
Corporation's (``NSCC'') Continuous Net Settlement (``CNS'') system are 
automatically processed unless a participant otherwise instructs NSCC 
through an exemption. Other deliveries such as NDOs, along with 
authorized institutional and CNS deliveries, are processed by DTC at 
predefined times. All of these transactions may recycle (i.e., pend) in 
the event of a position deficiency or a problem with system controls. 
These recycles are processed based on one of two recycle options: A 
``first in first out'' process or a DTC preestablished recycle queue.
    DTC is now seeking to implement Phase II to allow participants to 
customize the order in which their authorized night cycle deliveries, 
such as CNS and institutional deliveries, are submitted for processing 
and to provide participants with the ability to create profiles that 
instruct DTC's processing system how to attempt to complete their 
recycling deliveries that are recycling for insufficient position.
    DTC currently recycles deliveries for insufficient position in a 
prescribed order based on transaction type and settlement value. To 
address their unique recycle requirements, some participants withhold 
their deliveries to DTC. For other participants, deliveries may not 
complete in their desired order.
    IMS Phase II permits participant to prepopulate a profile that 
``customizes'' its position recycle order for settlement related 
transactions. Transactions will be processed in the prescribed order if 
there are sufficient shares. If there are insufficient shares to 
complete a high priority transaction, then transactions with a lower 
priority but with sufficient shares will be processed subject to other 
controls. This service will be optional, and the current recycle order 
will remain in effect unless profile changes are made.\4\
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    \4\ For example, unless a participant customizes its position 
recycle order, CNS will continue to have the highest priority, 
followed by value releases, and others.
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    Participants will be able to promote their recycling transactions 
through 15022 messages or a new PBS screen in IMS if they have update 
capability. Participants will be able to promote transactions to the 
top of the recycle queue. Once a transaction is promoted, a participant 
will be able to promote another transaction higher or lower than the 
previously promoted transaction.
    In order to recoup the costs of this development, participants will 
be billed $.045 for each delivery that is promoted. Participants will 
be charged $0.06 for each delivery that is ``customized'' by these 
profiles, including deliveries that are submitted using the current 
active to passive functionality. If a delivery is submitted and 
recycles based upon profile selection, the participant will not be 
double charged for the delivery.\5\
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    \5\ It will cost $0.06 to have a delivery submitted and recycled 
by IMS based upon the profile created.
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    Participants will not be required to make systemic changes and will 
be able to continue processing their deliveries as they do today. All 
IMS features will be optional, and participants will be able to migrate 
to any or all features they deem valuable.
    The new enhancements to the IMS service will extend and will 
improve participants' ability to control the submission of their 
deliveries and will permit users to determine how their deliverables 
should recycle in the system based on a participant-defined profile.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder applicable to DTC because it will promote the 
prompt and accurate clearance and settlement of securities transactions 
by increasing efficiency in processing member transactions.
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    \6\ 15 U.S.C. 78q-1.
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 (B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of this Act, in the public interest, or for 
the protection of investors.

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

    DTC has discussed this rule change proposal in its current form 
with various DTC participants and industry groups, a number of whom 
have worked closely in developing the proposed IMS system. DTC will 
notify the Commission of any written comments received by DTC.

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 the 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 the self-regulatory organization 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-2004-10 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-2004-10. 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

[[Page 69435]]

inspection and copying at the principal office of DTC and on DTC's Web 
site (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-2004-10 and should be submitted on or before December 20, 2004.

    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. E4-3348 Filed 11-26-04; 8:45 am]
BILLING CODE 8010-01-P