[Federal Register Volume 70, Number 144 (Thursday, July 28, 2005)]
[Notices]
[Pages 43730-43732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4013]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52104; File No. SR-DTC-2005-06]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to an Enhancement of the SMART/Track Service

July 21, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 29, 2005, 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 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

    DTC proposes to add a new Agency Lending Disclosure feature to its 
SMART/Track service. The new feature will enable securities agent 
lenders to disclose to securities borrowers information regarding the 
principal lenders of securities loans.

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,

[[Page 43731]]

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

    In 2003, the Commission approved a proposed rule change that 
allowed DTC to activate its Universal Hub (now known as SMART/Track) 
messaging service. The service was designed to provide participants 
with an automated, electronic mechanism to notify and to acknowledge 
stock loan recalls.\3\ In 2004, the Commission approved a second rule 
change that added a Corporate Action Liability Notification Service to 
SMART/Track. This addition provided participants with an automated, 
electronic mechanism to notify, acknowledge, and maintain corporate 
action liability information.\4\
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    \3\ Securities Exchange Act Release No. 50029 (July 15, 2004), 
69 FR 43870 (July 22, 2004) [File No. SR-DTC-2003-10].
    \4\ Securities Exchange Act Release No. 50887 (Dec. 20, 2004), 
69 FR 77802 (Dec. 28, 2004) [File No. SR-DTC-2004-11].
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    In order to address the Commission's concerns about transparency in 
securities lending transactions, the Industry Agent Lending Task Force 
(``Task Force'') recently released a proposal in that outlined how and 
what information agent lenders should disclose about the allocation of 
loans to broker-dealer borrowers.\5\ The disclosure proposal focused on 
the need for borrowers to be able to monitor their credit exposures and 
calculate their required regulatory capital charges on a principal-
lender basis. Currently, borrowers do not always know the underlying 
counterparties or principal lenders on a loan-by-loan basis because 
agent lenders frequently reveal open securities loans at the gross 
level and not at the principal level. Without this information, 
borrowers cannot determine their credit exposure on any given day or 
calculate the applicable capital charges.
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    \5\ Refer to the Task Force's Web site at http://www.agencylending.capco.com and http://www.agencylending.capco.com/documents/Taskforce%20wide%20documents/Agent%20Lender%20Disclosure%20(final%20final).doc.
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    The Task Force and its working groups have collaborated with the 
securities industry to identify the data that agent lenders should 
provide to enable borrowers to monitor their credit exposure and to 
calculate their capital requirements for securities executed under 
securities lending agreements. The Task Force asked DTC, in its role as 
an industry utility, to develop a central communications facility for 
the transmission of agency lending data between agent lenders and 
borrowers. DTC has actively participated in these efforts as a member 
of the Task Force's Infrastructure Working Group and has developed 
SMART/Track for Agency Lending Disclosure.\6\
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    \6\ The SMART/Track for Agency Lending Disclosure Procedures are 
attached as Exhibit 5 to DTC's proposed rule filing.
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    SMART/Track for Agency Lending Disclosure will provide a 
communications interface between agent lenders and borrowers that will 
enable them to transmit periodic and daily files of principal lender 
data either through a vendor or directly to SMART/Track. By providing a 
single point of access, vendors, individual agent lenders, and 
borrowers will no longer have to build or maintain bilateral links to 
transmit loan information.
    By transmitting agency lending data files, SMART/Track for Agency 
Lending Disclosure will essentially be acting as a ``post office.'' 
That is, it will only validate the header and trailer of the files to 
verify that it can successfully deliver the file to the designated 
counterparty. DTC will not edit or validate the data contained within 
the files and will not be responsible for any such data.
    SMART/Track will maintain and update a table that identifies the 
relationship between vendors and agent lenders and borrowers so that 
users will not have to keep track of the relationship between their 
counterparties and a vendor, if any. SMART/Track will also contain 
tools that will help users track the status of messages.
    In addition to providing a communications facility for transmitting 
periodic and daily files for loan data, the Task Force asked DTC to 
provide a mechanism to assign unique identifiers to those principal 
lenders that do not have U.S. tax identification numbers. While most 
principal lenders have a nine-digit U.S. tax identification number, 
there is a small universe of lenders that do not. SMART/Track will 
create and maintain a table of unique identifiers. Agent lenders and 
borrowers as well as vendors will be able to search the table to 
determine if DTC has assigned a unique identifier to a principal 
lender. If DTC has not previously assigned a unique identifier to a 
principal lender, agent lenders and borrowers will be able to request 
that DTC does so.
    SMART/Track for Agency Lending Disclosure will be subject to DTC's 
general standard of liability for information services, which is 
responsibility for gross negligence and willful misconduct. 
Furthermore, although the service will be available primarily to DTC 
participants, agent lenders that are not DTC participants will be able 
to use SMART/Track for Agency Lending Disclosure by signing a user 
agreement.\7\
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    \7\ The form user agreement is attached as Exhibit 2 to DTC's 
proposed rule filing.
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    DTC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
because it will promote important disclosure relating to securities 
loans arranged by agent lenders and will be implemented consistently 
with the safeguarding of securities and funds in DTC's custody or 
control of DTC.

B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

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 with the Task Force, 
with which DTC has worked closely in developing the SMART/Track for 
Agency Lending Disclosure. DTC has not solicited or received written 
comments relating to the proposed rule change. DTC will notify the 
Commission of any written comments it receives.

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) \8\ of the Act and Rule 19b-4(f)(4) \9\ thereunder 
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

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in furtherance of the purposes of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 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. 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-2005-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
     All submissions should refer to File Number SR-DTC-2005-06. 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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at DTC's principal office and on DTC's Web 
site at http://www.dtc.org/impNtc/mor/index.html. 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-2005-06 and should be submitted on 
or before August 18, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4013 Filed 7-27-05; 8:45 am]
BILLING CODE 8010-01-P