[Federal Register Volume 62, Number 20 (Thursday, January 30, 1997)]
[Notices]
[Pages 4561-4562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2258]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38201; File No. SR-DTC-96-17]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change Relating to the 
Movement of Securities Positions Within a Collateral Group

January 23, 1997.
    On October 4, 1996, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change (File No. SR-DTC-96-17) pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') to permit the 
movement of securities positions within a collateral group.\1\ Notice 
of the proposal was published in the Federal Register on November 8, 
1996.\2\ No comment letters were received. For the reasons discussed 
below, the Commission is granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 37916 (November 1, 
1996), 61 FR 57933.
---------------------------------------------------------------------------

I. Description

    The rule change offers a new service to DTC participants that 
permits the movement of securities positions within a collateral 
group.\3\ The fee for this new service is $.43 per transaction. Under 
the rule change, DTC will eliminate certain processing steps associated 
with other kinds of book-entry deliveries for transactions within a 
collateral group and thereby will lower the cost of such transactions. 
DTC has determined that the credit and financial controls employed for 
regular book-entry deliveries are not necessary for transfers that 
occur within the same collateral group because a participant's 
collateral monitor and net debit position are not affected by such 
transfers.
---------------------------------------------------------------------------

    \3\ A participant with multiple accounts may group its accounts 
into ``families'' (i.e., ``collateral groups'') and instruct DTC to 
allocate a specified portion of its overall collateral and net debit 
cap to each family. All accounts that a participant designates as 
belonging to a common collateral group share a single collateral 
monitor and single net debit cap.
---------------------------------------------------------------------------

    DTC anticipates that the new service will be used in connection 
with participant compliance with Rule 15c3-3 under the Act.\4\ 
Presently, a broker-dealer can use DTC's Memo Segregation Service 
(``memo seg'') to help them comply with Rule 15c3-3. The memo seg 
service allows a participant to create a ``memo'' position within its 
free account to enable the participant to avoid making an unintended 
delivery of a designated quantity of customer fully-paid securities 
that either are in the participant's free account or are expected to be 
received into that account. Other participants prefer to comply with 
Rule 15c3-3 by moving customer fully-paid securities from a free 
account to an additional DTC account established by the participant. 
Under DTC's previous procedures, any book-entry movement required DTC 
to perform its regular risk management procedures for book-entry 
deliveries (e.g., review of the participant's collateral monitor and 
net debit position). Accordingly, the application of these procedures 
to book-entry

[[Page 4562]]

deliveries between the participant's free account and the additional 
account made this approach more expensive than the memo seg approach as 
a means of complying with Rule 15c3-3. The rule change will accommodate 
transfers of securities, including customer fully-paid securities, from 
a participant's free account to an additional account within the same 
collateral group and will do so using procedures that are less 
expensive than a regular book-entry delivery.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.15c3-3. Rule 15c3-3 under the Act requires, among 
other things, that broker-dealers maintain possession or control of 
fully-paid or excess margin securities they hold for the accounts of 
customers (``customer fully-paid securities'').
---------------------------------------------------------------------------

II. Discussion

    Section 17A(b)(3)(F) requires the rules of a clearing agency be 
designed to assure the safeguarding of securities and funds which are 
in the custody or control of the clearing agency or for which it is 
responsible. The Commission believes that the proposed rule change is 
consistent with DTC's obligations under the Act. The new service will 
permit participants to move securities positions from a participant's 
free account to an additional DTC account within the same collateral 
group without undergoing DTC's usual risk monitoring controls and 
therefore at a lower cost. Because such transfers do not affect the 
overall level of a participant's collateral monitor or its net debit 
position, the Commission believes that DTC can implement the new 
procedure while still assuring the safeguarding of securities and funds 
in its custody or for which it is responsible. Furthermore, because the 
fees associated with the transfer of securities within a collateral 
group will now be comparable to the costs of memo seg, participants 
will be afforded the flexibility to choose which method to protect 
customer fully-paid securities that best suits their needs without cost 
differences being a significant factor.

III. 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, 
that the proposed rule change (File No. SR-DTC-96-17) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2258 Filed 1-29-97; 8:45 am]
BILLING CODE 8010-01-M