Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 / Notices 49277

39The Commission does not want to suggest that

Amex’s concerns are unfounded, but only that the

proper venue for their resolution is the proper ITS

committee, not the Rule 19b–4 process.

40 15 U.S.C. 78s(b)(2).

41 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2The Commission has modified the text of the

summaries prepared by DTC.

3When a CD is redeemed prior to maturity, the

beneficial owner of the CD is charged an early

withdrawal fee unless the beneficial owner is

deceased or has been adjudicated incompetent (or

for any other reason listed in the applicable trust

agreement or bond indenture). If the early

withdrawal request is based on one of those

circumstances, the early withdrawal fee is waived,

and the early redemption is considered ‘‘exempt.’’

Some issuers require owners seeking an exempt

early redemption to submit documentation

substantiating the exemption. Such documentation

presently is submitted to DTC by participants with

the VOI form.

4 DTC has advised the Commission that the RIPS

procedures currently contain the following

provision which will also be applicable to CD early

redemption information on RIPS:

The information provided by means of the RIPS

function is based upon communications (whether

oral or written) received by DTC from a variety of

sources, and DTC does not represent that such

information is accurate, or adequate or fit for any

particular purpose. DTC shall not be liable for (1)

any loss resulting directly or indirectly from

mistakes, omissions, interruptions, delays, errors or

defects arising from or related to the information

provided on the RIPS function, and (2) any special,

consequential, exemplary, incidental, or punitive

damages. The information provided in the RIPS

function with respect to a particular reorganization

activity is subject to change at any time without

prior notice.

trade the products. In particular, CHX’s

BEST Rule, which will apply to the

trading of SPDRs and MidCap SPDRs,

guarantees the execution of agency

orders from 100 shares up to 2099

shares at the best bid or offer on any ITS

market center that trades SPDRs and

MidCap SPDRs. In addition, CHX

specialists will have the ability to

monitor the current SPDR and MidCap

SPDR quotations disseminated by Amex

through the Consolidated Quotation

System. Finally, CHX specialists will

have the ability to place limit orders on

the Amex specialist’s book or send

market orders to the Amex specialist for

execution against the Amex specialist’s

quote, through Amex’s PER System

(although through a correspondent

firm). Though not as efficient as full ITS

access, these alternative procedures are

reasonable given the very short time

until ITS accepts 64ths.

The Commission believes that Amex’s

statements in its comment letter

regarding the trading of SPDRs and

MidCap SPDRs through ITS should be

resolved, as the Amex letter suggests,

through the proper ITS committee, not

through Commission action on the CHX

proposal. Otherwise, the ITS process

could be used to prevent action on the

CHX’s proposal for competitive

reasons.39

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,40 that the

proposed rule change (SR–CHX–97–6) is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.41

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24968 Filed 9–18–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39070; File No. SR–DTC–

97–10]

Self-Regulatory Organizations; the

Depository Trust Company; Notice of

Filing and Immediate Effectiveness of

Proposed Rule Change Relating to the

Certificate of Deposit Early

Redemption Service

September 12, 1997.

Pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

June 3, 1997, 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 from interested

persons on the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will modify

DTC’s existing Certificate of Deposit

Early Redemption Service (‘‘CERR’’) to

allow participants to transmit certificate

of deposit (‘‘CD’’) early redemption

instructions by electronic delivery

rather than by delivery of hardcopy

forms (i.e., paper).

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 such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Currently, DTC participants

redeeming CDs prior to maturity must

process such transactions through DTC’s

Voluntary Offering Program. These

participants submit early redemption

instructions to DTC by way of a

hardcopy Voluntary Offering Instruction

Form (‘‘VOI Form’’) which must be

accompanied by any additional required

documentation.3 Upon receipt of early

redemption instructions, DTC debits the

participant’s general free account and

enters a corresponding credit in the

same account using a contra-CUSIP

number. When DTC receives the

proceeds of an early redemption from

the issuer, DTC credits the principal

amount and any accrued interest minus

any applicable penalty for early

redemption to the participant’s

settlement account.

DTC proposes to modify CERR by

offering participants the ability to

transmit early redemption instructions

to DTC electronically through DTC’s

Participant Terminal System (‘‘PTS’’).

DTC will modify its already existing

PTS function, the Reorganization

Inquiry for Participants System

(‘‘RIPS’’), to offer information regarding

early redemption 4 such as: (i) a CD’s

eligibility for processing through CERR;

(ii) the last date prior to maturity on

which an issuer will accept a CD for

early redemption; and (iii) whether or

not an issuer requires the immediate

submission of documents supporting an

exempt early redemption. In addition,

DTC will add a CERR function to PTS

through which participants will be able

to transmit early redemption

instructions electronically to DTC.

In order to submit an early

redemption instruction to DTC

electronically, a participant will input

information into CERR, including (i) the

quantity of the eligible securities to be
49278 Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 / Notices

5Under the existing system, participants must

submit any documentation required to support as

exempt early redemption in hardcopy along with

the early redemption instruction. However, under

the CERR PTS function the participant requesting

early redemption will not be required to submit

such documentation in hardcopy at the time of the

early redemption instruction but must agree to

supply such information to DTC if requested by the

issuer within thirty months of the early redemption.

If a participant fails to provide such documentation

to DTC when requested to do so within such thirtymonth period, DTC will charge the participant the

amount of the nonexempt early redemption fee and

will remit the proceeds to the issuer.

6 If the participant does not have a position

sufficient to support the instruction, the instruction

will be dropped because instructions submitted

through the CERR PTS function are not subject to

DTC’s recycle procedures. Accordingly, participants

will be required to monitor their general free

account and enter a new instruction once a position

sufficient to satisfy the instruction is available.

7 If DTC has not received the required supporting

documents by the end of the fifth business day, the

instruction will be dropped. 8 15 U.S.C. 78q–1(b)(3)(A).

9 15 U.S.C. 78s(b)(3)(A).

10 17 CFR 240.19b–4(e).

11 17 CFR 200.30–3(a)(12).

redeemed, (ii) customer information,

(iii) information required by the issuer,

(iv) whether the early redemption is

exempt or nonexempt, and (v) if

exempt, details regarding the

circumstances supporting the

exemption.5 Next, the participant will

transmit the early redemption

instructions after which CERR will

report any editing errors to the

participant and will determine whether

the participant’s general free account

contains a position sufficient to cover

the instruction.6 After the submitted

information is verified, the participant

will be required to transmit the

information to DTC again. By

transmitting the instruction the second

time, the participant will be

acknowledging that the information

inputted is correct and that the

participant agrees to maintain and

submit, if requested within thirty

months from the date of redemption,

documentation supporting an exempt

early redemption. If an issuer requires

that documentation be submitted prior

to early redemption, the participant

must also acknowledge that it will

provide such documentation to DTC

within five business days from the date

of the instruction.

Upon receipt of an electronic early

redemption instruction, DTC will

deduct the securities from the

participant’s general free account and

add the securities to the participant’s

reorganization account. If the issuer

requires the participant to submit

documentation supporting an exempt

early redemption, the instruction will

spend until the fifth business day from

the date of the instruction.7 Participants

may determine the status of an early

redemption instruction by using an

inquiry function on CERR PTS.

When DTC receives the proceeds of a

CD early redemption, DTC will

promptly credit the funds to the

participant’s settlement account and

debit the participant’s reorganization

account. If the issuer rejects the

presentment, DTC will endeavor to

determine the reason for the rejection,

convey this information to the

participant, and restore the position to

the participant’s general free account.

All early redemption instructions,

whether exempt or not, will be subject

to acceptance by the issuer. Therefore,

it is possible that a presentment could

be rejected by the issuer because the CD

does not provide for early redemption.

If DTC is able to identify such CDs itself,

the RIPS function will indicate that the

CD does not have an early redemption

privilege and will automatically prevent

a participant from entering early

redemption instructions for such CDs.

DTC does not believe that it is feasible

to determine whether all of the 20,000

CDs currently eligible for services at

DTC provide for early redemption.

Therefore, a participant’s early

redemption instruction ultimately may

be rejected by the issuer even if it

initially is accepted for processing by

CERR. When such a rejection occurs,

DTC will convey the reason for the

rejection to the participant and will

restore the position to the participant’s

general free account.

DTC believes that the proposed rule

change is consistent with the

requirements of section 17A(b)(3)(A) of

the Act 8 and the rules and regulations

thereunder because it promotes

efficiencies in the clearance and

settlement of securities transactions.

(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 not necessary or

appropriate in furtherance of the

purposes of the Act.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

DTC has not solicited or received any

comments.

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)

of the Act 9 and Rule 19b–4(e)(4)

thereunder 10 because it effects a change

in an existing service of DTC that (i)

does not adversely affect the

safeguarding of securities or funds in

the custody or control of DTC or for

which it is responsible and (ii) does not

significantly affect the respective rights

or obligations of DTC or persons using

the service. At any time within sixty

days of the filing of such 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 in furtherance of the

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. 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. All submissions should

refer to File No. SR–DTC–97–10 and

should be submitted by October 10,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24858 Filed 9–18–97; 8:45 am]

BILLING CODE 8010–01–M