[Federal Register Volume 62, Number 186 (Thursday, September 25, 1997)]
[Notices]
[Pages 50414-50415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39095; File No. SR-DTC-97-08]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding the Memo Segregation Service

September 19, 1997.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''), notice is hereby given that on June 1, 1997, The 
Depository Trust Company (``TDC'') 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.
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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

    The proposed rule change will modify the procedures for 
participants to control their collateral in connection with the use of 
DTC's memo segregation service (``memo seg'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, and 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\
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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

    DTC developed memo seg to assist participants in their compliance 
with Rule 15c3-3 under the Act.\3\ Rule 15c3-3, among other things, 
requires that broker-dealers maintain control of all fully-paid and 
excess margin securities they hold for the accounts of customers.\4\ 
Memo seg enables participants, particularly broker-dealer participants, 
to segregate customer fully-paid and excess margin securities by 
creating a memo position within their free accounts. This memo position 
enables participants to protect themselves from unintended deliveries 
of customer fully-paid and excess margin securities that either are in 
the participant's free account or that may be received during the daily 
processing cycle.
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    \3\ For a detailed description of memo seg, refer to Securities 
Exchange Act Release No. 26250 (November 3, 1988), 53 FR 45638 (File 
No. SR-DTC-88-16) (order permanently approving DTC's proposed rule 
change).
    \4\ 17 CFR 240.15c3-3.
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    One of DTC's primary risk management controls to protect DTC in the 
event of a participant's failure to settle is DTC's collateralization 
procedures. These procedures are designed to assure that a 
participant's net debit does not exceed the total collateral available 
in its account. One of the methods available to a participant to 
collateralize its account is to give DTC a standing instruction that 
designates as collateral those securities in its free account at the 
start of the processing day. Currently, this instruction would apply to 
all securities in the participant's free account, including securities 
for which a memo seg position has been created.
    Accordingly, the proposed rule change will amend DTC's participant 
collateralization procedures to exclude start-of-day memo seg positions 
from classification as collateral even if the participant has given DTC 
a standing instruction to designate as collateral all securities in its 
free account. If a participant subsequently wishes to utilize memo seg 
positions as collateral, it will be permitted to do so by giving DTC 
the appropriate instructions. DTC believes that the proposed rule 
change will assist participants in retaining the protections of memo 
seg from one day to the next which should reduce the potential for 
unintended deliveries of customer fully paid or excess margin 
securities.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(A) of the Act \5\ and the rules and 
regulations thereunder because it promotes efficiencies in the 
clearance and settlement of securities transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(A).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no impact on competition by reason of the proposed 
rule change.

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

    Written comments from DTC participants or others have not been 
solicited or received on the proposed rule change.

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 \6\ and Rule 19b-4(e)(4) thereunder \7\ 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,

[[Page 50415]]

or otherwise in furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(e).
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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, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-97-08 and should be 
submitted by October 16, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25465 Filed 9-24-97; 8:45 am]
BILLING CODE 8010-01-M