[Federal Register Volume 62, Number 35 (Friday, February 21, 1997)]
[Notices]
[Pages 8073-8074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4239]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38281; File No. SR-Philadep-96-15]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company; Notice of Filing and Order Granting Accelerated Approval of a 
Proposed Rule Change To Amend and Clarify Certain Same-Day Funds 
Settlement Procedures

February 13, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 6, 1996, the 
Philadelphia Depository Trust Company (``Philadep'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-Philadep-96-15) as described in Items I and II 
below, which items have been prepared primarily by Philadep. On 
November 12, 1996, Philadep filed an amendment to the proposed rule 
change to clarify the minimum net debit cap procedures.\2\ The 
Commission is publishing this notice and order to solicit comments from 
interested persons and to grant accelerated approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Letter from Kieth Kessel, Compliance Officer, Philadep 
(November 12, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to amend and to clarify 
certain same-day funds settlement (``SDFS'') procedures relating to 
Philadep's risk management controls.

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

    In its filing with the Commission, Philadep 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. Philadep has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
submitted by Philadep.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    On February 22, 1996, the Commission granted partial permanent 
approval and partial temporary approval of proposed rule changes filed 
by Philadep and the Stock Clearing Corporation of Philadelphia's 
(``SCCP'') to establish an SDFS system.\4\ The purpose of the proposed 
rule change is to amend and to clarify certain SDFS procedures relating 
to the risk management controls (i.e., collateral monitor and net debit 
cap).
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    \4\ Securities Exchange Act Release Nos. 36875 (February 22, 
1996), 61 FR 7846 [File No. SR-SCCP-95-06] and 36876 (February 22, 
1996), 61 FR 7841 [SR-Philadep-95-08] (orders granting partial 
temporary approval and partial permanent approval of proposed rule 
changes to convert to same-day funds settlement systems) (``SDFS 
Approval Orders'').
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    Pursuant to the SDFS Approval Orders, Philadep provides each 
participant with a settlement amount which is an aggregate of a 
participant's end-of-day net debits and net credits in their SCCP and 
Philadep accounts.\5\ Because of this common net settlement feature, 
Philadep's SDFS Approval Order sets forth that Philadep's SDFS system 
risk management controls would be applied in a limited manner to SCCP's 
Continuous Net Settlement (``CNS'') activity. However, SCCP and 
Philadep will not suspend the processing of a participant's CNS 
activity when the participant's collateral monitor is negative or its 
net debit cap is exceeded because CNS activity is exempt from the risk 
management controls.
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    \5\ Philadep's collateral monitor and net debit cap analysis are 
structured to incorporate this netting of SCCP and Philadep 
settlements.
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    Philadep's proposed amendments to its SDFS system risk management 
procedures clarify that the collateral of a joint SCCP/Philadep 
participant that is contained in the participant's collateral monitor 
may be fully utilized by Philadep to address any settlement default of 
such joint participant. In this regard, Philadep recognizes several 
sources of collateral that may be derived to support a joint 
participant's Philadep activities as well as its SCCP CNS activities. 
Collateral derived from a SCCP CNS participant generally includes the 
participant's SCCP participants fund contribution and CNS securities 
received. Collateral derived from a Philadep participant generally 
includes the participant's Philadep participants fund contribution, 
miscellaneous delivery order interest, interest, dividend and 
reorganization credits, free receives, and proprietary positions that 
the participant designated as collateral.
    Philadep's procedures make clear that in the event of a joint 
participant insolvency or a joint participant's failure to pay its end-
of-day settlement

[[Page 8074]]

obligation, Philadep can use any and all such collateral contained in 
the participant's collateral monitor to address the default pursuant to 
Philadep's existing default procedures.
    Philadep also proposes to clarify and to amend its SDFS procedures 
relating to minimum net debit caps. Currently, the minimum net debit 
cap applied to participants' accounts is an amount equal to 50% of the 
combined Philadep and SCCP participants funds (a Philadep-only 
participant's minimum net debit cap is the amount equal to 50% of the 
Philadep participants fund). Philadep proposes to establish a minimum 
net debit cap formula which is the lesser of: (1) An amount equal to 
50% of the combined Philadep and SCCP participants funds (a Philadep-
only participant's minimum net debit cap is an amount equal to 50% of 
the Philadep participants fund); or (2) an amount equal to twice the 
participant's aggregate end-of-day settlement amounts calculated over 
the past three months. The minimum net debit cap will be recalculated 
and adjusted on a monthly basis. Furthermore, Philadep reserves the 
right to set an individual participant's minimum net debit cap at a 
level less than that computed by the above formulas if Philadep 
believes that for risk management purposes the minimum net debit cap 
should be adjusted downward.
    Philadep believes the proposed rule change is consistent with 
Section 17A of the Act and the rules and regulations thereunder because 
the proposal will assure the safeguarding of securities and funds which 
are in the custody or control of Philadep or for which it is 
responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Philadep does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    No written comments relating to the proposed rule change have been 
solicited or received. Philadep will notify the Commission of any 
written comments received by Philadep.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Section 17A(b)(3)(F) of the Act \6\ requires that 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 Philadep's 
proposed rule change clarifying certain SDFS procedures is consistent 
with Philadep's obligations because the proposal should provide 
participants with some certainty with respect to Philadep's application 
of SDFS risk management controls to CNS activity and failure to settle 
procedures. Additionally, the proposed rule change is consistent with 
Philadep's obligations because the proposal establishes a second 
minimum net debit cap formula which produces a more conservative 
minimum net debit cap for certain participants.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    Philadep has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of filing because the proposed 
rule change, which should clarify certain SDFS procedures that are 
currently being applied to participants, should become effective as 
soon as possible.\7\
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    \7\ The staff of the Board of Governors of the Federal Reserve 
System has concurred with the Commission's granting of accelerated 
approval. Telephone conversation between John Rudolph, Board of 
Governors of the Federal Reserve System, and Chris Concannon, Staff 
Attorney, Division of Market Regulation, Commission (February 13, 
1997).
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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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of Philadep. All submissions should 
refer to the file number SR-Philadep-96-15 and should be submitted by 
March 14, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-Philadep-96-15) be, and 
hereby is, approved.

    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. 97-4239 Filed 2-26-97; 8:45 am]
BILLING CODE 8010-01-M