[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Notices]
[Pages 13729-13730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7193]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38404; File No. SR-DTC-97-03]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Modify the Receiver Authorized Delivery and Reclamation Procedures 
for Payment Orders

March 14, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 4, 1997, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-97-03) 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

    The purpose of the proposed rule change is to modify DTC's Receiver 
Authorized delivery (``RAD'') procedures and reclamation procedures 
with respect to payment orders.

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\
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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

    The purpose of the proposal is to modify DTC's RAD procedures and 
reclamation procedures with respect to payment orders. DTC proposes (1) 
To reduce the minimum bilateral RAD threshold for payment orders from 
$15 million to $1 million, (2) to modify a Participants Terminal System 
(``PTS'') function (RADL) to enable a participant to set a different 
RAD limit for payment orders and deliver orders for each contra-
participant, and (3) to allow only matched reclaims of payment orders 
with a value less than $1 million to bypass risk management controls 
(i.e., collateral monitor and net debit caps). DTC is proposing this 
rule change in order to reduce the risk to DTC and its participants of 
failure-to-settle situations.
    In 1995, DTC modified its RAD procedures in preparation for the 
same-day funds settlement (``SDFS'') conversion.\3\ The modifications 
to RAD procedures established a $15 million minimum bilateral RAD limit 
one participant can impose on another participant. Under the modified 
procedure, the receiver of a payment order with a value of less than 
$15 million generally does not have an opportunity to review and 
approve the transaction.\4\ The RAD modifications were implemented to 
minimize the number of transactions subject to RAD and the related 
possibility for transaction blockage once all activities were converted 
to SDFS.
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    \3\ Securities Exchange Act Release No. 35720 (May 16, 1995), 60 
FR 27360 [File No. SR-DTC-95-06] (order granting accelerated 
approval of a proposed rule change modifying DTC's SDFS system).
    \4\ Original payment orders submitted between 3:00 p.m. and 3:20 
p.m. are subject to RAD regardless of their settlement value.
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    DTC also modified its reclamation procedures in preparation for the 
SDFS conversion and in conjunction with the modifications to RAD 
procedures to ensure that this policy did not cause undue burden on 
participants.\5\ Under the modified reclamation procedures, a matched 
reclaim \6\ of a payment order or deliver order with a settlement value 
less than $15 million is currently not subject to risk management 
controls.
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    \5\ Securities Exchange Act Release No. 36476 (November 9, 
1995), 60 FR 57728 [File No. SR-DTC-95-16] (notice of filing and 
order granting accelerated approval of a proposed rule change 
relating to the modification of DTC's reclamation procedures).
    \6\ A reclaim is deemed to be ``matched'' if its corresponding 
original delivery was processed on the current processing day or the 
preceding business day.
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    However, payment orders differ from deliver orders because payment 
orders are ``money-only'' transactions and do not involve securities. 
When a payment order is processed, the receiver of the payment order 
receives a settlement debit but does not receive any securities that 
could serve as collateral for the debit incurred. Similarly, if a 
payment order is reclaimed, the receiver of the reclamation incurs a 
debit without receiving offsetting securities as collateral. DTC has 
determined that there is more risk inherent in the reclamation of 
payment orders than in the reclamation of deliver orders because the 
reclamation of payment orders would more likely cause a participant's 
account to become undercollateralized. Therefore, DTC believes that a 
more conservative approach with respect to RAD procedures and 
reclamation procedures is appropriate for payment orders.
    Under the proposed rule change, RAD procedures and reclamation 
procedures for payment orders will be modified as follows: (1) the 
minimum bilateral RAD threshold for payment orders will be reduced to 
$1 million from $15 million; (2) the PTS function (RADL) will be 
modified to enable a participant to set a different RAD limit for 
payment orders

[[Page 13730]]

and deliver orders for each contra-participant; and (3) matched 
reclaims of payment orders with a value less than $1 million will not 
be subject to risk management controls.
    DTC does not anticipate that these modifications will cause 
significantly greater transaction volume. Approximately 98.5% of 
payment orders processed by DTC are valued at an amount less than $1 
million. Furthermore, DTC estimates that approximately 600-800 payment 
orders of the 50,000 payment orders processed by DTC on a daily basis 
could potentially be subject to the proposed RAD approval procedures.
    DTC believes that the proposed rule change is consistent with 
Section 17A of the Act \7\ and the rules and regulations thereunder 
because it will provide for the equitable allocation of dues, fees, and 
other charges among participants.
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    \7\ 15 U.S.C. 78q-1.
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(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

    On December 13, 1996, DTC sent its participants an Important Notice 
describing the proposed rule change. The proposed rule change has been 
discussed with a limited number of participants. None of the 
participants with whom DTC discussed the proposed rule change expressed 
any opposition to its adoption. Written comments from DTC participants 
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)(iii) \8\ of the Act and pursuant to Rule 19b-4(e)(6) \9\ 
promulgated thereunder because the proposed rule is effecting a change 
that: (1) does not significantly affect the protection of investors or 
the public interest; (2) does not impose any significant burden on 
competition; (3) does not become operative for thirty days from the 
date of its filing on February 4, 1997, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; and (4) was provided to the Commission for its 
review at least five days prior to the filing date. At any time within 
sixty days of the filing of the 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 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(e)(6).
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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, NW., 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, NW., Washington, 
D.C. 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of DTC. All submissions should 
refer to File No. SR-DTC-97-03 and should be submitted by April 11, 
1997.

    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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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7193 Filed 3-20-97; 8:45 am]
BILLING CODE 8010-01-M