19772 Federal Register / Vol. 63, No. 76 /Tuesday, April 21, 1998 / Notices

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

2The Commission has modified the text of the

summaries prepared by DTC.

3Securities Exchange Act Release Nos. 33958

(April 22, 1994); 59 FR 22879 (order approving

proposal on temporary basis); and 35655 (April 28,

1940 Act pursuant to Section 17(b) of

the 1940 Act.

3. Section 17(b) of the 1940 Act

provides that the Commission may grant

an order exempting a transaction

prohibited by Section 17(a) of that Act

upon application if evidence establishes

that: (a) The terms of the proposed

transaction, including the consideration

to be paid or received, are reasonable

and fair and do not involve

overreaching on the part of any person

concerned; (b) the proposed transaction

is consistent with the policy of each

registered investment company

concerned, as recited in its registration

statement or reports filed under the

1940 Act; and (c) the proposed

transaction is consistent with the

general purposes of the 1940 Act.

4. Applicants represent that the terms

of the Proposed Transfer, as described

in the application, are reasonable and

fair (including the consideration to be

paid and received), do not involve

overreaching, are consistent with the

investment policies of the Fund, and are

consistent with the general purposes of

the 1940 Act.

5. Applicants believe that the

Proposed Transfer would benefit the

Fund in several ways. Usually, when a

new series of an investment company is

established, expenses remain relatively

high and investments are limited until

the asset size of the new series reaches

a high enough level to support expenses

and permit the necessary latitude in

investment discretion. The Proposed

Transfer of all of the assets of the

Separate Account (valued at

approximately $68 million as of

December 31, 1997) to the Fund would

avoid these problems. The Proposed

Transfer would be effected in

conformity with Section 22(c) of the

1940 Act and Rule 22c–1 thereunder.

Therefore, after the Proposed Transfer,

the Separate Account Contractholders

would have interests that, in practical

economic terms, do not differ in any

measurable way from such interests

immediately prior to the Proposed

Transfer. The Proposed Transfer would

not require liquidation of any assets of

the Separate Account or Transamerica

Investors because the transfer would

take the form of an exchange of portfolio

securities of the Separate Account for

shares of the Fund. Because the

investment policies and restrictions

under the Separate Account are in

substance identical prior to and

following the Proposed Transfer, the

only sales of the Separate Account

assets following the Proposed Transfer

would be those arising in the ordinary

course of business. Therefore, neither

the Separate Account nor Transamerica

Investors will incur any extraordinary

costs, such as brokerage commissions,

in effecting the transfer of assets, as

would be the case if the Separate

Account were required to liquidate its

portfolio in order to purchase shares of

the Fund, and the Fund, in turn, were

to use such purchase proceeds for

investment in portfolio securities.

Moreover, the Separate Account might

be forced to sustain losses caused by the

untimely sale of one or more of its

portfolio securities. On the basis of the

foregoing, the Applicants submit that

the terms of the Proposed Transfer are

reasonable and fair and do not involve

overreaching, and that there is no

inadequacy of consideration to be

received by any party to the transaction.

6. The investment objective of the

Fund, the shares of which would be

issued to the Separate Account in

exchange for assets of the Separate

Account, would be, in substance,

identical to the investment objectives of

the Separate Account immediately

preceding the Proposed Transfer.

Accordingly, the transfer of the assets of

the Separate Account to the Fund,

which assets have been purchased

under the investment objectives,

policies and restrictions identical to

those of the Fund, would be consistent

with the objectives and policies of the

Fund.

7. Applicants submit that the

Proposed Transfer would be consistent

with the general purposes of the 1940

Act by avoiding the possibility that the

Fund or the Separate Account would

incur unnecessary expenses or losses in

connection with the Proposed Transfer.

Conclusion

Applicants, for the reasons

summarized above, represent that the

terms of the Proposed Transfer meet all

of the requirements of Section 17(b) of

the 1940 Act and that an Order should

be granted exempting the Proposed

Transfer from the provisions of Section

17(a), to the extent requested.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–10501 Filed 4–20–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39861; SR–DTC–97–21]

Self-Regulatory Organizations; the

Depository Trust Company; Notice of

Filing of Proposed Rule Change

Relating to Modification of Processing

Bankers’ Acceptances

April 14, 1998.

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

Securities Exchange Act of 1934

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

October 14, 1997, the Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’), and on November 6,

1997, and February 23, 1998, amended

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 plan for processing bankers’

acceptances (‘‘BAs’’) to provide for

fungibility of an accepting bank’s issues

that are issued at a discount and that

mature on the same day.

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

In 1994, the Commission approved an

expansion of DTC’s money market

instruments (‘‘MMI’’) settlement

program to include, among other things,

BAs,3 which allowed DTC to process
Federal Register / Vol. 63, No. 76 /Tuesday, April 21, 1998 / Notices 19773

1995), 60 FR 22423 (extension of temporary

approval).

4Non-fungible BAs consist of those with only one

underlying customer, draft, and accepting bank. A

CUSIP number is assigned to each BA as opposed

to a bundle of BAs, as is currently proposed by the

rule change.

5Where the component drafts have different

maturity dates, the bank issuing fungible BAs will

be required to pay full maturity on the earliest date

that component draft matures.

6A participant having a position on DTC’s books

in an issue of fungible BAs accepted by the

insolvent bank would receive component drafts

with each draft in an amount proportional to the

participant’s position in that issue.

non-fungible BAs.4 The purpose of the

proposed rule change is to modify

DTC’s procedures to allow an accepting

bank, at its option, to assign one CUSIP

number to a bundle of its BAs that are

issued at a discount and that have the

same maturity date. DTC will treat all

such BAs assigned the same CUSIP

number as fungible.

Under existing practices in the BAs

market, an issuing bank and an investor

may agree that a single issuance

transaction can be settled by the bank’s

delivery of a bundle of drafts, which

may involve different drawers, different

underlying transactions, different goods,

or different countries of origin or

destination, so long as each component

draft has been accepted by the issuing

bank and has the same maturity date.

Industry participants have requested

that DTC’s proposed processing rules

reflect this current market practice for

trading BAs.

The proposed program for processing

BAs will provide for an issuing bank to

settle a single issuance transaction by

book-entry delivery of interests in a

bundle of drafts accepted by the bank,

maturing on the same date, and

identified by a single CUSIP number.

Subsequent to the initial issuance of

these fungible BAs, the issuing bank

may increase the total amount of the

issue outstanding by including

additional accepted drafts of the same or

longer tenure as the other component

drafts.5 Similarly, the issuing bank may

substitute for a component draft of an

outstanding issue of fungible BAs

another accepted component draft

having the same or longer maturity date.

DTC will make available to participants

through its Participant Terminal System

inquiry function information about the

features (e.g., identity of drawer, goods,

country of origin, and destination) of

each component draft of fungible BAs

that has been provided by the bank’s

issuing agent as of the date of the

inquiry.

Market participants will remain

responsible for complying with

regulations of the U. S. Treasury

Department’s Office of Foreign Assets

Control (‘‘OFAC’’) as they pertain to

DTC-eligible BAs. In providing issuance

instructions to DTC, the bank’s issuing

agent will be required to acknowledge

that the issuance complies with OFAC

regulations, if that is the case. The

acknowledgement shall constitute a

representation by the issuing agent that

it maintains an appropriate system for

assuring compliance with OFAC

regulations and that the subject issuance

complies with those regulations.

The bank’s issuing agent will also be

required to indicate in the issuance

instructions whether or not the BAs

being issued are eligible for purchase

and discount at a federal reserve bank.

As with information concerning other

kinds of issues distributed through DTC,

DTC will make the information

available to participants but will not

verify the accuracy of information

provided by the issuing agent with

respect to the BAs. DTC will not be

liable for any loss related to the

accuracy or completeness of information

about BAs made available by it.

In the event of the accepting bank’s

insolvency, DTC’s MMI program

procedures relating to MMI issuer

insolvency will apply. Furthermore, in

order to put participants in a position to

independently pursue claims against the

bank or any other party (e.g., the drawer

of an accepted draft), DTC will seek to

have accepted drafts which had been

made payable or endorsed to DTC’s

nominee, Cede & Co., at the time the

BAs were first issued, exchanged for

accepted drafts made payable or

endorsed to each participant having a

position in each issue of the bank’s

BAs.6 If DTC is unable to arrange for

such exchanges, DTC will act, with

respect to matters involving each issue

of BAs (i.e., CUSIP), in accordance with

the written instructions of the

participants having sixty-six and twothirds percent or more of the total

position in that issue.

As with other types of financial

instruments in DTC’s MMI program, for

purposes of collateral valuation, BAs

rated in one of the top two ratings

categories by at least one of the largest

bank-debt rating agencies and

investment grade or above by other

rating agencies will receive a two

percent haircut from market price. BAs

rated as investment grade only by the

ratings agencies will receive a five

percent haircut and all lower-rated or

unrated BAs will receive a 100 percent

haircut (resulting in zero collateral

value). DTC will not accept for

eligibility BAs that are in default.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because it promotes the

prompt and accurate 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 that is 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

No comments on the proposed rule

change were solicited or received.

However DTC worked closely with a

task force of The Bond Market

Association, which task force was

comprised of DTC participants, in

developing the modified processing

plan.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five days of the date of

publication of this notice in the Federal

Register or within such longer periods

(i) as the Commission may designate up

to ninety days of such date if it finds

such longer period to be appropriate

and publishes its reasons for so finding

or (ii) as to which the self-regulatory

organization consents, the Commission

will:

(a) By order approve the proposed

rule change or

(b) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

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
19774 Federal Register / Vol. 63, No. 76 /Tuesday, April 21, 1998 / Notices

7 17 CFR 200.30–3(a)(12).

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

2The Commission has modified parts of these

statements.

3 GSCC’s Rule 4, Clearing Fund, Margin, and Loss

Allocation.

4For example, if the contract value exceeds the

market value, the mark to the market amount will

be collected from the buyer and paid to the seller.

Conversely, if the market value exceeds the contract

value, the mark to the market amount will be

collected from the seller and paid to the buyer.

5 GSCC is authorized to pay FOS obligations to

members by 10:00 a.m. eastern time (‘‘ET’’).

Members must satisfy clearing fund deficiences by

the later of two hours after the receipt of GSCC’s

call or 10:00 a.m. ET. However, if the notification

is not made earlier than two hours before the close

of the cash FedWire, members may satisfy the calls

on the next business day.

6 GSCC does not plan to exercise the offset right

unless it has a significant FOS obligation to a

member (i.e., $5 million or more) and the member

has a significant clearing fund deficiency (i.e., $5

million or more).

7 GSCC currently plans to set the preestablished

time at fifteen minutes before GSCC’s deadline to

make its own FOS payments to members.

8 15 U.S.C. 78q–1(b)(3)(F).

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–97–21 and

should be submitted by May 12, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–10422 Filed 4–20–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39860; File No. SR–GSCC–

98–01]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change Relating to

Funds-Only Settlement Payment

Procedures

April 14, 1998.

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

Securities Exchange Act of 1934

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

February 17, 1998, the Government

Securities Clearing Corporation

(‘‘GSCC’’) 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 GSCC.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will amend

GSCC’s rules regarding funds-only

settlement (‘‘FOS’’) payments

procedures to permit GSCC to retain

significant FOS payments it owes to a

member to offset such amounts against

any significant clearing fund deposit

obligation the member owes to GSCC.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Purposed Rule

Change

In its filing with the Commission,

GSCC 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. GSCC 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

Two important elements of GSCC’s

risk management process are the daily

calculation and collection of clearing

fund deposit deficiency amounts and of

mark to the market margin. The amount

of a member’s clearing fund deposit

generally is the sum of (1) the absolute

value of its average FOS amounts, (2)

the highest of several margin

calculations using the absolute value of

each of the member’s net settlement

positions, and (3) the highest of two

volatility calculations using the market

value of each repo transaction that

comprises its outstanding net settlement

position.3 The mark to the market

collections are included as part of

GSCC’s FOS payment procedures and

are calculated and collected on every

forward settling position (i.e., a position

not scheduled to settle the next day).

The calculated mark to the market

amount is collected from a member with

a debit and paid to a member with a

credit.4

At times, GSCC is obligated to pay a

member a FOS amount on a day on

which that member also has a clearing

fund deficiency call. Pursuant to its

rules, GSCC is required to make the FOS

payment to such a member prior to the

time the member must make its clearing

fund deficiency payment to GSCC.5 This

results in exposure to GSCC and its

members for a period of time due to the

potential that the member will fail after

it has received a FOS payment from

GSCC but before it has satisfied the

clearing fund deficiency call. The

proposed rule change will permit GSCC

to retain FOS payments it owes to a

member and to offset such amounts

against any clearing fund deposit

obligation the member owes to GSCC.6

Under the proposed amendment to

Rule 13 Section 5, GSCC will be entitled

to retain the lesser of the FOS amount

or the amount of the clearing fund call

(or the entire FOS amount if the

difference between the amounts is zero)

and apply it to the member’s clearing

fund deposit requirement. If a member

pays all or a portion of its clearing fund

deficiency in any type of eligible

collateral by a preestablished time

before GSCC’s deadline to make its own

FOS payments to members,7 GSCC will

only be entitled to offset its FOS

obligation to the member against the

member’s remaining clearing fund

deficiency. Pursuant to GSCC’s existing

rules, a member will have the right to

substitute eligible collateral for any cash

that GSCC applies to its clearing fund

deposit as a result of an offset.

GSCC believes that the proposed rule

change is consistent with Section

17A(b)(3)(F) because the proposed rule

change should enhance its risk

management process by increasing

settlement efficiency and reducing

payment related risks to GSCC and its

members.8

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments relating to the

proposed rule change have not yet been

solicited or received. GSCC will notify

members of the rule change filing and

comments will be solicited by an

important notice. GSCC will notify the

Commission of any written comments

received by GSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to