[Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
[Notices]
[Pages 19772-19774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10422]


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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.
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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 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\
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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

    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

[[Page 19773]]

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.
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    \3\ Securities Exchange Act Release Nos. 33958 (April 22, 1994); 
59 FR 22879 (order approving proposal on temporary basis); and 35655 
(April 28, 1995), 60 FR 22423 (extension of temporary approval).
    \4\ Non-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.
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    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.
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    \5\ Where 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.
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    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 two-thirds percent or more of the total position in that 
issue.
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    \6\ A 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.
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    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

[[Page 19774]]

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\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10422 Filed 4-20-98; 8:45 am]
BILLING CODE 8010-01-M