Federal Register / Vol. 60, No. 52 / Friday, March 17, 1995 / Notices 14473

13No comments were received in connection with

the proposed rule change that implemented these

procedures. See Approval Order, supra note 4.

14 15 U.S.C. 78s(b)(2) (1988).

15 17 CFR 200.30–3(a)(12) (1991).

1 15 U.S.C. 78s(b)(1) (1988).

2For a complete description of DTC’s procedures,

refer to Securities Exchange Act Release No. 35034

(December 8, 1994), 59 FR 63396 [File Nos. SR–

DTC–94–08 and SR–DTC–94–09] (order granting

temporary approval of procedures to recall certain

deliveries which have created short positions as a

Exchange’s pilot program, the

Commission would expect the BSE to

submit comprehensive quantitative data

on the impact of stopping stock in

minimum variation markets on

customer limit orders on the specialist’s

book and to demonstrate that the

Exchange has the technological

capabilities necessary to monitor

specialist compliance with the pilot

procedures.

At a minimum, the Commission

requests that the BSE calculate (1) the

average number of limit orders and the

average number of shares on the book

ahead of the stopped stock and (2) how

much of that volume typically is

executed by the close. Similarly, the

Exchange should determine how often

limit orders against which stock is

stopped in a minimum variation market

are executed by the close of the day’s

trading. This should include a one-day

review of all book orders in the five

stocks receiving the greatest numbers of

stops.

Finally, in its order initially

approving the BSE proposal, the

Commission requested that the BSE

determine how often stopped orders

received price improvement and which

investors were most affected by the pilot

program. At this time, the Commission

believes that further information is

necessary to ensure that BSE specialists

are handling stopped orders in a manner

which is consistent with their obligation

to maintain fair and orderly markets.

Accordingly, the Exchange should

continue to monitor (1) the number of

orders stopped in minimum variation

markets; (2) the average size of such

orders; and (3) the percentage of

stopped orders that receive price

improvement.

The Commission requests that the

BSE submit a report describing its

findings on the above matters by April

15, 1995. In addition, if the Exchange

determines to request an extension of

the pilot program beyond July 21, 1995,

the BSE should submit to the

Commission a proposed rule change by

April 15, 1995.

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 thereof.

This will permit the pilot program to

continue on an uninterrupted basis. In

addition, the procedures the Exchange

proposes to continue using are the

identical procedures that were

published in the Federal Register for

the full comment period and were

approved by the Commission.13

It is therefore ordered, pursuant to

Section 19(b)(2)14 that the proposed rule

change (SR–BSE–95–03) is hereby

approved on a pilot basis until July 21,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6571 Filed 3–16–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35469; File No. SR–DTC–

95–01]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change

Seeking to Establish a Procedure to

Buy-in Securities to Eliminate

Participants’ Short Positions Older

than Ninety Days

March 10, 1995.

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

Securities Exchange Act of 1934

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

January 13, 1995, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–95–01) 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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

DTC proposes to establish a buy-in

procedure to eliminate participants’

short positions that are outstanding for

more than ninety calendar days.

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 that it received on the

proposed rule change. The test 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.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

DTC currently employs procedures to

help eliminate short positions caused by

book entry deliveries of callable

securities made between the call

publication date and the lottery

processing date and procedures to help

eliminate short positions caused by

rejected deposits.2 Under DTC rules

when DTC participants have short

positions in their accounts, DTC debits

the participants’ accounts by an amount

equal to 130% of the market value of the

short position as determined by DTC.

DTC believes collecting 130% of the

value of the short position protects DTC

against risk and provides participants

with an incentive to cover short

positions promptly. the charge is

marked to the market until the short

position is covered or matures.
14474 Federal Register / Vol. 60, No. 52 / Friday, March 17, 1995 / Notices

3 17 CFR 200.30–3(a)(12) (1994).

DTC is proposing procedures that will

permit DTC to use the short position

charge as a funding source to attempt to

buy-in securities to cover short

positions which have not been covered

by participants within ninety days.

Under the proposed procedures, once a

short position has aged beyond ninety

calendar days DTC will broadcast to

participants that have long positions in

the security an Invitation to Cover Short

Request (‘‘ICSR’’) using the Participant

Terminal System (‘‘PTS’’) operated by

DTC.

The invitations will be offered at

premiums above market value on a

sliding scale set according to the

following table:

SHORT POSITION VALUE

[Market value]

Minimum Maximum Premium percent Maximum possible premium

$1 $50,000 12 $6,000

50,001 100,000 8 8,000

100,001 300,000 5 15,000

300,001 500,000 3 15,000

500,001 UP 2 (1)

1 Unlimited.

If DTC is unsuccessful in finding a

seller through the ICSR function, long

participants will be contacted by

telephone. DTC may elect to use the

services of a broker to obtain the

securities at a price not to exceed the

current market value plus the premium

based upon the value of the short

position.

If DTC is able to buy-in some or all

of the securities needed to cover a

participant’s short position, DTC will:

(1) credit the securities to the

participant’s account, (2) reduce the

short position charges by the amount of

the purchase price of the securities

together with the expenses of the cover

transaction including any brokerage fee

or other administrative expense, and (3)

if the short position has been eliminated

entirely, credit the account of the

participant with the balance, if any, of

the short position charge.

DTC believes the proposal is

consistent with its obligation under

Section 17A of the Act to assure the

safeguarding of securities and funds

which are in its custody or control or for

which it is responsible because the

procedures are modelled on existing

DTC procedures used to eliminate short

positions of participants whose DTC

accounts have been closed.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC does not believe that the

proposed rule change will have an

impact on or impose a 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

Written comments from DTC

participants concerning an earlier

version of the proposed buy-in

procedures were solicited by a DTC

Important Notice dated July 29, 1994.

DTC received comment letters from

eleven organizations. Seven respondents

opposed the earlier proposed version of

the buy-in procedures. The

commentators raised concerns about the

potential risk of monetary loss that their

organizations and clients could incur

because of the procedures as proposed.

Five commentators viewed the offering

price range of 110–130% of market

value as excessive and/or felt that the

tiered approach (i.e., offerings starting

from 110% after ninety days, 120% after

120 days, and 130% after 150 days)

would be counterproductive as sellers

would ‘‘hold out’’ for the higher rate.

DTC revised the earlier version of the

buy-in procedure to address the

concerns raised with respect to seller

‘‘hold-outs.’’ The three-step invitation to

tender successively at 110% of the

current market value after 90 days,

120% after 120 days, and 130% after

150 days has been replaced by a single

invitation after 90 days to tender at the

current market value plus a premium

ranging from 2–12% depending upon

the current market value of the short

position.

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

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 DTC consents, the

Commission will:

(a) by order approve such 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 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, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to the file number SR–DTC–95–01

and should be submitted by April 7,

1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6572 Filed 3–16–95; 8:45 am]

BILLING CODE 8010–01–M