[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Notices]
[Pages 2852-2853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1474]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35750; File No. SR-DTC-95-18]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Seeking to Establish a Coupon 
Collection Service for Municipal Bearer Bonds

January 22, 1996.
    On September 18, 1995, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-95-18) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ On October 30, 1995, DTC 
filed an amendment to the proposed rule change.\2\ Notice of the 
proposal was published in the Federal Register on December 11, 1995.\3\ 
No comment letters were received. For the reasons discussed below, the 
Commission is approving the proposed rule change.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Letter from Piku K. Thakkar, Assistant Counsel, DTC, to Mark 
Steffensen, Esq., Division of Market Regulation (``Division''), 
Commission (October 26, 1995).
    \3\ Securities Exchange Act Release No. 36545 (December 1, 
1995), 60 FR 63554.
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I. Description

    The proposed rule change establishes a service for the collection 
of interest relating to the coupons from municipal bearer bonds. This 
service includes collection of coupons which are due in the future as 
well as past-due coupons for DTC eligible and ineligible municipal 
issues payable in the United States. Past-due coupons will be accepted 
for up to three years after the payable date.
    DTC participants using this service must deposit coupons in a 
standard 

[[Page 2853]]
sealed envelope or ``shell'' with no more than 200 coupons contained in 
any one shell.\4\ Mutilated coupons must be guaranteed by the 
depositing participant and placed into separate shells.\5\ DTC requires 
that each shell contain the following information on its face: (i) 
CUSIP number; (ii) a description of the issue including municipality, 
state, purpose, series, date of issue, and maturity date; (iii) payable 
date; (iv) quantity of coupons enclosed; (v) dollar value of individual 
coupons; (vi) total shell value; (vii) participant number; and (viii) 
contact name and telephone number of the depositing participant. All 
shells must be accompanied by a completed deposit ticket that includes: 
(i) DTC participant number; (ii) shell quantity; (iii) total dollar 
value; (iv) CUSIP number per shell; (v) coupon quantity per shall; (vi) 
dollar value per shell; and (vii) whether the coupons are payable on a 
future date or are pastdue.\6\

    \4\ Only coupons for the same CUSIP number, series, and payable 
date can be enclosed in any one shell.
    \5\ The depositing participant will guarantee the validity of 
the coupon number, bond number, payable date, and payable amount of 
the mutilated coupon by a stamp affixed to the coupon executed by an 
authorized officer of such participant. In cases of a badly 
mutilated coupon, DTC may require a letter of indemnity. In the 
event a paying agent rejects a mutilated coupon, DTC will reverse 
any credit made to the depositing participant's account with respect 
to such coupon. Telephone conversation between Piku K. Thakkar, 
Assistant Counsel, DTC; Ann Reich, DTC; and Mark Steffensen, 
Attorney, Division, Commission (October 17, 1995).
    \6\ When payments on the coupons are due in the future, each 
deposit ticket can have up to 50 shells attached to it, but all of 
the coupons in each of the attached shells must have the same 
payable date. For past-due coupons, shells with different payable 
dates may be listed on the same deposit ticket. Letter from Piku K. 
Thakkar, Assistant Counsel, DTC, to Mark Steffensen, Esq., Division, 
Commission (October 26, 1995).
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    DTC will verify the number of shells listed on the deposit ticket 
and will give the depositing participant a time-stamped copy of the 
ticket. If the number of shells listed on the deposit ticket does not 
agree with the physical number of shells, DTC will immediately reject 
the entire deposit and will return it to the participant. DTC will 
neither inspect nor verify shells' contents prior to presentation to 
paying agents. The depositing participant is responsible for the 
integrity of the shells' contents. In the event of a coupon shell loss, 
the participant must provide DTC with a full description (including 
certificate numbers) of the coupons contained in the shell.
    The paying agent may reject and return coupons to DTC for a variety 
of reasons. The most common reasons for rejection are likely to 
include: (i) mixed shell contents including mixed payable dates, mixed 
series or purposes, or mixed maturity years; (ii) incorrect count of 
shell contents; (iii) called certificate; (iv) mutilated coupon; (v) 
stopped certificate; \7\ or (vi) issue in default.

    \7\ A stopped certificate is a certificate for which a stop 
transfer instruction has been requested. A stop transfer instruction 
typically is initiated as the result of a lost or stolen stock 
certificate. Telephone conversation between Piku K. Thakkar, 
Assistant Counsel, DTC, and Mark Steffensen, Attorney, Division, 
Commission (September 26, 1995).
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    DTC will pass rejected shells to its participants in the form 
received from the paying agent together with any paying agent 
documentation. DTC will not inspect or verify the contents of rejected 
shells. For shells rejected after the payable date, DTC will debit 
appropriate funds from the depositing participant's account on the day 
the rejected coupons are returned to the participant.
    DTC will credit interest to its participants on the payable date 
for coupons that are deposited (i) at least eight business days prior 
to payable date if the paying agent for the coupons is located outside 
of New York City or (ii) at least five business days prior to the 
payable date if the paying agent is located in New York City. Coupons 
not deposited within the time frames described above and past-due 
coupons will be credited to participants (i) ten business days 
following the date of deposit if the paying agent is located outside 
New York City or (ii) seven business days following the date of deposit 
if the paying agent is located in New York City.\8\

    \8\ DTC will accept past-due coupons into the coupon selection 
service program for up to three years after the original coupon 
payment date.
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    DTC will credit the accounts of its depositing participants on the 
foregoing payable dates without regard to whether DTC actually has 
received payment from the issuer or paying agent as of such date.\9\ 
All coupons deposited after 11 a.m. will be considered to be received 
the following business day. In addition, during the first quarter of 
1996, DTC will make available a new Participant Terminal System 
(``PTS'') function which will enable DTC participants to view the 
status of their coupon deposits.

    \9\ According to DTC, payments due DTC from issuers and paying 
agents are received on or before the payable date between 97 and 98 
percent of the time. Typically, late payments are the result of 
transmission problems or equipment failure which is unrelated to the 
ability of the issuer or paying agent to actually make such 
payments. Telephone conversation between Piku K. Thakkar, Assistant 
Counsel, DTC; Ann Reich, DTC; and Mark Steffensen, Attorney, 
Division, Commission (October 17, 1995).
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    DTC will charge its participants the following fees for this 
service:


Shells deposited a minimum of 15 days before payable date......    $4.50
Shells deposited less than 15 days before payable date                  
 (including past-due coupons)..................................     5.25
Rejected shells................................................    15.00
                                                                        

II. Discussion

    Section 17A(b)(3)(F) \10\ of the Act requires that the rules of a 
clearing agency be designed to remove impediments to and to perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions and to promote the prompt and 
accurate clearance and settlement of securities transactions. The 
Commission believes that DTC's proposed rule change is consistent with 
DTC's obligations under the Act because the new service presents a more 
efficient method of settling the payment of bearer bond coupons and 
should allow DTC participants to reduce the labor needed to deal with 
may different issuers or paying agents in connection with the 
collection of coupons and the receipt of interest payments. 
Furthermore, DTC participants should be better able to track the status 
of the coupon receipt and interest payment process because these 
activities will be reported directly to them through the new PTS 
function.

    \10\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-95-18) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1474 Filed 1-26-96; 8:45 am]
BILLING CODE 8010-01-M