[Federal Register Volume 61, Number 106 (Friday, May 31, 1996)]
[Notices]
[Pages 27377-27378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13694]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37244; File No. SR-Philadep-96-07]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company; Notice of Filing of a Proposed Rule Change To Establish a 
Separate Participant Category for Inactive Accounts

May 24, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 8, 1996, the 
Philadelphia Depository Trust Company (``Philadep'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-Philadep-96-07) as described in Items I, II, and 
III below, which items have been prepared primarily by Philadep. 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) (1988).
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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 amend Philadep's 
rules to establish a separate participant category for inactive 
accounts and to amend the participants fund formulas with respect to 
such inactive accounts. Specifically, the proposed rule change will 
define the term ``Inactive Account'' and will set forth the mechanism 
for detecting a change in a participant's status from inactive to 
active and for the immediate collection of the additional required 
participants fund contribution at such time.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Philadep 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. Philadep 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

    Philadep proposes to amend its rules with respect to the minimum 
cash deposit contribution of its inactive participants to be set at the 
uniform rate of $5,000 instead of at the previously approved rate of 
$10,000.\2\ ``Inactive Accounts'' are proposed to be defined as an 
account which conducts de minimis activity, currently established to be 
less than $100 in monthly billing activities.
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    \2\ Securities Exchange Act Release No. 36876 (February 22, 
1996), 61 FR 7841 [SR-Philadep-95-08] (order granting partial 
temporary approval and partial permanent approval of a proposed rule 
change).
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    Philadep proposes to adjust its Inactive Account contribution to 
the participants fund from $10,000 to $5,000. In proposing this 
amendment, Philadep recognizes that inactive accounts pose virtually no 
risk to the clearing corporation so long as they remain in such 
inactive status. In this regard, Philadep has established procedures to 
detect a change in a participant's status from inactive to active and 
for the immediate collection of the additional required participants 
fund contribution at such time.
    Philadep will monitor its participants' account activities to 
assure that all participants post the requisite participants fund 
contributions. Philadep evaluates the nature and financial integrity of 
all participants of Philadep, even if they initially establish only 
Inactive Accounts. Philadep evaluates prospective participants, 
develops a customer profile, assesses the firm's capital adequacy, 
determines the initial participants fund contribution, contacts the 
firm's Designated Examining Authority for a review of its regulatory 
history, and presents any and all pertinent information collected to 
Philadep's Admissions Committee. The Admissions Committee ultimately 
makes the determination about whether to admit the participants and 
directs managements where appropriate to gather additional information 
so that the Committee can make such a determination. After admission, 
Philadep monitors participants' account activities to assure that the 
proper participants fund contribution is being collected from each 
participant.
    Specifically with respect to Inactive Accounts, Philadep's Finance 
and Administration (``F&A'') Department will identify for Philadep's 
Operations Department which specific accounts are currently inactive. 
Thereafter, the Operations Department will monitor on a daily basis a 
report which reflects daily deposit, transfer, and miscellaneous 
deliver order (``MDO'') activity of such Inactive Accounts. 
Specifically, the Operations Department will generate a report that 
maintains cumulative total of deposits, transfers, and MDOs occurring 
in each Inactive Account for each monthly billing cycle.\3\ If that 
total exceeds forty but is less than seventy-five for any Inactive 
Account in any given month, the Operations Department will immediately 
notify the F&A Department and Philadep's compliance officer. The F&A 
Department will verify this activity and will immediately call and send 
a letter to the affected participant informing the participant that it 
must wire the additional participants fund contributions associated 
with an active account by the next business day or cease doing any 
further activity in the account for the remainder of the month. If the 
participant's total exceeds seventy-five transfers, deposits, and MDOs, 
the participants must wire additional participants fund contributions 
associated with an active account by the next business day. The 
seventy-five count threshold serves as a reliable proxy to determine 
$100 of billing activity. In this regard, the most expensive activity 
among deposits, transfers, and MDOs, multiplied by 75, typically 
generates less than $100 in monthly billings. A participant's failure 
to wire the additional participants fund contributions in compliance 
with the aforementioned procedures subjects the participant to a $500 
fine for the first offense and a $2,000 fine for the second offense 
occurring during the same calendar year. If the participant does not 
wire the additional participants fund contribution to Philadep by the 
next business day, Philadep will disallow

[[Page 27378]]

any further business in the account beginning on the next business day 
after the additional contribution was due. Accordingly, an offense as 
contemplated by the foregoing fine schedule refers to the number of 
times that the account was inactivated from conducting any further 
business for failure to furnish Philadep with the additional 
contribution during a calendar year.
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    \3\ This report will be distribute on a daily basis to Philadep 
management and Philadep's compliance officer.
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    Once active, an account will be routinely subject to the normal 
review and update process on a monthly basis, and the F&A Department 
will recalculate each participant's participants fund deposit 
requirement at the end of each month based upon the participant's 
previous three months activity, prior to the most recent month.
    Philadep believes the proposed rule change is consistent with 
Section 17A of the Act and the rules and regulations thereunder because 
the proposal should help to safeguard securities and funds in their 
custody or control or for which they are responsible and foster 
cooperation and coordination with persons engaged in the clearance and 
settlement of securities transactions.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Philadep believes that the proposed rule change will not impose any 
burden on competition not contemplated within the parameters of the 
Act.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

    No written comments relating to the proposed rule change have been 
received. Philadep will notify the Commission of any written comments 
received by Philadep.

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 Philadep 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, 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of Philadep. All 
submissions should refer to the file number SR-Philadep-96-07 and 
should be submitted by June 21, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13694 Filed 5-30-96; 8:45 am]
BILLING CODE 8010-01-M