Federal Register / Vol. 61, No. 4 / Friday, January 5, 1996 / Notices 429

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

2For a complete description and discussion of the

procedures designed to eliminate short positions

caused by call lotteries or rejected deposits, refer to

Securities Exchange Act Release Nos. 30552 (April

2, 1992), 57 FR 12352 [File No. SR–DTC–90–02]

(order granting temporary approval through April 1,

1994, of DTC’s procedures to recall certain

deliveries that have created short positions as a

result of call lotteries); 35034 (November 30, 1994),

59 FR 63396 [File Nos. SR–DTC–94–08 and SR–

DTC–94–09] (ordering granting temporary approval

through May 1, 1995, of DTC’s procedures to recall

certain deliveries that have created short positions

as a result of call lotteries and rejected deposits);

and 35940 (July 6, 1995), 60 FR 36318 [File No. SR–

DTC–95–07] (order granting temporary approval

through December 31, 1995, of DTC’s procedures to

recall certain deliveries that have created short

positions as a result of call lotteries and rejected

deposits).

3The Commission has modified the text of the

summaries submitted by DTC.

4Callable securities are either preferred stock or

bonds which the issuer is permitted or required to

redeem before the stated maturity date at a specified

price.

5The call publication date is the date on which

the issuer gives notice of redemption.

6 DTC has established a lottery process to allocate

called securities in a partially called issue among

participants having positions in the issue. DTC

allocates the called securities among participants

that had positions in the issue on the call

publication date rather than on the day when the

lottery is held. For a description of DTC’s lottery

processing procedures, refer to Securities Exchange

Act Release No. 21523 (November 27, 1984), 49 FR

47352 [File No. SR–DTC–84–09].

7Under DTC procedures, a participant depositing

securities receives immediate credit in its securities

account (i.e., before the certificates are sent to the

transfer agent for transfer and registration in DTC’s

nominee name). Once the participant’s account is

credited, the securities are available to the

depositing participant for deliveries, withdrawals,

and pledges. If the transfer agent rejects a deposit

after the depositing participant has made a bookentry delivery of the credited securities, elimination

of the credit from the participant’s account may

create a short position.

8 If the securities are rejected by the transfer agent

after ninety days of the deposit for registered

securities and after nine months for bearer

securities, the participant will not be able to recall

the book-entry delivery and the participant’s

account will remain short.

9The intervention request must be submitted to

DTC no later than twenty-five days after the original

reclamation request was made.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

FR Doc. 96–174 Filed 1–4–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36651; File No. SR–DTC–

95–21]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Order Granting Accelerated

Permanent Approval of a Proposed

Rule Change Concerning Short

Position Reclamation Procedures

December 28, 1995.

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

Securities Exchange Act of 1934

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

November 9, 1995, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–95–21) as

described in Items I and II below, which

items have been prepared primarily by

DTC. The Commission is publishing this

notice and order to solicit comments on

the proposed rule change from

interested persons and to grant

permanent approval of the proposed

rule change on an accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change seeks

permanent approval of DTC’s existing

procedures for the recall of securities

deliveries that have created short

positions as a result of call lotteries or

rejected deposits. The Commission

previously granted temporary approval

to proposed rule changes establishing

DTC’s procedures for the recall of

certain deliveries which have created

short positions as a result of call

lotteries or rejected deposits.2

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 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.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The proposed rule change seeks

permanent approval of procedures that

(1) enable a participant to recall bookentry deliveries of callable securities 4 if

the participant’s account becomes short

as a result of deliveries made between

the call publication date 5 and the date

of DTC’s call lottery 6 and (2) enable a

participant to recall securities deliveries

that have created short positions as a

result of rejected deposits.7 The

proposed rule change is part of a

program that is being implemented at

the request of participants and securities

industry groups to eliminate short

positions.

Pursuant to DTC’s proposal, a

participant with a short position created

either because of a delivery made

between the call publication date and

the date of DTC’s lottery or because of

a rejected deposit may initiate the recall

process within ten business days of the

creation of the short position by sending

a broadcast message directly to the

receiver of the book-entry delivery.8

Participants are able to transmit this

message through DTC’s Participant

Terminal System network. The

receiving participant will have five

business days to comply with the recall

request if it has a position in that

security at DTC. If the receiving

participant no longer has such a

position at DTC, it must comply with

the recall request within fifteen business

days. If the short position is less than

the amount of the delivery, the receiver

has the option to return the entire

delivery or just a portion equal to the

delivering participant’s short position. If

the receiving participant does not

comply with the recall request within

the applicable time, the recalling

participant may request DTC’s

intervention.9 Recalls will reverse only

the book-entry delivery while the

original transaction still must be settled

by the delivering and receiving

participants (i.e., the delivering

participant still must deliver securities

to the receiving participant).

DTC believes that the reclamation

procedures have been effective in

reducing short positions caused by call

lotteries and rejected deposits. Through

September 1995, a total of 287 short

positions valued at $54,289,000 have

been eliminated through the use of the

reclamation procedures.

DTC believes the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because the rule proposal

seeks to make permanent procedures

that should help reduce the number of

short positions created either by call

lotteries or by rejected deposits and thus

should assure the safeguarding of

securities and funds which are in the

custody and control of DTC or for which

DTC is responsible.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC does not believe that the

proposed rule change will impact or

impose a burden on competition.
430 Federal Register / Vol. 61, No. 4 / Friday, January 5, 1996 / Notices

10 15 U.S.C. 78q–1(b)(3)(F) (1988).

11Securities Exchange Act Release No. 26896

(June 5, 1989), 54 FR 25185 [File No. SR–DTC–89–

07] (order approving a proposed rule change

concerning invitations to tender to cover short

positions).

12 15 U.S.C. 78q–1(b)(3)(F) (1988).

13The Commission was concerned with the

proposal’s impact on broker-dealers’ compliance

with Rule 15c3–3 under the Act [17 CFR 240.15c3–

3]. This rule requires broker-dealers to obtain and

thereafter to maintain physical possession or

control of fully-paid securities and excess margin

securities carried by a broker-dealer for the account

of a customer [17 CFR 240.15c3–3(b)(1)]. If as a

result of a recall procedure, DTC reverses the

delivery of a security that is a fully-paid or excess

margin security at the receiving broker-dealer

participant, the participant could incur a deficit in

the number of securities that should be under its

physical possession or control.

14 17 CFR 200.30–3(a)(12) (1994).

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

2Letters from Julie Beyers, Associate Counsel,

ISCC, to Michele Bianco, Division of Market

Regulation, Commission (December 12, 1995, and

December 13, 1995).

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments have been

solicited or received. DTC will notify

the Commission of any written

comments received by DTC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act 10

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible. The Commission believes

that DTC’s short position reclamation

procedures are consistent with DTC’s

obligations under Section 17A(b)(3)(F)

because the proposed procedures

should help DTC assure the

safeguarding of securities and funds by

reducing the number of outstanding

short positions at DTC created either by

call lotteries or by rejected deposits.

Under the DTC’s procedures,

participants are obligated to cover their

short positions immediately. As an

incentive to cover a short position as

soon as possible and as a cushion to

protect DTC in the event of a sharp rise

in the market price of the security, DTC

participants are assessed a daily charge

of 130% of the market value of each

security for which the participant has a

short position at DTC.11 With this rule

change, DTC should further reduce its

risk of loss by allowing DTC

participants to recall certain deliveries

which have resulted in short positions

which should further reduce the total

number of outstanding short positions.

Thus, the proposal is consistent with

Section 17A(b)(3)(F) 12 of the Act in that

it should help DTC to reduce its risk of

loss and thereby should enhance DTC’s

ability to safeguard securities and funds

under its control.

Because the Commission was

concerned that the proposed

reclamation procedures could

inadvertently cause broker-dealers to

create possession or control deficits,13

the Commission previously approved

the proposed rule change on a

temporary basis in order that the

reclamation procedures could be

carefully monitored before they were

approved permanently. The

Commission is now permanently

approving the reclamation procedures

because during the temporary approval

period the Commission has not received

any reports of possession or control

deficit problems caused by the

procedures.

DTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing. The

Commission finds good cause for so

approving the proposed rule change

because the Commission has noticed the

procedures on several separate

occasions without receiving any

comment letters and because

accelerated approval will allow DTC

participants to continue to utilize the

procedures without any disruption

when the current temporary approval

expires.

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. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 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 DTC. All submissions should

refer to the file number SR–DTC–95–21

and should be submitted by January 26,

1996.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

DTC–95–21) be, and hereby is,

permanently approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.14

Jonathan G. Katz,

Secretary.

[FR Doc. 96–166 Filed 1–4–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36656; International Series

Release No. 912; File No. SR–ISCC–95–06]

Self-Regulatory Organizations;

International Securities Clearing

Corporation; Notice of Filing of

Proposed Rule Change Relating to

Global Clearance Network Service

December 29, 1995.

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

Securities Exchange Act of 1934

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

December 2, 1995, the International

Securities Clearing Corporation

(‘‘ISCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which items

have prepared primarily by ISCC. On

December 12, 1995, and on December

13, 1995, ISCC filed amendments to its

proposed rule change.2 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 changed is to

accommodate an additional service

provider, Standard Chartered Bank

(‘‘SCB’’) in ISCC’s Global Clearance

Network (‘‘GCN’’) service.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change.

In its filing with the Commission,

ISCC 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. ISCC has prepared

summaries, set forth in sections (A), (B),