65014 Federal Register / Vol. 66, No. 242 / Monday, December 17, 2001 / Notices

controversial or emerging areas for which there is

a lack of authoritative guidance or consensus; (3)

the process used by management in formulating

particularly sensitive accounting estimates and the

basis for the auditor’s conclusions regarding the

reasonableness of those estimates; and (4)

disagreements with management over the

application of accounting principles, the basis for

management’s accounting estimates, and the

disclosures in the financial statements. Id.

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

2The MBS Division is the successor to The

Participants Trust Company, which was merged

into DTC effective August 31, 1998.

3These rules are currently in Annex A of DTC’s

Rules.

4The Commission has modified the text of the

summaries prepared by DTC.

5The Fedwire system of the Federal Reserve

Board is currently used for, among other things, the

issuance and settlement of U.S. Treasury securities

and mortgage-backed securities guaranteed by the

Federal Home Loan Mortgage Corporation

(‘‘FHLMC’’) and the Federal National Mortgage

Association (‘‘FNMA’’).

6The Conversion Plan is available online at

<www.frbservices.org> and at

<www.bondmarkets.com/regulatory>. A copy of the

Conversion Plan is also attached as Exhibit 2 of

DTC’s filing [DTC Important Notice No. 1483 (Feb.

15, 2001)], which is available through the

Commission’s Public Reference Section or through

DTC.

Proactive discussions between the audit

committee and the company’s senior

management and auditor about critical

accounting policies are appropriate.

4. If Companies, Management, Audit

Committees or Auditors Are Uncertain

About the Application of Specific

GAAP Principles, They Should Consult

With our Accounting Staff

We encourage all those whose

responsibility it is to report fairly and

accurately on a company’s financial

condition and results to seek out our

staff’s assistance. We are committed to

providing that assistance in a timely

fashion; our goal is to address problems

before they happen.

Dated: December 12, 2001.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–30978 Filed 12–14–01; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45146; File No. SR–DTC–

2001–14]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of Proposed Rule Change

Relating to the Closing Down of the

Mortgage-Backed Securities Division

of The Depository Trust Company

December 10, 2001.

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

Securities Exchange Act of 1934

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

July 24, 2001, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared 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

The proposed rule change concerns

the closing of DTC’s Mortgage-Backed

Securities Division (‘‘MBS Division’’).2

To accomplish this, DTC plans to close

the MBS Division’s transaction

processing system and to amend DTC’s

rules to delete the MBS Division’s

rules.3 The securities formerly services

by the MBS Division will remain

eligible for processing on DTC’s main

processing system to the same extent

that other Fedwire securities are

currently processed at DTC although the

issuance and the majority of clearance

of these securities will be moved to the

Fedwire system.

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.4

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to obtain Commission

approval of DTC’s closing the operations

of its MBS Division. Currently, among

other things, the MBS Division issues

and settles mortgage-backed securities

that are guaranteed by the Government

National Mortgage Association

(‘‘GNMA’’). However, GNMA wishes to

transfer the settlement of these

mortgage-backed securities to the

Fedwire system of the Federal Reserve

Board.5 GNMA plans to convert its

securities to Fedwire by the end of the

first quarter of 2002.

GNMA announced its plans to move

its securities to Fedwire in May 2000.

The conversion plans were developed in

consultation with a task force organized

by The Bond Market Association

(‘‘BMA’’) that consisted of

representatives from broker-dealers,

custodial banks, GNMA, the Federal

Reserve Banks, the Mortgage Bankers

Association, DTC, and the BMA. The

force formed a GNMA Conversion

Subcommittee to develop a conversion

plan and implementation schedule. In

February 2001, the subcommittee issued

its Conversion Plan.6

The conversion is taking place in

phases over a series of weekends

beginning October 6, 2001, and is

scheduled for completion by March 31,

2002. During this period, different

classes of GNMA securities will be

moved electronically from the MBS

Division to Fedwire in accordance with

delivery instructions provided to the

MBS Division by the MBS Division’s

participants. Other securities issued and

settled on the books of the MBS

Division, namely securities guaranteed

by the Department of Veterans Affairs

and a limited number of FNMA and

FHLMC securities which are

collateralized by GNMA securities, will

also move to Fedwire at some time

during the GNMA conversion or

immediately after on dates to be

determined.

Shortly after the completion of the

payment of principal and interest with

respect to securities last converted to

Fedwire, DTC will close the transaction

processing system of the MBS Division,

return the MBS Division participant

fund deposits to the MBS Division’s

participants, and amend DTC’s rules to

delete the rules that apply to the MBS

Division. After the conversion, FNMA

securities will remain eligible for

processing on DTC’s main system in the

same manner as other Fedwire

securities are currently processed at

DTC. Fedwire securities processed at

DTC must be deposited and withdrawn

free of payment over Fedwire to and

from DTC’s Fedwire account. Once

deposited at DTC, Fedwire-eligible

securities will be processed among DTC

participants subject to DTC’s rules and

procedures without additional

restrictions.

In connection with the conversion of

GNMA securities to Fedwire, DTC

considered expanding its processing to

permit GNMA securities to be delivered

versus payment into and from DTC’s

Fedwire account subject to regulatory

approval. DTC solicited comments from

its participants, but fewer than a dozen

Federal Register / Vol. 66, No. 242 / Monday, December 17, 2001 / Notices 65015

7Notwithstanding the closure of the MBS

Division, DTC will maintain the documents and

records of the MBS Division in accordance with the

regulations promulgated under Section 17(a) of the

Exchange Act, 15 U.S.C. 78q.

8A copy of this notice is attached as Exhibit 2 of

DTC’s filing, which is available through the

Commission’s Public Reference Section or through

DTC.

9Attached as Exhibit 2 of DTC’s filing are the

following DTC Important Notices relating to the

GNMA conversion: Nos. 0057 (June 1, 2000); 1483

(Feb. 15, 2001) (Conversion Plan attached); 1937

(May 24, 2001); 2158 (June 21, 2001); 2159 (June 19,

2001); and 2198 (July 5, 2001). These documents are

available through the Commission’s Public

Reference Section or through DTC.

10 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

participants expressed an interest in

using such a service. In light of the

development costs involved and the

limited interest expressed by its

participants, DTC’s Board of Directors

concluded that DTC’s resources would

be better applied to projects that serve

a wider participant base.

DTC will notify the MBS Division’s

participants and the Commission upon

the completion of the closure of the

MBS Division.7

DTC believes that the proposed rule

change is consistent with the

requirements of section 17(A)(b)(3)(A) of

the Act and the rules and regulations

thereunder applicable to DTC because it

promotes and accurate clearance and

settlement of securities transactions.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

DTC perceives no impact on

competition by reason of the proposed

rule change.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

DTC solicited written comments from

its participants on GNMA’s proposal to

move its securities to Fedwire in DTC

Important Notice No. 0057 dated June 1,

2000.8 Participants responded by

telephone and through discussions at

meetings of the BMA, the GNMA

Settlement Task Force formed under the

auspices of the BMA, and DTC’s

Operations and Planning Committee.

The consensus at these meetings and

discussions was that DTC should

support the proposed conversion to

Fedwire and that GNMA securities

should remain eligible for processing at

DTC to the same extent as are other

Fedwire eligible securities currently

processed at DTC. DTC is a member of

the GNMA Conversion Subcommittee

and has worked closely with the BMA,

GNMA, the Federal Reserve Banks, and

interested industry members to facilitate

the transition to Fedwire. DTC has

issued Important Notices to DTC and

MBS Division participants detailing the

conversion processing flows and testing

procedures.9

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 filing or (ii)

as to which the self-regulatory

organization 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,

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, NW.,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rue 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. Copies of such filing

will also be available for inspection and

copying at DTC’s principal office. All

submissions should refer to File No.

SR–DTC–2001–14 and should be

submitted by January 7, 2002.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–30958 Filed 12–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45144; File No. SR–PCX–

2001–45]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

Inactive Lessors’ Eligibility to Serve on

the Board of Governors

December 10, 2001.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder, 2

notice is hereby given that on December

7, 2001, the Pacific Exchange, Inc.

(‘‘PCX’’ of ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the Exchange. 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 PCX proposes to amend Article

III, Section 2(b) of the PCX Constitution

and PCX rule 1.1(h) to provide for the

eligibility of inactive lessors to serve on

the PCX Board of Governors (‘‘Board’’).

Below is the text of the proposed rule

change. Text in italics indicates material

to be added.

* * * * *

Article III

Eligibility of Governors

SEC. 2(b). Any member, allied

member or person who is an officer or

director of the parent or subsidiary

corporation of a member firm, or a

general partner in a partnership which

owns or is wholly owned by a member

firm, or an officer or director of a

member firm or of a participant firm of

any subsidiary of the Exchange

performing depository or clearing

functions, or an officer, director or

general partner of the parent or a

subsidiary corporation of such clearing

member firm or depository participant

firm, or an inactive lessor or any person

not affiliated with a broker or dealer in

securities is eligible to be elected as a

member of the board of Governors. Of

the governors, in each of the classes

specified in Sec. 2(a), above, at least one

shall be a member of the Exchange, at

least one shall be an office member or

office allied member of the Exchange,