Document ID: SEC-2006-1282-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Depository Trust Co.
Posted Date: 2006-10-03T04:00Z

[Federal Register: October 3, 2006 (Volume 71, Number 191)]
[Notices]               
[Page 58457-58458]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03oc06-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54521; File No. SR-DTC-2006-11]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Allow the Inventory 
Management System To Accept Real-Time and Late Affirmed Trades From 
Omgeo

 September 27, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 11, 2006, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') and on September 20, 2006, amended 
the proposed rule change 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 parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    DTC is seeking to expand its Inventory Management System (``IMS'') 
to accept in real-time non-Continuous Net Settlement (``non-CNS'') 
institutional trades from Omgeo LLC (``Omgeo'') and to accept late 
affirmed trades into IMS for automated settlement at DTC.

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 these 
statements.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Current Process for IMS
    Omgeo's TradeSuite system currently feeds DTC a batch file of 
approximately 320,000 eligible affirmed institutional trades at 
approximately 1 p.m. on T+2. Delivering DTC participants then authorize 
or exempt these trades in IMS for automated settlement to be attempted 
at DTC. Any trades affirmed after 12 p.m. on T+2 are ineligible for 
automated settlement at DTC via the TradeSuite interface. These late 
affirmed trades are typically settled by the broker-dealer or custodian 
by processing a DTC Delivery Order (``DO''). These DOs experience a 
higher reclaim rate than deliveries of eligible affirmed trades.
2. Proposed Changes
    DTC is proposing to enhance its interface with Omgeo to accept 
eligible affirmed non-CNS trades from Omgeo's TradeSuite system in 
real-time. Although DTC would receive affirmed trades from Omgeo's 
TradeSuite system in real-time as they are affirmed, participants would 
still have the ability to process authorizations and exemptions as they 
do today. Participants would be able to authorize trades as they are 
received into IMS through the existing options (i.e., globally or on a 
trade-for-trade basis). Omgeo would continue to produce the Cumulative 
Eligible Trade report/file at approximately 1 p.m. on T+2. This batch 
report/file notifies participants of affirmed MITS trades sent to IMS 
for the following settlement date. However, IMS would continue the 
current practice of applying a participant's authorization profile 
(delivery order) for Matched Institutional Trades (``MITS'') after the 
midday cut-off on T+2 (at approximately 1 p.m.).
    In addition, some new functionality is also being introduced 
through the enhanced Omgeo and DTC interface. Omgeo would send ``late 
affirmed'' \3\ trades to IMS. Late affirmed trades would be stored and 
identified in IMS as a new transaction type, Late Matched Institutional 
Trades (``LMIT''). These trades are currently ineligible for automated 
settlement at DTC. This functionality will allow participants to 
eliminate settling these transactions as DOs at DTC, which experience a 
higher reclaim rate than affirmed eligible

[[Page 58458]]

trades, and will provide for the automated settlement of these 
transactions.
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    \3\ Late affirmed trades are defined as trades affirmed after 
the 12:00 p.m. cutoff on T+2 until 12:00 p.m. on settlement date.
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    For the new LMITs, IMS would default to the ``active'' 
authorization mode (i.e., deliveries would not be processed unless they 
are authorized). Unauthorized ``late affirmed'' trades would remain in 
IMS until settlement date + 21 days (the current IMS trade retention 
time frame). For authorized LMIT items, IMS would apply a participant's 
authorization profile as the items are received from Omgeo. LMITs would 
bypass DTC's Receiver Authorized Delivery (``RAD'') processing as do 
all Omgeo deliveries.
    Omgeo would notify both IMS and DTC participants directly using a 
status message of any Change of Eligibility (``COE'').\4\ COE (i.e., 
DTC-eligible to DTC-ineligible) messages would be passed to IMS by 
TradeSuite up until midnight of T+1. IMS would process COE related 
messages on a real-time basis for both authorized and yet to be 
authorized trades. IMS would ``reauthorize'' a previously authorized 
DTC-eligible trade in the event the trade becomes DTC-eligible, again. 
In addition, an appropriate audit trail would be provided by IMS for 
participants. Ineligible MITS transactions in IMS would be cancelled at 
end of day on settlement date.
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    \4\ COE related messages can be sent for the following reasons: 
(1) When a DTC eligible trade changes to CNS eligible, the trade is 
re-sent to IMS by Omgeo with an indicator that it is now ineligible 
(IMS status becomes ineligible). Omgeo will then send the trade to 
NSCC for settlement via CNS. A trade can become CNS eligible after 
being DTC eligible, if the security, ID Agent (a prime broker), 
Clearing Agent, and Clearing Broker all are CNS eligible.
    (2) When a DTC eligible trade subsequently becomes ineligible 
for settling at DTC, the trade is re-sent to IMS by Omgeo with an 
indicator that it is now Ineligible (IMS status updated to 
ineligible). A Trade may become ineligible for DTC settlement 
processing if prior to settlement date, the participant, security, 
or ID Agent become ineligible for DTC processing.
    (3) If a previously sent DTC eligible trade changed to 
ineligible becomes eligible for settling at DTC, again, the trade is 
re-sent to IMS by Omgeo with an indicator that it is now eligible 
(IMS status is updated to eligible from ineligible).
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    DTC would charge the following delivery fees for LMITs:
     $0.17 (current Night Delivery Order fee) if authorized by 
the participant before the night cycle.
     $0.45 (current day DO fee) if authorized by the 
participant after the night cycle.
     $0.006 per delivery (current IMS delivery fee) for every 
trade that is processed through the IMS authorization profile.
    Participants that currently submit machine-readable authorization/
exemption instructions could choose to continue to process their Omgeo 
deliveries as they do today. The proposed change is scheduled to be 
implemented in November 2006.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder applicable to DTC because it should promote the 
prompt and accurate clearance and settlement of securities transactions 
by allowing IMS to enhance its interface with Omgeo to accept eligible 
affirmed trades from Omgeo's TradeSuite system in real-time and to 
accept late affirmed trades into IMS for automated settlement at DTC. 
In addition, the proposed rule change should provide for the equitable 
allocation of reasonable dues, fees, and other charges among DTC's 
members.
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    \5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

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

    DTC has not solicited or received any written comments on this 
proposal. DTC will notify the Commission of any written comments it 
receives.

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 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
) or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-DTC-2006-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2006-11. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of DTC and on DTC's 
Web site at https://login.dtcc.com/dtcorg/. All comments received will 

be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2006-11 and should be submitted on 
or before October 24, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-16251 Filed 10-2-06; 8:45 am]

BILLING CODE 8010-01-P