Document ID: SEC-2008-1399-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2008-10-09T04:00Z

[Federal Register: October 9, 2008 (Volume 73, Number 197)]
[Notices]               
[Page 59694-59695]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc08-153]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58730; File No. SR-DTC-2008-09]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of a Proposed Rule Change To Expand DTC's Debit Cap 
Look-Ahead Processing

October 3, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 12, 2007, 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 
primarily by DTC. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would amend the Look-Ahead Process in 
DTC's Settlement Services Guide to allow Money Market Issuance 
Deliveries pending for a Custodian's or Dealer's net debit cap to 
complete against Maturity Presentments pending for an Issuing/Paying 
Agent's net debit cap. DTC's processing system would calculate the net 
effect of the dollar amount of offsetting transactions in the accounts 
of the two Participants involved. If the net of the transactions would 
result in positive risk management controls in those two accounts, the 
transactions would be completed.

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

    On June 10, 2003, the Commission approved a proposed rule change to 
establish a transaction Look-Ahead Process which became available for 
municipal and corporate bonds, including Money Market Instruments 
(``MMIs'').\3\ On August 11, 2004, the Commission approved another 
proposed rule change which expanded the application and extended the 
benefit of the Look-Ahead Process to all equity transactions.\4\ With 
this proposed rule change, DTC is proposing to expand the Look-Ahead 
Process to MMIs.
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    \3\ Securities Exchange Act Release No. 48007 (June 10, 2003), 
68 FR 35744 (June 16, 2003) (File No. SR-DTC-2003-07).
    \4\ Securities Exchange Act Release No. 50182 (August 11, 2004), 
69 FR 51341 (August 18, 2004) (File No. SR-DTC-2004-05).
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    The purpose of DTC's Look-Ahead Process is to reduce the number of 
recycling transactions in the system caused by the Net Debit Cap Risk 
Management Control.\5\ The existing Look-Ahead Process finds delivery 
transactions that are pending because the Receiving Participant has 
reached its net debit cap.\6\ It then looks to see whether the 
Receiving Participant has a pending delivery for the same security to 
another Participant.\7\ In such a situation, DTC's Account Transaction 
Processor (``ATP'') \8\ will calculate the net effect to the collateral 
\9\ and net debit cap controls for all three Participants involved. If 
the net effect will not result in a deficit in the collateral or net 
debit cap controls for any of the three Participants, ATP processes the 
transactions simultaneously. Without the Look-Ahead Process, the 
transaction would pend in DTC's system until another transaction 
created sufficient credit in the Receiving Participant's account. Most 
credits are generated when a Participant delivers securities versus 
payment, pledges securities for value, receives principal, dividend or 
other interest allocations, or wires funds (a Settlement Progress 
Payment (``SPP'')) to DTC's account at the Federal Reserve Bank of New 
York in order to reduce its DTC net debit.
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    \5\ Net debit caps help ensure that DTC can complete settlement, 
even if a Participant fails to settle.
    \6\ Before completing a transaction in which a Participant is 
the receiver, DTC calculates the resulting effect the transaction 
would have on the Participant's account and determines whether the 
resulting net balance would exceed the Participant's net debit cap. 
Any transaction that would cause the Participant's net settlement 
debit to exceed its net debit cap is placed in a pending (recycling) 
queue until another transaction creates credits in the Participant's 
account.
    \7\ For example, Participant A is delivering shares to 
Participant B and Participant B has a delivery obligation of shares 
with the same CUSIP to Participant C.
    \8\ ATP is the core processing system for all transaction 
activity affecting security positions held at DTC.
    \9\ DTC tracks collateral in a Participant's account through its 
Collateral Monitor (``CM''). At all times, the CM reflects the 
amount by which the collateral in the account exceeds the net debit 
in the account. When processing a transaction, DTC verifies that the 
deliverer's and receiver's CMs will not become negative when the 
transaction completes. If the transaction would cause either party 
to have a negative CM, the transaction will recycle until the 
deficient account has sufficient collateral for the transaction to 
complete.
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    In order to further reduce the number of recycling transactions in 
the system and to improve the timeliness and certainty of transactions 
completing, DTC is proposing to expand the Look-Ahead Process beyond 
same securities for MMIs to allow pairs of money market instrument 
transactions between two Participants (i.e., an Issuing Paying Agent 
[''IPA''] and a custodian or dealer) that are pending for both party's 
net debit caps to complete. This situation occurs when an IPA has a 
delivery of a new money market instrument to a custodian or a dealer 
for X dollars and that same custodian or dealer has a maturity of a 
money market instrument of equal or greater value awaiting acceptance 
by the same IPA. The proposed rule change would allow ATP to process 
those transactions simultaneously, as long as neither Participant's 
risk management controls were overridden.

[[Page 59695]]

    This enhancement to the Look-Ahead Process will reduce the number 
of MMI recycling transactions. The Look-Ahead enhancement to DTC's 
processing system will not result in any systematic changes for 
Participants.
    The proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to DTC in that 
the proposed rule change will promote the prompt and accurate clearance 
and settlement of securities transactions because it will allow 
transactions to settle through a Look-Ahead Process and as such will 
allow MMI transactions to clear and settle in a more prompt and 
efficient manner. The proposed rule change will be implemented in a 
manner that is consistent with DTC's risk management controls.

(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

    Written comments from relating to the proposed rule change have not 
yet 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

    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 the 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. 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-2008-09 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2008-09. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of DTC. 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-2008-09 and should be 
submitted on or before October 30, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23979 Filed 10-8-08; 8:45 am]

BILLING CODE 8011-01-P