[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-2012] [[Page Unknown]] [Federal Register: January 31, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-33513; File No. SR-PTC-93-04] Self-Regulatory Organizations; Filing of Proposed Rule Change by Participants Trust Co. Relating to the Percentage Margin Applied by PTC With Respect to GNMA Project, Construction, and Mobile Home Securities January 24, 1994. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on November 8, 1993, Participants Trust Company (``PTC'') 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 the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). --------------------------------------------------------------------------- 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 obtain permanent approval of the percentages to be deducted from the market value of certain securities to determine how those securities should be valued for purposes of participants' net free equity. The securities and percentages are as follows: GNMA Project Loan Securities--10% GNMA Project Note Securities--10% GNMA Construction Loan Secjurities--12% GNMA Mobile Home Securities--20% II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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. The self-regulatory organization 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 The purpose of the proposed rule change is to obtain permanent approval of the percentage margin applied by PTC with respect to GNMA Project, Construction, and Mobile Home securities for the purpose of calculating a participant's net free equity.\2\ These margin levels were approved by the Commission on a temporary basis on October 7, 1991\3\ in order to allow PTC to obtain and evaluate historical data regarding the level of price volatility of Project, Construction, and Mobile Home GNMA securities prior to the Commission approving such margins on a permanent basis. The historical data on price movements collected by PTC confirms the price volatility assumptions that were applied in establishing the margin levels in October 1991; this historical data is summarized below. PTC, therefore, seeks permanent approval of these margin levels as follows: \2\``Net Free Equity`` represents PTC's calculation of the amount of excess equity, available in a participant's account, which PTC may borrow against or liquidate in the event a participant's debit balance is not satisfied at the end of the day. \3\Securities Exchange Act Release No. 29793 (October 7, 1991), 56 FR 51732. GNMA Project Loan Securities--10% GNMA Project Notice Securities--10% GNMA Construction Loan Securities--12% GNMA Mobile Home Securities--20% Under PTC's rules, a certain percentage determined by PTC (referred to in PTC's rules as the ``Applicable Percentage'') of the market value of a participant's securities is included in the computation of a particpant's net free equity. Net free equity of zero or greater is required to be maintained by participants in each of its agency, pledgee, or proprietary accounts in order for transactions to be processed. PTC has the right to borrow against or liquidate the assets that comprise the net free equity computations of those accounts should a participant fail to pay the account debit balance at the end of the day. By including only a portion of the market value of securities in net free equity, PTC attempts to limit the risk that could be caused by fluctuations in market value of these securities held in those accounts. PTC deducts 5% from the market value of GNMA single family securities to arrive at their Applicable Percentage. That percentage is based upon historical price volatility figures. Historical volatility of the Project, Construction, and Mobile Home GNMA securities is similar to the single family securities, but the market for those securities is less liquid. Therefore, the enhanced margin levels for these securities provide PTC with greater protection should PTC need to borrow against or liquidate these assets.\4\ --------------------------------------------------------------------------- \4\The margin levels for Project, Construction, and Mobile Home GNMA securities were approved in 1991 by PTC's Risk Management Committee and by PTC's Board of Directors. --------------------------------------------------------------------------- As stated above, the Commission approved the enhanced margin levels for Project, Construction, and Mobile Home GNMA securities on a temporary basis in October, 1991.\5\ In conjunction with the original filing, PTC submitted historical data on price volatility of these GNMA securities.\6\ This data had indicated that the price movements of GNMA Project, Construction, and Mobile Home securities tracked those of GNMA single-family securities. These price movement comparisons were based on prices on GNMA Construction Loan, Project Loan, and single-family securities, over the period from December 1989 to December 1990, and prices on GNMA Mobile Home and single-family securities over the period from March 1990 to February 1991.\7\ --------------------------------------------------------------------------- \5\Securities Exchange Act Release No. 29793, supra note 3. \6\Letter from Alison N. Hoffman, Assistant Counsel, PTC, to Scott Wallner, Staff Attorney, Division of Market Regulation, Commission, dated August 1, 1991. \7\Id. --------------------------------------------------------------------------- In conjunction with the present filing, PTC has submitted tables relating daily, weekly, and monthly prices and price movements of GNMA Construction Loan, Project Loan, Project Note, and Mobile Home securities for the period October 1, 1991 to June 30, 1993, as compared to the prices and price movements of GNMA single-family securities over the same period.\8\ This data supports the conclusion that the price volatility of these GNMA securities continues to be similar to the price volatility of GNMA single-family securities, as the price movements of the GNMA Project, Construction, and Mobile Home securities closely track the price movements of the GNMA single family securities over this period. Because the historical data collected since the Commission granted PTC temporary approval of the enhanced margin levels supports those margin levels, PTC asks for permanent approval of these margin levels. --------------------------------------------------------------------------- \8\File No. SR-PTC-93-04, Appendix A. --------------------------------------------------------------------------- The proposed rule change promotes the prompt and accurate clearance and settlement of securities transactions and assures the safeguarding of securities and funds in PTC's custody or control by limiting the risk caused by fluctuations in the market value of securities when used to collateralize intraday processing of securities transactions. It is therefore consistent with section 17A of the Act and the rules and regulations thereunder applicable to PTC. B. Self-Regulatory Organization's Statement on Burden on Competition PTC does not believe that the proposed rule change will have an impact on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others PTC has not solicited, and does not intend to solicit, comments on this proposed rule change. PTC has not received any unsolicited comments from participants or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 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 90 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 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, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of PTC. All submissions should refer to File Number SR-PTC-93-04 and should be submitted by February 21, 1994. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-2012 Filed 1-28-94; 8:45 am] BILLING CODE 8010-01-M