[Federal Register Volume 59, Number 31 (Tuesday, February 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3483]
[[Page Unknown]]
[Federal Register: February 15, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33602; File No. SR-DTC-94-02]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change Relating to the Pledge of
Government Securities as Collateral
February 8, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 26, 1994, 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.
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\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
DTC is filing the proposed rule change to provide for a procedure
to allow participants to pledge government securities to DTC to cover
outstanding Next-Day Funds Settlement (``NDFS'') short positions.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
(a) The purpose of the proposed rule change is to provide an
alternate means for participants to satisfy their obligation to provide
DTC with a short position penalty. When a participant incurs a short
position, DTC now imposes a cash penalty of 130% of the market value of
the short securities. The cash DTC receives is invested and earns
interest. The interest earned is returned to participants at periodic
intervals during the year as part of the general refund.\2\ Under the
proposed rule change, interest earned on pledged securities will be
automatically credited to participants' accounts (as is currently the
procedure for all pledged securities positions). The proposed rule
change thereby will provide participants with a more efficient method
to receive interest income. By allowing participants to pledge
government securities to DTC to replace cash deposits, the proposed
rule change will improve participants' cash management abilities.
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\2\The general refund allocates back to participants excess
operating revenues and interest earned calculated by activity
levels.
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Under the proposal, participants could pledge government securities
residing in their DTC ``free'' accounts to DTC as collateral to replace
cash deposits to cover outstanding NDFS short positions. Only short
positions aged thirty calendar days or more will be considered eligible
for collateralizaion. Initially, only DTC-eligible\3\ U.S. Treasury
issues (Treasury bills, bonds, and notes) which are fully guaranteed by
the U.S. government will be accepted as collateral.
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\3\``Eligible securities'' refers to government securities that
are eligible for DTC services. DTC may hold such securities through
its account at the Federal Reserve Bank of New York.
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Each day, DTC will inform each participant of its short positions
aged thirty days or older as of the close of the previous business day.
The participant could then enter a request over DTC's Participant
Terminal System (``PTS'') to pledge government securities to a newly
established DTC pledge account in order to have its short charges
reversed. The pledge system will verify that the securities being
pledged are eligible for collateralization before the pledge is allowed
to update into DTC's system.
The value of participants' securities short positions and pledged
securities will be marked to the market on a daily basis, and short
charges will be adjusted accordingly. Participants may pledge
additional securities to cover an increase in their aggregate short
charges or request a release of pledged securities which are no longer
needed to cover their aggregate short charges.
A participant may request a release of collateral. In that
instance, the securities would be returned to the ``free'' account at
the end of the processing day, and the short charges would be
reinstated the following day. The participant may also substitute
pledged securities. After inputting the new pledge and the release
request, the participant would contact the Reconciliation Department
prior to 12:30 p.m. to request a release approval.
If pledged securities are redeemed, DTC will hold the redemption
proceeds in a suspense account until the pledged securities are
released and moved to the participant's ``free'' account. At that time,
the redemption proceeds are credited to participants' settlement
accounts. If pledged government securities are called for redemption,
the participant must release the pledge and move the securities to a
``free'' account. Interest earned on pledged securities will be
automatically credited to participants' accounts.
(b) The proposal is consistent with the requirements of Section 17A
the Act and the rules and regulations thereunder applicable to DTC
since the proposed rule change will give DTC participants greater
flexibility in collateralizing their short positions. At the same time
the proposal will continue to provide DTC with high quality collateral
for short positions.
B. Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change imposes any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
DTC's Short Position Advisory Committee, composed of members
representing DTC participants, has reviewed the proposed rule change
and supports its approval. No official 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
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. 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 also will be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to File No.
SR-DTC-94-2 and should be submitted by March 8, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3483 Filed 2-14-94; 8:45 am]
BILLING CODE 8010-01-M