Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to DTC's Enhancement of its Repo Tracking System

[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31663-31664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14869]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41476; File No. SR-DTC-99-13]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to DTC's Enhancement of its Repo Tracking System

June 4, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 19, 1999, 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 enhances DTC's Repo Tracking System 
(``RTS'') \2\ to enable participants to use a new participant terminal 
system (``PTS'') function to cancel principal and income (``P&I'') 
distributions that result from RTS tracking.
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    \2\ For a detailed description of RTS, refer to Securities 
Exchange Act Release No. 28765 (January 10, 1991), 56 FR 1832.
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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

[[Page 31664]]

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.\3\
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    \3\ 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

    The purpose of the proposed rule change is to provide participants 
with additional flexibility in their use of RTS. Under RTS, a 
participant that has purchased a security (``repo buyer'') is obligated 
to make payments on future P&I distributions, other than the final 
distribution, to the participant recorded in RTS as the seller of the 
security (``repo seller''). At issue is the concern for a P&I 
distribution which includes a principal payment large enough to 
significantly affect the value of the securities. In such cases, RTS 
tracking of the distribution might expose the repo buyer to significant 
credit risk until a related ``mark-to-market'' payment is received from 
the repo seller.
    To control this risk, DTC's current procedures permit the repo 
buyer to unilaterally cancel a particular P&I payment through RTS at 
the participant level by submitting a hard copy letter of instruction 
to DTC by 11:30 a.m. (ET) on the distribution payment date. The rule 
change provides a PTS function, called PIAR (Principal and Income 
Adjustments resulting from Repurchase agreements), to submit 
instructions to cancel a P&I payment, and thus eliminate the need to 
submit a hard copy letter of instruction.\4\ Participants will be 
charged the current $.09 PTS inquiry fee for each PIAR PTS inquiry and 
the same $.31 fee currently charged for RTS adjustments for each credit 
or debit adjustment that results from a PIAR entry.
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    \4\ DTC has included in its filing an Important Notice to 
Participants, dated April 19, 1999, which describes the rule change 
enhancements to RTS and includes a new section of the dividend 
service guide relating to PIAR. DTC's filing is available for 
inspection at the Commission's Public Reference Room or through DTC.
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    Under the rule change, participants will be able to use the new 
PIAR PTS function to review and cancel P&I payments resulting from RTS 
tracking. The PIAR function will allow repo buyers to cancel P&I 
payments scheduled to be credited to the repo seller on payable date 
and it will also allow participants to view all of their repo P&I 
payments, both as repo buyer and repo seller, for the current day.
    DTC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(A) of the Act \5\ and the rules and regulations 
thereunder because the proposed rule change will give participants 
greater flexibility in controlling risk without substantially changing 
the current operation of RTS.
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    \5\ 15 U.S.C. 78q-1(b)(3)(A).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no adverse 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

    The proposed rule change was developed in response to an ongoing 
effort by The Bond Market Association to address industry concerns 
regarding potential credit exposure as a result of principal paydowns. 
The proposed rule change has been developed through discussions with 
several participants. Written comments from DTC participants or others 
have not been solicited or received on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \6\ and pursuant to Rule 19b-4(f)(1) \7\ 
promulgated thereunder because the proposal constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule. At any time within 
sixty days of the filing of such rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(i).
    \7\ 17 CFR 240.19b-4(f)(1).
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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 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 DTC.
    All submissions should refer to File No. SR-DTC-99-13 and should be 
submitted by July 2, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14869 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M