[Federal Register: August 31, 1998 (Volume 63, Number 168)] [Notices] [Page 46270] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr31au98-98] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40359; File No. SR-PTC-98-03] Self-Regulatory Organizations; Participants Trust Company; Order Granting Accelerated Approval of a Proposed Rule Change Regarding PTC's Pricing and Margining Methodology for Newly Issued Collateralized Mortgage Obligation Securities August 25, 1998. On June 15, 1998, the Participants Trust Company (``PTC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change (File No. SR-PTC-98-03) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published in the Federal Register on August 11, 1998.\2\ For the reasons discussed below, the Commission is granting accelerated approval of the approved rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ Securities Exchange Act Release No. 40304 (August 4, 1998), 63 FR 42897. --------------------------------------------------------------------------- I. Description The rule change modifies PTC's pricing and margining methodology for new issue collateralized mortgage obligation (``CMO'') securities to more accurately reflect their value during an initial period when pricing vendors are generally unable to provide prices.\3\ Under the rule change, PTC will obtain indicative bid side prices (prior to the issuance of the CMO security) for each class of the issue from the deal underwriter prior to the closing. PTC will establish margins on new issue CMO securities (priced by reference to underwriter supplied prices) based on larger interest rate shifts, +100 or -200 basis points, than are applied to vendor priced CMO issues, +50 or -100 basis points. Interest only, principal only, and inverse floater classes will be given no value. --------------------------------------------------------------------------- \3\ For a detailed description of PTC's pricing and valuation of CMOs, refer to Securities Exchange Act Release No. 40304, Id. --------------------------------------------------------------------------- The underwriter supplied values will be used for a maximum of three weeks after the issuance. Any CMO issue not priced by both pricing vendors PTC uses at three weeks from issuance will be given a value of zero, as is currently the case, and will continue to be the case with respect to all but new CMO issues for this three week period.\4\ --------------------------------------------------------------------------- \4\ PTC currently gives new issue CMOs a zero value during this period in its assessment of a participant's collateral. --------------------------------------------------------------------------- II. Discussion Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. As discussed below, the Commission believes that PTC's proposed rule change is consistent with this obligation. --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- The Commission believes that the rule change will enable PTC to price and margin new issue CMO securities in a manner which will more accurately reflect their value when pricing vendors are unable to provide prices. The Commission believes that the rule change should allow PTC to more accurately value a participant's securities for purposes of collateral value in PTC's system while still assuring that PTC has available to it sufficient collateral in the event a participant does not satisfy its debit balance at the end of day settlement. Therefore, the Commission believes that the rule change is consistent with PTC's obligation to safeguard securities and funds. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after publication of notice because such approval will allow PTC to implement the modified margining and pricing methodology for new CMOs in a timely manner in connection with PTC's merger with The Depository Trust Company scheduled to occur during the month of August 1998. III. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular with Section 17A of the Act and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-PTC-98-03) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\6\ --------------------------------------------------------------------------- \6\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 98-23317 Filed 8-28-98; 8:45 am] BILLING CODE 8010-01-M