[Federal Register: November 19, 2003 (Volume 68, Number 223)]
[Notices]
[Page 65333-65335]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no03-136]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48775; File No. SR-DTC-2003-12]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change Relating to the Processing of
Maturity Presentments in DTC's Money Market Instrument Program
November 12, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on, September 30, 2003, 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 parties.
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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 allow DTC to implement new Money
Market Instrument (``MMI'') Program procedures regarding the processing
of Maturity Presentments (``MP'').\2\ Specifically, the new procedures
would allow an Issuing/Paying Agent (``IPA'') to assign processing
priorities to the MMI issuers for which the IPA acts as agent.
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\2\ The references to maturity presentments are intended to
cover, in addition to MPs, other payment obligations of MMI issuers,
such as periodic principal payments and periodic interest payments.
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[[Page 65334]]
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 these
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Under DTC's current procedures for the processing of MPs, early on
the maturity date (generally around 2:00 a.m.) DTC initiates deliveries
of the maturing paper from the accounts of participants having
positions in the maturing paper to the MMI participant account of the
IPA. Each MP is processed as the equivalent of a book-entry delivery-
versus-payment transfer. As such, MPs may ``recycle'' just as any
delivery would if the net debit cap or collateralization controls
applicable to an IPA's account prevent the delivery from updating.
Recycling MPs would update once additional funds (e.g., from intraday
settlement progress payment (``SPPs'') or from new issuances) are
credited to the IPA's account. With the exception of a recent change
enabling an IPA to target settlement credits from an SPP to a specific
issuer's maturity presentments, MPs update on a random basis.\3\ There
is no provision in DTC's current procedures enabling an IPA to assure
that the recycling MPs of a specific issuer update by allocating to
that issuer's MPs all or a specified portion of the IPA's net debit cap
or by applying to that issuer's MPs settlement credits derived from the
new issuance of its paper. By the same token, because of the random
nature of MP processing, the IPA is unable to prevent a portion of its
net debit cap as well as any ``excess'' or ``residual'' credits from
being used to update the MPs of an issuer to which the IPA would prefer
not to extend credit.\4\
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\3\ Securities Exchange Act Release No. 48145 (July 9, 2003), 68
FR 42442 (July 17, 2003) [File No. SR-DTC-2003-03] (proposed rule
change allowing DTC to modify its settlement progress payment
procedures to allow DTC participants to direct proceeds from a
specific SPP be used to fund a particular transaction).
\4\ ``Excess'' credits refer to credits resulting from an
issuer's new issuances that exceed that issuer's offsetting MPs,
SPPs that are not targeted to a specific issuer's MPs, as well as
any unallocated net debit cap. ``Residual'' credits refer to credit
balances from new issuances and targeted SPPs that are not large
enough to completely offset the same issuer's MPs.
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The proposed rule change would provide for the application of new
issuance settlement credits to the MPs of the same issuer on a best
efforts basis and would give IPAs the option to prioritize the order
and manner in which MPs are processed, including the option to
designate an issuer as self-funding.\5\ Systemically, DTC would attempt
to align activities within the MMI system so that monies from Issuer
A's credits are generally applied to Issuer A's MPs, subject to
existing collateral monitor and net debit controls.
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\5\ Under the proposed rule change, IPAs would be able to
prioritize between issuers by using new Participant Terminal System
(``PTS'') functions. IPAs logged into DTC's MMII PTS function would
select ``Issuer Priority Control'' to access the main menu of IPA-
issuer options. This new functionality would allow IPAs to select
which issuers' MPs would recycle at the bottom of the ATP queue;
perform an issuer control inquiry on selected issuers; maintain an
audit trail for selected issuers; and inquire about MPs for selected
issuers.
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Under the alignment approach, once an IPA has incurred a net debit
up to its applicable net debit cap (or the IPA's collateral is fully
used), subsequent MPs presented to the IPA's account will still recycle
as they do today. When an IPA processes a new issuance of an MMI into
the system and the issuance transaction updates into the receiving
participant's account, the resulting credit them becomes available in
the IPA's account to fund a recycling MP. At this time, the revised MMI
system would inquire against the queue of recycling MPs to determine if
there is an MP for the same issuer with the same base CUSIP that could
be processed against the available credit. Once the appropriate MP is
identified, that MP would be taken off the recycle queue and would be
processed into the IPA's account. As further issuances for that issuer
occur, additional MPs for the issuer would be processed so that MP
processing would remain in rough alignment with the related issuance
activity. If no offsetting MP is available on the recycle queue, the
credit would be applied to an MP from another issuer, as is the case
today, to make use of the available liquidity in the IPA's settlement
account.
Although the current procedures have worked well, since the events
of September 11, 2001, participants in DTC's MMI program have been
working with DTC on changes that would reduce risk without introducing
processing inefficiencies. The proposed IPA rule change would address
concerns that IPAs have raised about the random nature of DTC's process
for updating maturity presentments by providing IPAs with the means to
exercise greater control of their intra-day liquidity requirements and
credit risk.
The proposed rule change is consistent with the requirements of
Section 17A(b)(3)(A) of the Act \6\ and the rules and regulations
thereunder because it will promote the prompt and accurate settlement
of securities transactions and will be implemented in a manner that is
consistent with DTC's risk management controls.
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\6\ 15 U.S.C. 78q(b)(3)(A).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no 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 subject proposals were developed in consultation with
participants in the MMI market and are included as recommendations in a
Discussion Paper issued jointly by The Bond Market Association and The
Depository Trust & Clearing Corporation on March 31, 2003. DTC advised
participants of the proposed modifications in Important Notice 5336
(October 10, 2003).\7\
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\7\ DTC advised participants of additional MMI system
modifications in Important Notice 5311 on October 10, 2003. Those
modifications are not within the scope of this rule filing.
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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 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 DTC 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, 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
[[Page 65335]]
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Comments
may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-
DTC-2003-12. This file number should be included on the subject line if
e-mail is used to help us process and review comments more efficiently,
comments should be sent in hardcopy or by e-mail but not by both
methods. 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 20549-0609. Copies of such filing also will be
available for inspection and copying at the principal office of DTC.
Copies of the proposed rule change and all subsequent amendments are
also available at http://www.dtc.org/impNtc/mor/index.html. All submissions
should refer to File No. SR-DTC-2003-12 and should be submitted by
December 10, 2003.
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. 03-28851 Filed 11-18-03; 8:45 am]
BILLING CODE 8010-01-P