[Federal Register: November 9, 2006 (Volume 71, Number 217)]
[Notices]
[Page 65854-65855]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no06-144]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54701; File No. SR-DTC-2006-11]
Self-Regulatory Organizations; The Depository Trust Company;
Order Approving Proposed Rule Change To Allow the Inventory Management
System To Accept Real-Time and Late Affirmed Trades From Omgeo
November 3, 2006.
I. Introduction
On July 11, 2006, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') and on
September 20, 2006, amended proposed rule change SR-DTC-2006-11
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 October 3, 2006.\2\ The Commission received no comment
letters in response to the proposed rule change. For the reasons
discussed below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 54521 (September 27,
2006), 71 FR 58457.
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II. Description
DTC seeks to expand its Inventory Management System (``IMS'') to
accept in real-time non-Continuous Net Settlement (``non-CNS'')
institutional trades from Omgeo LLC (``Omgeo'') and to accept late
affirmed trades into IMS for automated settlement at DTC.
1. Current Process for IMS
Omgeo's TradeSuite system currently feeds DTC a batch file of
approximately 320,000 eligible affirmed institutional trades at
approximately 1 p.m. on T+2. Delivering DTC participants then authorize
or exempt these trades in IMS for automated settlement to be attempted
at DTC. Any trades affirmed after 12 p.m. on T+2 are ineligible for
automated settlement at DTC via the TradeSuite interface. These late
affirmed trades are typically settled by the broker-dealer or custodian
by processing a DTC Delivery Order (``DO''). These DOs experience a
higher reclaim rate than deliveries of eligible affirmed trades.
2. Proposed Changes
DTC proposed to enhance its interface with Omgeo to accept eligible
affirmed non-CNS trades from Omgeo's TradeSuite system in real-time.
Although DTC will receive affirmed
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trades from Omgeo's TradeSuite system in real-time as they are
affirmed, participants will still have the ability to process
authorizations and exemptions as they do today.
Participants will be able to authorize trades as they are received
into IMS through the existing options (i.e., globally or on a trade-
for-trade basis). Omgeo will continue to produce the Cumulative
Eligible Trade report/file at approximately 1 p.m. on T+2. This batch
report/file notifies participants of affirmed Matched Institutional
Trades (``MITS'') sent to IMS for the following settlement date.
However, IMS will continue the current practice of applying a
participant's authorization profile for MITS after the midday cut-off
on T+2 (at approximately 1 p.m.).
In addition, some new functionality is also being introduced
through the enhanced Omgeo and DTC interface. Omgeo will send ``late
affirmed'' \3\ trades to IMS. Late affirmed trades will be stored and
identified in IMS as a new transaction type, Late Matched Institutional
Trades (``LMIT''). These trades are currently ineligible for automated
settlement at DTC. This new functionality will allow participants to
eliminate settling these transactions as DOs at DTC, which experience a
higher reclaim rate than affirmed eligible trades, and will provide for
the automated settlement of these transactions.
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\3\ Late affirmed trades are defined as trades affirmed after
the 12:00 p.m. cutoff on T+2 until 12:00 p.m. on settlement date.
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For the new LMITs, IMS will default to the ``active'' authorization
mode (i.e., deliveries would not be processed unless they are
authorized). Unauthorized ``late affirmed'' trades will remain in IMS
until settlement date + 21 days (the current IMS trade retention time
frame). For authorized LMIT items, IMS will apply a participant's
authorization profile as the items are received from Omgeo. LMITs will
bypass DTC's Receiver Authorized Delivery (``RAD'') processing as do
all Omgeo deliveries.
Omgeo will continue to update IMS and notify DTC participants using
a status message of any Change of Eligibility (``COE'').\4\ COE (i.e.,
DTC-eligible to DTC-ineligible) messages will be passed to IMS by
TradeSuite up until midnight of T+1. IMS will process COE-related
messages on a real-time basis for both authorized and yet to be
authorized trades. IMS will ``reauthorize'' a previously authorized
DTC-eligible trade in the event the trade becomes DTC-eligible, again.
In addition, an appropriate audit trail will be provided by IMS for
participants. Ineligible MITS transactions in IMS will be cancelled at
end of day on settlement date.
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\4\ COE-related messages can be sent for the following reasons:
(1) When a DTC eligible trade changes to CNS eligible, the trade
is resent to IMS by Omego with an indicator that it is now
ineligible (IMS status becomes ineligible). Omego will then send the
trade to NSCC for settlement in CNS. A trade can become CNS eligible
after being DTC eligible, if the security, ID agent (a prime
broker), clearing agent, and clearing broker all are CNS eligible.
(2) When a DTC eligible trade subsequently becomes ineligible
for settling at DTC, the trade is resent to IMS by Omego with an
indicator that it is now Ineligible (IMS status updated to
ineligible). A trade may become ineligible for DTC settlement
processing if prior to settlement date, the participant, security,
or ID agent become ineligible for DTC processing.
(3) If a previously sent DTC eligible trade changed to
ineligible becomes eligible for settling at DTC, again, the trade is
re-sent to IMS by Omego with an indicator that it is now eligible
(IMS status is updated to eligible from ineligible).
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DTC will charge the following delivery fees for LMITs:
$0.17 (current ``night DO'' fee) if authorized by the
participant before the night cycle.
$0.45 (current ``day DO'' fee) if authorized by the
participant after the night cycle.
$0.006 per delivery (current IMS delivery fee) for every
trade that is processed through the IMS authorization profile.
Participants that currently submit machine-readable authorization/
exemption instructions can choose to continue to process their Omgeo
deliveries as they do today. The proposed change is scheduled to be
implemented in November 2006.
III. Discussion
Section 19(b) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. Section 17A(b)(3)(F) of the Act requires that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\5\ The Commission
finds that DTC's proposed rule change is consistent with this
requirement because it should promote the prompt and accurate clearance
and settlement of securities transactions by enhancing the IMS
interface with Omgeo to accept eligible affirmed trades from Omgeo's
TradeSuite system in real-time and to accept late affirmed trades into
IMS for automated settlement at DTC. In addition, the proposed rule
change should provide for the equitable allocation of reasonable dues,
fees, and other charges among DTC's members as required by Section
17A(b)(3)(D).\6\
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ 15 U.S.C. 78q-1(b)(3)(D).
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IV. 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 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-DTC-2006-11) be and hereby
is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18958 Filed 11-8-06; 8:45 am]
BILLING CODE 8011-01-P